Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors Betterware de México,
S.A.P.I. de C.V. (formerly
Betterware de México, S.A. de C.V.):
Opinion on the Combined Financial Statements
We have audited, before the effects of the adjustments to retrospectively
apply the issuance of shares described in Note 22, the accompanying combined statements of financial position of Betterware de
México, S.A.P.I. de C.V. and BLSM Latino America Servicios, S.A. de C.V. (collectively, the Group) as of December 31, 2018,
the related combined statements of profit or loss and other comprehensive income, net parent investment, and cash flows for each
of the years in the two-year period ended December 31, 2018, and the related notes (collectively, the combined financial statements).
c In our opinion, the combined financial statements, before the effects of the adjustments to retrospectively apply the issuance
of shares described in Note 22, present fairly, in all material respects, the financial position of the Group as of December 31,
2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018,
in conformity with International Financial Reporting Standards as issued by the International Accounting Standard Board.
We were not engaged to audit, review, or apply any procedures
to the adjustments to retrospectively apply the issuance of shares described in Note 22, and accordingly, we do not express an
opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments
were audited by other auditors.
Basis of Preparation
As discussed in Note 2a to the combined financial statements,
the financial statements have been presented on a combined basis because both entities are under common control.
Basis for Opinion
These combined financial statements are the responsibility of
the Group’s management. Our responsibility is to express an opinion on these combined financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of
the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined
financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures
to assess the risks of material misstatement of the combined financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the combined financial statements. Our audits also included evaluating the accounting standards used and significant
estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that
our audits provide a reasonable basis for our opinion.
We served as the Group’s auditor from 2002 to 2019.
Guadalajara, México
KPMG Cardenas Dosal S.C.
/s/
Guadalajara Jalisco, México
September 27, 2019.
Betterware de México, S.A.P.I. de C.V. (formerly Betterware
de México, S.A. de C.V.) and BLSM Latino América Servicios, S.A. de C.V.
(Subsidiaries of Campalier, S.A. de C.V.)
Combined statements of financial
position
As of December 31, 2019 and 2018
(In Thousands of Mexican pesos)
|
|
Note
|
|
2019
|
|
|
2018
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
5
|
|
$
|
213,697
|
|
|
$
|
177,383
|
|
Trade accounts receivable, net
|
|
6, 20
|
|
|
247,087
|
|
|
|
198,776
|
|
Accounts receivable from related parties
|
|
23
|
|
|
610
|
|
|
|
-
|
|
Inventories
|
|
7
|
|
|
345,554
|
|
|
|
302,206
|
|
Prepaid expenses
|
|
8
|
|
|
53,184
|
|
|
|
42,283
|
|
Other assets
|
|
9
|
|
|
20,574
|
|
|
|
9,202
|
|
Total current assets
|
|
|
|
|
880,706
|
|
|
|
729,850
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
10
|
|
|
207,350
|
|
|
|
42,972
|
|
Right of use assets, net
|
|
13
|
|
|
23,811
|
|
|
|
-
|
|
Deferred income tax
|
|
16
|
|
|
5,082
|
|
|
|
-
|
|
Intangible assets, net
|
|
12
|
|
|
310,965
|
|
|
|
312,099
|
|
Goodwill
|
|
11
|
|
|
348,441
|
|
|
|
348,441
|
|
Other assets
|
|
5, 9
|
|
|
13,371
|
|
|
|
24,236
|
|
Total non-current assets
|
|
|
|
|
909,020
|
|
|
|
727,748
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
$
|
1,789,726
|
|
|
$
|
1,457,598
|
|
(Continued)
Betterware de México,
S.A.P.I. de C.V. (formerly Betterware de México, S.A. de C.V.) and BLSM Latino América Servicios, S.A. de C.V.
(Subsidiaries of Campalier,
S.A. de C.V.)
Combined statements of financial
position
As of December 31, 2019 and
2018
(In Thousands of Mexican pesos)
|
|
Note
|
|
2019
|
|
|
2018
|
|
Liabilities and net parent investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Borrowings
|
|
15
|
|
$
|
148,070
|
|
|
$
|
90,691
|
|
Accounts payable to suppliers
|
|
14
|
|
|
529,348
|
|
|
|
445,241
|
|
Accrued expenses
|
|
|
|
|
54,456
|
|
|
|
36,706
|
|
Provisions
|
|
17
|
|
|
46,689
|
|
|
|
38,986
|
|
Income tax payable
|
|
|
|
|
34,709
|
|
|
|
29,016
|
|
Value added tax payable
|
|
|
|
|
30,299
|
|
|
|
17,624
|
|
Dividends payable
|
|
21
|
|
|
-
|
|
|
|
64,955
|
|
Statutory employee profit sharing
|
|
|
|
|
5,006
|
|
|
|
2,716
|
|
Lease liability
|
|
13
|
|
|
14,226
|
|
|
|
-
|
|
Derivative financial instruments
|
|
18
|
|
|
15,555
|
|
|
|
8,509
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
$
|
878,358
|
|
|
$
|
734,444
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Employee benefits
|
|
19
|
|
$
|
1,630
|
|
|
$
|
1,355
|
|
Derivative financial instruments
|
|
18
|
|
|
16,754
|
|
|
|
8,120
|
|
Deferred income tax
|
|
16
|
|
|
78,501
|
|
|
|
70,627
|
|
Lease liability
|
|
13
|
|
|
10,358
|
|
|
|
-
|
|
Borrowings
|
|
15
|
|
|
529,643
|
|
|
|
562,788
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
|
|
636,886
|
|
|
|
642,890
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
1,515,244
|
|
|
|
1,377,334
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Parent investment
|
|
21
|
|
|
274,482
|
|
|
|
80,264
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingencies
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and Net Parent investment
|
|
|
|
$
|
1,789,726
|
|
|
$
|
1,457,598
|
|
(Concluded)
See accompanying notes to combined financial statements.
Betterware de México,
S.A.P.I. de C.V. (formerly Betterware de México, S.A. de C.V.) and BLSM Latino América Servicios, S.A. de C.V.
(Subsidiaries of Campalier,
S.A. de C.V.)
Combined statements of profit
or loss and other comprehensive income
For the years ended December
31, 2019, 2018 and 2017
(Thousands of Mexican pesos)
|
|
Note
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
24
|
|
$
|
3,084,662
|
|
|
$
|
2,316,716
|
|
|
$
|
1,449,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
7
|
|
|
1,280,829
|
|
|
|
958,469
|
|
|
|
558,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
1,803,833
|
|
|
|
1,358,247
|
|
|
|
891,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
24
|
|
|
319,133
|
|
|
|
249,148
|
|
|
|
204,555
|
|
Selling expenses
|
|
24
|
|
|
551,300
|
|
|
|
454,016
|
|
|
|
291,834
|
|
Distribution expenses
|
|
24
|
|
|
121,155
|
|
|
|
103,336
|
|
|
|
64,349
|
|
|
|
|
|
|
991,588
|
|
|
|
806,500
|
|
|
|
560,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
812,245
|
|
|
|
551,747
|
|
|
|
330,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing income (cost):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
(85,429
|
)
|
|
|
(86,343
|
)
|
|
|
(118,205
|
)
|
Interest income
|
|
|
|
|
7,028
|
|
|
|
6,707
|
|
|
|
20,754
|
|
Unrealized loss in valuation of financial derivative instruments
|
|
18
|
|
|
(15,680
|
)
|
|
|
(16,629
|
)
|
|
|
-
|
|
Foreign exchange (loss) gain, net
|
|
|
|
|
(13,330
|
)
|
|
|
(6,036
|
)
|
|
|
71,214
|
|
|
|
|
|
|
(107,411
|
)
|
|
|
(102,301
|
)
|
|
|
(26,237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
704,834
|
|
|
|
449,446
|
|
|
|
304,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
16
|
|
|
229,900
|
|
|
|
158,545
|
|
|
|
92,209
|
|
Deferred
|
|
16
|
|
|
2,792
|
|
|
|
(8,366
|
)
|
|
|
4,742
|
|
|
|
|
|
|
232,692
|
|
|
|
150,179
|
|
|
|
96,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year
|
|
|
|
|
472,142
|
|
|
|
299,267
|
|
|
|
207,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that will not be reclassified subsequently to profit or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurement of defined benefit obligation, net of taxes
|
|
19
|
|
|
76
|
|
|
|
165
|
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the year
|
|
|
|
$
|
472,218
|
|
|
$
|
299,432
|
|
|
$
|
207,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per common share (pesos)
|
|
22
|
|
$
|
15.63
|
|
|
$
|
9.91
|
|
|
$
|
6.88
|
|
See accompanying notes to combined financial statements.
Betterware de México,
S.A.P.I. de C.V. (formerly Betterware de México, S.A. de C.V.) and BLSM Latino América Servicios, S.A. de C.V.
(Subsidiaries of Campalier,
S.A. de C.V.)
Combined statements of changes
in net parent investment
For the years ended December
31, 2019, 2018 and 2017
(Thousands of Mexican pesos)
|
|
Note
|
|
Net
parent
investment
|
|
|
|
|
|
|
|
Balance as of
January 1, 2017
|
|
|
|
$
|
58,702
|
|
|
|
|
|
|
|
|
Effects
from the merger
|
|
21
|
|
|
(87,484
|
)
|
|
|
|
|
|
|
|
Total
comprehensive income for the year
|
|
|
|
|
207,559
|
|
|
|
|
|
|
|
|
Balance as of December 31,
2017
|
|
|
|
|
178,777
|
|
|
|
|
|
|
|
|
Capital
stock reduction
|
|
21
|
|
|
(97,866
|
)
|
|
|
|
|
|
|
|
Dividends
declared
|
|
21
|
|
|
(300,079
|
)
|
|
|
|
|
|
|
|
Total
comprehensive income for the year
|
|
|
|
|
299,432
|
|
|
|
|
|
|
|
|
Balance as of December 31,
2018
|
|
|
|
|
80,264
|
|
|
|
|
|
|
|
|
Dividends
declared
|
|
21
|
|
|
(278,000
|
)
|
|
|
|
|
|
|
|
Total
comprehensive income for the year
|
|
|
|
|
472,218
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2019
|
|
|
|
$
|
274,482
|
|
See accompanying notes to combined financial statements.
Betterware de México,
S.A.P.I. de C.V. (formerly Betterware de México, S.A. de C.V.) and BLSM Latino América Servicios, S.A. de C.V.
(Subsidiaries of Campalier,
S.A. de C.V.)
Combined statements of cash
flows
For the years ended December
31, 2019, 2018 and 2017
(Thousands of Mexican pesos)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
Net income for the year
|
|
$
|
472,142
|
|
|
$
|
299,267
|
|
|
$
|
207,674
|
|
Adjustments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
232,692
|
|
|
|
150,179
|
|
|
|
96,952
|
|
Depreciation and amortization of non-current assets and right of use assets
|
|
|
38,394
|
|
|
|
25,962
|
|
|
|
24,209
|
|
Interest expense recognized in profit or loss
|
|
|
85,429
|
|
|
|
86,343
|
|
|
|
118,205
|
|
Interest income recognized in profit or loss
|
|
|
(7,028
|
)
|
|
|
(6,707
|
)
|
|
|
(20,754
|
)
|
Gain on disposal of equipment
|
|
|
-
|
|
|
|
(11,970
|
)
|
|
|
1,807
|
|
Unrealized foreign exchange gain
|
|
|
-
|
|
|
|
-
|
|
|
|
(57,626
|
)
|
Unrealized loss in valuation of financial derivative instruments
|
|
|
15,680
|
|
|
|
16,629
|
|
|
|
-
|
|
|
|
|
837,309
|
|
|
|
559,703
|
|
|
|
370,467
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(48,311
|
)
|
|
|
(50,843
|
)
|
|
|
(28,761
|
)
|
Trade accounts receivable from related parties
|
|
|
(610
|
)
|
|
|
22
|
|
|
|
135
|
|
Inventory
|
|
|
(43,348
|
)
|
|
|
(160,312
|
)
|
|
|
(34,807
|
)
|
Prepaid expenses and other assets
|
|
|
(40,263
|
)
|
|
|
(31,329
|
)
|
|
|
(9,345
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable to suppliers and accrued expenses
|
|
|
101,857
|
|
|
|
238,927
|
|
|
|
80,112
|
|
Provisions
|
|
|
7,703
|
|
|
|
(3,496
|
)
|
|
|
(1,094
|
)
|
Value-added tax payable
|
|
|
12,675
|
|
|
|
(2,909
|
)
|
|
|
4,490
|
|
Statutory employee profit sharing
|
|
|
2,290
|
|
|
|
1,470
|
|
|
|
(282
|
)
|
Employee benefits
|
|
|
351
|
|
|
|
308
|
|
|
|
184
|
|
Income taxes paid
|
|
|
(224,207
|
)
|
|
|
(213,327
|
)
|
|
|
(8,411
|
)
|
Net cash provided by operating activities
|
|
|
605,446
|
|
|
|
338,214
|
|
|
|
372,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property, plant and equipment
|
|
|
(182,625
|
)
|
|
|
(21,268
|
)
|
|
|
(33,668
|
)
|
Proceeds from disposal of property, plant and equipment
|
|
|
-
|
|
|
|
28,110
|
|
|
|
368
|
|
Interest received
|
|
|
7,028
|
|
|
|
6,707
|
|
|
|
1,788
|
|
Net cash (used in) provided by investing activities
|
|
|
(175,597
|
)
|
|
|
13,549
|
|
|
|
(31,512
|
)
|
(Continued)
Betterware de México,
S.A.P.I. de C.V. (formerly Betterware de México, S.A. de C.V.) and BLSM Latino América Servicios, S.A. de C.V.
(Subsidiaries of Campalier,
S.A. de C.V.)
Combined statements of cash
flows
For the years ended December
31, 2019, 2018 and 2017
(Thousands of Mexican pesos)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
$
|
104,500
|
|
|
$
|
50,000
|
|
|
$
|
589,798
|
|
Payments of debt
|
|
|
(83,041
|
)
|
|
|
(35,085
|
)
|
|
|
(743,787
|
)
|
Interest paid
|
|
|
(82,654
|
)
|
|
|
(85,159
|
)
|
|
|
(142,431
|
)
|
Restricted cash
|
|
|
22,940
|
|
|
|
(2,001
|
)
|
|
|
(20,087
|
)
|
Payments of leases
|
|
|
(12,325
|
)
|
|
|
-
|
|
|
|
-
|
|
Dividends paid
|
|
|
(342,955
|
)
|
|
|
(235,124
|
)
|
|
|
-
|
|
Payments made to shareholders
|
|
|
-
|
|
|
|
(97,866
|
)
|
|
|
-
|
|
Net cash used in financing activities
|
|
|
(393,535
|
)
|
|
|
(405,235
|
)
|
|
|
(316,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
36,314
|
|
|
|
(53,472
|
)
|
|
|
24,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of year
|
|
|
177,383
|
|
|
|
230,855
|
|
|
|
206,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of year
|
|
$
|
213,697
|
|
|
$
|
177,383
|
|
|
$
|
230,855
|
|
(Concluded)
See accompanying notes to combined financial statements.
Betterware de México,
S.A.P.I. de C.V. (formerly Betterware de México, S.A. de C.V.) and BLSM Latino América Servicios, S.A. de C.V.
(Subsidiaries of Campalier,
S.A. de C.V.)
Notes to combined financial
statements
As of December 31, 2019 and
2018 and for the years ended December 31, 2019, 2018 and 2017
(Thousands of Mexican pesos,
except shares and earnings per share expressed in pesos)
|
1.
|
Nature of business and significant events of 2019
|
Betterware de México,
S.A.P.I. de C.V. (formerly Betterware de México, S.A. de C.V., see Note 28c) (“Betterware”) is a direct-to-consumer
selling company, focused on the home organization segment whose product portfolio includes home organization, kitchen preparation,
food containers, among other categories (“Home Organization Products”). Betterware purchases these Home Organization
Products and sells them through 9 (nine) catalogs issued throughout the year.
BLSM Latino América
Servicios, S.A. de C.V., (“BLSM”) is a related party that provides administrative, technical and operating services
to Betterware.
Betterware and BLSM (together
hereinafter the “Group”) are companies incorporated in Mexico and carry out their operations in Mexico. The Group’s
address, both its registered office and principal place of business, is Luis Enrique Williams 549, Parque Industrial Belenes Norte,
Zapopan, Jalisco, México, C.P. 45150.
The ultimate parent company
is Campalier, S.A. de C.V. (“Campalier”).
Significant events –
|
●
|
On August 5, 2019, Betterware and DD3 Acquisition Corp. (“DD3”,
a publicly listed entity in the US and whose shares traded on the Nasdaq Capital Market (“Nasdaq”)), announced they
had entered into a business combination agreement. As part of this transaction, DD3 would merge into Betterware through an exchange
of shares with their respective shareholders and Betterware would survive as the acquiror. BLSM would become a wholly-owned subsidiary
of Betterware. As the surviving entity and accounting acquiror, a selected number of shares of Betterware would become publicly
listed on Nasdaq as a result of the transaction. The transaction closed on March 13, 2020 and Betterware issued shares to DD3’s
shareholders and obtained cash of US$22,767 (Ps. 498,445) through the acquisition of DD3 and concurrently settled liabilities owed
by DD3 and related transaction costs on such date, for net cash proceeds of US$7,519 (Ps. 181,734). Immediately after the transaction
closed, on the same day, 2,040,000 shares of Betterware offered for subscription and payment under its initial public offering
on Nasdaq were subscribed and paid for by different investors (see Note 28c).
|
|
●
|
During August 2019, the
Group started building a distribution center which is estimated to be completed in the fourth quarter of 2020. As of December 31,
2019, payments related to this construction amounted to Ps. 165 million. The total investment is estimated to amount to Ps. 581
million.
|
|
●
|
On July 28, 2017, the Extraordinary General Shareholders’ Meeting agreed to merge Betterware,
as a merging company, with Betterware Controladora, S.A. de C.V. and Strevo Holding, S.A. de C.V. (holding company and a related
party, respectively), as merged companies. The merger was carried out based on the figures as of July 28, 2017, so as of that date,
the merged entities ceased to exist. In accordance with the General Law of Commercial Companies, when the merger took effect, all
of the assets, liabilities, rights, obligations, and liabilities of the merged companies were incorporated into the merging company,
without reservations or limitations. As a result of this, Betterware’s assets decreased by Ps. 16,513, liabilities increased
by Ps. 60,144 and stockholders’ equity decreased by Ps. 76,657 (see Note 21). The afore-mentioned transaction was accounted
for as a pooling of interest between entities under common control, therefore, it was recognized by Betterware at the book value
of the assets, liabilities and stockholders’ equity of the merged entities at the date of the merger.
|
|
2.
|
Significant accounting policies
|
The combined financial statements
include the financial statements of Betterware and BLSM (the “combined financial statements”). The Group prepares combined
financial statements for the above-referred companies because it provides more meaningful information to the reader as both entities
are complementary to the same operation, they are under common control and operate under common management. These combined financial
statements were prepared for purposes of including them in the filing to the US Securities and Exchange Commission as a result
of the merger transaction of 2020 described in Note 1.
Transactions among the combined
companies and the balances and unrealized gains or losses arising from intra-group transactions have been eliminated in the preparation
of the combined financial statements.
The combined financial statements
have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board.
The combined financial statements
have been prepared on the historical cost basis except for certain financial instruments measured at fair value.
Functional and presentation
currency
These combined financial statements
are presented in Mexican pesos (“Ps.”), which is the Group’s functional currency. All financial information presented
in Mexican pesos has been rounded to the nearest thousand (except where specified differently). When referring to U.S. dollars
(“US$”), it is thousands of dollars of the United States of America.
Combined statement of profit
or loss and other comprehensive income
The Group opted to present a
single combined statement of profit or loss and comprehensive income, combining the presentation of profit and loss, including
an operating profit line item, and comprehensive income in the same statement. Due to the commercial activities of the Group, costs
and expenses presented in the combined statements of profit or loss and other comprehensive income were classified according to
their function. Accordingly, cost of sales and operating expenses were presented separately.
|
d.
|
Cash and cash equivalents and restricted cash
|
Cash and cash equivalents consist
mainly of bank deposits and short-term investments in securities, highly liquid and easily convertible into cash in a period no
longer than three months. Cash is stated at nominal value and cash equivalents are valued at fair value. Any cash or cash
equivalent that cannot be disposed of in less than three months is classified as restricted cash.
As of December 31 2018, restricted
cash was classified within other non-current assets, which equaled one quarter of the interest accrued under the long term credit
with MCRFP, S.A. de C.V. SOFOM, E.N.R. As of December 31, 2019, the Group does not maintain restricted cash (see Note 5) as the
restriction was lifted during the year.
Financial assets and financial
liabilities are recognized in the Group’s combined statement of financial position when the Group becomes a party to the
contractual provisions of the instrument.
Financial assets and financial
liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue
of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit
or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial
recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value
through profit or loss are recognized immediately in profit or loss.
All recognized financial assets
are measured subsequently in their entirety at either amortized cost or fair value, depending on the classification of the financial
assets.
Classification of financial
assets
Debt instruments that meet the
following conditions are measured subsequently at amortized cost:
|
●
|
the financial asset is held within a business model whose objective is to hold financial assets
in order to collect contractual cash flows; and
|
|
●
|
the contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest (“SPPI”) on the principal amount outstanding.
|
Debt instruments that meet the
following conditions are measured subsequently at fair value through other comprehensive income (FVTOCI):
|
●
|
the financial asset is held within a business model whose objective is achieved by both collecting
contractual cash flows and selling the financial assets; and
|
|
●
|
the contractual terms of the financial asset give rise on specified dates to cash flows that are
SPPI on the principal amount outstanding.
|
By default, all other financial
assets are measured subsequently at fair value through profit or loss (FVTPL).
Despite the foregoing, the Group
may make the following irrevocable election/designation at initial recognition of a financial asset:
|
●
|
the Group may irrevocably elect to present subsequent changes in fair value of an equity investment
in other comprehensive income if certain criteria are met; and
|
|
●
|
the Group may irrevocably designate a debt investment that meets the amortized cost or FVTOCI criteria
as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch.
|
Amortized cost and effective
interest method
The effective interest method
is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period.
The amortized cost of a financial
asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative
amortization using the effective interest method of any difference between that initial amount and the maturity amount, adjusted
for any loss allowance. The gross carrying amount of a financial asset is the amortized cost of a financial asset before adjusting
for any loss allowance.
Foreign exchange gains and
losses
The carrying amount of financial
assets that are denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the
end of each reporting period. Specifically, for financial assets measured at amortized cost that are not part of a designated hedging
relationship, exchange differences are recognized in profit or loss.
Impairment of financial assets
The Group always recognizes
lifetime expected credit losses (“ECL”) for trade receivables. The expected credit losses on these financial assets
are estimated using the simplified approach by using a provision matrix, estimated based on historical credit loss experience based
on the past due status of the debtors, adjusted as appropriate to reflect current conditions and estimates of future economic conditions.
For all other financial instruments,
the Group recognizes lifetime ECL when there has been a significant increase in credit risk since initial recognition. However,
if the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures the
loss allowance for that financial instrument at an amount equal to 12-month ECL.
Lifetime ECL represents the
expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast,
12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that
are possible within 12 months after the reporting date.
Write-off policy
The Group writes off a financial
asset when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect
of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or in the case
of trade receivables, when the amounts are over one year past due, whichever occurs sooner. Financial assets written off may still
be subject to enforcement activities under the Group’s recovery procedures, taking into account legal advice where appropriate.
Any recoveries made are recognized in profit or loss.
All financial liabilities are
measured subsequently at amortized cost using the effective interest method or at FVTPL.
Financial liabilities at FVTPL
are measured at fair value, with any gains or losses arising on changes in fair value recognized in profit or loss to the extent
that they are not part of a designated hedging relationship.
Financial liabilities and
equity
Classification as debt or
equity
Debt and equity instruments
are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and
the definitions of a financial liability and an equity instrument.
Financial liabilities measured
subsequently at amortized cost
Financial liabilities that are
not (i) contingent consideration of an acquirer in a business combination, (ii) held-for-trading, or (iii) designated as at FVTPL,
are measured subsequently at amortized cost using the effective interest method.
The effective interest method
is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid
or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through
the expected life of the financial liability, or (where appropriate) a shorter period, to the amortized cost of a financial liability.
Foreign exchange gains and
losses
For financial liabilities that
are denominated in a foreign currency and are measured at amortized cost at the end of each reporting period, the foreign exchange
gains and losses are determined based on the amortized cost of the instruments. These foreign exchange gains and losses are recognized
in the ‘Foreign exchange (loss) gain, net’ line item in the Combined Statements of Profit or Loss and Other Comprehensive
Income for financial liabilities that are not part of a designated hedging relationship.
The fair value of financial
liabilities denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end
of the reporting period. For financial liabilities that are measured as at FVTPL, the foreign exchange component forms part of
the fair value gains or losses and is recognized in profit or loss for financial liabilities that are not part of a designated
hedging relationship.
Derecognition of financial
liabilities
The Group derecognizes financial
liabilities when, and only when, the Group’s obligations are discharged, canceled or have expired. The difference between
the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.
When the Group exchanges with
the existing lender one debt instrument into another one with the substantially different terms, such exchange is accounted for
as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, the Group
accounts for substantial modification of terms of an existing liability or part of it as an extinguishment of the original financial
liability and the recognition of a new liability. It is assumed that the terms are substantially different if the discounted present
value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original
effective rate is at least 10 per cent different from the discounted present value of the remaining cash flows of the original
financial liability. If the modification is not substantial, the difference between (1) the carrying amount of the liability before
the modification; and (2) the present value of the cash flows after modification should be recognized in profit or loss as the
modification gain or loss within other gains and losses.
|
h.
|
Derivative financial instruments
|
The Group enters into a variety
of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, including foreign
exchange forward contracts and interest rate swaps. Further details of derivative financial instruments are disclosed in Note 18.
Derivatives are recognized initially
at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting
date. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective
as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
A derivative with a positive
fair value is recognized as a financial asset whereas a derivative with a negative fair value is recognized as a financial liability.
Derivatives are not offset in the combined financial statements unless the Group has both legal right and intention to offset.
A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more
than 12 months and it is not expected to be realized or settled within 12 months. Other derivatives are presented as current assets
or current liabilities.
|
i.
|
Inventories and cost of sales
|
Inventories are measured at
the lower of cost and net realizable value. The cost of inventories is based on weighted-average. The net realizable value represents
the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
Prepaid expenses are mainly
comprised of advanced payments for printed catalogs, as well as, advanced payments for the purchase of inventories that are received
after the date of the combined statement of financial position and during the normal course of business, and they are presented
in current assets in accordance with the classification of the destination item.
Other assets mainly include
restricted cash (see Note 2d), inventory of rewards and rent security deposits. They are presented in current or non-current assets
in accordance with the classification of the destination item.
Under the reward program, the
Group grants reward points to its distributors for the recruitment of associates, while associates receive such points for the
referral of new associates within a catalogue. These points are exchangeable for products that Betterware acquires from other suppliers,
which are not related to a revenue contract. The points expire based on commercial terms established by the Group that can be modified
at management’s discretion. Inventory of rewards mainly consist of certain products and items (in the form of rewards) that
Betterware acquires with the purpose to encourage sales among the distributors and associates. Such inventory is acquired once
the distributors and associates redeem the reward points that are granted by the Group so that the balance of inventory at each
reporting period only relates to items already redeemed but not delivered. Inventory of rewards are recognized at cost of acquisition.
|
l.
|
Property, plant and equipment, net
|
Items of property, plant and
equipment are measured at cost less accumulated depreciation and any accumulated impairment losses.
If significant parts of an item
have different useful lives, then they are accounted for as separate items (major components).
Depreciation is recognized using
the straight-line method. The estimated useful lives and depreciation method are reviewed at the end of each reporting period,
with the effect of any changes in estimate accounted for on a prospective basis.
The following useful lives are
used in the calculation of depreciation:
Molds
|
|
5 years
|
Vehicles
|
|
4 years
|
Computers and equipment
|
|
3 - 10 years
|
Leasehold improvements
|
|
3 years
|
Property, plant and equipment
is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any
gain or loss arising on the disposal or retirement is determined as the difference between the sales proceeds and the carrying
amount of the asset and is recognized in profit or loss.
Borrowing costs directly attributable
to the acquisition or construction of qualifying assets (designated asset), which are assets that necessarily take a substantial
period of time before they are available for their intended use, are added to the cost of those assets, until such time as the
assets are available for their intended use. If any specific borrowing remains outstanding after the related asset is ready for
its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalization
rate on general borrowings.
Investment income earned on
the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs
eligible for capitalization. All other borrowing costs are recognized in profit or loss in the period in which they are incurred.
All other borrowing costs are recognized in profit or loss in the period in which they are incurred.
This is an intangible asset
with an indefinite useful life and corresponds mainly to the value of the “Betterware” brand, which was transmitted
to the Group through a merger with Strevo Holding, S.A. de C.V. (“Strevo”, an unrelated third party) on July 28, 2017.
This intangible asset is subject to annual impairment testing, and whenever there is an indication that the asset may be impaired.
Additionally, the Group has
incurred expenditures related to registration of trademark rights, which have a finite life. Such expenditures are amortized on
a straight-line basis over their estimated useful lives which range from 10 to 30 years.
|
●
|
Relationship with
customers
|
This is an intangible asset
with a definite useful life of ten years and is being amortized on a straight line basis and corresponds to the value of the relationships
with customers. It was transmitted to the Group through a merger with Strevo on July 28, 2017. This intangible asset is subject
to impairment testing whenever there is an indication that the asset may be impaired.
|
●
|
Derecognition
of intangible assets
|
An intangible asset is derecognized
on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition
of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are
recognized in profit or loss when the asset is derecognized.
|
n.
|
Impairment of tangible and intangible assets other than goodwill
|
At the end of each reporting
period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of
an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a
reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating
units, or otherwise, they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation
basis can be identified.
Intangible assets with indefinite
useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is
an indication that the asset may be impaired.
Recoverable amount is the higher
of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to
their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of
an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount.
Any impairment is recognized immediately in profit or loss.
When an impairment loss subsequently
reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased
carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for
the asset in prior years. A reversal of an impairment loss is recognized immediately in profit or loss unless the relevant asset
is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Goodwill corresponds to the
excess resulted between the consideration paid and the fair values of the net assets acquired at the date of acquisition paid by
Betterware Latinoamérica Holding México, S.A. de C.V. (BLHM) and Strevo. Goodwill was generated by different legal
entities and transmitted to the Group through the mergers carried out on November 30, 2002 and July 28, 2017, respectively (Note
11).
As disclosed in Note 11, Goodwill
was transferred to the Group through mergers carried out on November 30, 2002 and July 28, 2017 with BLHM and Strevo, respectively,
which was generated through the acquisition of shares of the Group in November 2002 and March 2015, respectively.
Goodwill is not amortized but
is tested annually for impairment. Goodwill arising from a business combination is allocated to the cash generating unit (“CGU”)
receiving a benefit from the synergies of the combination. An impairment loss is recognized if the carrying amount of an asset
or CGU exceeds its recoverable amount. Impairment losses are recognized in profit or loss. They are allocated first to reduce the
carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other long-lived assets in
the CGU on a pro rata basis. An impairment loss in respect of goodwill is not reversed.
Classification and valuation
of leases under IAS 17, in effect through December 31, 2018
The Group as lessee
For the year ended December
31, 2018, the classification of leases as finance or operating depended on the substance of the transaction rather than the form
of the contract.
Leases in which a significant
portion of the risks and rewards relating to the leased property are retained by the lessor were classified as operating leases.
Payments made under operating leases (net of incentives received by the lessor) were recognized in the combined statement of income
based on the straight-line method over the lease period.
Leases where the Group assumes
substantially all the risks and rewards of ownership were classified as finance leases. Finance leases were capitalized at the
beginning of the lease, at the lower of the fair value of the leased property and the present value of the future minimum lease
payments. If its determination was practical, in order to discount the future minimum lease payments to present value, the interest
rate implicit in the lease was used; otherwise, the incremental borrowing rate of the lessee was used.
For the year ended December
31, 2018, the Group had only entered into operating leases.
The Group as lessor
As of and for the year ended
December 31, 2018, the Group did not maintain any leases as lessor.
Classification and valuation
of leases under IFRS 16, in effect beginning January 1, 2019 (Note 3a)
The Group as lessee
The Group evaluates whether
a contract is or contains a lease agreement at inception of a contract. A lease is defined as an agreement or part of an agreement
that conveys the right to control the use of an identified asset for a period of time in exchange for a consideration. The Group
recognizes an asset for right-of-use and the corresponding lease liability, for all lease agreements in which it acts as lessee,
except in the following cases: short-term leases (defined as leases with a lease term of less than 12 months); leases of low-value
assets (defined as leases of assets with an individual market value of less than US$5,000 (five thousand dollars)); and, lease
agreements whose payments are variable (without any contractually defined fixed payment). For these agreements, which exempt the
recognition of an asset for right-of-use and a lease liability, the Group recognizes the rent payments as an operating expense
in a straight-line method over the lease period.
The right-of-use asset comprises
all lease payments discounted at present value; the direct costs to obtain a lease; the advance lease payments; and the obligations
of dismantling or removal of assets. The Group depreciates the right-of-use asset over the shorter of the lease term or the useful
life of the underlying asset; therefore, when the lessee will exercise a purchase option, the lessee shall depreciate the right-of-use
asset from the commencement date to the end of the useful life of the underlying asset. Depreciation begins on the lease commencement
date.
The lease liability is initially
measured at the present value of the future minimum lease payments that have not been paid at that date, using a discount rate
that reflects the cost of obtaining funds for an amount similar to the value of the lease payments, for the acquisition of the
underlying asset, in the same currency and for a similar period to the corresponding contract (incremental borrowing rate). To
determine the lease term, the Group considers the non-cancellable period, including the probability to exercise any right to extend
and/or terminate the agreement.
Subsequently, the lease liability
is measured increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and
reducing the carrying amount to reflect the lease payments made.
When there is a modification
in future lease payments resulting from changes in an index or a rate used to determine those payments, the Group remeasures the
lease liability when the adjustment to the lease payments takes effect, without reassessing the discount rate. However, if the
modifications are related to the lease term or exercising a purchase option, the Group reassesses the discount rate during the
liability’s remeasurement. Any increase or decrease in the value of the lease liability subsequent to this remeasurement
is recognized as an adjustment to the right-of-use asset to the same extent.
Finally, the lease liability
is derecognized when the Group fulfills all lease payments. When the Group determines that it is probable that it will exercise
an early termination of the contract that leads to a cash disbursement, such disbursement is accounted as part of the liability’s
remeasurement mentioned in the previous paragraph; however, in cases in which the early termination does not involve a cash disbursement,
the Group cancels the lease liability and the corresponding right-of-use asset, recognizing the difference immediately in the combined
statement of profit or loss and other comprehensive income.
The Group as lessor
As of and for the year ended
December 31, 2019, the Group does not maintain any leases as lessor.
In preparing the combined financial
statements, transactions in currencies other than the Mexican Peso, which is the functional currency of the combined entities are
recognized at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies
are translated into the functional currency at the exchange rate at the reporting date. Non-monetary items that are measured based
on historical cost in a foreign currency are translated at the exchange rate at the date of transaction.
Exchange differences on monetary
items are recognized in profit or loss in the period in which they arise.
Retirement
benefits - Defined benefit obligations
The
Group’s defined benefit obligations cover seniority premiums which consist of a lump sum payment of 12 day’s wage for
each year worked, calculated using the most recent salary, not to exceed twice the legal minimum wage established by law. The related
liability and annual cost of such benefits are calculated with the assistance of an independent actuary on the basis of formulas
defined in the plans using the projected unit credit method at the end of each annual reporting period.
The
Group’s net obligation with respect to the defined-benefit plan are calculated separately for each plan, estimating the amount
of future benefit accrued by employees in return for their services in ongoing and past periods; that benefit is discounted to
determine its present value, and the costs for the services that have not been recognized and the fair value of the plan assets
are deducted. The discount rate is the yield at the reporting date of the government bonds that have maturity dates approximate
to the maturities of the Group’s obligations which are denominated in the same currency in which benefits are expected to be paid
(Mexican pesos).
Net interest is calculated by
applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs
are categorized as follows:
|
●
|
Service cost (including current service cost, past service cost, as well as gains and losses on
curtailments and settlements);
|
|
●
|
Net interest expense or income; and
|
Remeasurements of the net defined
benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of
the asset ceiling (if applicable), are recognized immediately in the liability against other comprehensive income in the period
in which they occur. Remeasurement recognized in other comprehensive income is never reclassified to profit or loss. Past service
cost is recognized in profit or loss in the period in which a plan amendment or curtailment occurs, or when the Group recognizes
the related restructuring costs or termination benefits, if earlier.
Short-term and other long-term
employee benefits and statutory employee profit sharing (“PTU”)
A liability is recognized for
benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period the related service
is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service. Likewise, a liability
is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount
as a result of past service provided by the employee and the obligation can be estimated reliably.
Liabilities recognized in respect
of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the
related service.
Liabilities recognized in respect
of other long-term employee benefits are measured at the present value of the estimated future cash outflows expected to be made
by the Group in respect of services provided by employees up to the reporting date.
Statutory employee profit
sharing (“PTU”)
PTU is recorded in the results
of the year in which it is incurred and is presented in operating expenses line item in the combined statement of profit or loss
and other comprehensive income.
As a result of the 2014 Income
Tax Law, as of December 31, 2019 and 2018, PTU is determined based on taxable income, according to Section I of Article 9 of the
that Law.
Termination benefits
Termination benefits are recognized
as an expense when the Group’s commitment can be evidenced, without real possibility of reversing, with a detailed formal
plan either to terminate employment before the normal retirement date, or else, to provide benefits for termination as a result
of an offer that is made to encourage voluntary retirement. If the benefits are payable no later than 12 months after the reporting
period, then they are discounted at present value.
Income tax expense represents
the sum of the tax currently payable and deferred tax.
Current income tax (“ISR”)
is recognized in the results of the year in which is incurred.
The tax currently payable is
based on taxable profit for the year. Taxable profit differs from net profit as reported in profit or loss because it excludes
items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or
deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted
by the end of the reporting period.
A provision is recognized for
those matters for which the tax determination is uncertain but it is considered probable that there will be a future outflow of
funds to a tax authority. The provisions are measured at the best estimate of the amount expected to become payable. The assessment
is based on the judgment of tax professionals within the Group supported by previous experience in respect of such activities.
Deferred tax is recognized
on temporary differences between the carrying amounts of assets and liabilities in the combined financial statements and the corresponding
tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary
differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable
that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax
assets and liabilities are not recognized if the temporary difference arises from the initial recognition (other than in a business
combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition,
deferred tax liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill.
The carrying amount of deferred
tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities and
assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized,
based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting date.
The measurement of deferred
tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end
of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
|
●
|
Current and deferred
tax for the year
|
Current and deferred tax are
recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in
equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively.
Provisions are recognized when
the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required
to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
Provisions mainly include incentives
granted to distributors and associates in the form of reward points, discounts and others such as compensations to employees (bonuses)
not paid at the reporting date, professional services fees, among others.
The amount recognized as a provision
is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking
into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated
to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value
of money is material).
When some or all of the economic
benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset
if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
Warranties
When the Group grants assurance-type
warranties in contracts with customers, those rights to the customer are recognized in profit or loss in the cost of sales line
item against a provision in the statement of financial position; however, when the Group provides its customers with service-type
warranties, those are treated under the revenue recognition model as a performance obligation. For the years ended December 31,
2019 and 2018, the Group has not granted any service-type warranties to its customers.
Reward Points
Through its loyalty program
(see note 2u), the Group also grants reward points to its distributors for the recruitment of associates, while associates receive
such points for the referral of new associates within a catalogue. The loyalty program allows the Group’s distributors and
associates to accumulate sales points which are exchangeable for products that are purchased from other retailers. Since these
type of points also provide a benefit to distributors and associates that they would not receive without purchasing the Group’s
products, this loyalty program represents a separate performance obligation, which is recognized as described in Note 2u.
Revenues comprise the fair value
of the consideration received or to receive for the sale of goods and services in the ordinary course of the transactions, and
are presented in the combined statement of profit or loss, net of the amount of variable considerations (discounts and product
returns). To recognize revenues from contracts with its customers, the Group applies a comprehensive model, which is based on a
five-step approach consisting of the following: (1) identify the contract (verbal or written); (2) identify performance obligations
in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the
contract; and (5) recognize revenue when the Group satisfies a performance obligation. The Group recognizes revenue at a point
in time, when it transfers control over a product to a customer, which occurs when the customers take delivery of the products
and formally accepts them.
The Group invoices its customers
at the shipment date with payment terms between 15 and 30 days; customers are allowed to request for a product return only if the
product has technical issues or physical damages. However, this right qualifies as an assurance-type warranty (and not a performance
obligation) related to the functionality of the products sold, and therefore, it is recognized in accordance with the policy disclosed
in Note 2t.
Discounts to distributors and
associates are included in the invoice price and are presented in the net sales line item from the moment in which the customer
acquires control of the products sold; thus, management does not perform estimates over discounts to be taken by the customers.
Loyalty program
The Group operates a loyalty
program through which its distributors and associates accumulate points on sales of Betterware goods that entitle them to exchange
the points for products the Group acquires from different suppliers. Since these points provide a benefit to distributors and associates
that they would not receive without purchasing the Betterware products, this loyalty program represents a separate performance
obligation.
Therefore, the transaction price
is allocated between the product and the points on a relative stand-alone selling price basis. The stand-alone selling price per
point is estimated based on the fair value of the product to be given when the points are redeemed by the distributors and associates
and the likelihood of redemption, as evidenced by the Group’s historical experience. Additionally, a contract liability is
recognized for revenue relating to the loyalty points at the time of the initial sales transaction, reducing the revenue recognized
upon the initial sale of the goods. Revenue from the loyalty points is recognized when the points are redeemed by the customer
and exchanged for the related products. Revenue for points that are not expected to be redeemed is recognized in proportion to
the pattern of rights exercised by customers.
Variable considerations
The Group adjusts the transaction
price according to the estimations that may result in a variable consideration. These estimates are determined according to the
terms and conditions of the contracts with the customer, the history or the customer’s performance.
Contract costs
The Group capitalizes incremental
costs to obtain a contract with a customer if it expects to recover those costs. However, the Group does not capitalize incremental
costs if the amortization period for the asset is one year or less. For any other costs related to the fulfillment of a contract
with a customer, that is not part of the revenue recognition, it is considered as an asset including all the costs incurred, only
if such costs are directly related to an existing contract or specific anticipated contract and if those costs generate or enhance
resources that will be used to satisfy performance obligations in the future and are expected to be recovered. The Group amortizes
the asset recognized for the costs to obtain and/or fulfill a contract on a systematic basis, consistent with the pattern of transfer
of the good to which the asset relates.
|
v.
|
Financing income and cost
|
Financing income (cost) are
comprised of interest income, interest expense, the foreign currency gain (loss) on financial assets and financial liabilities;
and gain (loss) in valuation of financial derivative instruments. Those are recognized in the combined statement of profit or loss
and other comprehensive income when accrued.
Significant obligations or losses
related to contingencies are recognized when it is probable that their effects will materialize and there are reasonable elements
for their quantification. If these reasonable elements do not exist, their disclosure is included qualitatively in the notes to
the combined financial statements. Income, profits or contingent assets are recognized until such time as there is certainty of
their realization.
|
x.
|
Common control transactions
|
The Group has established as
its accounting policy choice to recognize transactions under common control at the book value of the assets and liabilities acquired
or involved in the common control transaction (either acquisition or disposition).
|
3.
|
Changes in significant accounting policies
|
|
a.
|
Application of new and revised International Financing Reporting
Standards (“IFRSs” or “IAS”) that are mandatorily effective for the current year
|
In the current year, the Group
has applied a number of new standards and amendments to IFRSs issued by the International Accounting Standards Board (“IASB”)
that are mandatorily effective as of January 1, 2019.
New and amended IFRS Standards
that are effective for the current year
IFRS 16 Leases
IFRS 16, Leases, supersedes
IAS 17, Leases, and the related interpretations. This new standard brings most leases on balance sheet for lessees under
a single model, eliminating the distinction between operating and financial leases, while the model for lessees remains without
significant changes. IFRS 16 is effective beginning January 1, 2019, and the Group adopted the requirements utilizing the modified
retrospective method, without restating prior years and recognizing a right-of-use asset and a lease liability of Ps. 22,393. In
addition, management applied the practical expedient, provided by IFRS 16 at the transition date, that allows the creation of portfolios
of contracts that are similar in terms, economic environment and characteristics of assets, and use a funding rate by portfolio
to measure leases.
The application of IFRS 16 represents
the following considerations on the combined statement of cash flows of the Group: a) short-term lease payments, payments for leases
of low-value assets and variable lease payments not included in the measurement of the lease liability are presented as part of
operating activities; and b) cash paid for the interest portion of a lease liability is presented as financing activities, as well
as cash payments for the principal portion for a lease liability. However, the adoption of IFRS 16 did not have any impacts on
net cash flows.
The Group took the required
steps to implement the changes that the standard represents in terms of internal control, tax and systems affairs, from the adoption
date.
Additionally, the tables below
show the amount of adjustment for each financial statement line item affected by the application of IFRS 16 for the current year.
Impact on profit or loss
|
|
December 31,
2019
|
|
|
|
|
|
Increase in depreciation of right-of-use asset
|
|
Ps.
|
13,098
|
|
Increase in finance costs
|
|
|
3,765
|
|
|
|
|
|
|
Decrease in profit for the year
|
|
Ps.
|
(16,863
|
)
|
Impact on assets and liabilities
|
|
January 1,
2019
|
|
|
|
|
|
Right-of-use assets
|
|
Ps.
|
36,909
|
|
Lease liabilities
|
|
|
36,909
|
|
IFRIC 23 Uncertainty over Income Tax Treatments
This interpretation clarifies
how to apply the recognition and measurement requirements in IAS 12, Income taxes when there is uncertainty over income
tax treatments. Uncertain tax treatments are tax treatments for which there is uncertainty over whether the relevant taxation authority
will accept the tax treatment under tax law; in such a circumstance, the Group shall recognize and measure its current or deferred
tax asset or liability by applying the requirements in IAS 12 based on taxable profit (tax loss), tax bases, unused tax losses,
unused tax credits and tax rates determined applying this Interpretation. The Group did not have any impacts in the adoption of
this interpretation.
Other amendments to IFRS
In the current year, the Group
has also considered and applied a number of amendments to IFRS issued by the IASB that are not applicable or significant but that
are effective for an annual period that begins on or after 1 January 2019. Their adoption did not have any material impacts in
the combined financial statements for the following amendments and improvements:
|
●
|
Amendments to IFRS 9 Prepayment Features with Negative Compensation
|
|
●
|
Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures
|
|
●
|
Annual Improvements to IFRS 2015–2017 Cycle Amendments to IFRS 3 Business Combinations,
IFRS 11 Joint Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs
|
|
●
|
Amendments to IAS 19 Employee Benefits Plan Amendment, Curtailment or Settlement
|
New and revised IFRS Standards
in issue but not yet effective
At the date of authorization
of these combined financial statements, the Group has not applied the following new and revised IFRS that have been issued but
are not yet effective as of December 31, 2019; however, for the amendments effective from January 1, 2020 the Group already concluded
on its adoption as follows:
Amendments to IFRS 3 Definition
of a business
The amendments clarify that
while businesses usually have outputs, outputs are not required for an integrated set of activities and assets to qualify as a
business. To be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive
process that together significantly contribute to the ability to create outputs. Additional guidance is provided that helps to
determine whether a substantive process has been acquired. In addition, the amendments introduce an optional concentration test
that permits a simplified assessment of whether an acquired set of activities and assets is not a business. Under the optional
concentration test, the acquired set of activities and assets is not a business if substantially all of the fair value of the gross
assets acquired is concentrated in a single identifiable asset or group of similar assets.
The amendments are applied prospectively
to all business combinations and asset acquisitions for which the acquisition date is on or after the first annual reporting period
beginning on or after January 1, 2020, with early application permitted. The Group did not have any impacts in the combined financial
statements from the adoption of these amendments.
Amendments to IAS 1 and IAS
8 Definition of material
The amendments are intended
to make the definition of material in IAS 1 easier to understand and are not intended to alter the underlying concept of materiality
in IFRS. The concept of ‘obscuring’ material information with immaterial information has been included as part of the
new definition. The threshold for materiality influencing users has been changed from ‘could influence’ to ‘could
reasonably be expected to influence’. The definition of material in IAS 8 has been replaced by a reference to the definition
of material in IAS 1. In addition, the IASB amended other standards and the conceptual framework that contain a definition of material
or refer to the term ‘material’ to ensure consistency.
The amendments are applied prospectively
for annual periods beginning on or after January 1, 2020, with earlier application permitted. The Group did not have any impacts
in the combined financial statements from the adoption of these amendments.
Amendments to the conceptual
framework in IFRS
Together with the revised Conceptual
Framework, which became effective upon publication on March 29, 2018, the IASB has also issued Amendments to References to the
Conceptual Framework in IFRS. The document contains amendments to IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37,
IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32. Not all amendments, however, update those pronouncements with regard
to references to and quotes from the framework so that they refer to the revised Conceptual Framework. Some pronouncements are
only updated to indicate which version of the Framework they are referencing to (the IASC Framework adopted by the IASB in 2001,
the IASB Framework of 2010, or the new revised Framework of 2018) or to indicate that definitions in the standard have not been
updated with the new definitions developed in the revised Conceptual Framework.
The amendments that imply updates
are effective for annual periods beginning on or after January 1, 2020, with early application permitted. The Group did not have
any impacts in the combined financial statements from the adoption of these amendments.
Amendments to IFRS 9, IAS
39 and IFRS 7 Interest rate benchmark reform
The amendments in the Interest
Rate Benchmark Reform deal with issues affecting financial reporting in the period before the replacement of an existing interest
rate benchmark with an alternative interest rate and addresses the implications for specific hedge accounting requirements and
disclosures in IFRS 9, IAS 39 and IFRS 7. The amendments also clarify that entities would continue to apply certain hedge accounting
requirements assuming that the interest rate benchmark on which the hedged cash flows and cash flows from the hedging instrument
are based will not be altered as a result of the interest rate benchmark reform.
The amendments are effective
for annual reporting periods beginning on or after January 1, 2020 and must be applied retrospectively, with earlier application
permitted. The Group did not have any impacts in the combined financial statements from the adoption of these amendments.
IFRS 17 Insurance Contracts
IFRS 17 establishes the principles
for the recognition, measurement, presentation and disclosure of insurance contracts and supersedes IFRS 4, Insurance Contracts.
IFRS 17 outlines a general model, which is modified for insurance contracts with direct participation features, described as the
variable fee approach. The general model is simplified if certain criteria are met by measuring the liability for remaining coverage
using the premium allocation approach. The general model uses current assumptions to estimate the amount, timing and uncertainty
of future cash flows and it explicitly measures the cost of that uncertainty. It takes into account market interest rates and the
impact of policyholders’ options and guarantees.
The standard is effective for
annual reporting periods beginning on or after 1 January 2021, with early application permitted. It is applied retrospectively
unless impracticable, in which case the modified retrospective approach or the fair value approach is applied. Amendments to IFRS
17 addresses concerns and implementation challenges that were identified after IFRS 17 was published. One of the main changes proposed
is the deferral of the date of initial application of IFRS 17 by one year to annual periods beginning on or after January 1, 2022.
For the purpose of the transition
requirements, the date of initial application is the start of the annual reporting period in which the entity first applies the
standard, and the transition date is the beginning of the period immediately preceding the date of initial application. The Group
is in the process of evaluating these requirements to conclude if it maintains any insurance contracts under the scope of the standard,
that may represent an impact to its combined financial statements.
|
4.
|
Critical accounting judgments and key sources of estimation uncertainty
|
In the application of the Group’s
accounting policies, which are described in Note 2, management of the Group is required to make judgments, estimates, and assumptions
about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The judgments, estimates
and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results
may differ from these estimates.
Management has exercised the
following critical judgments in the process of applying its accounting policies, which is considered to have the most significant
effect on the amounts recognized in the combined financial statements:
Management makes judgments
and estimates in recording provisions for matters relating to claims and litigation. Actual costs may vary from estimates for several
reasons, such as changes in cost estimates for resolution of complaints and disputes based on different interpretations of the
law, opinions and evaluations concerning the amount of loss.
Contingencies are recorded
as provisions when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. It is
not practical to estimate sensitivity to potential losses if other assumptions were used to record these provisions, due to the
number of underlying assumptions and the range of possible reasonable outcomes regarding potential actions by third parties, such
as regulators, both in terms of loss probability and estimates of such loss.
The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate
is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects
both current and future periods. The significant estimates impacting the Group’s combined financial statements are as follows:
|
-
|
Key assumptions used in impairment testing
|
The Group performs annual impairment
testing on long-lived assets, for which key assumptions are used in the calculation of the recoverable amount (see Note 11). For
impairment testing, goodwill is allocated to the cash-generating unit (“CGU”) from which the Group has considered that
economic and operational synergies of business combinations are generated. The recoverable amounts of the CGU have been determined
based on the calculations of their value in use, which require the use of estimates. The most significant of these estimates are
as follows:
|
●
|
Estimates of future gross and operating margins, according to the historical performance and industry
expectations of the CGU.
|
|
●
|
Discount rate based on the weighted average cost of capital (WACC) of the CGU.
|
|
●
|
Long-term growth rates.
|
|
-
|
Loyalty program and provision for reward points
|
The Group operates a loyalty
program through which its distributors and associates accumulate points on sales of Betterware goods that entitle them to exchange
the points for products the Group acquires from different suppliers. Since these points provide a benefit to distributors and associates
that they would not receive without purchasing the Betterware products, this loyalty program represents a separate performance
obligation.
Therefore, the transaction
price is allocated between the product and the points on a relative stand-alone selling price basis. The stand-alone selling price
per point is estimated based on the fair value of the product to be given when the points are redeemed by the distributors and
associates and the likelihood of redemption, as evidenced by the Group’s historical experience. Additionally, a contract
liability is recognized for revenue relating to the loyalty points at the time of the initial sales transaction. Revenue from the
loyalty points is recognized when the points are redeemed by the customer and exchanged for the related products. Revenue for points
that are not expected to be redeemed is recognized in proportion to the pattern of rights exercised by customers.
The Group also grants reward
points to its distributors for the recruitment of associates, while associates receive such points for the referral of new associates
within a catalogue. Since these points, which are exchangeable for products Betterware acquires from other suppliers are not related
to a revenue contract, they are recognized in the statement of profit or loss within the selling expenses line item with the corresponding
provision in the statement of financial position, when the distributor or associate earns them. The Group creates a provision for
the rewards that are expected to be redeemed by its associates and distributors based on its experience and past history.
|
5.
|
Cash and cash equivalents
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Cash on hand in banks
|
|
Ps.
|
96,008
|
|
|
|
46,445
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
|
117,689
|
|
|
|
130,938
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
213,697
|
|
|
|
177,383
|
|
As of December 31, 2018, cash
and cash equivalents balance excluded an amount of Ps. 22,088 of restricted cash derived from the credit with MCRF P, S.A. de C.V.
SOFOM, E.N.R. The amount equaled one quarter of the interest accrued under the credit agreement (see Note 15) and was presented
as non-current asset in the combined statement of financial position (see Note 9) and under financing activities in the combined
statements of cash flows. As of December 31, 2019, there was no restricted cash as the bank waived the covenant for the remaining
period of the loan.
|
6.
|
Trade accounts receivable
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Trade account receivables
|
|
Ps.
|
260,727
|
|
|
|
208,116
|
|
|
|
|
|
|
|
|
|
|
Expected credit loss
|
|
|
(13,640
|
)
|
|
|
(9,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
247,087
|
|
|
|
198,776
|
|
Trade accounts receivable from
customers detailed above are measured at their amortized cost. The average related to the turnover of accounts receivable is 30
days. No interest is charged on outstanding trade receivables.
The Group always measures the
loss allowance for trade receivables at an amount equal to lifetime ECL. The expected credit losses on trade receivables are estimated
using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial
position, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors
operate and an assessment of both the current as well as the forecast direction of conditions at the reporting date. See Note 20
for information on exposure to credit and market risks.
There has been no change in
the estimation techniques or significant assumptions made during the current reporting period.
The Group writes off a trade
receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect
of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or when the trade
receivables are over one year past due, whichever occurs earlier. None of the trade receivables that have been written off is subject
to enforcement activities.
The following table details
the risk profile of trade receivables based on the Group’s provision matrix. As the Group’s historical credit loss
experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance
based on past due status is not further distinguished between the Group’s different customer base.
Trade receivables – days past due
|
|
December 31, 2019
|
|
Not past due
|
|
|
14-21
|
|
|
21 – 28
|
|
|
>28
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected credit loss rate
|
|
|
2
|
%
|
|
|
20
|
%
|
|
|
49
|
%
|
|
|
42
|
%
|
|
|
|
|
Estimated total gross carrying amount at default
|
|
Ps.
|
207,032
|
|
|
|
12,098
|
|
|
|
7,045
|
|
|
|
29,807
|
|
|
|
255,982
|
|
Expected credit loss
|
|
Ps.
|
3,950
|
|
|
|
2,454
|
|
|
|
3,477
|
|
|
|
12,634
|
|
|
|
22,515
|
|
Trade receivables – days past due
|
|
December 31, 2018
|
|
Not past due
|
|
|
14-21
|
|
|
21 – 28
|
|
|
>28
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected credit loss rate
|
|
|
1
|
%
|
|
|
16
|
%
|
|
|
37
|
%
|
|
|
38
|
%
|
|
|
|
|
Estimated total gross carrying amount at default
|
|
Ps.
|
194,366
|
|
|
|
13,794
|
|
|
|
5,681
|
|
|
|
33,438
|
|
|
|
247,279
|
|
Expected credit loss
|
|
Ps.
|
1,910
|
|
|
|
2,150
|
|
|
|
2,108
|
|
|
|
12,531
|
|
|
|
18,699
|
|
The following table shows the
movement in lifetime ECL that has been recognized for trade and other receivables in accordance with the simplified approach set
out in IFRS 9.
|
|
Total
|
|
|
|
|
|
Balance as at January 1, 2018
|
|
Ps.
|
(4,333
|
)
|
Expected credit loss
|
|
|
(18,699
|
)
|
Amounts written off
|
|
|
13,692
|
|
Balance as at 31 December 2018
|
|
|
(9,340
|
)
|
Expected credit loss
|
|
|
(22,515
|
)
|
Amounts written off
|
|
|
18,215
|
|
Balance as at December 31, 2019
|
|
Ps.
|
(13,640
|
)
|
|
7.
|
Inventories and cost of sales
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Finished goods
|
|
Ps.
|
224,025
|
|
|
|
215,812
|
|
Packing material
|
|
|
4,577
|
|
|
|
3,750
|
|
|
|
|
228,602
|
|
|
|
219,562
|
|
Merchandise-in-transit
|
|
|
116,952
|
|
|
|
82,644
|
|
|
|
Ps.
|
345,554
|
|
|
|
302,206
|
|
The cost of inventories recognized
as an expense during the year in respect of continuing operations was Ps. 1,280,829, Ps. 958,469 and Ps. 558,105, for the years
ended December 31, 2019, 2018 and 2017, respectively.
The cost of inventories recognized
as an expense includes Ps. 14,273, Ps. 7,084 and Ps. 6,214 during 2019, 2018, and 2017, respectively, in respect of write-downs
of inventory to net realizable value. Such write-downs have been recognized to account for obsolete inventories.
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Printed catalogs
|
|
Ps.
|
21,692
|
|
|
|
19,406
|
|
Advances to suppliers
|
|
|
12,973
|
|
|
|
11,471
|
|
Premiums paid in advance for insurance
|
|
|
9,628
|
|
|
|
8,948
|
|
Other
|
|
|
8,891
|
|
|
|
2,458
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
53,184
|
|
|
|
42,283
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Inventory of rewards
|
|
Ps.
|
13,315
|
|
|
|
8,667
|
|
Transaction costs of the merger
|
|
|
9,822
|
|
|
|
-
|
|
Other receivables
|
|
|
7,259
|
|
|
|
535
|
|
Rent security deposit
|
|
|
3,549
|
|
|
|
2,148
|
|
Restricted cash
|
|
|
-
|
|
|
|
22,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,945
|
|
|
|
33,438
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
20,574
|
|
|
|
9,202
|
|
Non-current
|
|
|
13,371
|
|
|
|
24,236
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
33,945
|
|
|
|
33,438
|
|
|
10.
|
Property, plant and equipment, net
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Acquisition cost
|
|
Ps.
|
305,874
|
|
|
|
123,249
|
|
Accumulated depreciation
|
|
|
(98,524
|
)
|
|
|
(80,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
207,350
|
|
|
|
42,972
|
|
Acquisition cost:
|
|
January 1,
2018
|
|
|
Additions
|
|
|
Disposals
|
|
|
December
31,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molds
|
|
Ps.
|
29,155
|
|
|
|
8,360
|
|
|
|
-
|
|
|
|
37,515
|
|
Vehicles
|
|
|
40,349
|
|
|
|
306
|
|
|
|
(39,053
|
)
|
|
|
1,602
|
|
Computers and equipment
|
|
|
47,628
|
|
|
|
12,042
|
|
|
|
(30
|
)
|
|
|
59,640
|
|
Leasehold improvements
|
|
|
23,932
|
|
|
|
560
|
|
|
|
-
|
|
|
|
24,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
141,064
|
|
|
|
21,268
|
|
|
|
(39,083
|
)
|
|
|
123,249
|
|
Accumulated depreciation:
|
|
January 1,
2018
|
|
|
Depreciation
expense
|
|
|
Eliminated on
disposals
|
|
|
December
31,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molds
|
|
Ps.
|
(21,119
|
)
|
|
|
(1,844
|
)
|
|
|
-
|
|
|
|
(22,963
|
)
|
Vehicles
|
|
|
(21,214
|
)
|
|
|
(3,162
|
)
|
|
|
22,930
|
|
|
|
(1,446
|
)
|
Computers and equipment
|
|
|
(26,499
|
)
|
|
|
(10,014
|
)
|
|
|
13
|
|
|
|
(36,500
|
)
|
Leasehold improvements
|
|
|
(15,070
|
)
|
|
|
(4,298
|
)
|
|
|
-
|
|
|
|
(19,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
(83,902
|
)
|
|
|
(19,318
|
)
|
|
|
22,943
|
|
|
|
(80,277
|
)
|
Acquisition cost:
|
|
December 31,
2018
|
|
|
Additions
|
|
|
Disposals
|
|
|
December
31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
Ps.
|
-
|
|
|
|
47,124
|
|
|
|
-
|
|
|
|
47,124
|
|
Molds
|
|
|
37,515
|
|
|
|
3,754
|
|
|
|
-
|
|
|
|
41,269
|
|
Vehicles
|
|
|
1,602
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,602
|
|
Computers and equipment
|
|
|
59,640
|
|
|
|
7,183
|
|
|
|
-
|
|
|
|
66,823
|
|
Leasehold improvements
|
|
|
24,492
|
|
|
|
5,390
|
|
|
|
-
|
|
|
|
29,882
|
|
Construction in progress
|
|
|
-
|
|
|
|
119,174
|
|
|
|
-
|
|
|
|
119,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
123,249
|
|
|
|
182,625
|
|
|
|
-
|
|
|
|
305,874
|
|
Accumulated depreciation:
|
|
December 31,
2018
|
|
|
Depreciation
expense
|
|
|
Eliminated on
disposals
|
|
|
December
31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molds
|
|
Ps.
|
(22,963
|
)
|
|
|
(2,685
|
)
|
|
|
-
|
|
|
|
(25,648
|
)
|
Vehicles
|
|
|
(1,446
|
)
|
|
|
(59
|
)
|
|
|
-
|
|
|
|
(1,505
|
)
|
Computers and equipment
|
|
|
(36,500
|
)
|
|
|
(11,503
|
)
|
|
|
-
|
|
|
|
(48,003
|
)
|
Leasehold improvements
|
|
|
(19,368
|
)
|
|
|
(4,000
|
)
|
|
|
-
|
|
|
|
(23,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
(80,277
|
)
|
|
|
(18,247
|
)
|
|
|
-
|
|
|
|
(98,524
|
)
|
Depreciation expense is included
in administrative expenses line in the combined statement of profit or loss and other comprehensive income.
No impairment losses have been
determined.
In December 2018, the Group
obtained a secured line of credit with Banco Nacional de México, S.A. (Banamex), for up to Ps. 400,000 to build the Group’s
new corporate headquarters and distribution center (Note 15). For the year ended December 31, 2019, the Group capitalized borrowing
costs in the amount of Ps. 9,284 directly related to the distribution center.
|
|
January 1,
2018
|
|
|
Additions
|
|
|
Disposals
|
|
|
December
31,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Ps.
|
348,441
|
|
|
|
-
|
|
|
|
-
|
|
|
|
348,441
|
|
|
|
December 31,
2018
|
|
|
Additions
|
|
|
Disposals
|
|
|
December
31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Ps.
|
348,441
|
|
|
|
-
|
|
|
|
-
|
|
|
|
348,441
|
|
Goodwill corresponds to the
excess resulted between the consideration paid and the fair values of the net assets acquired at the date of acquisition paid by
BLHM and Strevo as mentioned in Note 2o. Goodwill was generated by different legal entities and transmitted to the Group through
the mergers carried out on November 30, 2002 and July 28, 2017, respectively.
For the purposes of impairment
testing, goodwill has been allocated to one CGU. The recoverable amount of the CGU was based on fair value less costs of disposal,
estimated using discounted cash flows. The fair value measurement was categorized as a Level 3 fair value based on the inputs in
the valuation technique used.
The values assigned to the
key assumptions represent management´s assessment of future trends in the relevant industries and have been based on historical
data from both external and internal sources.
At December 31, 2019 and 2018,
the estimated recoverable amount of the CGU exceeded its carrying amount.
The key assumptions used in
the estimation of the recoverable amount are set out below. The values assigned to the key assumptions represent management’s
assessment of future trends in the relevant industries and have been based on historical data from both internal and external sources.
In percent
|
|
2019
|
|
|
2018
|
|
Discount rate
|
|
|
12.4
|
|
|
|
15.7
|
|
Terminal Value Growth Rate
|
|
|
3.0
|
|
|
|
3.0
|
|
Budgeted EBITDA Growth Rate
|
|
|
14.0
|
|
|
|
14.8
|
|
The discount rate was a post-tax
measurement estimated based on the historical industry average, weighted-average cost of capital and a market interest rate of
7.2% as of December 31, 2019.
The cash flow projections included
specific estimates for 5 years and a terminal growth rate thereafter. The terminal growth rate was determined based on management’s
estimate of the long-term compound annual EBITDA growth rate, consistent with the assumptions that a market participant would make.
Budgeted EBITDA was estimated
taking into account past experience and a revenue growth rate projected taking into account the average growth levels experienced
over the past 5 years and the estimated sales volume and price growth for the next five years. It was assumed that the sales price
would increase in line with forecast inflation over the next five years.
|
12.
|
Intangible assets, net
|
Acquisition cost:
|
|
January 1,
2018
|
|
|
Additions
|
|
|
Disposals
|
|
|
December
31,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand
|
|
Ps.
|
253,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
253,000
|
|
Customer relationships
|
|
|
64,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,000
|
|
Software
|
|
|
-
|
|
|
|
17,135
|
|
|
|
-
|
|
|
|
17,135
|
|
Brands and logo rights
|
|
|
5,072
|
|
|
|
1,137
|
|
|
|
-
|
|
|
|
6,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
322,072
|
|
|
|
18,272
|
|
|
|
-
|
|
|
|
340,344
|
|
Accumulated amortization:
|
|
January 1,
2018
|
|
|
Depreciation
expense
|
|
|
Eliminated on
disposals
|
|
|
December
31,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
Ps.
|
(18,133
|
)
|
|
|
(6,400
|
)
|
|
|
-
|
|
|
|
(24,533
|
)
|
Brands and logo rights
|
|
|
(3,468
|
)
|
|
|
(244
|
)
|
|
|
-
|
|
|
|
(3,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
(21,601
|
)
|
|
|
(6,644
|
)
|
|
|
-
|
|
|
|
(28,245
|
)
|
Acquisition cost:
|
|
December 31,
2018
|
|
|
Additions
|
|
|
Disposals
|
|
|
December
31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand
|
|
Ps.
|
253,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
253,000
|
|
Customer relationships
|
|
|
64,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,000
|
|
Software
|
|
|
17,135
|
|
|
|
4,516
|
|
|
|
-
|
|
|
|
21,651
|
|
Brands and logo rights
|
|
|
6,209
|
|
|
|
1,399
|
|
|
|
-
|
|
|
|
7,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
340,344
|
|
|
|
5,915
|
|
|
|
-
|
|
|
|
346,259
|
|
Accumulated amortization:
|
|
December 31,
2018
|
|
|
Depreciation
expense
|
|
|
Eliminated on
disposals
|
|
|
December
31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
Ps.
|
(24,533
|
)
|
|
|
(6,400
|
)
|
|
|
-
|
|
|
|
(30,933
|
)
|
Software
|
|
|
-
|
|
|
|
(421
|
)
|
|
|
-
|
|
|
|
(421
|
)
|
Brands and logo rights
|
|
|
(3,712
|
)
|
|
|
(228
|
)
|
|
|
-
|
|
|
|
(3,940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
(28,245
|
)
|
|
|
(7,049
|
)
|
|
|
-
|
|
|
|
(35,294
|
)
|
As of December 31, 2019 and
2018, a carrying amount of Ps. 253,000 for the value of “Betterware” brand is presented in the combined statements
of financial position. Such brand was transmitted to the Group through a merger carried out on July 28, 2017 with Strevo (a related
party, under common control). Strevo obtained such brand when acquiring the majority of the Group’s shares in March 2015.
As of December 31, 2019 and
2018, a carrying amount of Ps. 33,067 and Ps. 39,467, respectively, for the value of the Group’s intangible asset comprised
of relationships with customers, is presented in the combined statements of financial position. Such intangible asset was transmitted
to the Group through the merger carried out on July 28, 2017 with Strevo as previously discussed. This intangible asset has a useful
life of ten years and is being amortized on a straight line basis.
Additionally, as of December
31, 2019 and 2018, the intangible asset line in the combined statement of financial position includes Ps. 3,668 and Ps. 2,497,
respectively, corresponding to paid rights related to registration of brands and logos before the intellectual property authorities.
Such rights are valid ranging a defined period from 10 to 30 years and therefore, are amortized over such useful lives.
At each reporting date, the
Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication of impairment. If any
such indication exists, then the asset’s recoverable amount is estimated. As of December 31, 2019 and 2018, no indications
of impairment have been identified.
In relation to impairment of
intangible assets with indefinite useful life (brand), the Group estimates the recoverable amount of the intangible asset which
is based on fair value less costs of disposal, estimated using discounted cash flows. The fair value measurement was categorized
as a Level 3 fair value based on the inputs in the valuation technique used. Key assumptions are the same as those used for estimating
the recoverable amount for Goodwill. See Note 11.
Right of use assets, net
The Group leases a fleet of
cars for its sales staff and qualified employees with different expiration dates, being the latest expiration date in April 2023.
Those leases were recorded as right of use assets as follows:
|
|
January 1,
2019
|
|
|
Additions
|
|
|
Disposals
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Ps.
|
36,909
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,909
|
|
|
|
January 1,
2019
|
|
|
Additions
|
|
|
Disposals
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
Ps.
|
-
|
|
|
|
(13,098
|
)
|
|
|
-
|
|
|
|
(13,098
|
)
|
Rental expense for the year ended December 31, 2018
was Ps. 6,100.
As of December 31, 2019, the Group has commitments
derived from short-term lease contracts (Note 26).
Lease liability
The lease liabilities as of December 31, 2019 amounted
$24,584.
The maturity analysis of total future minimum lease
payments, including non-accrued interest, is as follows:
Year
|
|
Amount
|
|
2020
|
|
Ps
|
15,463
|
|
2021
|
|
|
8,617
|
|
2022
|
|
|
3,310
|
|
2023
|
|
|
29
|
|
|
|
|
|
|
|
|
Ps
|
27,419
|
|
Interest expense generated from the lease liability
amounted to Ps. 3,765 for the year ended December 31, 2019.
|
14.
|
Accounts payable to suppliers
|
Trade payables and accruals
principally comprise amounts outstanding for trade purchases and ongoing costs.
The average payment period
is 4 months, with no interest charged. The Group has financial risk management policies in place to ensure that all payables are
paid within the pre-agreed credit terms.
|
|
2019
|
|
|
2018
|
|
Line of credit with MCRF P, S.A. de C.V. SOFOM, E.N.R. of Ps. 600,000, bearing interest at a fixed rate of 13.10%. This line of credit is payable on a quarterly basis starting May 15, 2019 through May 15, 2023. BLSM Latino América Servicios, S.A. de C.V., is a guarantor in this loan.
|
|
Ps.
|
516,597
|
|
|
|
592,252
|
|
|
|
|
|
|
|
|
|
|
Secured line of credit with Banamex, for up to Ps. 400,000, bearing interest at the TIIE rate plus 317 basis point. Withdrawals from this line of credit can be made during a 10-month period starting December 15, 2018, and are payable on a quarterly basis from December 17, 2019 up to December 18, 2025.
|
|
|
135,209
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Unsecured line of credit with Banamex, for up to Ps. 80,000, bearing interest at the TIIE rate plus 275 basis points (renewable on a yearly basis).
|
|
|
15,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unsecured line of credit with Banamex, for up to US$ 1,800, bearing interest at LIBOR rate plus 300 basis point. Maturity was on March 31, 2018.
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Interest payable
|
|
|
10,907
|
|
|
|
11,227
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
677,713
|
|
|
|
653,479
|
|
|
|
|
|
|
|
|
|
|
Less: Current portion
|
|
|
148,070
|
|
|
|
90,691
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
Ps.
|
529,643
|
|
|
|
562,788
|
|
As
of December 31, 2019, the fair value of borrowings amounted Ps. 679,188. As of December 31, 2018, the fair value of borrowings
is considered to be similar to the book value (at amortized cost) determined by using the effective interest method.
Interest
expense in connection with debt presented above is included in the interest expense line in the combined statement of profit or
loss and other comprehensive income.
Reconciliation of movements
of liabilities to cash flows arising from financing activities
The table below details changes
in the Group’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising
from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s combined
statement of cash flows as cash flows from financing activities.
|
|
Long-term debt
|
|
|
Interest payable
|
|
|
Derivative
financial
instruments, net
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of January 1, 2018 (1)
|
|
Ps.
|
607,250
|
|
|
|
10,043
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes that represent cash flows -
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans obtained
|
|
|
50,667
|
|
|
|
-
|
|
|
|
-
|
|
Restricted cash
|
|
|
(2,001
|
)
|
|
|
-
|
|
|
|
-
|
|
Payments
|
|
|
(36,829
|
)
|
|
|
(85,159
|
)
|
|
|
-
|
|
Commissions and debt issuance cost
|
|
|
(667
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes that do not represent cash flows -
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
-
|
|
|
|
86,343
|
|
|
|
-
|
|
Valuation effects of derivative financial instruments
|
|
|
-
|
|
|
|
-
|
|
|
|
16,629
|
|
Amortization of commissions and debt issuance cost
|
|
|
1,744
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2018 (1)
|
|
Ps.
|
620,164
|
|
|
|
11,227
|
|
|
|
16,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes that represent cash flows -
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans obtained
|
|
|
104,500
|
|
|
|
-
|
|
|
|
-
|
|
Restricted cash
|
|
|
22,940
|
|
|
|
-
|
|
|
|
-
|
|
Payments
|
|
|
(82,996
|
)
|
|
|
(76,465
|
)
|
|
|
-
|
|
Commissions and debt issuance cost
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes that do not represent cash flows -
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
-
|
|
|
|
85,429
|
|
|
|
-
|
|
Borrowing costs capitalized on PP&E
|
|
|
-
|
|
|
|
(9,284
|
)
|
|
|
|
|
Valuation effects of derivative financial instruments
|
|
|
-
|
|
|
|
-
|
|
|
|
15,680
|
|
Amortization of commissions and debt issuance cost
|
|
|
2,198
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2019
|
|
Ps.
|
666,806
|
|
|
|
10,907
|
|
|
|
32,309
|
|
|
(1)
|
Balances in column “Long-term debt”, are presented net of restricted cash balances
as of December 31, 2018. See Note 5 for details about restricted cash.
|
The Group’s long-term
debt maturities as of December 31, 2019, are as follows:
Year
|
|
Amount
|
|
|
|
|
|
2021
|
|
Ps.
|
185,447
|
|
2022
|
|
|
169,312
|
|
2023
|
|
|
245,343
|
|
2024
|
|
|
23,611
|
|
2025
|
|
|
54,000
|
|
|
|
Ps.
|
677,713
|
|
The loans with financial institutions
referred to above contain restrictive covenants, which require the Group (i) to continue to perform the same type of activities
and businesses, maintaining their legal existence, (ii) complying with all applicable laws, (ii) having its combined financial
statements audited by internationally recognized auditors authorized by the financial institution, (iii) paying all applicable
taxes, (iv) obtaining all licenses and permits required by government to operate, (v) keeping assets and businesses insured against
loss or damage, (vi) not to obtain additional loans exceeding Ps. 100,000 or 60% of earnings before interest, taxes, depreciation
and amortization (EBITDA) of the immediately preceding year, (vii) not to incur liens on the Group’s assets, (viii) not to
give or sell any rights of financial documents and (ix) not to pay dividends in an amount greater than Ps. 200,000; except in 2019
when it was permitted to pay up to Ps. 350,000. It is important to mention that additional debt may be obtained, or dividends may
be paid in amounts greater than those stipulated in the contract if prior consent from such financial institution is obtained.
The line of credit agreement
with MCRF P, S.A. de C.V. SOFOM, E.N.R. contains the following financial covenants:
|
a)
|
To maintain a leverage ratio equal to or lower than 3.0 during 2018; and 2.5 from January 1, 2019,
until the contract expiration date.
|
|
b)
|
To maintain a coverage interest ratio equal to or greater than 2.5 during all term of the contract.
|
|
c)
|
Not to maintain the equity book value lower than Ps. 100,000.
|
|
d)
|
To maintain a minimum cash and cash equivalents balance of Ps. 40,000
|
The line
of credit agreement with Banamex contains the following financial covenants:
|
a)
|
To maintain a short-term debt coverage ratio not lower than 1.5.
|
|
b)
|
To maintain a total debt coverage ratio not greater than 3.0.
|
|
c)
|
To maintain a leverage ratio not greater than 7.0.
|
|
d)
|
To maintain a minimum cash and cash equivalents balance of Ps. 40,000
|
The Group was in compliance
with all covenants as of December, 31, 2019 and 2018. The Group obtained permission from Banamex prior to December 31, 2019 to
consummate the merger disclosed in Notes 1 and 28c.
The Group is subject to income
taxes (“ISR”) in Mexico. Under the ISR Law, the rate for 2019, 2018 and 2017 was 30% and will continue as such in future
periods.
Income tax recognized in profit
or loss for the years ended December 31 was comprised of the following:
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Current tax
|
|
Ps.
|
229,900
|
|
|
|
158,545
|
|
|
|
92,209
|
|
Deferred tax (benefit) expense
|
|
|
2,792
|
|
|
|
(8,366
|
)
|
|
|
4,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
232,692
|
|
|
|
150,179
|
|
|
|
96,951
|
|
Income tax expense recognized
at the effective ISR rate differs from income tax expense at the statutory tax rate. Reconciliation of income tax expense recognized
from statutory to effective ISR rate is as follows:
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Profit before income tax
|
|
Ps.
|
704,834
|
|
|
|
449,447
|
|
|
|
304,625
|
|
Tax rate
|
|
|
30
|
%
|
|
|
30
|
%
|
|
|
30
|
%
|
Income tax expense calculated at 30% statutory tax rate
|
|
|
211,450
|
|
|
|
134,834
|
|
|
|
91,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inflation effects, net
|
|
|
6,278
|
|
|
|
6,408
|
|
|
|
4,832
|
|
Non-deductible expenses
|
|
|
3,202
|
|
|
|
3,217
|
|
|
|
2,340
|
|
Other items, net
|
|
|
11,762
|
|
|
|
5,720
|
|
|
|
(1,609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
232,692
|
|
|
|
150,179
|
|
|
|
96,951
|
|
Realization of deferred tax
assets depends on the future generation of taxable income during the period in which the temporary differences will be deductible.
Management considers the reversal of deferred tax liabilities and projections of future taxable income to make its assessment on
the realization of deferred tax assets. Based on the results obtained in previous years and in future profit and tax projections,
management has concluded that it is probable the deferred tax assets will be realized.
As of December 31, 2019 and
2018, the Group had no tax loss carryforwards.
Composition of deferred tax
asset (liabilities) as well as the reconciliation of changes in deferred taxes balances as of December 31, 2019 and 2018 is presented
below:
Temporary differences
|
|
January 1,
2018
|
|
|
Recognized
in profit or
loss
|
|
|
Recognized
in OCI
|
|
|
Equity
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected credit loss
|
|
Ps.
|
2,499
|
|
|
|
303
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,802
|
|
Accruals and provisions
|
|
|
19,865
|
|
|
|
6,838
|
|
|
|
(71
|
)
|
|
|
-
|
|
|
|
26,632
|
|
Derivative financial instruments
|
|
|
-
|
|
|
|
4,989
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,989
|
|
Property, plant and equipment
|
|
|
2,857
|
|
|
|
(2,783
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
(89,660
|
)
|
|
|
1,920
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(87,740
|
)
|
Inventories
|
|
|
(4,189
|
)
|
|
|
(2,003
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,192
|
)
|
Other assets and prepaid expenses
|
|
|
(10,294
|
)
|
|
|
(898
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
Ps.
|
(78,922
|
)
|
|
|
8,366
|
|
|
|
(71
|
)
|
|
|
-
|
|
|
|
(70,627
|
)
|
Temporary differences
|
|
December 31,
2018
|
|
|
Recognized
in profit or
loss
|
|
|
Recognized
in OCI
|
|
|
Equity
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
Expected credit loss
|
|
Ps.
|
2,802
|
|
|
|
2,415
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,217
|
|
Accruals and provisions
|
|
|
26,632
|
|
|
|
(668
|
)
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
25,938
|
|
Derivative financial instruments
|
|
|
4,989
|
|
|
|
(4,989
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Property, plant and equipment
|
|
|
74
|
|
|
|
4,505
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Intangible assets
|
|
|
(87,740
|
)
|
|
|
1,920
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(85,820
|
)
|
Inventories
|
|
|
(6,192
|
)
|
|
|
(3,161
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,353
|
)
|
Derivative financial instruments
|
|
|
|
|
|
|
(89
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(89
|
)
|
Other assets and prepaid expenses
|
|
|
(11,192
|
)
|
|
|
(2,699
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(13,891
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
Ps.
|
(70,627
|
)
|
|
|
(2,766
|
)
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
(73,419
|
)
|
|
|
Commissions,
promotions
and other
|
|
|
Bonuses
and other
employee
benefits
|
|
|
Professional
services fees
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 1, 2018
|
|
Ps.
|
41,324
|
|
|
|
1,158
|
|
|
|
-
|
|
|
|
42,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increases
|
|
|
247,282
|
|
|
|
56,854
|
|
|
|
30,704
|
|
|
|
334,840
|
|
Payments
|
|
|
(252,801
|
)
|
|
|
(56,054
|
)
|
|
|
(29,481
|
)
|
|
|
(338,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
Ps.
|
35,805
|
|
|
|
1,958
|
|
|
|
1,223
|
|
|
|
38,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increases
|
|
|
345,148
|
|
|
|
90,843
|
|
|
|
2,026
|
|
|
|
438,017
|
|
Payments
|
|
|
(348,174
|
)
|
|
|
(79,445
|
)
|
|
|
(2,695
|
)
|
|
|
(430,314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
Ps.
|
32,779
|
|
|
|
13,356
|
|
|
|
554
|
|
|
|
46,689
|
|
Commissions, promotions
and other
Commissions, promotions and
other includes commissions payable to the sales force for the last week of the year, which are settled in the first week of the
following year. Additionally, it includes the provision of reward points obtained by distributors and associates for the sale of
products and for increasing the network of registered distributors and associates.
Bonuses and other employee
benefits
Bonuses and other employee
benefits include annual performance bonuses as well as vacation provisions, vacation premium, savings fund, among others.
Professional services
fees
Professional services fees
includes the fees for services such as external audit, legal, internal audit, among others.
|
18.
|
Derivative financial instruments
|
In connection with the secured
line of credit contracted with Banamex as described in Note 15, and to mitigate the risks of future increases in interest rates,
the Group entered into a derivative contract with Banamex, consisting in an interest rate swap. By using this interest rate swap,
the Group sets interest rates from variable rates to fixed rates.
Additionally, in order to reduce
the risks related to fluctuations in the exchange rate of US dollar, the Group uses derivative financial instruments such as forwards
to adjust foreign currency exposures resulting from inventory purchases in US dollars.
An analysis of the derivative
financial instruments contracted by the Group as of December 31, 2019 and 2018, is as follows:
December 31, 2019
Instrument
|
|
Notional
amount in
thousands
|
|
|
Fair
Value
|
|
|
Contract
date
|
|
|
Maturity
date
|
|
|
Rate received
|
|
|
Rate
paid
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swap
|
|
Ps.
|
50,000
|
|
|
Ps.
|
19,614
|
|
|
|
11/15/2018
|
|
|
|
12/15/2023
|
|
|
|
TIIE
28 days (1)
|
|
|
|
8.33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Strike
Ps./US$
|
|
|
Maturity
date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forwards
US Dollar-Mexican Peso
|
|
US$
|
47,690
|
|
|
Ps.
|
12,695
|
|
|
|
19.61
|
|
|
Weekly,
through October 2020
|
|
|
|
|
|
Total
Liabilities
|
|
|
|
|
|
Ps.
|
32,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
liability
|
|
|
|
|
|
Ps.
|
16,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liability
|
|
|
|
|
|
Ps.
|
15,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) As of December 31, 2019,
the 28-day TIIE rate was 7.55%.
December 31, 2018
Instrument
|
|
Notional
amount in
thousands
|
|
|
Fair
Value
|
|
|
Contract
date
|
|
|
Maturity
date
|
|
|
Rate received
|
|
|
Rate
paid
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
Ps.
|
50,000
|
|
|
Ps.
|
8,364
|
|
|
|
15/11/2018
|
|
|
|
15/12/2023
|
|
|
|
TIIE 28 days (1)
|
|
|
|
8.33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Strike
Ps./US$
|
|
|
Maturity date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forwards US Dollar-Mexican Peso
|
|
US$
|
24,414
|
|
|
Ps.
|
8,265
|
|
|
|
20.06
|
|
|
Weekly, through June 2019
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
Ps.
|
16,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liability
|
|
|
|
|
|
Ps.
|
8,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liability
|
|
|
|
|
|
Ps.
|
8,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) As of December 31, 2018,
the 28-day TIIE rate was 8.5956%.
The impacts to profit and loss
of the derivative financial instruments for the years ended December 31, 2019 and 2018 amounted to a loss of Ps. (15,680) and Ps.
(16,629), respectively, which is included in the combined statements of comprehensive income in the line item of “Valuation
of derivatives, interest cost and other financial items, net”.
The maturities of the notional
amount of the derivatives are as follows:
Instrument
|
|
Notional amount in thousands of
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024 and thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
|
Ps.
|
|
|
|
1,458
|
|
|
|
5,833
|
|
|
|
5,833
|
|
|
|
5,833
|
|
|
|
31,043
|
|
Forwards US Dollar-Mexican Peso
|
|
|
US$
|
|
|
|
12,695
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The Group does not apply hedge
accounting and it recognizes the changes in fair value of financial derivative instruments in profit or loss.
Post-employment
benefits –
The Group recognizes the liability
and corresponding impacts to profit and loss as well as comprehensive income regarding to the seniority premiums to be paid to
its employees. This benefit is determined considering the years of service and the compensation from the employees.
The components of the defined
benefit liability for the years ended at December 31, 2019, 2018 and 2017, are as follows:
|
a)
|
Movement in net defined liability –
|
The following table shows a
reconciliation from the opening balances to the closing balances for the net defined benefit liability and its components:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Balance at January 1
|
|
Ps.
|
1,355
|
|
|
|
1,283
|
|
|
|
|
|
|
|
|
|
|
Included in profit or loss:
|
|
|
|
|
|
|
|
|
Current service cost
|
|
|
424
|
|
|
|
441
|
|
Interest cost
|
|
|
123
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
Net cost of the period
|
|
|
547
|
|
|
|
533
|
|
|
|
|
|
|
|
|
|
|
Included in OCI:
|
|
|
|
|
|
|
|
|
Actuarial loss (gain)
|
|
|
(102
|
)
|
|
|
(165
|
)
|
Income tax effect
|
|
|
(26
|
)
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(196
|
)
|
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
|
Balance as of December 31
|
|
Ps.
|
1,630
|
|
|
|
1,355
|
|
|
b)
|
Actuarial assumptions –
|
The following were the principal
actuarial assumptions at the reporting date (expressed as weighted averages):
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Financial:
|
|
|
|
|
|
|
|
|
|
|
|
|
Future salary growth
|
|
|
6.6
|
%
|
|
|
4.8
|
%
|
|
|
4.5
|
%
|
Discount rate
|
|
|
7.1
|
%
|
|
|
9.2
|
%
|
|
|
7.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demographic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees
|
|
|
654
|
|
|
|
684
|
|
|
|
622
|
|
Age average
|
|
|
35 years
|
|
|
|
35 years
|
|
|
|
36 years
|
|
Longevity average
|
|
|
3 years
|
|
|
|
2 years
|
|
|
|
2 years
|
|
|
c)
|
Sensitivity analysis –
|
Reasonably possible changes
at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the
defined benefit obligation considering a change of ±0.50% in the discount rate.
|
|
Effects at
December 31,
2019
|
|
|
Effects at
December 31,
2018
|
|
|
|
|
|
|
|
|
Increase / decrease in the discount rate
|
|
|
|
|
|
|
|
|
+ 0.50%
|
|
Ps.
|
(127)
|
|
|
|
(93
|
)
|
- 0.50%
|
|
|
115
|
|
|
|
103
|
|
|
20.
|
Financial instruments
|
Below is the categorization
of the financial instruments, excluding cash and cash equivalents, held by the Group as of December 31, 2019 and 2018, as well
as the indication of fair value hierarchy level, when applicable:
Accounting classification and
fair values
As of December 31, 2019
|
|
Receivables,
Payables,
and Loans
|
|
|
Fair value
through profit
or
loss
|
|
|
Fair value
hierarchy level
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets -
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
Ps.
|
266,938
|
|
|
|
-
|
|
|
|
|
|
Other receivables
|
|
|
5,867
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
272,805
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities -
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
677,713
|
|
|
|
-
|
|
|
|
|
|
Accounts payable
|
|
|
529,348
|
|
|
|
-
|
|
|
|
|
|
Derivative financial instruments
|
|
|
32,309
|
|
|
|
32,309
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,239,370
|
|
|
|
32,309
|
|
|
|
|
|
As of December 31, 2018
|
|
Receivables,
Payables,
and Loans
|
|
|
Fair value
through profit or
loss
|
|
|
Fair value
hierarchy level
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets -
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
Ps.
|
198,776
|
|
|
|
-
|
|
|
|
|
|
Other receivables
|
|
|
536
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
199,312
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities -
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
653,479
|
|
|
|
-
|
|
|
|
|
|
Accounts payable
|
|
|
445,241
|
|
|
|
-
|
|
|
|
|
|
Derivative financial instruments
|
|
|
16,629
|
|
|
|
16,629
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,115,349
|
|
|
|
16,629
|
|
|
|
|
|
Measurements of fair values
Fair value hierarchy levels
1 to 3 are based on the degree to which the fair value is observable:
|
●
|
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets
for identical assets or liabilities;
|
|
●
|
Level 2 fair value measurements are those derived from inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from
prices); and
|
|
●
|
Level 3 fair value measurements are those derived from valuation techniques that include inputs
for the asset or liability that are not based on observable market data (unobservable inputs).
|
As previously disclosed, some
of the Group’s financial liabilities are measured at fair value at the end of each reporting period. The following table
gives information about how the fair values of these financial liabilities are determined (in particular, the valuation technique(s)
and inputs used).
Financial assets/ financial liabilities
|
|
Valuation technique(s) and key input(s)
|
|
Significant
unobservable
input(s)
|
|
Relationship and
sensitivity of
unobservable inputs
to fair value
|
Foreign currency forward contracts and interest rate swaps (Note 18)
|
|
Discounted cash flows.
Future cash flows are estimated based on forward exchange rates (from observable forward exchange rates at the end of the reporting period) and contract forward rates, discounted at a rate that reflects the credit risk of various counterparties.
|
|
N/A
|
|
N/A
|
There were no transfers between
Level 1 and 2 during the current or prior year.
Fair value of debt that
is not measured at fair value (but fair value disclosures are required)
The fair value of debt, which
is subsequently measured at amortized cost using the effective interest method, amounted Ps. 679,188 and was classified as Level
2. Fair value was calculated using the discounted cash flow method and the Mexican risk-free rate (TIIE), adjusted by credit risk,
was used for discounting future cash flows.
Financial risk management
The Group’s Treasury
function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages
the financial risks relating to the operations of the Group through internal risk reports which analyses exposures by degree and
magnitude of risks. These risks include market risk (including currency risk, interest rate risk, and price risk), credit risk,
liquidity risk.
The Group seeks to minimize
the effects of these risks by using derivative financial instruments to hedge these risk exposures. The use of financial derivatives
is governed by the Group’s policies approved by the board of directors, which provide written principles on foreign exchange
risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment
of excess liquidity. Compliance with policies and exposure limits is reviewed by the internal auditors on a continuous basis. The
Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
Market risk
The Group’s activities
expose it primarily to the financial risks of changes in exchange rates and interest rates (see below). The Group enters into a
variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including:
|
●
|
In order to reduce the risks related to fluctuations in the exchange rate of foreign currency,
the Group uses derivative financial instruments such as forwards to adjust exposures resulting from foreign exchange currency.
|
|
●
|
Additionally, the Group occasionally uses interest rate swaps to adjust its exposure to the variability
of the interest rates or to reduce their financing costs. The Group’s practices vary from time to time depending on judgments
about the level of risk, expectations of change in the movements of interest rates and the costs of using derivatives.
|
See Note 18 for disclosure
of the derivatives derivative financial instruments entered into as of and for the year ended December 31, 2019 and 2018.
Exchange risk management
The Group undertakes transactions
denominated in foreign currencies, mainly U.S. dollars; consequently, exposures to exchange rate fluctuations arise. Exchange rate
exposures are managed within approved policy parameters utilizing forward foreign exchange contracts.
The carrying amounts of the
Group’s U.S. dollars denominated financial assets and financial liabilities at the reporting date are as follows:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Assets
|
|
US$
|
1,331
|
|
|
|
1,294
|
|
Liabilities
|
|
|
(16,095
|
)
|
|
|
(12,075
|
)
|
|
|
|
|
|
|
|
|
|
Net position
|
|
US$
|
(14,764)
|
|
|
|
(10,781
|
)
|
Closing exchange rate of the year
|
|
|
18.8452
|
|
|
|
19.6566
|
|
Exchange rate sensitivity
analysis
The Group is mainly exposed
to variations in the Mexican Peso / the U.S. Dollar exchange rate. For sensitivity analysis purposes, the Group has determined
a 10 percent increase and decrease in Ps. currency units against the U.S. dollar (“relevant currency”). 10 percent
is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s
assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign
currency denominated financial assets/liabilities and adjusts their translation at the year-end for a 10 percent change in foreign
currency rates. A positive number below indicates an increase in profit where currency units strengthen 10 percent against the
relevant currency. For a 10 percent weakening of currency units against the relevant currency, there would be a comparable impact
on the profit, and the balances below would be negative.
Foreign exchange forward
contracts
It is the policy of the Group
to enter into foreign exchange forward contracts to manage the foreign currency risk associated with anticipated purchase transactions
up to 6 months. Basis adjustments are made to the initial carrying amounts of inventories when the anticipated purchases take place.
See Note 18 with details on
foreign currency forward contracts outstanding at the end of the reporting period. Foreign currency forward contract liabilities
are presented in the line ‘Derivative financial instruments’ within the combined statement of financial position.
The Group has entered into
contracts to purchase raw materials from suppliers in China, with such purchases denominated in U.S. dollars. The Group has entered
into foreign exchange forward contracts to hedge the exchange rate risk arising from these anticipated future purchases.
Interest rate risk management
The Group is exposed to interest
rate risk because the Group borrows funds at variable interest rates. The risk is managed by the Group by maintaining an appropriate
balance between fixed and variable rate borrowings, and by the use of interest rate swap contracts. Hedging activities are evaluated
regularly to align with interest rate views and defined risk appetite; ensuring the most cost-effective hedging strategies are
applied.
The Group’s exposures
to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.
Interest rate sensitivity
analysis
The sensitivity analyses below
have been determined based on the exposure to interest rates at the reporting date. For floating rate liabilities, the analysis
is prepared assuming the amount of the liability outstanding at the reporting date was outstanding during the year. A one per cent
increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s
assessment of the reasonably possible change in interest rates.
If interest rates had been
one per cent higher/lower and all other variables were held constant, the Group’s profit for the year ended December 31,
2019 would decrease/increase by Ps. 1,352. This is attributable to the Group’s exposure to interest rates on its variable
rate borrowing as described in Note 15.
Interest rate swap contracts
Under interest rate swap contracts,
the Group agrees to exchange the difference between fixed and variable rate interest amounts calculated on agreed notional principal
amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on the cash flow exposures on the issued
variable rate debt held. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash
flows using the curves at the reporting date and the credit risk inherent in the contract, and is disclosed in Note 18. The average
interest rate is based on the outstanding balances at the end of the financial year.
Credit risk management
The Group’s exposure to credit
risk is not significant as no customer represents more than 10% of combined sales and receivables. The concentration of credit
risk is limited due to the fact that the customer base is large and unrelated, spread across diverse geographical areas. Credit
policy has been implemented for each customer establishing purchase limits. Customers who do not satisfy the credit references
set out by the Group, can only carry out transactions with the Group through prepayment.
See Note 6 for further details
on Trade Receivables and allowance for doubtful accounts.
Collateral held as security
and other credit enhancements
The Group does not hold any
collateral or other credit enhancements to cover its credit risks associated with its financial assets.
Overview of the Group’s
exposure to credit risk
Credit risk refers to the risk
that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. As of 31 December 2019,
the Group’s maximum exposure to credit risk without taking into account any collateral held or other credit enhancements,
which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties and financial guarantees
provided by the Group, arises from the carrying amount of the respective recognized financial assets as stated in the combined
statement of financial position.
For trade receivables, the
Group has applied the simplified approach in IFRS 9 to measure the loss allowance at lifetime ECL. The Group determines the expected
credit losses on these items by using a provision matrix, estimated based on historical credit loss experience based on the past
due status of the debtors, adjusted as appropriate to reflect current conditions and estimates of future economic conditions. Accordingly,
the credit risk profile of these assets is presented based on their past due status in terms of the provision matrix. Note 6, includes
further details on the loss allowance for these assets respectively.
Liquidity risk management
The ultimate responsibility
for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk management
framework for management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group
manages liquidity risk by maintaining adequate reserves, banking facilities, and reserve borrowing facilities, by continuously
monitoring the forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. Details
of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk are set out below.
Liquidity maturity analysis
The Group manages its liquidity
risk by maintaining adequate reserves of cash and bank credit lines available and consistently monitoring its projected and actual
cash flows. The maturity analysis of lease liabilities is presented in Note 13 and long-term debt maturities are presented in Note
15.
The Group has access to financing
facilities as described below, of which Ps. 260,500 were unused at the reporting date. The Group expects to meet its other obligations
from operating cash flows and proceeds of maturing financial assets.
Bank credit lines
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
Amount used
|
|
Ps.
|
656,459
|
|
|
|
650,000
|
|
Amount not used
|
|
|
260,500
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
Total credit lines
|
|
Ps.
|
916,959
|
|
|
|
1,000,000
|
|
The following tables detail
the Group’s remaining contractual maturity for its financial liabilities with agreed repayment periods. The tables have been
drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required
to pay. The table includes both interest and principal cash flows.
As of December 31, 2019
|
|
Less than 1 year
|
|
|
Over 1 year and less than 5 years
|
|
|
Over 5 years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable to suppliers
|
|
Ps.
|
529,348
|
|
|
|
-
|
|
|
|
-
|
|
|
|
529,348
|
|
Derivative financial instruments
|
|
|
15,555
|
|
|
|
16,754
|
|
|
|
-
|
|
|
|
32,309
|
|
Long-term debt
|
|
|
137,163
|
|
|
|
484,903
|
|
|
|
49,393
|
|
|
|
671,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
682,066
|
|
|
|
501,657
|
|
|
|
49,393
|
|
|
|
1,233,116
|
|
As of December 31, 2018
|
|
Less than 1 year
|
|
|
Over 1 year and less than 5 years
|
|
|
Over 5 years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable to suppliers
|
|
Ps.
|
445,241
|
|
|
|
-
|
|
|
|
-
|
|
|
|
445,241
|
|
Derivative financial instruments
|
|
|
8,509
|
|
|
|
8,120
|
|
|
|
-
|
|
|
|
16,629
|
|
Long-term debt
|
|
|
78,750
|
|
|
|
536,073
|
|
|
|
25,208
|
|
|
|
640,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
532,500
|
|
|
|
544,193
|
|
|
|
25,208
|
|
|
|
1,101,901
|
|
Capital risk management
The Group manages its capital
to ensure it will be able to continue as a going concern, while it maximizes returns for its shareholders through the optimization
of its capital structure. The Group’s management reviews the capital structure when presenting its financial projections
to the Board of Directors and stockholders as part of the annual business plan. When performing its review, the Board of Directors
considers the cost of equity and its associated risks.
The capital structure of the
Group consists of net debt (borrowings disclosed in Note 15 after deducting cash and bank balances) and net parent investment of
the Group (comprising issued capital, other comprehensive income and retained earnings).
|
21.
|
Net parent investment
|
Net parent investment as of
December 31, 2019 and 2018 is integrated as follows:
Net parent investment
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Capital stock
|
|
Ps.
|
55,985
|
|
|
|
55,985
|
|
Retained earnings
|
|
|
218,376
|
|
|
|
24,234
|
|
Other comprehensive income
|
|
|
121
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
274,482
|
|
|
|
80,264
|
|
Net parent investment as of
December 31, by number of shares, is integrated as follows:
|
|
Betterware de México, S.A.P.I. de C.V.
(formerly Betterware de México, S.A. de C.V.)
|
|
|
BLSM Latino América
Servicios, S.A. de C.V.
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed capital
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
Variable capital
|
|
|
5,032,939
|
|
|
|
5,032,939
|
|
|
|
4,786,193
|
|
|
|
3,654,378
|
|
|
|
3,654,378
|
|
|
|
3,475,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,037,939
|
|
|
|
5,037,939
|
|
|
|
4,791,193
|
|
|
|
3,659,378
|
|
|
|
3,659,378
|
|
|
|
3,480,150
|
|
Common stock is represented
by common shares, with a par value of Ps. 10 in regard to fixed capital and without par value in case of variable capital, fully
subscribed and paid. Variable capital is unlimited.
On February 13, 2018, the Ordinary
General Shareholders’ Meeting of Betterware de México agreed to reduce the capital stock by Ps. 97,921. On December
5, 2018, as part of the unanimous resolutions adopted outside the Shareholders’ Meeting, it was agreed to increase capital
stock by Ps. 20.
On July 28, 2017, at an Extraordinary
General Shareholders’ Meeting it was agreed to merge Betterware de México as the surviving entity with Betterware
Controladora, S.A. de C.V. (“BWC”) and Strevo Holding, S.A. de C.V. (“SH”, controlling company of BWC and
in turn, subsidiary of Campalier, S.A. de C.V.), as merged companies. The transaction was carried out as of July 28, 2017, so as
of that date, the merged entities ceased to exist. Upon the merger becoming effective, all of the assets, liabilities, rights,
and obligations of the merged companies were incorporated into the merging company, without reservations or limitations. As a result
of the transaction, which was accounted for as a pooling of interest between entities under common control, the capital stock of
Betterware increased by Ps. 87,317, retained earnings decreased by Ps. 174,801 and net stockholders’ equity decreased by
Ps. 87,484.
On December 4, 2017, the Ordinary
General Shareholders’ Meeting of BLSM agreed to increase capital stock by Ps. 15. On December 5, 2018, as part of the unanimous
resolutions adopted outside the Shareholders’ Meeting, it was agreed to increase capital stock by Ps. 20.
Retained earnings
On May 29, 2019, the Ordinary
General Shareholders’ Meeting approved dividends payment from retained earnings for an amount of Ps. 128,000 which were paid
in cash. Part of this amount (Ps. 78,151) was paid to Campalier based on its equity interest.
On October 8, 2019, the Ordinary
General Shareholders’ Meeting approved dividends payment from retained earnings for an amount of Ps. 150,000 which were paid
in cash. Part of this amount (Ps. 91,583) was paid to Campalier based on its equity interest.
On February 13, 2018, the Ordinary
General Shareholders’ Meeting approved dividends payment from retained earnings for an amount of Ps. 79,080, which were paid
in cash. Part of this amount (Ps. 46,696) was paid to Campalier based on its equity interest.
On November 28, 2018, the Ordinary
General Shareholders’ Meeting approved payment of dividends from profits generated in the year, for an amount of Ps. 111,000,
which were paid in cash. Part of this amount (Ps. 65,545) was paid to Campalier based on its equity interest.
On December 4, 2018, the Ordinary
General Shareholders’ Meeting approved payment of dividends from profits generated in the year, in the amount of Ps. 110,000.
From this amount, Ps. 45,045 was paid in cash; while the remaining for Ps. 64,955 was paid on March 31, 2019, hence it is included
as a liability in the combined statement of financial position.
Legal reserve
Retained earnings include the
statutory legal reserve. The Mexican General Corporate Law requires that at least 5% of net income of the year be transferred to
the legal reserve until the reserve equals 20% of common stock at par value (historical pesos). The legal reserve may be capitalized
but may not be distributed unless the Group is dissolved. The legal reserve must be replenished if it is reduced for any reason.
As of December 31, 2019 and 2018, the legal reserve, in historical pesos, was Ps. 10,370 and Ps. 8,571, respectively, and it is
included in retained earnings.
The amount of basic earnings
per share is calculated by dividing the net income for the year attributable to shareholders of the Group’s ordinary shares
by the weighted average of the ordinary shares outstanding during the year.
The amount of diluted earnings
per share is calculated by dividing the net profit attributable to shareholders of the parent’s ordinary shares (after adjusting
it due to interest on convertible preferred shares) by the weighted average of ordinary shares outstanding during the year plus
the weighted average of common shares that would have been issued at the time of converting all diluted potential ordinary shares
into ordinary shares. As of December 31, 2019, 2018 and 2017, the Group has no potentially dilutive shares.
As a result of the transaction
between Betterware and DD3 and the subscription and payment of 2,040,000 Betterware’s shares in Nasdaq, which closed on March
13, 2020 (see Notes 1 and 28c), all Betterware shares issued and outstanding immediately prior to the closing date were canceled
and new shares were issued. As of the closing date, BLSM is now a wholly-owned subsidiary of Betterware, who will begin to prepare
consolidated financial statements as of such date. Betterware’s original shareholders maintained an ownership of 87.7% of
the total outstanding shares, DD3’s shareholders obtained a 6.4% ownership interest and investors under the Nasdaq listing
a 5.9% ownership interest. After the closing date, Betterware has 34,451,020 shares issued and outstanding.
IFRS requires that the calculation
of basic and diluted earnings per share (“EPS”) for all periods presented be adjusted retrospectively when the number
of ordinary or potential ordinary shares outstanding increases as a result of a capitalization, bonus issue, or share split, or
decreases as a result of a reverse share split. If such changes occur after the statement of financial position date but before
the financial statements are authorized for issue, the EPS calculations for those and any prior period financial statements presented
are based on the new number of shares.
As a result of the cancellation
and issuance of new shares on March 13, 2020, the EPS in the combined financial statements has been adjusted for all periods presented
to reflect the amount of shares attributable to the Betterware original shareholders resulting from the transaction described above
as follows: 87.7% of the total outstanding shares of 34,451,020, which is equal to 30,199,945 shares without giving effect to the
DD3 shareholders’ capital contribution and the proceeds from the Nasdaq listing. The effects of the DD3 transaction, including
the related share issuance that resulted in DD3’s shareholders obtaining a 6.4% ownership interest and the net capital contribution
of US$7,519 (Ps. 181,734), and the effects of the Nasdaq listing, have not been included in the calculation of EPS for the periods
presented as they are considered to be non-adjusting subsequent events that will be reflected in Betterware’s 2020 consolidated
financial statements.
The following table shows the income and share data
used in the calculation of basic earnings per share for the years ended December 31, 2019, 2018 and 2017:
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Net income (in thousands of pesos)
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable
to shareholders
|
|
Ps.
|
472,218
|
|
|
|
299,267
|
|
|
|
207,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (in thousands of shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average of outstanding shares
|
|
|
30,200
|
|
|
|
30,200
|
|
|
|
30,200
|
|
Basic and diluted earnings per share (pesos per share)
|
|
|
15.63
|
|
|
|
9.91
|
|
|
|
6.88
|
|
|
23.
|
Related parties balances and transactions
|
Balances and transactions between
Betterware and BLSM, which are related parties, have been eliminated on combination and are not disclosed in this note. Details
of transactions between the Group and other related parties are disclosed below.
Key management personnel compensation
comprised short-term employee benefits by Ps. 34,540 and Ps. 34,500 as of December 31, 2019 and 2018, respectively. Compensation
of the Group’s key management personnel includes salaries and non-cash benefits. No long-term employee benefits were paid
to key management personnel during 2019 and 2018. Additionally, the Group does not have any share-based payment scheme for employees.
Transactions
During
2017, the Group entered into the following transactions with related
parties that are not members of the Group:
|
|
2017
|
|
Interest income
|
|
|
|
|
Strevo Holding, S.A. de C.V.(i)
|
|
Ps.
|
18,650
|
|
Betterware Controladora, S.A. de C.V.(i)
|
|
|
316
|
|
|
|
|
|
|
Total
|
|
|
18,966
|
|
(i) Merged with the Group on
July 28, 2017
The following balances were
outstanding as of December 31, 2019 and 2018:
|
|
|
2019
|
|
|
|
2018
|
|
Trade accounts receivable from related parties
|
|
|
|
|
|
|
|
|
Fundación Betterware., A.C.
|
|
Ps.
|
610
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
610
|
|
|
|
-
|
|
|
24.
|
Revenue and operating expenses
|
Revenue –
Revenue recognized during 2019,
2018 and 2017 is generated in Mexico. A disaggregation per home product is as follows:
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Kitchen and food preservation
|
|
Ps.
|
1,229,148
|
|
|
|
820,995
|
|
|
|
484,044
|
|
Home solutions
|
|
|
529,551
|
|
|
|
360,595
|
|
|
|
223,383
|
|
Bathroom
|
|
|
441,093
|
|
|
|
376,262
|
|
|
|
250,741
|
|
Laundry & Cleaning
|
|
|
318,782
|
|
|
|
308,359
|
|
|
|
186,708
|
|
Tech & mobility
|
|
|
290,366
|
|
|
|
196,439
|
|
|
|
105,957
|
|
Bedroom
|
|
|
275,722
|
|
|
|
254,066
|
|
|
|
198,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
3,084,662
|
|
|
|
2,316,716
|
|
|
|
1,449,705
|
|
Contract balances
As of December 31, 2019 and
2018, the Group did not identify significant costs to obtain/fulfill a contract that are required to be capitalized as an asset.
Consequently, the Group did not perform any analysis in order to identify possible impairment losses. See Note 6 about the expected
credit loss model applicable to all financial assets measured at amortized cost.
Operating expenses –
Operating expenses by nature, for the years ended
December 31, 2019, 2018 and 2017 are as follows:
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Cost of personnel services and other employee benefits
|
|
Ps.
|
423,956
|
|
|
|
332,878
|
|
|
|
227,597
|
|
Sales catalog
|
|
|
128,687
|
|
|
|
92,931
|
|
|
|
66,562
|
|
Distribution costs
|
|
|
121,155
|
|
|
|
102,397
|
|
|
|
63,283
|
|
Packing materials
|
|
|
58,361
|
|
|
|
46,976
|
|
|
|
27,258
|
|
Depreciation and amortization
|
|
|
38,394
|
|
|
|
25,960
|
|
|
|
24,209
|
|
Events, marketing and advertising
|
|
|
37,848
|
|
|
|
35,253
|
|
|
|
21,513
|
|
Promotions for the sales force
|
|
|
26,311
|
|
|
|
24,492
|
|
|
|
2,417
|
|
Impairment loss on trade accounts receivables
|
|
|
22,512
|
|
|
|
18,699
|
|
|
|
16,243
|
|
Travel expenses
|
|
|
18,835
|
|
|
|
17,254
|
|
|
|
14,974
|
|
Rent expense, operating leases
|
|
|
17,663
|
|
|
|
20,269
|
|
|
|
11,794
|
|
Bank fees
|
|
|
15,436
|
|
|
|
30,934
|
|
|
|
24,174
|
|
Commissions and professional fees
|
|
|
13,577
|
|
|
|
8,335
|
|
|
|
8,444
|
|
Other
|
|
|
68,853
|
|
|
|
50,122
|
|
|
|
52,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
991,588
|
|
|
|
806,500
|
|
|
|
560,738
|
|
Information reported to the
Chief Operating Decision Maker (“CODM”), for the purposes of resource allocation and assessment of business performance,
focuses on the Group as a whole and with main strategies on a company-wide basis. As discussed in Note 1, the Group is focused
on the home organization segment whose product portfolio includes home organization, kitchen preparation, food containers, and
practical furniture, among other categories (see Note 24). The Group’s products are offered through 9 catalogs in Mexico
over the year. As such, no reporting on segment information is deemed necessary to assess the Group performance given its business
model and current operations.
In addition to the above, the
Group obtains all its revenue from the Mexican market, therefore no geographic information is disclosed. Also, the Group considers
that there are no major customers, and therefore, no concentration risks exist given the nature of the business and the sale of
its products through a significant number of distributors.
Lease arrangements
The Group leases warehouses
and an administrative office space that expire on December 31, 2020. Leases will not be renewed because the Group will move to
the new distribution center when its construction is finalized (see Note 1). Rental expense for the years ended December 31, 2019,
2018 and 2017 was Ps. 11,605, Ps. 14,169 and Ps. 11,794, respectively.
Borrowings
The secured line of credit
with Banamex, for up to Ps. 400,000 (Note 15) has a lien for the land acquired to build the Group’s new corporate headquarters
and distribution center (Note 10).
The Group is a party to various
legal actions in the normal course of its business. The Group is not involved in or threatened by proceedings for which the Group
believes it is not adequately insured or indemnified or which, if determined adversely, would have a material adverse effect on
its combined financial position, results of operations and cash flows.
Additional taxes payable could
arise in transactions with related parties if the tax authority, during a review, believes that prices and amounts used by the
Group are not similar to those used with or between independent parties in comparable transactions.
In accordance with the current
tax legislation, the authorities have the power to review up to five fiscal years prior to the last income tax return filed.
On August 12, 2014, the International
Inspection Administration “4” (“AFI” for its acronym in Spanish), under the Central Administration of International
Control, in relation to the General Administration of Large Taxpayers of the Tax Administration Service (“SAT” for
its acronym in Spanish), requested information regarding the Group’s 2010 income tax filing, which was provided at that time.
On February 20, 2017, the final agreement was signed with the Taxpayer Advocacy Office (“PRODECON”) regarding the SAT’s
review. On March 2, 2017, the SAT notified the Group about certain issues on which an agreement was not reached. As a result, the
Group filed a lawsuit for annulment before the SAT’s resolution, which is in progress as of the date of issuance of these
combined financial statements. Based on the evaluation of the Group’s Management, tax liabilities are not expected to arise
as a result of this matter. The maximum exposure of the contingent liability on this matter was estimated to amount Ps. 14,010.
|
a)
|
On January 10, 2020, the Ordinary General Shareholders’ Meeting approved a dividends payment
from retained earnings for an amount of Ps. 70,000 which were paid in cash. Part of this amount (Ps. 42,739) was paid to Campalier
based on its equity interest.
|
|
b)
|
On January 30, 2020, the Group renegotiated the interest rate of the secured line of credit with
Banamex, which changed from TIIE rate plus 317 basis points to TIIE rate plus 260 basis points. In addition, withdrawals from this
line of credit were extended to August 2020, and are payable on a quarterly basis from September 2020 up to December 18, 2025 (see
Note 15). The assessment required by IFRS 9 to conclude whether the renegotiation qualified as an extinguishment or modification
of a financial liability (see note 2g) was performed and qualified as a modification of debt.
|
|
c)
|
As of March 10, 2020, Betterware’s legal designation changed from Betterware, S.A. de C.V.
to Betterware. S.A.P.I. de C.V. Additionally, the transaction with DD3 closed on March 13, 2020. All Betterware shares issued and
outstanding immediately prior to the closing date were canceled and new shares were issued. Betterware issued shares to DD3’s
shareholders and obtained cash of US$22,767 (Ps. 498,445) through the acquisition of DD3 and concurrently settled a liabilities
owed by DD3 and related transaction costs on such date, for net cash proceeds of US$7,519 (Ps. 181,734) on such date. No other
assets or liabilities were transferred as part of the transaction. On the same date, 2,040,000 shares of Betterware offered for
subscription and payment under its initial public offering on Nasdaq were subscribed and paid for by different investors. As of
the closing date, BLSM is now a wholly-owned subsidiary of Betterware. As a result of the transaction, Betterware’s original
shareholders maintained an ownership of 87.7% of the total outstanding shares, DD3’s shareholders obtained a 6.4% ownership
interest and investors under the Nasdaq listing a 5.9% ownership interest. After the closing date, Betterware has 34,451,020 shares
issued and outstanding.
|
|
d)
|
On March 25, 2020, the Group withdrew Ps. 74,000 from its secured line of credit with Banamex (see Notes 15 and 28b).
|
|
e)
|
On March 27, 2020, the Group made a prepayment to the line of credit with MCRF P, S.A. de C.V.
SOFOM, E.N.R of Ps. 258,750. In addition, on April 27, 2020, the Group paid the outstanding amount of the line of credit using
corporate resources (see Note 15).
|
|
f)
|
On April 13, 2020, the Group withdrew Ps. 100,000 from its secured line of credit with Banamex (see Notes 15 and 28b).
|
|
g)
|
As a result of the outbreak of the Coronavirus (COVID-19) and its recent global expansion to a
large number of countries, it has led to the viral outbreak being classified as a pandemic by the World Health Organization since
March 11, 2020. Sanitary measures have been taken in Mexico to limit the spread of this virus, which include among others, social
isolation and the closure of educational centers (schools and universities), commercial establishments and non-essential businesses.
There is strong uncertainty about how this virus will evolve in Mexico, the time needed for precautionary and/or containment measures
to take effect, and the outcome it will have on the national economy; therefore the economic impacts and consequences for the Company’s
operations are uncertain and will depend to a large extent on the evolution and spread of the pandemic in the coming months, as
well as the reaction and adaptation capacity of all the economic agents impacted.
|
The Company’s operations have
not been interrupted as a result of the COVID-19 pandemic as its product lines include hygiene and cleaning solutions, which qualify
as an essential activity in Mexico. The supply chain has not been affected either, as the Company maintains sufficient inventory
levels to supply sales for the subsequent 13 weeks, and its foreign suppliers restarted normal activities on March 1st of 2020.
Net sales in 2020 from week one to sixteen increased with respect to the same period of the previous year. The Company’s
gross margin has been negatively affected by promotions aimed at gaining market share and the appreciation of the U.S. dollar compared
to the Mexican peso’s impact on inventory costs as it purchases most of its products in U.S. dollars. In order to mitigate
this risk, the Company enters into forward contracts to fix the exchange rate for future purchases in dollars, which has allowed
it to partially reduce the exchange rate effects of the COVID-19 pandemic. In addition, management is working on plans to increase
the introduce products with higher profit margins and therefore reduce the negative effects that impact its profit margin. The
Company maintains sufficient liquidity to meet its contractual obligations as a result of available sources of financing, in addition
its customer’s payment terms are maintained between 14 and 28 days, while its payment terms to its suppliers are 120 days.
|
29.
|
Authorization to issue the combined financial statements
|
On May 4, 2020, the issuance
of the Group’s combined financial statements was authorized by Andrés Campos, Chief Executive Officer, and Gustavo
Rodarte de la Serna, Chief Financial Officer.
* * * * * *
Betterware
de México, S. A. de C. V. and Combined Entity
Notes
to the Combined Financial Statements
As
of December 31, 2018 and 2017, and January 1, 2017, and for the years ended December 31, 2018 and 2017
(In
thousands of Mexican pesos “Ps.” and thousands of U.S. dollars “US$”, unless otherwise indicated)
|
1.
|
Nature
of business and significant events
|
Betterware
de México, S. A. de C. V. (“Betterware”) is a direct-to-consumer selling company, focused on the home organization
segment which product portfolio includes home organization, kitchen preparation, food containers, among other categories (“Home
Organization Products”). The Entity purchases those Home Organization Products and sells them through 9 (nine) catalogs
throughout the year.
BLSM
Latino América Servicios, S.A. de C.V., (“BLSM”) is a company that only provides administrative, technical
and operating services to Betterware.
Betterware
and BLSM (together hereinafter the “Group”) are companies incorporated in Mexico and carry out their operations in
Mexico. The company’s address of its registered office and principal place of business is Luis Enrique Williams 549, Parque
Industrial Belenes Norte, Zapopan, Jalisco, México, C.P. 45150.
Significant
event –
On
July 28, 2017, the Extraordinary General Shareholders’ Meeting agreed to merge Betterware, as a merging company, with Betterware
Controladora, S.A. de C.V. and Strevo Holding, S.A. de C.V. (holding company and a related party, respectively), as merged companies.
The merger was carried out based on the figures as of July 28, 2017, so as of that date, the merged entities ceased to exist.
In accordance with the General Law of Commercial Companies, when the merger took effect, all of the assets, liabilities, rights,
obligations, and liabilities of the merged companies were incorporated into the merging company, without reservations or limitations.
As a result of this, the Entity’s assets decreased by Ps. 16,513, liabilities increased by Ps. 60,144 and stockholders’
equity decreased by Ps. 76,657. See Note 20. The afore-mentioned transaction was recognized by Betterware at the book value of
the assets, liabilities and stockholders’ equity of the merged entities at the date of the merger considering that before
and after such transaction were and continued to be under common control.
As
a result of the aforementioned merger, as of July 28, 2017, the Betterware became a subsidiary of Campalier, S.A. de C.V., the
ultimate holding company.
|
2.
|
Significant
accounting policies
|
The
combined financial statements include the financial statements of Betterware and BLSM. The Group prepares combined financial statements
for the above-referred companies because it provides more meaningful information to the reader as both entities are complementary
to the same operation, they are under common control and operate under common management. These combined financial statements
have been prepared for purposes of including them in a filing with the U.S. Securities and Exchange Commission, where, it is contemplated
that once the transaction in question takes place BLSM will become in a subsidiary of Betterware.
Transactions
among the combined companies and the balances and unrealized gains or losses arising from intra-group transactions have been eliminated
in the preparation of the combined financial statements.
|
b.
|
Statement
of compliance
|
The
combined financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board.
These
are the Group´s first combined financial statements prepared in accordance with IFRS and IFRS 1 First-time Adoption of
International Financial Reporting Standards has been applied.
An
explanation of how the transition to IFRSs has affected the reported financial position, financial performance and cash flows
of the Group is provided in Note 28.
On
June 10, 2019, the issuance of the accompanying combined financial statements was authorized by Lic. Luis Germán Campos
Orozco, President of the Group; consequently, they do not reflect events occurred after that date. These combined
financial statements are subject to the approval of the Group’s ordinary shareholders’ meeting, where they may be
modified, based on provisions set forth in the Mexican General Corporate Law.
The
combined financial statements have been prepared on the historical cost basis except for certain financial instruments measured
at fair value.
Functional
and presentation currency
These
combined financial statements are presented in Mexican pesos (“Ps.”), which is the Group’s functional currency.
All financial information presented in Mexican pesos has been rounded to the nearest thousand (except where specified differently).
When referring to U.S. dollars (“US$”), it is thousands of dollars of the United States of America.
Combined
statement of profit or loss and other comprehensive income
The
Group opted to present a single combined statement of profit or loss and comprehensive income, combining the presentation of profit
and loss, including an operating profit line item, and comprehensive income in the same statement. Due to the commercial activities
of the Group, costs and expenses presented in the combined statements of profit or loss and other comprehensive income were classified
according to their function. Accordingly, cost of sales and operating expenses were presented separately.
Financial
assets and financial liabilities are recognized in the Group’s combined statement of financial position when the Group becomes
a party to the contractual provisions of the instrument.
Financial
assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair
value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as
appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial
liabilities at fair value through profit or loss are recognized immediately in profit or loss.
All
recognized financial assets are measured subsequently in their entirety at either amortized cost or fair value, depending on the
classification of the financial assets.
Classification
of financial assets
Debt
instruments that meet the following conditions are measured subsequently at amortized cost:
|
●
|
the
financial asset is held within a business model whose objective is to hold financial
assets in order to collect contractual cash flows; and
|
|
|
|
|
●
|
the
contractual terms of the financial asset give rise on specified dates to cash flows that
are SPPI on the principal amount outstanding.
|
Debt
instruments that meet the following conditions are measured subsequently at fair value through other comprehensive income (FVTOCI):
|
●
|
the
financial asset is held within a business model whose objective is achieved by both collecting
contractual cash flows and selling the financial assets; and
|
|
|
|
|
●
|
the
contractual terms of the financial asset give rise on specified dates to cash flows that
are SPPI on the principal amount outstanding.
|
By
default, all other financial assets are measured subsequently at fair value through profit or loss (FVTPL).
Despite
the foregoing, the Group may make the following irrevocable election/designation at initial recognition of a financial asset:
|
●
|
the
Group may irrevocably elect to present subsequent changes in fair value of an equity
investment in other comprehensive income if certain criteria are met (see (iii) below);
and
|
|
|
|
|
●
|
the
Group may irrevocably designate a debt investment that meets the amortized cost or FVTOCI
criteria as measured at FVTPL if doing so eliminates or significantly reduces an accounting
mismatch (see (iv) below).
|
Amortized
cost and effective interest method
The
effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income
over the relevant period.
The
amortized cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal
repayments, plus the cumulative amortization using the effective interest method of any difference between that initial amount
and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortized cost
of a financial asset before adjusting for any loss allowance.
Foreign
exchange gains and losses
The
carrying amount of financial assets that are denominated in a foreign currency is determined in that foreign currency and translated
at the spot rate at the end of each reporting period. Specifically, for financial assets measured at amortized cost that are not
part of a designated hedging relationship, exchange differences are recognized in profit or loss.
Impairment
of financial assets
The
Group always recognizes lifetime ECL for trade receivables. The expected credit losses on these financial assets are estimated
using the simplified approach as described in Note 3b.
For
all other financial instruments, the Group recognizes lifetime ECL when there has been a significant increase in credit risk since
initial recognition. However, if the credit risk on the financial instrument has not increased significantly since initial recognition,
the Group measures the loss allowance for that financial instrument at an amount equal to 12-month ECL.
Lifetime
ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial
instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on
a financial instrument that are possible within 12 months after the reporting date.
Write-off
policy
The
Group writes off a financial asset when there is information indicating that the debtor is in severe financial difficulty and
there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy
proceedings, or in the case of trade receivables, when the amounts are over one year past due, whichever occurs sooner. Financial
assets written off may still be subject to enforcement activities under the Group’s recovery procedures, taking into account
legal advice where appropriate. Any recoveries made are recognized in profit or loss.
All
financial liabilities are measured subsequently at amortized cost using the effective interest method or at FVTPL.
Financial
liabilities at FVTPL are measured at fair value, with any gains or losses arising on changes in fair value recognized in profit
or loss to the extent that they are not part of a designated hedging relationship.
Financial
liabilities and equity
Classification
as debt or equity
Debt
and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual
arrangements and the definitions of a financial liability and an equity instrument.
Financial
liabilities measured subsequently at amortized cost
Financial
liabilities that are not (i) contingent consideration of an acquirer in a business combination, (ii) held-for-trading, or (iii)
designated as at FVTPL, are measured subsequently at amortized cost using the effective interest method.
The
effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense
over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including
all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums
or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortized
cost of a financial liability.
Foreign
exchange gains and losses
For
financial liabilities that are denominated in a foreign currency and are measured at amortized cost at the end of each reporting
period, the foreign exchange gains and losses are determined based on the amortized cost of the instruments. These foreign exchange
gains and losses are recognized in the ‘Foreign exchange (loss) gain, net’ line item in the Combined Statements of
Profit or Loss and Other Comprehensive Income for financial liabilities that are not part of a designated hedging relationship.
The
fair value of financial liabilities denominated in a foreign currency is determined in that foreign currency and translated at
the spot rate at the end of the reporting period. For financial liabilities that are measured as at FVTPL, the foreign exchange
component forms part of the fair value gains or losses and is recognized in profit or loss for financial liabilities that are
not part of a designated hedging relationship.
Derecognition
of financial liabilities
The
Group derecognizes financial liabilities when, and only when, the Group’s obligations are discharged, canceled or have expired.
The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized
in profit or loss.
When
the Group exchanges with the existing lender one debt instrument into another one with the substantially different terms, such
exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.
Similarly, the Group accounts for substantial modification of terms of an existing liability or part of it as an extinguishment
of the original financial liability and the recognition of a new liability. It is assumed that the terms are substantially different
if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted
using the original effective rate is at least 10 per cent different from the discounted present value of the remaining cash flows
of the original financial liability. If the modification is not substantial, the difference between (1) the carrying amount of
the liability before the modification; and (2) the present value of the cash flows after modification should be recognized in
profit or loss as the modification gain or loss within other gains and losses.
|
g.
|
Derivative
financial instruments
|
The
Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate
risks, including foreign exchange forward contracts and interest rate swaps. Further details of derivative financial instruments
are disclosed in Note 17.
Derivatives
are recognized initially at fair value at the date a derivative contract is entered into and are subsequently remeasured to their
fair value at each reporting date. The resulting gain or loss is recognized in profit or loss immediately unless the derivative
is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on
the nature of the hedge relationship.
A
derivative with a positive fair value is recognized as a financial asset whereas a derivative with a negative fair value is recognized
as a financial liability. Derivatives are not offset in the combined financial statements unless the Group has both legal right
and intention to offset. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity
of the instrument is more than 12 months and it is not expected to be realized or settled within 12 months. Other derivatives
are presented as current assets or current liabilities.
|
h.
|
Inventories
and cost of sales
|
Inventories
are measured at the lower of cost and net realizable value. The cost of inventories is based on weighted-average. The net realizable
value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling
and distribution.
Prepaid
expenses are mainly comprised of advanced payments for printed catalogs, as well as, advanced payments for the purchase of inventories
that are received after the date of the combined statement of financial position and during the normal course of business, and
they are presented in current assets in accordance with the classification of the destination item.
Other
assets mainly include restricted cash, inventory of rewards and rent security deposits. They are presented in current or non-current
assets in accordance with the classification of the destination item.
|
●
|
Restricted
cash: equals one quarter of the interest accrued under the long term credit with
MCRFP, S.A. de C.V. SOFOM, E.N.R. (see note 5).
|
|
●
|
Inventory
of rewards: Inventory of rewards mainly consist of certain products and items (in
the form of rewards) that Betterware acquires with the purpose to encourage sales among
the distributors, such inventory is acquired once the distributors redeemed the reward
points that are granted by the Group so that the balance of inventory at each reporting
period only relates to items already redeemed but not delivered. Inventory of rewards
are recognized at its cost of acquisition and are recognized in the statement of profit
and loss overtime as distributors earn the points granted by the Group based on its loyalty
program.
|
|
k.
|
Molds,
equipment, and leasehold improvements
|
Items
of molds, equipment, and leasehold improvements are measured at cost less accumulated depreciation and any accumulated impairment
losses.
If
significant parts of an item of molds, equipment and leasehold improvements have different useful lives, then they are accounted
for as separate items (major components) of molds, equipment and leasehold improvements.
Depreciation
is recognized to write off the cost or valuation of assets, using the straight-line method. The estimated useful lives and depreciation
method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective
basis.
The
following useful lives are used in the calculation of depreciation:
Molds
|
5
years
|
Vehicles
|
4
years
|
Computers
and equipment
|
3
- 10 years
|
Leasehold
improvements
|
3
years
|
An
item of molds, equipment and leasehold improvements is derecognized upon disposal or when no future economic benefits are expected
to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of molds, equipment
and leasehold improvements is determined as the difference between the sales proceeds and the carrying amount of the asset and
is recognized in profit or loss.
This
is an intangible asset with an indefinite useful life and corresponds mainly to the value of the “Betterware” brand,
which was transmitted to the Group through a merger with Strevo Holding, S.A. de C.V. on July 28, 2017. This intangible asset
is subject annual impairment testing, and whenever there is an indication that the asset may be impaired.
Additionally,
the Group has recorded expenses related to registration of trademark rights, which have a finite life. Such expenses are amortized
on a straight-line basis over their estimated useful lives.
|
●
|
Relationship
with customers
|
This
is an intangible asset with a definite useful life of ten years and it is being amortized on a straight line basis and corresponds
to the value of the relationships with customers. It was transmitted to the Group through a merger with Strevo Holding, S.A. de
C.V. on July 28, 2017. This intangible asset is subject annual impairment testing, and whenever there is an indication that the
asset may be impaired.
|
●
|
Derecognition
of intangible assets
|
An
intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or
losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the
carrying amount of the asset, are recognized in profit or loss when the asset is derecognized.
|
m.
|
Impairment
of tangible and intangible assets other than goodwill
|
At
the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount
of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate
the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which
the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated
to individual cash-generating units, or otherwise, they are allocated to the smallest group of cash-generating units for which
a reasonable and consistent allocation basis can be identified.
Intangible
assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually,
and whenever there is an indication that the asset may be impaired.
Recoverable
amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows
are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If
the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced
to its recoverable amount. Any impairment is recognized immediately in profit or loss, unless the asset is carried at its revalued
amount in accordance with IAS 16 Property, Plant and Equipment. Any impairment loss of a revalued asset is treated as a revaluation
decrease in accordance with IAS 16.
When
an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable
amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment
loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized immediately in profit or loss
unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation
increase.
Goodwill
corresponds to the excess resulted between the consideration paid and the fair values of the net assets acquired at the date of
acquisition paid by Betterware Latinoamérica Holding México, S.A. de C.V. (BLHM) and Strevo Holding, S.A. de C.V.,
goodwill was generated by different legal entities and transmitted to the Group through the mergers carried out on November 30,
2002 and July 28, 2017, respectively.
As
mentioned in note 11, Goodwill was transferred to the Group through mergers carried out on November 30, 2002 and July 28, 2017
with BLHM and Strevo Holding, S.A. de C.V., respectively, which was generated through the acquisitions of shares of the Group
in November 2002 and March 2015.
Goodwill
is not amortized but is tested annually for impairment. Goodwill arising from a business combination is allocated to the cash
generating unit (“CGU”) or groups of CGUs that receive a benefit from the synergies of the combination. An impairment
loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognized
in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce
the carrying amounts of the other assets in the CGU on a pro rata basis. An impairment loss in respect of goodwill is not reversed.
Leases
are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership
to the lessee. All other leases are classified as operating leases.
Operating
lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis
is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising
under operating leases are recognized as an expense in the period in which they are incurred.
In
the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The
aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except where another
systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
In
preparing the combined financial statements, transactions in currencies other than the Group’s functional currency (foreign
currencies) are recognized at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated
in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets
and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange
rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are
translated at the exchange rate at the date of transaction.
Exchange
differences on monetary items are recognized in profit or loss in the period in which they arise.
Retirement
benefits costs from termination benefits
The
calculation for defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method,
with actuarial valuations being carried out at the end of each annual reporting period. Remeasurements of the net defined benefit
liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset
ceiling (if applicable), are recognized immediately in the combined statement of financial position with a charge or credit recognized
in other comprehensive income in the period in which they occur. Remeasurement recognized in other comprehensive income is not
reclassified. Past service cost is recognized in profit or loss in the period of a plan amendment or curtailment occurs, or when
the Group recognizes related restructuring costs or termination benefits, if earlier.
Net
interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset.
Defined benefit costs are categorized as follows:
|
●
|
Service
cost (including current service cost, past service cost, as well as gains and losses
on curtailments and settlements).
|
|
|
|
|
●
|
Net
interest expense or income, and
|
|
|
|
Short-term
and other long-term employee benefits and statutory employee profit sharing (“PTU”)
A
liability is recognized for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the
period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service.
Likewise, a liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation
to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
Liabilities
recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid
in exchange for the related service.
Liabilities
recognized in respect of other long-term employee benefits are measured at the present value of the estimated future cash outflows
expected to be made by the Group in respect of services provided by employees up to the reporting date.
Statutory
employee profit sharing (“PTU”)
PTU
is recorded in the results of the year in which it is incurred and is presented in operating expenses line item in the combined
statement of profit or loss and other comprehensive income.
As
a result of the 2014 Income Tax Law, as of December 31, 2018 and 2017, PTU is determined based on taxable income, according to
Section I of Article 9 of the that Law.
Termination
benefits
A
liability for a termination benefit is recognized at the earlier of when the Group can no longer withdraw the offer of the termination
benefit and when the Group recognizes any related restructuring costs.
The
income tax expense represents the sum of the tax currently payable and deferred tax.
Current
income tax (“ISR”) is recognized in the results of the year in which is incurred.
The
tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in profit or
loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the end of the reporting period.
A
provision is recognized for those matters for which the tax determination is uncertain but it is considered probable that there
will be a future outflow of funds to a tax authority. The provisions are measured at the best estimate of the amount expected
to become payable. The assessment is based on the judgment of tax professionals within the Group supported by previous experience
in respect of such activities and in certain cases based on specialist independent tax advice.
Deferred
tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the combined financial statements
and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for
all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the
extent that it is probable that taxable profits will be available against which those deductible temporary differences can be
utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from the initial recognition
(other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor
the accounting profit. In addition, deferred tax liabilities are not recognized if the temporary difference arises from the initial
recognition of goodwill.
The
carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred
tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled
or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting
date.
The
measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the
Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
|
●
|
Current
and deferred tax for the year
|
Current
and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive
income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or
directly in equity respectively.
Provisions
are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that
the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
Provisions
mainly include incentives granted to distributors in the form of reward points, discounts and others such as compensations to
employees (bonuses) not paid at the reporting date, professional services fees, etcetera.
The
amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end
of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured
using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows
(when the effect of the time value of money is material).
When
some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable
is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can
be measured reliably.
The
Group recognizes revenue when it transfers control over a product or service to a customer. The management applies the five-step
model to determine when to recognize revenue and at what amount:
|
●
|
Identify
the contract with client (verbal or written).
|
|
|
|
|
●
|
Identify
the performance obligations committed in the contract.
|
|
|
|
|
●
|
Consider
the contractual terms and the business model of the Group in order to determine the transaction
price. The transaction price is the amount of consideration to which an Group expects
to be entitled in exchange for transferring goods or services to a customer, excluding
amounts collected on behalf of third parties. In determining the transaction price, the
Group considers the variable considerations.
|
|
|
|
|
●
|
Allocate
the transaction price to the performance obligations identified in the contract (generally
each distinct good or service), to depict the amount of consideration to which an Group
expects to be entitled in exchange for transferring the promised goods or services to
the customer.
|
|
|
|
|
●
|
Recognition
of revenue when or as it satisfies a performance obligation by transferring a good or
service to a customer, either at a point in time (when) or over time (as).
|
The
following table provides information about the nature, timing and satisfaction of performance obligations and the significant
payment terms:
Products
and services
|
|
Nature,
timing of satisfaction of performance obligations and significant payments terms
|
|
Revenue
recognition under IFRS 15 (applicable since January 1, 2018)
|
|
Revenue
recognition under IAS 18 (applicable before
January 1, 2017)
|
Home
products
|
|
Customers
take control of the products when this are delivered.
Invoices
are generated at the shipment date and they are paid usually between 15 and 30 days.
The
Customers are allowed to exchange products the products (only if such products have issues identified such as: damages
or failures in its nature).
|
|
The
revenue recognition from sales of home products are recognized at a point in time when the customers took delivery of the
products and formally accepted.
|
|
Revenue
from the sales of goods was recognized when the significant risks and rewards of ownership has been transferred to the customer.
|
Variable
considerations
The
Group adjusts the transaction price according to the estimations of discounts and rebates that may result in variable consideration.
This estimates are determined according to the terms and conditions of the contracts with clients, the history or the client´s
performance.
Contract
costs
A
Group capitalizes incremental costs to obtain a contract with a customer if it expects to recover those costs. However, the Group
does not capitalize incremental costs if the amortization period for the asset is one year or less. For any other cost related
to the fulfillment of a contract with a client, that is not part of the revenue recognition, it is considered as an asset including
all the costs incurred, only if such costs are directly related to an existing contract or specific anticipated contract and if
those costs generate or enhance resources that will be used to satisfy performance obligations in the future and are expected
to be recovered. The Group amortizes the asset recognized for the costs to obtain and/or fulfill a contract on a systematic basis,
consistent with the pattern of transfer of the good or service to which the asset relates.
|
u.
|
Financing
income and cost
|
Financing
income (cost) are comprised of interest income, interest expense, the foreign currency gain or loss on financial assets and financial
liabilities; and gain (loss) in valuation of financial derivative instruments. Those are recognized in the combined statement
of profit or loss and other comprehensive income when accrued.
Significant
obligations or losses related to contingencies are recognized when it is probable that their effects will materialize and there
are reasonable elements for their quantification. If these reasonable elements do not exist, their disclosure is included qualitatively
in the notes to the combined financial statements. Income, profits or contingent assets are recognized until such time as there
is certainty of their realization.
|
w.
|
Common
Control Transactions
|
The
Group has established as its accounting policy choice to recognize transactions under common control at the book value of the
assets and liabilities acquired or involved in the common control transaction (either acquisition or disposition).
|
3.
|
Changes
in significant accounting policies
|
|
a.
|
Application
of new and revised International Financing Reporting Standards (“IFRSs” or
“IAS”) that are mandatorily effective for the current year
|
In
the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board
(“IASB”) that are mandatorily effective for an accounting period that begins on or after January 1, 2018.
New
and amended IFRS Standards that are effective for the current year
Impact
of initial application of IFRS 9 Financial Instruments
The
Group has early adopted the IFRS 9 in the combined financial statements on January 1, 2017 under the cumulative effect method
(prospective method). The Group adopted the new standard and the related consequential amendments to other IFRS Standards that
are effective for an annual period that begins on or after 1 January 2018.
Additionally,
the Group adopted consequential amendments to IFRS 7 Financial Instruments: Disclosures that were applied to the disclosures
about 2018 and to the comparative period.
IFRS
9 introduced new requirements for:
|
1.
|
The
classification and measurement of financial assets and financial liabilities,
|
|
|
|
|
2.
|
Impairment
of financial assets, and
|
|
|
|
|
3.
|
General
hedge accounting.
|
Details
of these new requirements as well as their impact on the Group’s combined financial statements are described below.
The
Group has applied IFRS 9 in accordance with the transition provisions set out in IFRS 9.
|
(a)
|
Classification
and measurement of financial assets
|
The
date of initial application (i.e. the date on which the Group has assessed its existing financial assets and financial liabilities
in terms of the requirements of IFRS 9) is January 1, 2017 as the Group has anticipated the adoption of IFRS 9. All recognized
financial assets that are within the scope of IFRS 9 are required to be measured subsequently at amortized cost or fair value
on the basis of the Group’s business model for managing the financial assets and the contractual cash flow characteristics
of the financial assets.
Specifically:
|
●
|
debt
instruments that are held within a business model whose objective is to collect the contractual
cash flows, and that have contractual cash flows that are solely payments of principal
and interest on the principal amount outstanding, are measured subsequently at amortized
cost;
|
|
|
|
|
●
|
debt
instruments that are held within a business model whose objective is both to collect
the contractual cash flows and to sell the debt instruments, and that have contractual
cash flows that are solely payments of principal and interest on the principal amount
outstanding, are measured subsequently at fair value through other comprehensive income
(FVTOCI);
|
|
|
|
|
●
|
all
other debt investments and equity investments are measured subsequently at fair value
through profit or loss (FVTPL).
|
Despite
the foregoing, the Group may make the following irrevocable election/designation at initial recognition of a financial asset:
|
●
|
the
Group may irrevocably elect to present subsequent changes in fair value of an equity
investment that is neither held for trading nor contingent consideration recognized by
an acquirer in a business combination in other comprehensive income; and
|
|
|
|
|
●
|
the
Group may irrevocably designate a debt investment that meets the amortized cost or FVTOCI
criteria as measured at FVTPL if doing so eliminates or significantly reduces an accounting
mismatch.
|
In
the current year, the Group has not designated any debt investments that meet the amortized cost or FVTOCI criteria as measured
at FVTPL.
When
a debt investment measured at FVTOCI is derecognized, the cumulative gain or loss previously recognized in other comprehensive
income is reclassified from equity to profit or loss as a reclassification adjustment. When an equity investment designated as
measured at FVTOCI is derecognized, the cumulative gain or loss previously recognized in other comprehensive income is subsequently
transferred to retained earnings.
Debt
instruments that are measured subsequently at amortized cost or at FVTOCI are subject to impairment. See (b) below.
Management
reviewed and assessed the Group’s existing financial assets as at January 1, 2017 based on the facts and circumstances that
existed at that date and concluded that the initial application of IFRS 9 had no impact on the Group’s financial assets
as regards their classification and measurement, since financial assets which mainly consist in trade receivables that under IAS
39 were measured at amortized cost, continue to be measured at amortized cost under IFRS 9 as they are held within a business
model to collect contractual cash flows and these cash flows consist solely of payments of principal amount outstanding. As such,
there was no impact on the Group’s financial position, profit or loss, other comprehensive income or total comprehensive
income in either year.
|
(b)
|
Impairment
of financial assets
|
In
relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model as opposed to an incurred credit
loss model under IAS 39. The expected credit loss model requires the Group to account for expected credit losses and changes in
those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial
assets. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognized.
Specifically,
IFRS 9 requires the Group to recognize a loss allowance for expected credit losses on:
|
(1)
|
Debt
investments measured subsequently at amortized cost or at FVTOCI,
|
|
|
|
|
(3)
|
Trade
receivables and contract assets, and
|
|
|
|
|
(4)
|
Financial
guarantee contracts to which the impairment requirements of IFRS 9 apply.
|
In
particular, IFRS 9 requires the Group to measure the loss allowance for a financial instrument at an amount equal to the lifetime
expected credit losses (ECL) if the credit risk on that financial instrument has increased significantly since initial recognition,
or if the financial instrument is a purchased or originated credit-impaired financial asset. However, if the credit risk on a
financial instrument has not increased significantly since initial recognition (except for a purchased or originated credit-impaired
financial asset), the Group is required to measure the loss allowance for that financial instrument at an amount equal to 12-months
ECL. The Group has applied a simplified approach, as permitted by IFRS 9, for measuring the loss allowance at an amount equal
to lifetime ECL for trade receivables, as those receivables represent the main financial asset, other than cash and cash equivalents.
Because
the Group has elected to restate comparatives, for the purpose of assessing whether there has been a significant increase in credit
risk since initial recognition of financial instruments that remain recognized on the date of initial application of IFRS 9 (i.e.
1 January 2017), management has compared the credit risk of the respective financial instruments on the date of their initial
recognition to their credit risk as at 1 January 2017.
The
result of the assessment is as follows:
Items
existing as at 01/01/17 that
are
subject to the impairment
provisions
of IFRS 9
|
|
Credit
risk attributes at
01/01/17
and 01/01/18
|
|
Cumulative
additional loss allowance recognized on:
|
|
|
|
|
|
Trade
receivables
|
|
The
Group applies the simplified approach and recognizes lifetime ECL for these assets.
|
|
No additional loss allowance was necessary for 2017 and 2018. ECL for years 2018 and 2017 was Ps. 18,699 and Ps. 16,243 respectively.
|
Cash
and bank balances
|
|
All
bank balances are assessed to have low credit risk at each reporting date as they are held with reputable international banking
institutions
|
|
None
|
The
consequential amendments to IFRS 7 have also resulted in more extensive disclosures about the Group’s exposure to credit
risk in the combined financial statements (see notes for details).
Classification
and measurement of financial liabilities
A
significant change introduced by IFRS 9 in the classification and measurement of financial liabilities relates to the accounting
for changes in the fair value of a financial liability designated as at FVTPL attributable to changes in the credit risk of the
issuer. Specifically, IFRS 9 requires that the changes in the fair value of the financial liability that is attributable to changes
in the credit risk of that liability be presented in other comprehensive income, unless the recognition of the effects of changes
in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or
loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit
or loss but are instead transferred to retained earnings when the financial liability is derecognized. Previously, under IAS 39,
the entire amount of the change in the fair value of the financial liability designated as at FVTPL was presented in profit or
loss. This change in accounting policy had no effects on the Group’s profit and other comprehensive income as the Group
did not have any financial liabilities designated as at FVTPL as of January 1, 2017 and years 2017 and 2018.
As
described above, the application of IFRS 9 has had no impact on the classification and measurement of the Group’s financial
liabilities.
Impact
of application of IFRS 15 Revenue from Contracts with Customers
The
Group has adopted IFRS 15 Revenue from Contracts with Customers in its combined financial statements on January 1, 2017 under
the “full retrospective effect” method. The new standard replaces substantially all of the current revenue recognition
guidance, including IAS 11 Construction Contracts, IAS 18 Revenue and IFRIC 13 Customer Loyalty Programmes.
The
transition considerations that the Group has considered by applying the full retrospective effect method in the adoption of the
IFRS 15, involve the recognition of the retrospective effect of the adoption of the IFRS 15 as of January 1, 2017; consequently,
under this method the Group is required to restate the financial information for the years ended December 31, 2017, also the Group
has the obligation to adjust the amounts that have arisen as a result of the accounting differences between the current accounting
standard IAS 18 and the new standard IFRS 15.
The
new standard establishes a five-step model to determine how much and when revenue is recognized. The Group recognizes revenue
when it transfers control over a product or service to a customer.
Compared
to the previous standard, IFRS 15 provides a guide about the revenue recognition of the variable considerations such as discounts,
rebates, refunds, rights of return, credits, incentives or similar items. The Group assesses whether, and to what extent, it can
include an amount of variable consideration in the transaction price at contract inception.
At
December 31, 2018, 2017 and at January 1, 2017 the Group has not identify significant impacts in its combined financial statements
and has only modified its accounting policies in order to align them with the five step model established by IFRS 15, such changes
did not originate effects in revenue recognition as compared with the revenue recognition under IAS 18.
Impact
of application of other amendments to IFRS Standards and Interpretations
In
the current year, the Group has applied a number of amendments to IFRS Standards and Interpretations issued by the International
Accounting Standards Board (IASB) that are effective for an annual period that begins on or after 1 January 2018. Their adoption
has not had any material impact on the disclosures or on the amounts reported in these combined financial statements.
|
IFRIC
22 Foreign Currency Transactions
and Advance Consideration
|
IFRIC
22 addresses how to determine the ‘date of transaction’ for the purpose of determining the exchange rate to use on
initial recognition of an asset, expense or income, when consideration for that item has been paid or received in advance in a
foreign currency which resulted in the recognition of a non-monetary asset or non-monetary liability (for example, a non-refundable
deposit or deferred revenue).
The Interpretation specifies that the date of the transaction is the date on which the Group initially
recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. If there
are multiple payments or receipts in advance, the Interpretation requires a Group to determine the date of transaction for each
payment or receipt of advance consideration.
|
New
and revised IFRS Standards in issue but not yet effective
At
the date of authorization of these combined financial statements, the Group has not applied the following new and revised IFRS
Standards that have been issued but are not yet effective:
|
IFRS
16
|
Leases
|
|
|
|
|
Amendments
to IFRS 9
|
Prepayment
Features with Negative Compensation
|
|
|
|
|
Annual
Improvements to IFRS
Standards 2015–2017 Cycle
|
Amendments
to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing
Costs
|
|
|
|
|
Amendments
to IAS 19 Employee Benefits
|
Plan
Amendment, Curtailment or Settlement
|
|
|
|
|
IFRS
10 Consolidated Financial Statements and IAS 28 (amendments)
|
Sale
or Contribution of Assets between an Investor and its Associate or Joint Venture
|
|
|
|
|
IFRIC
23
|
Uncertainty
over Income Tax Treatments
|
Management
of the Group does not expect that the adoption of the Standards listed above will have a material impact on the combined financial
statements of the Group in future periods, except as noted below:
IFRS
16 Leases
In
January, 2016, the IASB published the IFRS 16 Leases that introduces a single, on-balance lease sheet accounting model
for leases. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability
representing its obligation to make lease payments. The new standard replaces existing leases guidance including IAS 17 Leases,
IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27
Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
The
standard is effective for annual periods beginning on or after January 1, 2019. Early adoption is permitted for entities that
apply IFRS 15 Revenue from Contracts with Customers at or before the date of initial application of IFRS 16. The Group
has the intention to adopt the IFRS 16 in the combined financial statements on January 1, 2019 under the modified retrospective
approach with optional practical expedients (prospective method).
The
transition considerations that the Group has evaluated by applying the modified retrospective approach (prospective method) in
the adoption of the IFRS 16, involve the recognition of the cumulative effect of the adoption of the IFRS 16 as of January 1,
2019; consequently, there is no obligation under this method to restate the financial information for the years ended on December
31, 2018. Also, at the date of transition to the IFRS 16 (January 1, 2019), the Group has chosen to apply the practical expedient
called “Grandfather” which considers as lease those contracts that qualified as such under the previous accounting standards
IAS 17 Leases and IFRIC 4 Determining whether an arrangement contains a lease.
Currently,
the Group has completed an initial qualitative and quantitative assessment of the potential impacts of the adoption of IFRS 16
on its combined financial statements. The evaluation includes, among others, the following activities realized over the lease
contracts of the Group:
|
●
|
Detailed
analysis of the lease contracts and evaluation of the characteristics that may have an
impact in the determination of the right-of-use and the lease liability;
|
|
|
|
|
●
|
Identification
of the exceptions provided by the IFRS 16 that may be applicable to the Group;
|
|
|
|
|
●
|
Identification
and determination of the costs associated with lease agreements;
|
|
|
|
|
●
|
Identification
of the currencies in which the lease agreements are denominated;
|
|
|
|
|
●
|
Analysis
of the renewal periods and improvements to leased assets, as well as the amortization
periods thereof;
|
|
|
|
|
●
|
Analysis
of qualitative and quantitative disclosure requirements and their impacts on processes
and internal control of the Group; and
|
|
|
|
|
●
|
Analysis
of the interest rate used in the determination of the present value of the lease payments
of those assets for which a right-of-use has to be recognized.
|
The
preliminary assessment of the Group about the potential impact on its combined financial statements indicates that the Group would
recognize a right-of-use asset equivalent to 1.4% of total assets as of December 31, 2018 and a corresponding lease liability
equivalent to 1.6% of total liabilities, at the same date, with respect of all qualifying leases.
Amendments
to IFRS 9 Prepayment Features with Negative Compensation
The
amendments to IFRS 9 clarify that for the purpose of assessing whether a prepayment feature meets the Solely Payment of Principal
and Interest (SPPI) condition, the party exercising the option may pay or receive reasonable compensation for the prepayment irrespective
of the reason for prepayment. In other words, prepayment features with negative compensation do not automatically fail SPPI.
The
amendment applies to annual periods beginning on or after 1 January 2019, with earlier application permitted. There are specific
transition provisions depending on when the amendments are first applied, relative to the initial application of IFRS 9.
The
Group’s management does not anticipate that the application of the amendments in the future will have an impact on the Group’s
combined financial statements.
Annual
Improvements to IFRS Standards 2015–2017 Cycle Amendments to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS
12 Income Taxes and IAS 23 Borrowing Costs
The
Annual Improvements include amendments to four Standards.
IAS
12 Income Taxes
The
amendments clarify that a Group should recognize the income tax consequences of dividends in profit or loss, other comprehensive
income or equity according to where the Group originally recognized the transactions that generated the distributable profits.
This is the case irrespective of whether different tax rates apply to distributed and undistributed profits.
IAS
23 Borrowing Costs
The
amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or
sale, that borrowing becomes part of the funds that and Group borrows generally when calculating the capitalization rate on general
borrowings.
IFRS
3 Business Combinations
The
amendments to IFRS 3 clarify that when a Group obtains control of a business that is a joint operation, the Group applies the
requirements for a business combination achieved in stages, including remeasuring its previously held interest (PHI) in the joint
operation at fair value. The PHI to be remeasured includes any unrecognized assets, liabilities, and goodwill relating to the
joint operation.
All
the amendments are effective for annual periods beginning on or after 1 January 2019 and generally require a prospective application.
Earlier application is permitted.
The
Group’s management does not anticipate that the application of the amendments in the future will have an impact on the Group’s
combined financial statements.
Amendments
to IAS 19 Employee Benefits Plan Amendment, Curtailment or Settlement
The
amendments clarify that the past service cost (or of the gain or loss on settlement) is calculated by measuring the defined benefit
liability (asset) using updated assumptions and comparing benefits offered and plan assets before and after the plan amendment
(or curtailment or settlement) but ignoring the effect of the asset ceiling (that may arise when the defined benefit plan is in
a surplus position). IAS 19 is now clear that the change in the effect of the asset ceiling that may result from the plan amendment
(or curtailment or settlement) is determined in a second step and is recognized in the normal manner in other comprehensive income.
The
paragraphs that relate to measuring the current service cost and the net interest on the net defined benefit liability (asset)
have also been amended. A Group will now be required to use the updated assumptions from this remeasurement to determine current
service cost and net interest for the remainder of the reporting period after the change to the plan. In the case of the net interest,
the amendments make it clear that for the period post plan amendment, the net interest is calculated by multiplying the net defined
benefit liability (asset) as remeasured under IAS 19.99 with the discount rate used in the remeasurement (also taking into account
the effect of contributions and benefit payments on the net defined benefit liability (asset)).
The
amendments are applied prospectively. They apply only to plan amendments, curtailments or settlements that occur on or after the
beginning of the annual period in which the amendments to IAS 19 are first applied. The amendments to IAS 19 must be applied to
annual periods beginning on or after 1 January 2019, but they can be applied earlier if a Group elects to do so.
The
Group’s management does not anticipate that the application of the amendments in the future will have an impact on the Group’s
combined financial statements.
IFRIC
23 Uncertainty over Income Tax Treatments
IFRIC
23 sets out how to determine the accounting tax position when there is uncertainty over income tax treatments. The Interpretation
requires a Group to:
|
●
|
determine
whether uncertain tax positions are assessed separately or as an Group; and
|
|
|
|
|
●
|
assess
whether it is probable that a tax authority will accept an uncertain tax treatment used,
or proposed to be used, by an Group in its income tax filings:
|
|
|
|
|
○
|
If
yes, the Group should determine its accounting tax position consistently with the tax
treatment used or planned to be used in its income tax filings.
|
|
|
|
|
○
|
If
no, the Group should reflect the effect of uncertainty in determining its accounting
tax position.
|
The
Interpretation is effective for annual periods beginning on or after 1 January 2019. Entities can apply the Interpretation with
either full retrospective application or modified retrospective application without restatement of comparatives retrospectively
or prospectively.
The
Group’s management does not anticipate that the application of the amendments in the future will have an impact on the Group’s
combined financial statements.
|
4.
|
Critical
accounting judgments and key sources of estimation uncertainty
|
In
the application of the Group’s accounting policies, which are described in Note 2, the management of the Group is required
to make judgments, estimates, and assumptions about the carrying amounts of assets and liabilities that are not readily apparent
from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered
to be relevant. Actual results may differ from these estimates.
The
estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the
period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future
periods if the revision affects both current and future periods.
Critical
judgments in applying accounting policies
The
following are the critical judgments, apart from those involving estimations, that the management of the Group has made in the
process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognized
in the combined financial statements.
|
-
|
Key
assumptions used in impairment testing
|
The
Group performs annual impairment testing on long-lived assets, for which key assumptions are used in the calculation of the recoverable
amount.
|
-
|
Key
assumptions used to determine the carrying amount of the Group’s defined benefit
obligation
|
The
Group’s defined benefit obligation is determined using key actuarial assumptions. However, defined benefit obligation balance,
which is calculated by an independent actuary, as of December 31, 2018, and 2017 and January 1, 2017, is not significant.
|
-
|
Key
assumptions used to determine arrangement contains a lease and the corresponding lease
classification
|
The
Management of the Group assessed whether or not the arrangements entered into contained a lease. If a lease is identified, then
an analysis is performed to determine proper classification.
Assumptions
and estimation uncertainties
Information
about assumptions and estimation uncertainties as of December 31, 2018 that have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities in the next financial year is included in the following notes:
Note
6 – Measurement of ECL.
Note
15 – Recognition of deferred tax assets and liabilities.
Notes
17 and 19 – Determining the fair value of certain financial instruments.
Note
26 – Recognition of contingencies.
|
5.
|
Cash
and cash equivalents
|
For
the purposes of the combined statement of cash flows, cash and cash equivalents includes cash on hand and in banks, net of outstanding
bank overdrafts, and the balance of the periods shown on the combined statements of financial position are as follows:
|
|
2018
|
|
|
2017
|
|
|
January 1,
2017
|
|
Cash on hand in banks
|
|
Ps.
|
46,445
|
|
|
|
120,855
|
|
|
|
61,186
|
|
Time deposits
|
|
|
130,938
|
|
|
|
110,000
|
|
|
|
145,000
|
|
|
|
|
177,383
|
|
|
|
230,855
|
|
|
|
206,186
|
|
As
of December 31, 2018 and 2017, cash and cash equivalents balance excludes an amount of Ps. 22,088 and Ps. 20,087, respectively,
of restricted cash derived from the credit with MCRF P, S.A. de C.V. SOFOM, E.N.R. This amount of restricted cash equals one quarter
of the interest accrued under said credit agreement (see note 13). As of January 1, 2017 there was no restricted cash. Restricted
cash is presented as non-current asset in the combined statement of financial position as part of “Other Assets” (see
note 9) and under financing activities in the combined statements of cash flows.
|
6.
|
Trade
accounts receivable
|
|
|
2018
|
|
|
2017
|
|
|
January 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Trade account receivables
|
|
Ps.
|
208,116
|
|
|
|
152,266
|
|
|
|
123,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected credit loss
|
|
|
(9,340
|
)
|
|
|
(4,333
|
)
|
|
|
(4,646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
198,776
|
|
|
|
147,933
|
|
|
|
119,172
|
|
Trade
accounts receivable from customers detailed above are measured at their amortized cost. The average related to the turnover of
accounts receivable is 30 days. No interest is charged on outstanding trade receivables.
The
Group always measures the loss allowance for trade receivables at an amount equal to lifetime ECL. The expected credit losses
on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis
of the debtor’s current financial position, adjusted for factors that are specific to the debtors, general economic conditions
of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions
at the reporting date. See Note 19 for information on exposure to credit and market risks.
There
has been no change in the estimation techniques or significant assumptions made during the current reporting period.
The
Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and
there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy
proceedings, or when the trade receivables are over one year past due, whichever occurs earlier. None of the trade receivables
that have been written off is subject to enforcement activities.
The
following table details the risk profile of trade receivables based on the Group’s provision matrix. As the Group’s
historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision
for loss allowance based on past due status is not further distinguished between the Group’s different customer base.
Trade receivables – days past due
|
|
December 31, 2018
|
|
Not past due
|
|
|
14-21
|
|
|
21 – 28
|
|
|
>28
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected credit loss rate
|
|
|
1
|
%
|
|
|
16
|
%
|
|
|
37
|
%
|
|
|
38
|
%
|
|
|
|
|
Estimated total gross carrying amount at default
|
|
Ps.
|
194,366
|
|
|
|
13,794
|
|
|
|
5,681
|
|
|
|
33,438
|
|
|
|
247,279
|
|
Expected Credit Loss
|
|
Ps.
|
1,910
|
|
|
|
2,150
|
|
|
|
2,108
|
|
|
|
12,531
|
|
|
|
18,699
|
|
Trade receivables – days past due
|
December 31, 2017
|
|
Not past due
|
|
|
14-21
|
|
|
21 – 28
|
|
|
>28
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected credit loss rate
|
|
|
1
|
%
|
|
|
14
|
%
|
|
|
32
|
%
|
|
|
60
|
%
|
|
|
|
|
Estimated total gross carrying amount at default
|
|
Ps.
|
136,704
|
|
|
|
8,919
|
|
|
|
1,731
|
|
|
|
22,153
|
|
|
|
169,507
|
|
Expected Credit Loss
|
|
Ps.
|
925
|
|
|
|
1,278
|
|
|
|
546
|
|
|
|
13,494
|
|
|
|
16,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables – days past due
|
January 1, 2017
|
|
Not past due
|
|
|
14-21
|
|
|
21 – 28
|
|
|
>28
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivable aging at transition date
|
|
Ps.
|
99,854
|
|
|
|
6,515
|
|
|
|
1,264
|
|
|
|
16,185
|
|
|
|
123,818
|
|
The
following table shows the movement in lifetime ECL that has been recognized for trade and other receivables in accordance with
the simplified approach set out in IFRS 9.
|
|
Total
|
|
|
|
|
|
Balance as at 1 January 2017 under IAS 39
|
|
Ps.
|
(4,646
|
)
|
Adjustment upon application of IFRS 9
|
|
|
-
|
|
Balance as at 1 January 2017 – under IFRS 9
|
|
|
(4,646
|
)
|
Expected credit loss
|
|
|
(16,243
|
)
|
Amounts written off
|
|
|
16,556
|
|
Balance as at 31 December 2017
|
|
|
(4,333
|
)
|
Expected credit loss
|
|
|
(18,699
|
)
|
Amounts written off
|
|
|
13,692
|
|
Balance as at 31 December 2018
|
|
Ps.
|
(9,340
|
)
|
|
7.
|
Inventories
and cost of sales
|
|
|
2018
|
|
|
2017
|
|
|
January 1,
2017
|
|
|
|
|
|
|
|
|
|
|
|
Finished goods
|
|
Ps.
|
215,812
|
|
|
|
90,432
|
|
|
|
71,874
|
|
Packing material
|
|
|
3,750
|
|
|
|
2,309
|
|
|
|
1,121
|
|
|
|
|
219,562
|
|
|
|
92,741
|
|
|
|
72,995
|
|
Merchandise-in-transit
|
|
|
82,644
|
|
|
|
49,153
|
|
|
|
34,092
|
|
|
|
Ps.
|
302,206
|
|
|
|
141,894
|
|
|
|
107,087
|
|
The
cost of inventories recognized as an expense during the year in respect of continuing operations was Ps. 958,469 and Ps. 558,105
as of December 31, 2018 and 2017, respectively.
The
cost of inventories recognized as an expense includes Ps. 7,084 and Ps. 6,214 during 2018 and 2017, respectively, in respect of
write-downs of inventory to net realizable value. Such write-downs have been recognized to account for obsolete inventories.
|
|
2018
|
|
|
2017
|
|
|
January 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Printed catalogs
|
|
Ps.
|
19,406
|
|
|
|
11,062
|
|
|
|
9,918
|
|
Advances to suppliers
|
|
|
11,471
|
|
|
|
11,028
|
|
|
|
6,294
|
|
Premiums paid in advance for insurance
|
|
|
8,948
|
|
|
|
6,436
|
|
|
|
4,921
|
|
Others
|
|
|
2,458
|
|
|
|
3,287
|
|
|
|
3,628
|
|
|
|
Ps.
|
42,283
|
|
|
|
31,813
|
|
|
|
24,761
|
|
|
|
2018
|
|
|
2017
|
|
|
January 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
Ps.
|
22,088
|
|
|
|
20,087
|
|
|
|
-
|
|
Inventory of rewards
|
|
|
8,667
|
|
|
|
5,348
|
|
|
|
3,793
|
|
Rent security deposit
|
|
|
2,148
|
|
|
|
1,330
|
|
|
|
1,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,903
|
|
|
|
26,765
|
|
|
|
5,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
8,667
|
|
|
|
5,348
|
|
|
|
3,793
|
|
Non-current
|
|
|
24,236
|
|
|
|
21,417
|
|
|
|
1,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
32,903
|
|
|
|
26,765
|
|
|
|
5,092
|
|
|
10.
|
Molds,
equipment, and leasehold improvements
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
January 1,
2017
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition cost
|
|
Ps.
|
123,249
|
|
|
|
141,064
|
|
|
|
113,947
|
|
Accumulated depreciation
|
|
|
(80,277
|
)
|
|
|
(83,902
|
)
|
|
|
(66,992
|
)
|
|
|
Ps.
|
42,972
|
|
|
|
57,162
|
|
|
|
46,955
|
|
|
|
January 1, 2017
|
|
|
Additions
|
|
|
Disposals
|
|
|
December 31,
2017
|
|
Acquisition cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Molds
|
|
Ps.
|
25,820
|
|
|
|
3,507
|
|
|
|
(172
|
)
|
|
|
29,155
|
|
Vehicles
|
|
|
31,244
|
|
|
|
12,575
|
|
|
|
(3,470
|
)
|
|
|
40,349
|
|
Computers and equipment
|
|
|
36,663
|
|
|
|
13,064
|
|
|
|
(2,099
|
)
|
|
|
47,628
|
|
Leasehold improvements
|
|
|
20,220
|
|
|
|
4,522
|
|
|
|
(810
|
)
|
|
|
23,932
|
|
|
|
Ps.
|
113,947
|
|
|
|
33,668
|
|
|
|
(6,551
|
)
|
|
|
141,064
|
|
|
|
January 1,
2017
|
|
|
Depreciation expense
|
|
|
Eliminated in disposals
|
|
|
December 31,
2017
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Molds
|
|
Ps.
|
(19,749
|
)
|
|
|
(1,542
|
)
|
|
|
172
|
|
|
|
(21,119
|
)
|
Vehicles
|
|
|
(15,337
|
)
|
|
|
(8,216
|
)
|
|
|
2,339
|
|
|
|
(21,214
|
)
|
Computers and equipment
|
|
|
(20,124
|
)
|
|
|
(7,746
|
)
|
|
|
1,371
|
|
|
|
(26,499
|
)
|
Leasehold improvements
|
|
|
(11,782
|
)
|
|
|
(3,782
|
)
|
|
|
494
|
|
|
|
(15,070
|
)
|
|
|
Ps.
|
(66,992
|
)
|
|
|
(21,286
|
)
|
|
|
4,376
|
|
|
|
(83,902
|
)
|
|
|
|
December 31,
2017
|
|
|
|
Additions
|
|
|
|
Disposals
|
|
|
|
December 31,
2018
|
|
Acquisition cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Molds
|
|
Ps.
|
29,155
|
|
|
|
8,360
|
|
|
|
-
|
|
|
|
37,515
|
|
Vehicles
|
|
|
40,349
|
|
|
|
306
|
|
|
|
(39,053
|
)
|
|
|
1,602
|
|
Computers and equipment
|
|
|
47,628
|
|
|
|
12,042
|
|
|
|
(30
|
)
|
|
|
59,640
|
|
Leasehold improvements
|
|
|
23,932
|
|
|
|
560
|
|
|
|
-
|
|
|
|
24,492
|
|
|
|
Ps.
|
141,064
|
|
|
|
21,268
|
|
|
|
(39,083
|
)
|
|
|
123,249
|
|
|
|
December 31, 2017
|
|
|
Depreciation expense
|
|
|
Eliminated in disposals
|
|
|
December 31,
2018
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Molds
|
|
Ps.
|
(21,119)
|
|
|
|
(1,844
|
)
|
|
|
-
|
|
|
|
(22,965
|
)
|
Vehicles
|
|
|
(21,214
|
)
|
|
|
(3,162
|
)
|
|
|
22,930
|
|
|
|
(1,444
|
)
|
Computers and equipment
|
|
|
(26,499
|
)
|
|
|
(10,014
|
)
|
|
|
13
|
|
|
|
(36,500
|
)
|
Leasehold improvements
|
|
|
(15,070
|
)
|
|
|
(4,298
|
)
|
|
|
-
|
|
|
|
(19,368
|
)
|
|
|
Ps.
|
(83,902
|
)
|
|
|
(19,318
|
)
|
|
|
22,943
|
|
|
|
(80,277
|
)
|
Depreciation
expense is included in operating expenses line in the combined statement of profit or loss and other comprehensive income.
No
impairment losses on molds, equipment and leasehold improvements have been determined.
|
|
January 1,
2017
|
|
|
Additions
|
|
|
Disposals
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Ps.
|
25,805
|
|
|
|
322,636
|
|
|
|
-
|
|
|
|
348,441
|
|
|
|
December 31, 2017
|
|
|
Additions
|
|
|
Disposals
|
|
|
December
31,
2018
|
|
Cost
|
|
Ps.
|
348,441
|
|
|
|
-
|
|
|
|
-
|
|
|
|
348,441
|
|
Goodwill
corresponds to the excess resulted between the consideration paid and the fair values of the net assets acquired at the date of
acquisition paid by Betterware Latinoamérica Holding México, S.A. de C.V. (BLHM) and Strevo Holding, S.A. de C.V.
as mentioned in Note 2.n.
Goodwill
was generated by different legal entities and transmitted to the Group through the mergers carried out on November 30, 2002 and
July 28, 2017, respectively.
For
the purposes of impairment testing, goodwill has been allocated to one CGUs.
The
recoverable amount of the CGU was based on fair value less costs of disposal, estimated using discounted cash flows. The fair
value measurement was categorized as a Level 3 fair value based on the inputs in the valuation technique used.
The
values assigned to the key assumptions represent management´s assessment of future trends in the relevant industries and
have been based on historical data from both external and internal sources.
At
December 31, 2018, 2017 and January 1, 2017, the estimated recoverable amount of the CGU exceeded its carrying amount.
The
key assumptions used in the estimation of the recoverable amount are set out below. The values assigned to the key assumptions
represent management’s assessment of future trends in the relevant industries and have been based on historical data from
both internal and external sources.
In percent
|
|
2018
|
|
|
2017
|
|
Discount rate
|
|
|
15.7
|
|
|
|
16.3
|
|
Terminal Value Growth Rate
|
|
|
3.0
|
|
|
|
3.5
|
|
Budgeted EBITDA Growth Rate
|
|
|
14.8
|
|
|
|
13.5
|
|
The
discount rate was a post-tax measurement estimated based on the historical industry average, weighted-average cost of capital
and a market interest rate of 9%.
The
cash flow projections included specific estimates for 5 years and a terminal growth rate thereafter. The terminal growth rate
was determined based on management’s estimate of the long-term compound annual EBITDA growth rate, consistent with the assumptions
that a market participant would make.
Budgeted
EBITDA was estimated taking into account past experience and a revenue growth rate projected taking into account the average growth
levels experienced over the past 5 years and the estimated sales volume and price growth for the next five years. It was assumed
that the sales price would increase in line with forecast inflation over the next five years.
Acquisition cost:
|
|
January 1,
2017
|
|
|
Additions
|
|
|
Disposals
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand
|
|
Ps.
|
-
|
|
|
|
253,000
|
|
|
|
-
|
|
|
|
253,000
|
|
Customer relationships
|
|
|
-
|
|
|
|
64,000
|
|
|
|
-
|
|
|
|
64,000
|
|
Software
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Brands and logos rights
|
|
|
5,072
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
5,072
|
|
|
|
317,000
|
|
|
|
-
|
|
|
|
322,072
|
|
Accumulated amortization:
|
|
January 1,
2017
|
|
|
Depreciation
expense
|
|
|
Eliminated in
disposals
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
Ps.
|
-
|
|
|
|
(18,133
|
)
|
|
|
-
|
|
|
|
(18,133
|
)
|
Brands and logos rights
|
|
|
(3,212
|
)
|
|
|
(256
|
)
|
|
|
-
|
|
|
|
(3,468
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
(3,212
|
)
|
|
|
(18,389
|
)
|
|
|
-
|
|
|
|
(21,601
|
)
|
Acquisition cost:
|
|
December 31,
2017
|
|
|
Additions
|
|
|
Disposals
|
|
|
December
31,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand
|
|
Ps.
|
253,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
253,000
|
|
Customer relationships
|
|
|
64,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,000
|
|
Software
|
|
|
-
|
|
|
|
17,135
|
|
|
|
-
|
|
|
|
17,135
|
|
Brands and logos rights
|
|
|
5,072
|
|
|
|
1,137
|
|
|
|
-
|
|
|
|
6,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
322,072
|
|
|
|
18,272
|
|
|
|
-
|
|
|
|
340,344
|
|
Accumulated amortization:
|
|
December 31,
2017
|
|
|
Depreciation
expense
|
|
|
Eliminated in
disposals
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
Ps.
|
(18,133
|
)
|
|
|
(6,400
|
)
|
|
|
-
|
|
|
|
(24,533
|
)
|
Brands and logos rights
|
|
|
(3,468
|
)
|
|
|
(244
|
)
|
|
|
-
|
|
|
|
(3,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
(21,601
|
)
|
|
|
(6,644
|
)
|
|
|
-
|
|
|
|
(28,245
|
)
|
As of December 31, 2018 and
2017, a carrying amount of Ps. 253,000 for the value of “Betterware” brand is presented in the Combined Statements
of Financial Position at those dates. Such brand was transmitted to the Group through a merger carried out on July 28, 2017 with
Strevo Holding, S.A. de C.V. (a related party, under common control). Strevo Holding, S.A. de C.V. obtained such brand when acquiring
the majority of the Group’s shares in March 2015.
As of December 31, 2018 and
2017, a carrying amount of Ps. 39,467 and Ps. 45,867, respectively, for the value of the Group’s intangible asset comprised
of relationships with customers, is presented in the Combined Statements of Financial Position at those dates. Such intangible
asset was transmitted to the Group through a merger carried out on July 28, 2017 with Strevo Holding, S.A. de C.V. previously discussed.
This intangible asset has a useful life of ten years and it is being amortized on a straight line basis.
Additionally, as of December
31, 2018 and 2017, the intangible asset line in the combined statement of financial position includes Ps. 2,497 and Ps. 1,604,
respectively, corresponding to paid rights related to registration of brands and logos before the intellectual property authorities.
Such rights are valid during a defined period and therefore, are amortized over such useful lives.
Also, during 2018, the Group
has started the development and implementation process of software related to inventory management and it is planned to be completed
during the first quarter of 2019. The total expected costs is Ps. 21,265 and as of December 31, 2018, 80% complete of such cost
has been incurred.
At each reporting date, the
Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication of impairment. If any
such indication exists, then the asset’s recoverable amount is estimated. At December 31, 2018, 2017 and January 1, 2017,
no indications of impairment has been identified.
In relation to impairment of
intangible assets with indefinite useful life (brand), the Group estimates the recoverable amount of the intangible asset which
is based on fair value less costs of disposal, estimated using discounted cash flows. The fair value measurement was categorized
as a Level 3 fair value based on the inputs in the valuation technique used. Key assumptions are the same as those used for estimating
the recoverable amount for Goodwill. See Note 11.
|
|
2018
|
|
|
2017
|
|
|
January 1,
2017
|
|
Line of credit with MCRF P, S.A. de C.V. SOFOM, E.N.R. of Ps. 600,000,000, bearing interest at a fixed rate of 13.10%. This line of credit is payable on a quarterly basis starting May 15, 2019 through May 15, 2023. BLSM Latino América Servicios, S.A. de C.V., is a guarantor in this loan.
|
|
Ps.
|
592,252
|
|
|
|
591,162
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured line of credit with Banco Nacional de México, S.A. (Banamex), for up to Ps. 400,000, bearing interest at the TIIE rate plus 317 basis point. Withdrawals from this line of credit can be made during a 10-month period starting December 15, 2018, and are payable on a quarterly basis from December 17, 2019 up to December 18, 2025.
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured line of credit with Banamex, for up to US$ 1,800, bearing interest at the LIBOR rate plus 300 basis point. Maturity was on March 31, 2018.
|
|
|
-
|
|
|
|
36,175
|
|
|
|
33,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit of US$ 39,000, bearing interest at a fixed rate of 12.5%. This line of credit was due on March 12, 2020, with allowed prepayments beginning March 12, 2018. Betterware Controladora, S.A. de C.V. and BLSM Latino América Servicios, S.A. de C.V., were guarantors in this loan. On March 13, 2017 a US$ 6,000 prepayment was made, with prior authorization of the creditor. On May 10, 2017, the remaining balance of this loan was repaid.
|
|
|
-
|
|
|
|
-
|
|
|
|
805,896
|
|
Interest payable
|
|
|
11,227
|
|
|
|
10,043
|
|
|
|
34,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
653,479
|
|
|
|
637,380
|
|
|
|
873,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current portion
|
|
|
90,691
|
|
|
|
46,218
|
|
|
|
67,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
Ps.
|
562,788
|
|
|
|
591,162
|
|
|
|
805,896
|
|
As
of December 31, 2018, 2017 and January 1, 2017, the fair value of borrowings presented above, is considered to be similar to the
book value (at amortized cost) determined by using the effective interest method.
Interest
expense in connection with debt presented above is included in the interest expense line in the combined statement of profit or
loss and other comprehensive income.
Reconciliation of movements
of liabilities to cash flows arising from financing activities
The table below details changes
in the Group’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising
from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s combined
statement of cash flows as cash flows from financing activities.
|
|
Long-term debt
|
|
|
Interest payable
|
|
|
Derivative financial instruments, net
|
|
|
|
|
|
|
|
|
|
|
|
Balances, January 1, 2017
|
|
Ps.
|
838,952
|
|
|
|
34,269
|
|
|
|
-
|
|
Changes that represent cash flows -
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans obtained
|
|
|
600,087
|
|
|
|
-
|
|
|
|
-
|
|
Restricted cash
|
|
|
(20,087
|
)
|
|
|
-
|
|
|
|
-
|
|
Payments
|
|
|
(745,251
|
)
|
|
|
(142,431
|
)
|
|
|
-
|
|
Commissions and debt issuance cost
|
|
|
(10,289
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes that do not represent cash flows -
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
118,205
|
|
|
|
-
|
|
Unrealized foreign exchange loss
|
|
|
(57,626
|
)
|
|
|
-
|
|
|
|
-
|
|
Amortization of commissions and debt issuance cost
|
|
|
1,464
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2017 (1)
|
|
|
607,250
|
|
|
|
10,043
|
|
|
|
-
|
|
Changes that represent cash flows -
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans obtained
|
|
|
50,667
|
|
|
|
-
|
|
|
|
-
|
|
Restricted cash
|
|
|
(2,001
|
)
|
|
|
-
|
|
|
|
-
|
|
Payments
|
|
|
(36,829
|
)
|
|
|
(85,159
|
)
|
|
|
-
|
|
Commissions and debt issuance cost
|
|
|
(667
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes that do not represent cash flows -
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
-
|
|
|
|
86,343
|
|
|
|
-
|
|
Valuation effects of derivative financial instruments
|
|
|
-
|
|
|
|
-
|
|
|
|
16,629
|
|
Amortization of commissions and debt issuance cost
|
|
|
1,744
|
|
|
|
-
|
|
|
|
-
|
|
Balances, December 31, 2018 (1)
|
|
|
620,164
|
|
|
|
11,227
|
|
|
|
16,629
|
|
|
(1)
|
Balances in column “Long-term debt” in the table above, are netted with restricted
cash balances as of December 31, 2018 and 2017. See Note 5 for details about restricted cash.
|
The Group’s long-term
debt maturities as of December 31, 2018, are as follows:
Year
|
|
Amount
|
|
|
|
|
|
2020
|
|
Ps.
|
110,833
|
|
2021
|
|
|
110,833
|
|
2022
|
|
|
110,833
|
|
2023
|
|
|
205,081
|
|
2024
|
|
|
5,833
|
|
2025
|
|
|
19,375
|
|
|
|
Ps.
|
562,788
|
|
The credits with financial
institutions referred to above contain restrictive covenants, which require the Group (i) to continue to perform the same type
of activities and businesses, maintaining their legal existence, (ii) complying with all applicable laws, (ii) having audited its
combined financial statements by internationally recognized auditors authorized by the financial institution, (iii) paying all
applicable taxes, (iv) obtaining all licenses and permits required by government to operate, (v) keeping assets and businesses
insured against loss or damage, (vi) not to obtain additional loans exceeding Ps. 100,000 or 60% of earnings before interest, taxes,
depreciation and amortization (EBITDA) of the immediately preceding year, (vii) not to incur liens on the Group’s assets,
(viii) not to give or sell any rights of financial documents and (ix) not to pay dividends in an amount greater than Ps. 200,000.
It is important to mention that debt may be contracted, or dividends may be paid in amounts greater than those stipulated in the
contract if prior consent from such financial institution is obtained.
The line of credit agreement
with MCRF P, S.A. de C.V. SOFOM, E.N.R. contains the following financial covenants:
|
a)
|
To maintain a leverage ratio equal to or lower than 3.5 from contract signing date (May 10, 2017)
through December 31, 2017; 3.0 during the year 2018; and 2.5 from January 1, 2019, until the contract expiration date.
|
|
b)
|
To maintain a coverage interest ratio equal to or greater than 2.5 during all term of the contract.
|
|
c)
|
Not to maintain the equity book value lower than Ps. 100,000.
|
|
d)
|
To maintain a minimum cash and cash equivalents balance of Ps. 40,000
|
The line of credit agreement
with Banamex contains the following financial covenants:
|
a)
|
To maintain a short-term debt coverage ratio not lower than 1.5.
|
|
b)
|
To maintain a total debt coverage ratio not greater than 3.0.
|
|
c)
|
To maintain a leverage ratio not greater than 7.0.
|
|
d)
|
To maintain a minimum cash and cash equivalents balance of Ps. 40,000
|
The Group was in compliance
with all covenants as of January 1, 2017, December, 31, 2017, and December 31, 2018.
|
14.
|
Accounts payable to suppliers
|
Trade payables and accruals
principally comprise amounts outstanding for trade purchases and ongoing costs.
The average credit period is
4 months, with no interest charged. The Group has financial risk management policies in place to ensure that all payables are paid
within the pre-agreed credit terms.
The Group’s management
considers that the carrying amount of trade payables approximates to their fair value.
The Group is subject to ISR.
Under the ISR Law, the rate for 2018 and 2017 was 30% and will continue to 30% and thereafter. The rate of current income is 30%.
Income tax recognized in profit
or loss for the years ended December 31 was comprised of the following:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Current tax
|
|
Ps.
|
158,545
|
|
|
|
92,209
|
|
Deferred tax (benefit) expense
|
|
|
(8,366
|
)
|
|
|
4,742
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
150,179
|
|
|
|
96,951
|
|
Income tax expense recognized
at the effective ISR rate differs from income tax expense at the statutory tax rate. Reconciliation of income tax expense recognized
from statutory to effective ISR rate is as follows:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Profit before income tax from continuing operations
|
|
Ps.
|
449,447
|
|
|
|
304,625
|
|
Tax rate
|
|
|
30
|
%
|
|
|
30
|
%
|
Income tax expense calculated at 30% statutory tax rate
|
|
|
134,834
|
|
|
|
91,388
|
|
|
|
|
|
|
|
|
|
|
Inflation effects, net
|
|
|
6,408
|
|
|
|
4,832
|
|
Non-deductible expenses
|
|
|
3,217
|
|
|
|
2,340
|
|
Other items, net
|
|
|
5,720
|
|
|
|
(1,609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
150,179
|
|
|
|
96,951
|
|
Realization of deferred tax
assets depends on the future generation of taxable income during the period in which the temporary differences will be deductible.
Management considers the reversal of deferred tax liabilities and projections of future taxable income to make its assessment on
the realization of deferred tax assets. Based on the results obtained in previous years and in future profit and tax projections,
Management considers that the deferred tax assets will be realized.
At December 31, 2018, the Group
had no tax loss carryforwards.
Composition of deferred tax
asset (liabilities) as well as the reconciliation of changes in deferred taxes balances for the years ended December 31, 2018 and
2017 is presented below:
Temporary differences
|
|
January 1,
2018
|
|
|
Recognized in profit or loss
|
|
|
Recognized in OCI
|
|
|
Goodwill
|
|
|
December
31,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected credit loss
|
|
Ps.
|
2,499
|
|
|
|
(303
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,802
|
|
Accruals and provisions
|
|
|
19,865
|
|
|
|
(6,838
|
)
|
|
|
71
|
|
|
|
-
|
|
|
|
26,632
|
|
Financial derivative instruments
|
|
|
-
|
|
|
|
(4,989
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
4,989
|
|
Equipment and leasehold improvements
|
|
|
2,857
|
|
|
|
2,783
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
(89,660
|
)
|
|
|
(1,920
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(87,740
|
)
|
Inventories
|
|
|
(4,189
|
)
|
|
|
2,003
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,192
|
)
|
Other assets and prepaid expenses
|
|
|
(10,294
|
)
|
|
|
898
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax (liability)
|
|
Ps.
|
(78,922
|
)
|
|
|
(8,366
|
)
|
|
|
71
|
|
|
|
-
|
|
|
|
(70,627
|
)
|
Temporary differences
|
|
January 1,
2017
|
|
|
Recognized in profit or loss
|
|
|
Recognized in OCI
|
|
|
Goodwill
|
|
|
December
31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected credit loss
|
|
Ps.
|
1,394
|
|
|
|
(1,105
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,499
|
|
Accruals and provisions
|
|
|
23,068
|
|
|
|
3,252
|
|
|
|
(49
|
)
|
|
|
-
|
|
|
|
19,865
|
|
Financial derivative instruments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Equipment and leasehold improvements
|
|
|
(403
|
)
|
|
|
(3,260
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
-
|
|
|
|
(800
|
)
|
|
|
-
|
|
|
|
90,460
|
|
|
|
(89,660
|
)
|
Inventories
|
|
|
(2,813
|
)
|
|
|
1,376
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,189
|
)
|
Other assets and prepaid expenses
|
|
|
(5,085
|
)
|
|
|
5,209
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
Ps.
|
16,161
|
|
|
|
4,672
|
|
|
|
(49
|
)
|
|
|
90,460
|
|
|
|
(78,922
|
)
|
|
|
Commissions, promotions and other
|
|
|
Bonuses and other employee benefits
|
|
|
Professional Services Fees
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 1, 2017
|
|
Ps.
|
39,469
|
|
|
|
3,148
|
|
|
|
959
|
|
|
|
43,576
|
|
Increases
|
|
|
115,841
|
|
|
|
32,490
|
|
|
|
21,924
|
|
|
|
170,255
|
|
Payments
|
|
|
(113,986
|
)
|
|
|
(34,480
|
)
|
|
|
(22,883
|
)
|
|
|
(171,349
|
)
|
As of December 31, 2017
|
|
|
41,324
|
|
|
|
1,158
|
|
|
|
-
|
|
|
|
42,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increases
|
|
|
247,282
|
|
|
|
56,854
|
|
|
|
30,704
|
|
|
|
334,840
|
|
Payments
|
|
|
(252,801
|
)
|
|
|
(56,054
|
)
|
|
|
(29,481
|
)
|
|
|
(338,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
Ps.
|
35,805
|
|
|
|
1,958
|
|
|
|
1,223
|
|
|
|
38,986
|
|
Commissions, promotions
and other
Commissions, promotions and
other includes commissions payable to the sales force for the last week of the year and is settled in the first week of the
following year, additionally it includes the provision of exchange points obtained by distributors and associates for the sale
of products, these points have a revolt where they are mostly used during the following year.
Bonuses and other employee
benefits
Bonuses and other employee
benefits includes annual performance bonuses as well as vacation provisions, vacation premium, savings fund, among others. They
are mostly settled during the following year.
Professional Services
Fees
Professional services fees
includes the fees for services such as external audit, legal, internal audit, among others. Their revolt is annual.
|
17.
|
Derivative financial instruments
|
In connection with the secured
line of credit contracted with Banamex as described in Note 13, and to mitigate the risks of future increases in interest rates,
the Group entered into a derivative contract with Banamex, consisting in an interest rate swap. By using this interest rate swap,
the Group sets interest rates from variable rates to fixed rates.
Further, in order to reduce
the risks related to fluctuations in the exchange rate of US dollar, the Group uses derivative financial instruments such as forwards
to adjust foreign currency exposures resulting from inventory purchases in US dollars.
An analysis of the derivative
financial instruments contracted by the Group as of December 31, 2018, is as follows:
Instrument
|
|
Notional
amount in thousands
|
|
|
Fair
Value
|
|
|
Contract
date
|
|
Maturity
date
|
|
Rate
received
|
|
Rate
paid
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
Ps.
|
50,000
|
|
|
Ps.
|
8,364
|
|
|
15/11/2018
|
|
15/12/2023
|
|
TIIE 28 days (1)
|
|
|
8.33
|
%
|
|
|
|
|
|
|
|
|
Average Strike Ps./US$
|
|
|
Maturity date
|
Forwards US Dollar-Mexican Peso
|
|
US$
|
24,414
|
|
|
Ps.
|
8,265
|
|
|
|
20.06
|
|
|
Weekly, through June 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
Ps.
|
16,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liability
|
|
|
|
|
|
Ps.
|
8,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liability
|
|
|
|
|
|
Ps.
|
8,509
|
|
|
|
|
|
|
|
(1) As of December 31, 2018,
the 28-day TIIE rate was 8.5956%.
At December 31, 2017 the Group
did not have derivative financial instruments contracted.
Recognition of the fair value
of these derivative financial instruments for the year ended December 31, 2018 amounted to a loss of Ps. (16,629) which is included
in the combined statements of comprehensive income as part of the caption “Valuation of derivatives, interest cost and other
financial items, net”.
The maturities of the notional
amount of the derivatives are as follows:
Instrument
|
|
Notional amount
in thousands of
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023 and thereafter
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
Ps.
|
|
|
|
1,458
|
|
|
|
5,833
|
|
|
|
5,833
|
|
|
|
5,833
|
|
|
|
31,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forwards US Dollar-Mexican Peso
|
|
US$
|
|
|
|
24,414
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The Group does not apply hedge
accounting and it recognizes changes in fair value in financial derivative instruments through profit or loss.
Post-employment
benefits –
The Group recognizes the benefit
regarding to the Seniority Premium from the employees. This benefit is determined considering the years of service and the compensation
amount from the employees.
The components of the defined
benefit liability for the years ended at December 31, 2018, 2017 and at January 1, 2017 are as follows:
|
a)
|
Movement in net defined liability –
|
The following table shows a
reconciliation from the opening balances to the closing balances for the net defined benefit liability and its components:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Balance at January 1
|
|
Ps.
|
1,283
|
|
|
|
935
|
|
|
|
|
|
|
|
|
|
|
Included in profit or loss:
|
|
|
|
|
|
|
|
|
Current service cost
|
|
|
441
|
|
|
|
316
|
|
Interest cost
|
|
|
92
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
Net cost of the period
|
|
|
533
|
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
Included in OCI:
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss
|
|
|
(165
|
)
|
|
|
115
|
|
Income Tax Effect
|
|
|
(71
|
)
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(225
|
)
|
|
|
(199
|
)
|
|
|
|
|
|
|
|
|
|
Balance as of December 31
|
|
Ps.
|
1,355
|
|
|
|
1,283
|
|
|
b)
|
Actuarial assumptions –
|
The following were the principal
actuarial assumptions at the reporting date (expressed as weighted averages):
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
2018
|
|
|
2017
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Financial:
|
|
|
|
|
|
|
|
|
|
Future salary growth
|
|
|
4.8
|
%
|
|
|
4.5
|
%
|
|
|
4.5
|
%
|
Discount rate
|
|
|
9.2
|
%
|
|
|
7.4
|
%
|
|
|
7.1
|
%
|
Demographic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees
|
|
|
684
|
|
|
|
622
|
|
|
|
516
|
|
Age average
|
|
|
35 years
|
|
|
|
36 years
|
|
|
|
36 years
|
|
Longevity average
|
|
|
2 years
|
|
|
|
2 years
|
|
|
|
3 years
|
|
|
c)
|
Sensitivity analysis –
|
Reasonably possible changes
at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the
defined benefit obligation considering a change of ±0.50% in the discount rate.
Increase /
|
|
Effects at
|
|
|
Effects at
|
|
Decrease in the
|
|
December 31,
|
|
|
December 31,
|
|
Discount rate
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
+0.50%
|
|
Ps.
|
(93
|
)
|
|
|
(89
|
)
|
-0.50%
|
|
|
103
|
|
|
|
99
|
|
The most recent actuarial valuation
of the present value of the defined benefit obligation was carried out as of December 31, 2018 by an independent actuary. The present
value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the projected
unit credit method.
|
19.
|
Financial Instruments
|
Set out below is the categorization
of the financial instruments, excluding cash and cash equivalents, held by the Group as of December 31, 2018 and 2017, as well
as the indication of fair value hierarchy level, when applicable:
Accounting classification and
fair values
As of December 31, 2018
|
|
Receivables, Payables, and Loans
|
|
|
Fair value through profit or loss
|
|
|
Fair value hierarchy level
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets -
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
Ps.
|
198,776
|
|
|
|
-
|
|
|
|
-
|
|
Other receivables
|
|
|
536
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
199,312
|
|
|
|
-
|
|
|
|
|
|
Financial Liabilities -
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
653,479
|
|
|
|
-
|
|
|
|
-
|
|
Accounts payable
|
|
|
445,241
|
|
|
|
-
|
|
|
|
-
|
|
Financial derivative instruments
|
|
|
16,629
|
|
|
|
16,629
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,115,349
|
|
|
|
16,629
|
|
|
|
|
|
As of December 31, 2017
|
|
Receivables, Payables, and Loans
|
|
|
Fair value through profit or loss
|
|
|
Fair value hierarchy level
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets -
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
Ps.
|
147,933
|
|
|
|
-
|
|
|
|
-
|
|
Other receivables and related parties
|
|
|
2,108
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
150,041
|
|
|
|
-
|
|
|
|
|
|
Financial Liabilities -
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
637,380
|
|
|
|
-
|
|
|
|
-
|
|
Accounts payable
|
|
|
211,071
|
|
|
|
-
|
|
|
|
-
|
|
Financial derivative instruments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
848,451
|
|
|
|
-
|
|
|
|
|
|
Measurements of fair values
Fair value hierarchy levels
1 to 3 are based on the degree to which the fair value is observable:
|
●
|
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets
for identical assets or liabilities;
|
|
●
|
Level 2 fair value measurements are those derived from inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from
prices); and
|
|
●
|
Level 3 fair value measurements are those derived from valuation techniques that include inputs
for the asset or liability that are not based on observable market data (unobservable inputs).
|
As previously discussed, some
of the Group´s financial liabilities are measured at fair value at the end of each reporting period. The following table
gives information about how the fair values of these financial liabilities are determined (in particular, the valuation technique(s)
and inputs used).
Financial assets/ financial liabilities
|
|
Valuation technique(s) and key input(s)
|
|
Significant unobservable input(s)
|
|
Relationship and sensitivity of unobservable inputs to fair value
|
Foreign currency forward contracts and interest rate swaps (Note 17)
|
|
Discounted cash flow.
Future cash flows are estimated based on forward exchange rates (from observable forward exchange rates at the end of the reporting period) and contract forward rates, discounted at a rate that reflects the credit risk of various counterparties.
|
|
N/A
|
|
N/A
|
There were no transfers between
Level 1 and 2 during the current or prior year.
Fair value of debts that
are not measured at fair value (but fair value disclosures are required)
The fair value of the instruments
classified as Level 2 (see above) was calculated using the discounted cash flow method. Mexican Risk-free rate adjusted by credit
risk was used for discounting future cash flows.
Financial risk management
The Group’s Treasury
function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages
the financial risks relating to the operations of the Group through internal risk reports which analyses exposures by degree and
magnitude of risks. These risks include market risk (including currency risk, interest rate risk, and price risk), credit risk,
liquidity risk.
The Group seeks to minimize
the effects of these risks by using derivative financial instruments to hedge these risk exposures. The use of financial derivatives
is governed by the Group’s policies approved by the board of directors, which provide written principles on foreign exchange
risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment
of excess liquidity. Compliance with policies and exposure limits is reviewed by the internal auditors on a continuous basis. The
Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
Market risk
The Group’s activities
expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates (see below). The Group
enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including:
|
●
|
In order to reduce the risks related to fluctuations in the exchange rate of foreign currency,
the Group uses derivative financial instruments such as forwards to adjust exposures resulting from foreign exchange currency.
|
|
●
|
Additionally, the Group occasionally uses interest rate swaps to adjust its exposure to the variability
of the interest rates or to reduce their financing costs. The Group’s practices vary from time to time depending on judgments
about the level of risk, expectations of change in the movements of interest rates and the costs of using derivatives. See Note
17 for disclosure of the fair value of derivatives as of December 31, 2017 and 2018.
|
Foreign currency risk
management
The Group undertakes transactions
denominated in foreign currencies, mainly U.S. dollars; consequently, exposures to exchange rate fluctuations arise. Exchange rate
exposures are managed within approved policy parameters utilizing forward foreign exchange contracts.
The carrying amounts of the
Group’s U.S. dollars denominated monetary assets and monetary liabilities at the reporting date are as follows:
|
|
2018
|
|
|
2017
|
|
|
January 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
US$
|
1,294
|
|
|
|
5,546
|
|
|
|
2,188
|
|
Liabilities
|
|
|
(12,075
|
)
|
|
|
(8,789
|
)
|
|
|
(46,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net position
|
|
US$
|
(10,781
|
)
|
|
|
(3,243
|
)
|
|
|
(44,020
|
)
|
Exchange rates at each reporting date
|
|
|
19.6566
|
|
|
|
19.7354
|
|
|
|
20.6640
|
|
Foreign currency sensitivity
analysis
The Group is mainly exposed
to the U.S. Dollar. For sensitivity analysis purposes, the Group has determined a 10 percent increase and decrease in currency
units against the U.S. dollar. 10 percent is the sensitivity rate used when reporting foreign currency risk internally to key management
personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity
analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year-end for
a 10 percent change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations
within the Group where the denomination of the loan is in a currency other than the currency of the lender or the borrower. A positive
number below indicates an increase in profit where currency units strengthen 10 percent against the relevant currency. For a 10
percent weakening of currency units against the relevant currency, there would be a comparable impact on the profit, and the balances
below would be negative.
|
|
2018
|
|
|
2017
|
|
|
January 1,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
|
|
Ps.
|
21,196
|
|
|
|
6,393
|
|
|
|
90,969
|
|
Foreign exchange forward
contracts
It is the policy of the Group
to enter into foreign exchange forward contracts to manage the foreign currency risk associated with anticipated purchase transactions
out to 6 months. Basis adjustments are made to the initial carrying amounts of inventories when the anticipated purchases take
place.
See Note 17 with details on
foreign currency forward contracts outstanding at the end of the reporting period. Foreign currency forward contract liabilities
are presented in the line ‘Derivative financial instruments’ (liabilities) within the combined statement of financial
position.
The Group has entered into
contracts to purchase raw materials from suppliers in China, being such purchases denominated in U.S. dollars. The Group has entered
into foreign exchange forward to hedge the exchange rate risk arising from these anticipated future purchases.
Interest rate risk management
The Group is exposed to interest
rate risk because the Group borrows funds at variable interest rates. The risk is managed by the Group by maintaining an appropriate
mix between fixed and variable rate borrowings, and by the use of interest rate swap contracts. Hedging activities are evaluated
regularly to align with interest rate views and defined risk appetite; ensuring the most cost-effective hedging strategies are
applied.
The Group’s exposures
to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.
Interest rate sensitivity
analysis
The sensitivity analyses below
have been determined based on the exposure to interest rates at the reporting date. For floating rate liabilities, the analysis
is prepared assuming the amount of liability outstanding at reporting date was outstanding for the whole year. A one per cent increase
or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s
assessment of the reasonably possible change in interest rates.
If interest rates had been
one per cent higher/lower and all other variables were held constant, the Group’s profit for the year ended December 31,
2018 would decrease/increase by Ps. 500. This is attributable to the Group’s exposure to interest rates on its variable rate
borrowing as described in Note 13.
Interest rate swap contracts
Under interest rate swap contracts,
the Group agrees to exchange the difference between fixed and variable rate interest amounts calculated on agreed notional principal
amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on the cash flow exposures on the issued
variable rate debt held. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash
flows using the curves at the reporting date and the credit risk inherent in the contract, and is disclosed in Note 17. The average
interest rate is based on the outstanding balances at the end of the financial year.
Credit risk management
The Group’s exposure to credit
risk is not significant as there is no substantial sales concentration on a limited number of customers. On the contrary, the concentration
of credit risk is limited due to the fact that the customer base is large and unrelated, spread across diverse geographical areas.
Credit policy has been implemented for each customer establishing purchase limits. Customers who do not satisfy the credit references
set out by the Group, can only carry out transactions with the Group through prepayment.
See Note 6 for further details
on Trade Receivables and allowance for doubtful accounts.
Collateral held as security
and other credit enhancements
The Group does not hold any
collateral or other credit enhancements to cover its credit risks associated with its financial assets.
Overview of the Group’s
exposure to credit risk
Credit risk refers to the risk
that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. As at 31 December 2018,
the Group’s maximum exposure to credit risk without taking into account any collateral held or other credit enhancements,
which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties and financial guarantees
provided by the Group arises from the carrying amount of the respective recognized financial assets as stated in the combined statement
of financial position.
For trade receivables, the
Group has applied the simplified approach in IFRS 9 to measure the loss allowance at lifetime ECL. The Group determines the expected
credit losses on these items by using a provision matrix, estimated based on historical credit loss experience based on the past
due status of the debtors, adjusted as appropriate to reflect current conditions and estimates of future economic conditions. Accordingly,
the credit risk profile of these assets is presented based on their past due status in terms of the provision matrix. Note 6, includes
further details on the loss allowance for these assets respectively.
Liquidity risk management
The ultimate responsibility
for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk management
framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The
Group manages liquidity risk by maintaining adequate reserves, banking facilities, and reserve borrowing facilities, by continuously
monitoring the forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. Details
of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk are set out below.
Liquidity and interest
risk tables
The Group manages its liquidity
risk by maintaining adequate reserves of cash and bank credit lines available and consistently monitoring its projected and actual
cash flows. Long-term debt maturities are presented in Note 13.
The Group has access to financing
facilities as described below, of which Ps. 350,000 were unused at the reporting date (2017: were fully used). The Group expects
to meet its other obligations from operating cash flows and proceeds of maturing financial assets.
Bank credit lines
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Amount used
|
|
Ps.
|
650,000
|
|
|
|
636,175
|
|
Amount not used
|
|
|
350,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total credit lines
|
|
Ps.
|
1,000,000
|
|
|
|
636,175
|
|
The following tables detail
the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The
tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the
Group can be required to pay. The table includes both interest and principal cash flows.
The contractual maturity is
based on the earliest date on which the Group may be required to pay.
As of December 31, 2018
|
|
Less than 1 year
|
|
|
Over 1 year and
less than 5 years
|
|
|
Over 5 years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable to suppliers
|
|
Ps.
|
445,241
|
|
|
|
-
|
|
|
|
-
|
|
|
|
445,241
|
|
Derivative financial instruments
|
|
|
8,509
|
|
|
|
8,120
|
|
|
|
-
|
|
|
|
16,629
|
|
Long-term debt
|
|
|
78,750
|
|
|
|
536,073
|
|
|
|
25,208
|
|
|
|
640,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
532,500
|
|
|
|
544,193
|
|
|
|
25,208
|
|
|
|
1,101,901
|
|
As of December 31, 2017
|
|
Less than 1 year
|
|
|
Over 1 year and
less than 5 years
|
|
|
Over 5 years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable to suppliers
|
|
Ps.
|
211,071
|
|
|
|
-
|
|
|
|
-
|
|
|
|
211,071
|
|
Long-term debt
|
|
|
36,175
|
|
|
|
591,491
|
|
|
|
-
|
|
|
|
627,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
247,246
|
|
|
|
591,491
|
|
|
|
-
|
|
|
|
838,737
|
|
Capital risk management
The Group manages its capital
to ensure that entities in the Group will be able to continue as going concerns while maximizing the return to shareholders through
the optimization of the debt and equity balance. The Group’s overall strategy remains unchanged from 2017.
The capital structure of the
Group consists of net debt (borrowings disclosed in Note 13 after deducting cash and bank balances) and net parent investment of
the Group (comprising issued capital and retained earnings).
|
20.
|
Net parent investment
|
Net parent investment as of
December 31, 2018, 2017 and January 1, 2017 is integrated as follows:
Net parent investment
|
|
2018
|
|
|
2017
|
|
|
January 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock
|
|
Ps.
|
55,985
|
|
|
|
153,851
|
|
|
|
66,534
|
|
Retained earnings (deficit)
|
|
|
24,235
|
|
|
|
25,046
|
|
|
|
(7,827
|
)
|
Other comprehensive income
|
|
|
45
|
|
|
|
(120
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
80,265
|
|
|
|
178,777
|
|
|
|
58,702
|
|
Net parent investment as of
December 31, by number of shares, is integrated as follows:
|
|
Betterware de México,
S.A. de C.V.
|
|
|
BLSM Latino América
Servicios, S.A. de C.V.
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed capital
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
Variable capital
|
|
|
5,032,939
|
|
|
|
4,786,193
|
|
|
|
3,654,378
|
|
|
|
3,475,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,037,939
|
|
|
|
4,791,193
|
|
|
|
3,659,378
|
|
|
|
3,480,150
|
|
Common stock is represented
by common shares, with a par value of Ps. 10 in regard to fixed capital and without par value in case of variable capital, fully
subscribed and paid. Variable capital is unlimited.
On July 28, 2017, Extraordinary
General Shareholders’ Meeting of Betterware de México, S.A. de C.V. (“BWM”) agreed to merge BWM, as a
merging company, with Betterware Controladora, S.A. de C.V. and Strevo Holding, S.A. de C.V. (“SH”, controlling company
of BWC and in turn, subsidiary of Campalier, S.A. de C.V.), as merged companies. The merger was carried out based on balances as
of July 28, 2017, so as of that date, the merged entities ceased to exist. In accordance with the LGSM, upon the merger becoming
effective, all of the assets, liabilities, rights, and obligations of the merged companies were incorporated into the merging company,
without reservations or limitations. As a result of this, the capital stock of BWM increased by Ps. 87,317, retained earnings decreased
by Ps. 174,801 and net stockholders’ equity decreased by Ps. 87,484.
On February 13, 2018, the Ordinary
General Shareholders’ Meeting of BWM agreed to reduce the capital stock by Ps. 97,921. On December 5, 2018, as part of the
unanimous resolutions adopted outside the Shareholders’ Meeting, it was agreed to increase capital stock by Ps. 20.
On December 4, 2017, the Ordinary
General Shareholders’ Meeting of BLSM agreed to increase capital stock by Ps. 15. On December 5, 2018, as part of the unanimous
resolutions adopted outside the Shareholders’ Meeting, it was agreed to increase capital stock by Ps. 20.
Retained
earnings
On February 13, 2018, the Ordinary
General Shareholders’ Meeting approved dividends payment from retained earnings for an amount of Ps. 79,080, which were paid
in cash. Part of this amount (Ps. 46,696) was paid to Campalier, S.A. de C.V. (ultimate parent company) based on its equity interest.
On November 28, 2018, the Ordinary
General Shareholders’ Meeting approved payment of dividends from profits generated in the year, for an amount of Ps. 111,000,
which were paid in cash. Part of this amount (Ps. 65,545) was paid to Campalier, S.A. de C.V. (ultimate parent company) based on
its equity interest.
On December 4, 2018, the Ordinary
General Shareholders’ Meeting approved payment of dividends from profits generated in the year, in the amount of Ps. 110,000.
From this amount, Ps. 45,045 was paid in cash; while the remaining for Ps. 64,955 was paid on March 31, 2019, hence is included
as a liability in these combined financial statements.
Legal reserve
Retained earnings include the
statutory legal reserve. The Mexican General Corporate Law requires that at least 5% of net income of the year be transferred to
the legal reserve until the reserve equals 20% of common stock at par value (historical pesos). The legal reserve may be capitalized
but may not be distributed unless the Group is dissolved. The legal reserve must be replenished if it is reduced for any reason.
As of December 31, 2018 and 2017, the legal reserve, in historical pesos, was Ps. 8,571 and it is included in retained earnings.
The amount of basic earnings per share
is calculated by dividing the net income for the year attributable to shareholders of the parent’s ordinary shares by the weighted
average of the ordinary shares outstanding during the year.
The amount of diluted earnings per share
is calculated by dividing the net profit attributable to shareholders of the parent’s ordinary shares (after adjusting it due to
interest on convertible preferred shares) by the weighted average of ordinary shares outstanding during the year plus the weighted
average of common shares that would have been issued at the time of converting all diluted potential ordinary shares into ordinary
shares. As of December 31, 2018, 2017 and January 1, 2017, the entity has no diluted earnings per share.
The following table shows the income and share data used in the calculation of basic earnings per share:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
January 1,
2017
|
|
Net Profit (in thousands of pesos)
Attributable to shareholders
|
|
|
299,268
|
|
|
|
207,674
|
|
|
|
(22,286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (in thousands of shares)
Weighted Average of outstanding shares
|
|
|
8,307
|
|
|
|
5,820
|
|
|
|
4,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share of continued operations (Pesos per share)
|
|
|
36.05
|
|
|
|
35.68
|
|
|
|
(4.56
|
)
|
|
22.
|
Related parties balances and transactions
|
Balances and transactions between
the Group and its combined Group, which are related parties, have been eliminated on consolidation and are not disclosed in this
note. Details of transactions between the Group and other related parties are disclosed below.
Key management personnel compensation
comprised short-term employee benefits by Ps.28,800 and Ps.27,360 as of December 31, 2018 and December 31, 2017, respectively. Compensation
of the Entities’ key management personnel includes salaries and non-cash benefits. No long-term employee benefits were paid
to key management personnel during 2018 and 2017.
Transactions
During 2017, the Group and
combined Group entered into the following transactions with related parties that are not members of the Group:
Interest income
|
|
2017
|
|
|
|
|
|
Strevo Holding, S.A. de C.V. (i)
|
|
Ps.
|
18,650
|
|
Betterware Controladora, S.A. de C.V. (i)
|
|
|
316
|
|
|
|
|
|
|
Total
|
|
Ps.
|
18,966
|
|
|
(i)
|
Merged with the Group on July 28, 2017
|
During 2018, the Group and
combined Group did not carry out transactions with related parties that are not members of the Group.
The following balances were
outstanding at the end of the reporting period:
Trade accounts receivable from related parties
|
|
2018
|
|
|
2017
|
|
|
January 1,
2017
|
|
|
|
|
|
|
|
|
|
|
|
Strevo Holding, S.A. de C.V. (i)
|
|
Ps.
|
-
|
|
|
|
-
|
|
|
|
586,516
|
|
Betterware Controladora, S.A. de C.V. (i)
|
|
|
-
|
|
|
|
-
|
|
|
|
16,441
|
|
Campalier, S.A. de C.V.
|
|
|
-
|
|
|
|
22
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
-
|
|
|
|
22
|
|
|
|
602,957
|
|
Less: Current portion
|
|
|
-
|
|
|
|
22
|
|
|
|
16,783
|
|
Long-term
|
|
|
-
|
|
|
|
-
|
|
|
|
586,174
|
|
(i) Balances were canceled
as a result of the merger with the Group on July 28, 2017. Also see Note 20.
|
23.
|
Revenue and operating expenses
|
Revenue –
Nature of goods and services
The following is a description
of principal activities form which the Group generates its revenue:
Products and services
|
|
Nature, timing of satisfaction of performance obligations and significant payment terms
|
Home products
|
|
The revenue recognition from sales of home
products are recognized at a point in time when the customers took delivery of the products and formally accepted. The Customers
are allowed to return the products (only if such products have issues identified).
Invoices are generated at the shipment date and payment term
is 15 days to 30 days. See Note 2.t for further details.
|
Disaggregation of revenue
The revenue recognized during
2018 and 2017, is totally obtained in the only geographical market in Mexico. A disaggregation of revenue is presented below, and
are recognized at a point in time.
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Kitchen
|
|
Ps.
|
548,432
|
|
|
|
354,903
|
|
Home
|
|
|
360,595
|
|
|
|
223,383
|
|
Bathroom
|
|
|
324,535
|
|
|
|
203,831
|
|
Laundry & Cleaning
|
|
|
308,359
|
|
|
|
186,708
|
|
Food Preservation
|
|
|
272,563
|
|
|
|
129,141
|
|
Bedroom
|
|
|
254,066
|
|
|
|
198,871
|
|
BW Contigo
|
|
|
196,439
|
|
|
|
105,957
|
|
Personal Care
|
|
|
51,726
|
|
|
|
46,910
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
2,316,716
|
|
|
|
1,449,705
|
|
Contract balances
At December 31, 2018, and 2017
and at January 1, 2017, the Group does not identify significant costs to obtain/fulfill a contract that requires to be capitalized
as an asset. Consequently, the Group did not perform any analysis in order to identify possible impairment losses. See Notes 3.a.
and 6 about the new expected credit loss model applicable to all financial assets measured at amortized cost.
Transaction price allocated
to the remaining performance obligations
The Group applies the practical
expedient in paragraph C5(c) of IFRS 15 and does not disclose the amount of the transaction price allocated to the remaining performance
obligations and an explanation of when the Group expects to recognize that amount as revenue.
Operating expenses –
Operating expenses by nature,
for the years ended December 31, 2018 and 2017 are as follows:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Cost of personnel services and other employee benefits
|
|
Ps.
|
332,878
|
|
|
|
227,597
|
|
Distribution cost
|
|
|
102,397
|
|
|
|
63,283
|
|
Sales catalog
|
|
|
92,931
|
|
|
|
66,562
|
|
Packing materials
|
|
|
46,976
|
|
|
|
27,258
|
|
Events, marketing and advertising
|
|
|
35,253
|
|
|
|
21,513
|
|
Bank Fees
|
|
|
30,934
|
|
|
|
24,174
|
|
Promotions for the sales force
|
|
|
24,492
|
|
|
|
2,417
|
|
Rent expense, operating leases
|
|
|
20,269
|
|
|
|
11,794
|
|
Depreciation and amortization
|
|
|
25,960
|
|
|
|
24,209
|
|
Impairment loss on trade accounts receivables
|
|
|
18,699
|
|
|
|
16,243
|
|
Travel expenses
|
|
|
17,254
|
|
|
|
14,974
|
|
Commissions and professional fees
|
|
|
8,335
|
|
|
|
8,444
|
|
Other
|
|
|
50,121
|
|
|
|
52,270
|
|
|
|
|
|
|
|
|
|
|
|
|
Ps.
|
806,499
|
|
|
|
560,738
|
|
Information reported to the
Chief Operating Decision Maker (“CODM”) for the purposes of resource allocation and assessment of business performance
focuses on the Group as a whole and with main strategies on a company-wide basis vision. As discussed in Note 1, the Group is focused
on the home organization segment which product portfolio includes home organization, kitchen preparation, food containers, and
practical furniture, among other categories. The Group’s offer of its products goes to sales force through 9 catalogs over
the year, and it is the same offer, prices, and promotions for all distributors throughout the country. As such, no reporting on
segment information is deemed necessary to assess the Group performance given its business model and current operation.
In addition to the above, the
Group obtains all its revenue from the Mexican market, therefore no geographic information is disclosed. Also, Group considers
that there are no major customers, and therefore, no concentration risks exist given the nature of the business and the sale of
its products through a significant number of distributors.
Leasing arrangements
The Group leases warehouses
and administrative office space under operating leases that expire on December 31, 2019. Rental expense for the years ended December
31, 2018 and 2017 was Ps. 14,169 and Ps. 11,794, respectively.
The Group leases a fleet of
cars for its sales staff and qualified employees operating leases with different expiration dates being the latest date in November
2022. Rental expense for the years ended December 31, 2018 was Ps. 6,100.
During 2017, the Group did
not lease a fleet of cars. Non-cancellable operating lease commitments in connection with the fleet of cars are presented below:
|
|
2018
|
|
|
|
|
|
Not later than 1 year
|
|
Ps.
|
9,072
|
|
Later than 1 year and not later than 5 years
|
|
|
17,872
|
|
|
|
|
|
|
|
|
Ps.
|
26,944
|
|
The Group as guarantor
The Betterware was jointly
and severally liable for a bank loan granted by Banamex, S.A. to Spacio Hogar, S.A. de C.V., which was paid in June 2017.
|
26.
|
Contingent liabilities
|
The Group is a party to various
legal actions in the normal course of its business. The Group is not involved in or threatened by proceedings for which the Group
believes it is not adequately insured or indemnified or which, if determined adversely, would have a material adverse effect on
its combined financial position, results of operations and cash flows.
Additional taxes payable could
arise in transactions with related parties if the tax authority, during a review, believes that prices and amounts used by the
Group are not similar to those used with or between independent parties in comparable transactions.
In accordance with the current
tax legislation, the authorities have the power to review up to five fiscal years prior to the last income tax return filed.
On August 12, 2014, the International
Inspection Administration “4” (AFI), under the Central Administration of International Control, attached to the General
Administration of Large Taxpayers of the Tax Administration Service (“SAT”), requested the Group, with respect to 2010
year, information regarding income tax, which was provided at the time. On February 20, 2017, the final agreement was signed with
the Taxpayer Advocacy Office (“PRODECON”) regarding this SAT review. On March 2, 2017, SAT notified the Group about
certain issues on which an agreement was not reached. As a result, the Group filed a lawsuit for annulment before such SAT resolution,
which is in progress as of the date of issuance of these combined financial statements. The Group’s Management believes that
tax credits will not arise as a result of this matter.
On
March 11, 2019 the Group paid dividends for Ps. 65,955 and on May 30, 2019 paid additional dividends for Ps. 128,000.
On
April 19, 2019 the Group withdrew from its credit line facility with Banamex a total amount of Ps. 9,000.
On
May 10, 2019, the lawsuit for annulment before SAT resolution mentioned on note 26 was finalized with a favorable result for the
Group.
On
May 15, 2019, the Group paid its first installment of the long term debt to MCRF P, S.A. de C.V. SOFOM, E.N.R by an amount of Ps.
26,250. See note 13.
On
May 20, 2019 the Group withdrew from its credit line facility with Banamex a total amount of Ps. 3,000.
On
June 20, 2019 the Group withdrew from its credit line facility with Banamex a total amount of Ps. 9,500.
The
Group is in the process of building a distribution center, which is the purpose for which a long-term loan agreement with Banamex
was signed. The Group estimates to complete the construction of this distribution center in the second quarter of 2020. As of the
date of issuance of these combined financial statements, payments related to this construction process amounted Ps. 59,000, which
includes the acquisition of land of fifty thousand square meters.
|
28.
|
Explanation of transition to IFRS
|
As stated in note 2.a, these
are the Group’s first combined financial statements prepared in accordance with IFRS.
The accounting policies set
out in Note 2 have been consistently applied in preparing the combined financial statements for the year ended December 31, 2018,
the comparative information presented in these combined financial statements for the year ended December 31, 2017 and in the preparation
of an opening IFRS combined statement of financial position at January 1, 2017 (the Group’s date of transition to IFRS).
In preparing its opening IFRS combined statement of financial position, the Group has corrected errors reported previously in the
combined financial statements prepared in accordance with Mexican Financial Reporting Standards (referred to as “Mexican
FRS” or Previous GAAP). Estimations made for IFRS purposes are consistent with Mexican FRS at the reporting dates. An explanation
of how the transition from Mexican FRS to IFRSs has affected the Group’s financial position, financial performance and cash
flows is displayed in the following tables and the notes that accompany the tables.
(Continued in the following page)
Effect of IFRS adoption
for the combined statement of financial position –
|
|
|
|
As of January 1, 2017
|
|
|
|
|
|
As of December 31, 2018
|
|
|
|
|
|
(date of transition)
|
|
|
As of December 31, 2017
|
|
|
(end of last period presented under Mexican FRS)
|
|
In thousands of Mexican Pesos (“Ps.”)
|
|
Notes
|
|
Mexican FRS
|
|
|
Previous GAAP Error Correction
|
|
|
Effect of transition to IFRS
|
|
|
Opening IFRS combined balances
|
|
|
Mexican FRS
|
|
|
Previous GAAP Error Correction
|
|
|
Effect of transition to IFRS
|
|
|
IFRS
|
|
|
Mexican FRS
|
|
|
Previous GAAP Error Correction
|
|
|
Effect of transition to IFRS
|
|
|
IFRS
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets other than other assets
|
|
e
|
|
|
474,867
|
|
|
|
-
|
|
|
|
-
|
|
|
|
474,867
|
|
|
|
574,690
|
|
|
|
-
|
|
|
|
(20,087
|
)
|
|
|
554,603
|
|
|
|
743,272
|
|
|
|
-
|
|
|
|
(22,088
|
)
|
|
|
721,184
|
|
Other assets
|
|
a
|
|
|
9,630
|
|
|
|
(5,837
|
)
|
|
|
-
|
|
|
|
3,793
|
|
|
|
14,742
|
|
|
|
(9,394
|
)
|
|
|
-
|
|
|
|
5,348
|
|
|
|
23,925
|
|
|
|
(15,258
|
)
|
|
|
-
|
|
|
|
8,667
|
|
Total current assets
|
|
|
|
|
484,497
|
|
|
|
(5,837
|
)
|
|
|
-
|
|
|
|
478,660
|
|
|
|
589,432
|
|
|
|
(9,394
|
)
|
|
|
(20,087
|
)
|
|
|
559,951
|
|
|
|
767,197
|
|
|
|
(15,258
|
)
|
|
|
(22,088
|
)
|
|
|
729,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable from related parties, long-term
|
|
|
|
|
586,174
|
|
|
|
-
|
|
|
|
-
|
|
|
|
586,174
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Molds, equipment and leasehold improvements, net
|
|
|
|
|
46,955
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46,955
|
|
|
|
57,162
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57,162
|
|
|
|
42,972
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42,972
|
|
Deferred income tax
|
|
a, f, g
|
|
|
18,723
|
|
|
|
(767
|
)
|
|
|
(1,795
|
)
|
|
|
16,161
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,943
|
|
|
|
-
|
|
|
|
(2,943
|
)
|
|
|
-
|
|
Intangible assets
|
|
b, c, i
|
|
|
1,860
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,860
|
|
|
|
311,603
|
|
|
|
(11,133
|
)
|
|
|
-
|
|
|
|
300,470
|
|
|
|
329,632
|
|
|
|
(17,533
|
)
|
|
|
-
|
|
|
|
312,099
|
|
Goodwill
|
|
i
|
|
|
25,805
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,805
|
|
|
|
393,241
|
|
|
|
(44,800
|
)
|
|
|
-
|
|
|
|
348,441
|
|
|
|
393,241
|
|
|
|
(44,800
|
)
|
|
|
-
|
|
|
|
348,441
|
|
Other assets
|
|
d
|
|
|
1,299
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,299
|
|
|
|
1,330
|
|
|
|
-
|
|
|
|
20,087
|
|
|
|
21,417
|
|
|
|
2,148
|
|
|
|
-
|
|
|
|
22,088
|
|
|
|
24,236
|
|
Total assets
|
|
|
|
|
1,165,313
|
|
|
|
(6,604
|
)
|
|
|
(1,795
|
)
|
|
|
1,156,914
|
|
|
|
1,352,768
|
|
|
|
(65,327
|
)
|
|
|
-
|
|
|
|
1,287,441
|
|
|
|
1,538,133
|
|
|
|
(77,591
|
)
|
|
|
(2,943
|
)
|
|
|
1,457,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities other than Provisions, Value-added tax payable and Derivative Financial Instruments
|
|
|
|
|
231,762
|
|
|
|
-
|
|
|
|
-
|
|
|
|
231,762
|
|
|
|
374,283
|
|
|
|
-
|
|
|
|
-
|
|
|
|
374,283
|
|
|
|
669,325
|
|
|
|
-
|
|
|
|
-
|
|
|
|
669,325
|
|
Provisions
|
|
a
|
|
|
46,200
|
|
|
|
(2,624
|
)
|
|
|
-
|
|
|
|
43,576
|
|
|
|
36,971
|
|
|
|
5,511
|
|
|
|
-
|
|
|
|
42,482
|
|
|
|
15,305
|
|
|
|
23,681
|
|
|
|
-
|
|
|
|
38,986
|
|
Value-added tax payable
|
|
e
|
|
|
21,808
|
|
|
|
(5,765
|
)
|
|
|
-
|
|
|
|
16,043
|
|
|
|
26,600
|
|
|
|
(6,067
|
)
|
|
|
-
|
|
|
|
20,533
|
|
|
|
23,365
|
|
|
|
(5,741
|
)
|
|
|
-
|
|
|
|
17,624
|
|
Derivative financial instruments
|
|
k
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,509
|
|
|
|
-
|
|
|
|
8,509
|
|
Total current liabilities
|
|
|
|
|
299,770
|
|
|
|
(8,389
|
)
|
|
|
-
|
|
|
|
291,381
|
|
|
|
437,854
|
|
|
|
(556
|
)
|
|
|
-
|
|
|
|
437,298
|
|
|
|
707,995
|
|
|
|
26,449
|
|
|
|
-
|
|
|
|
734,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefits
|
|
g, h
|
|
|
5,187
|
|
|
|
-
|
|
|
|
(4,252
|
)
|
|
|
935
|
|
|
|
5,796
|
|
|
|
-
|
|
|
|
(4,513
|
)
|
|
|
1,283
|
|
|
|
7,164
|
|
|
|
-
|
|
|
|
(5,809
|
)
|
|
|
1,355
|
|
Derivative financial instruments
|
|
l
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,120
|
|
|
|
-
|
|
|
|
8,120
|
|
Deferred income tax
|
|
a, g, h, b, i
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
83,523
|
|
|
|
(19,752
|
)
|
|
|
15,151
|
|
|
|
78,922
|
|
|
|
91,938
|
|
|
|
(32,051
|
)
|
|
|
10,740
|
|
|
|
70,627
|
|
Borrowings
|
|
I
|
|
|
805,896
|
|
|
|
-
|
|
|
|
-
|
|
|
|
805,896
|
|
|
|
590,745
|
|
|
|
-
|
|
|
|
417
|
|
|
|
591,162
|
|
|
|
561,282
|
|
|
|
-
|
|
|
|
1,506
|
|
|
|
562,788
|
|
Total non-current liabilities
|
|
|
|
|
811,083
|
|
|
|
-
|
|
|
|
(4,252
|
)
|
|
|
806,831
|
|
|
|
680,064
|
|
|
|
(19,752
|
)
|
|
|
11,055
|
|
|
|
671,367
|
|
|
|
660,384
|
|
|
|
(23,931
|
)
|
|
|
6,437
|
|
|
|
642,890
|
|
Total liabilities
|
|
|
|
|
1,110,853
|
|
|
|
(8,389
|
)
|
|
|
(4,252
|
)
|
|
|
1,098,212
|
|
|
|
1,117,918
|
|
|
|
(20,308
|
)
|
|
|
11,055
|
|
|
|
1,108,665
|
|
|
|
1,368,379
|
|
|
|
2,518
|
|
|
|
6,437
|
|
|
|
1,377,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Parent investment
|
|
a, f, g, h, b, l
|
|
|
54,460
|
|
|
|
1,785
|
|
|
|
2,457
|
|
|
|
58,702
|
|
|
|
234,850
|
|
|
|
(45,019
|
)
|
|
|
(11,055
|
)
|
|
|
178,776
|
|
|
|
169,754
|
|
|
|
(80,109
|
)
|
|
|
(9,380
|
)
|
|
|
80,265
|
|
Total
liabilities and net parent investment
|
|
|
|
|
1,165,313
|
|
|
|
(6,604
|
)
|
|
|
(1,795
|
)
|
|
|
1,156,914
|
|
|
|
1,352,768
|
|
|
|
(65,327
|
)
|
|
|
-
|
|
|
|
1,287,441
|
|
|
|
1,538,133
|
|
|
|
(77,591
|
)
|
|
|
(2,943
|
)
|
|
|
1,457,599
|
|
Reconciliation of Net Parent Investment –
In thousands of Mexican Pesos (“Ps.”)
|
|
Notes
|
|
As of
January 1,
2017
(date of transition)
|
|
|
As of
December 31,
2017
|
|
|
As of
December 31,
2018
(end of last period presented under Mexican FRS)
|
|
Total Net Parent Investment under Mexican FRS.
|
|
|
|
|
54,460
|
|
|
|
234,850
|
|
|
|
169,754
|
|
Derecognition of other assets due to previous GAAP error
|
|
a
|
|
|
(5,837
|
)
|
|
|
(9,394
|
)
|
|
|
(15,258
|
)
|
Correction of error - provision cost of promotional points program and value-added tax payable
|
|
a
|
|
|
8,389
|
|
|
|
556
|
|
|
|
(17,940
|
)
|
Derecognition of employee benefits and deferred PTU, under previous GAAP
|
|
g
|
|
|
4,443
|
|
|
|
5,566
|
|
|
|
6,379
|
|
Recognition of employee benefits under IAS 19
|
|
f
|
|
|
(935
|
)
|
|
|
(1,119
|
)
|
|
|
(1,591
|
)
|
Remeasurement effect of defined benefit obligation in OCI
|
|
f
|
|
|
-
|
|
|
|
(165
|
)
|
|
|
236
|
|
Correction of error from the derecognition of brand revaluation
|
|
b
|
|
|
-
|
|
|
|
(57,000
|
)
|
|
|
(57,000
|
)
|
Additional amortization of debt issuance cost
|
|
g
|
|
|
-
|
|
|
|
(417
|
)
|
|
|
(1,506
|
)
|
Amortization of intangible asset regarding relationships with customer
|
|
k
|
|
|
-
|
|
|
|
(18,133
|
)
|
|
|
(24,533
|
)
|
Recognition of derivative financial instruments
|
|
d
|
|
|
-
|
|
|
|
-
|
|
|
|
(16,629
|
)
|
Total pre-tax adjustments
|
|
|
|
|
6,060
|
|
|
|
(80,106
|
)
|
|
|
(127,842
|
)
|
Tax effects of the above adjustments
|
|
|
|
|
(1,818
|
)
|
|
|
24,032
|
|
|
|
38,353
|
|
Total adjustments to net parent investment
|
|
|
|
|
4,242
|
|
|
|
(56,073
|
)
|
|
|
(89,489
|
)
|
Total Net Parent Investment under IFRS
|
|
|
|
|
58,702
|
|
|
|
178,776
|
|
|
|
80,265
|
|
IFRS adoption effects for the combined statement of comprehensive
income for the years ended December 31, 2017 and 2018
|
|
|
|
|
|
|
Year ended December 31, 2018
|
|
|
|
|
|
Year ended December 31, 2017
|
|
|
(the latest period presented under Mexican FRS)
|
|
In thousands of Mexican Pesos (“Ps.”)
|
|
Notes
|
|
Mexican FRS
|
|
|
Previous GAAP Error Correction
|
|
|
Effect of transition to IFRS
|
|
|
IFRS
|
|
|
Mexican FRS
|
|
|
Previous GAAP Error Correction
|
|
|
Effect of transition to IFRS
|
|
|
IFRS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
a, j
|
|
|
1,468,229
|
|
|
|
(7,663
|
)
|
|
|
(10,861
|
)
|
|
|
1,449,705
|
|
|
|
2,369,950
|
|
|
|
(15,428
|
)
|
|
|
(37,806
|
)
|
|
|
2,316,716
|
|
Cost of sales
|
|
|
|
|
558,105
|
|
|
|
-
|
|
|
|
-
|
|
|
|
558,105
|
|
|
|
958,469
|
|
|
|
-
|
|
|
|
-
|
|
|
|
958,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
910,124
|
|
|
|
(7,663
|
)
|
|
|
(10,861
|
)
|
|
|
891,600
|
|
|
|
1,411,481
|
|
|
|
(15,428
|
)
|
|
|
(37,806
|
)
|
|
|
1,358,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
a, f, g, j,c
|
|
|
566,142
|
|
|
|
3,727
|
|
|
|
(9,131
|
)
|
|
|
560,738
|
|
|
|
829,479
|
|
|
|
8,931
|
|
|
|
(31,910
|
)
|
|
|
806,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
343,982
|
|
|
|
(11,390
|
)
|
|
|
(1,730
|
)
|
|
|
330,862
|
|
|
|
582,002
|
|
|
|
(24,359
|
)
|
|
|
(5,896
|
)
|
|
|
551,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing income (cost):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
h
|
|
|
(117,788
|
)
|
|
|
-
|
|
|
|
(417
|
)
|
|
|
(118,205
|
)
|
|
|
(85,254
|
)
|
|
|
-
|
|
|
|
(1,089
|
)
|
|
|
(86,343
|
)
|
Interest income
|
|
|
|
|
20,754
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,754
|
|
|
|
6,707
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,707
|
|
Foreign exchange gain, net
|
|
|
|
|
71,214
|
|
|
|
-
|
|
|
|
-
|
|
|
|
71,214
|
|
|
|
(6,036
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,036
|
)
|
Unrealized loss in valuation of derivative financial instruments
|
|
d
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(16,629
|
)
|
|
|
-
|
|
|
|
(16,629
|
)
|
Financing cost, net
|
|
|
|
|
(25,820
|
)
|
|
|
-
|
|
|
|
(417
|
)
|
|
|
(26,237
|
)
|
|
|
(84,583
|
)
|
|
|
(16,629
|
)
|
|
|
(1,089
|
)
|
|
|
(102,301
|
)
|
Profit before income tax
|
|
|
|
|
318,162
|
|
|
|
(11,390
|
)
|
|
|
(2,147
|
)
|
|
|
304,625
|
|
|
|
497,419
|
|
|
|
(40,988
|
)
|
|
|
(6,985
|
)
|
|
|
449,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
92,209
|
|
|
|
-
|
|
|
|
-
|
|
|
|
92,209
|
|
|
|
158,545
|
|
|
|
-
|
|
|
|
-
|
|
|
|
158,545
|
|
Deferred
|
|
a, f, g, h, c, d
|
|
|
8,804
|
|
|
|
(3,417
|
)
|
|
|
(645
|
)
|
|
|
4,742
|
|
|
|
6,026
|
|
|
|
(12,296
|
)
|
|
|
(2,096
|
)
|
|
|
(8,366
|
)
|
Total income taxes
|
|
|
|
|
101,013
|
|
|
|
(3,417
|
)
|
|
|
(645
|
)
|
|
|
96,951
|
|
|
|
164,571
|
|
|
|
(12,296
|
)
|
|
|
(2,096
|
)
|
|
|
150,179
|
|
Profit
of the year
|
|
|
|
|
217,149
|
|
|
|
(7,973
|
)
|
|
|
(1,502
|
)
|
|
|
207,674
|
|
|
|
332,848
|
|
|
|
(28,692
|
)
|
|
|
(4,889
|
)
|
|
|
299,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurement of defined benefit obligation
|
|
g
|
|
|
-
|
|
|
|
-
|
|
|
|
(115
|
)
|
|
|
(115
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
165
|
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
217,149
|
|
|
|
(7,973
|
)
|
|
|
(1,617
|
)
|
|
|
207,559
|
|
|
|
332,848
|
|
|
|
(28,692
|
)
|
|
|
(4,724
|
)
|
|
|
299,432
|
|
Previous GAAP Error Corrections
The following adjustments refer
to error corrections coming from prior periods. These adjustments, along with the related effects on deferred income taxes are
the result of accounting policies incorrectly applied under Mex FRS:
|
a.
|
The Group, while still under Mexican FRS, incorrectly recognized the cost of its promotional points
program as a deferred cost in the combined statements of financial position within the Other Assets’ (non-current) line item.
These promotional points were, in fact, not subject to capitalization under Mexican FRS but rather should have been expensed based
on the analysis of the historical redemption pattern.
|
The derecognition of the asset
in order to correct the error has been presented as a component of Selling Expenses in the combined statement of profit or loss
and other comprehensive income.
In addition, the Group recalculated
its provision for the cost of promotional points program at the reporting dates based on historical data and further adjusted the
amount to appropriately recognize the deferred revenue associated to this program.
The effects of these error
corrections on the combined statement of profit or loss and comprehensive income, and combined statement of financial position,
are presented below:
In thousands of Mexican Pesos (“Ps.”)
|
|
As of
January 1,
2017
|
|
|
Year ended
December 31,
2017
|
|
|
Year ended
December 31,
2018
|
|
Combined statement of profit or loss and comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
-
|
|
|
|
(7,663
|
)
|
|
|
(15,428
|
)
|
Operating expenses
|
|
|
-
|
|
|
|
3,727
|
|
|
|
8,930
|
|
Pre-tax adjustment
|
|
|
-
|
|
|
|
(11,390
|
)
|
|
|
(24,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined statement of financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
(5,837
|
)
|
|
|
(9,394
|
)
|
|
|
(15,258
|
)
|
Provisions
|
|
|
(2,624
|
)
|
|
|
5,511
|
|
|
|
23,681
|
|
Related tax effect
|
|
|
(767
|
)
|
|
|
(2,652
|
)
|
|
|
(9,962
|
)
|
Total adjustments to Retained Earnings
|
|
|
(9,228
|
)
|
|
|
(6,535
|
)
|
|
|
(1,539
|
)
|
|
b.
|
In 2017, the Group incorrectly recognized a revaluation for an intangible asset (the “Betterware”
brand) based on its fair value, which is not allowed under Mexican FRS. As a result, the Group recognized a surplus effect of Ps.
57,000 related to this intangible asset, which was presented directly in Equity, net of deferred tax effect of Ps. 17,100.
|
This error was corrected at
the transition date to IFRS; the Group derecognized this revaluation effect recorded under Mexican FRS from the combined statement
of financial position.
This derecognition adjusted
the intangible asset to its initial carrying amount as recognized at the date of its acquisition, which is the amount to be recognized
under both Mexican FRS and IFRS.
Given the fact that the intangible
asset brand has been determined as having an indefinite useful life there has been no amortization and as a consequence there was
no effect on the combined statement of profit or loss and comprehensive income. The effects of the correction, in the combined
statement of financial position, are presented below:
In thousands of Mexican Pesos (“Ps.”)
|
|
As of
January 1,
2017
|
|
|
Year ended
December 31,
2017
|
|
|
Year ended
December 31,
2018
|
|
Combined statement of financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Asset – Brand
|
|
|
-
|
|
|
|
(57,000
|
)
|
|
|
(57,000
|
)
|
Other comprehensive income and other equity accounts
|
|
|
-
|
|
|
|
(39,900
|
)
|
|
|
-
|
|
Related tax effect
|
|
|
-
|
|
|
|
(17,100
|
)
|
|
|
(17,100
|
)
|
Total correction adjustments to Retained Earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
(39,900
|
)
|
|
c.
|
The Group, as a result of the business combination described in notes 2.n and 11, recognized under
Mexican FRS Goodwill and the intangible related to the “Betterware” brand, but did not separate from goodwill another
identifiable intangible asset related to relationships with customers as required by Mexican FRS. As part of the purchase price
allocation, the Group should have recognized under both IFRS and the Previous GAAP this intangible asset separately from Goodwill
and then should have amortized it over its expected useful life. The effects of this adjustment, on the combined statement of profit
or loss and comprehensive income, and in the combined statement of financial position, are presented below:
|
In thousands of Mexican Pesos (“Ps.”)
|
|
As of
January 1,
2017
|
|
|
Year ended
December 31,
2017
|
|
|
Year ended
December 31,
2018
|
|
Combined statement of profit or loss and comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
2,667
|
|
|
|
6,400
|
|
Pre-tax adjustment
|
|
|
|
|
|
|
(2,667
|
)
|
|
|
(6,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined statement of financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
-
|
|
|
|
45,867
|
|
|
|
39,467
|
|
Goodwill
|
|
|
-
|
|
|
|
(44,800
|
)
|
|
|
(44,800
|
)
|
Related tax effect
|
|
|
-
|
|
|
|
13,760
|
|
|
|
11,840
|
|
Total adjustments to Retained Earnings
|
|
|
-
|
|
|
|
(12,693
|
)
|
|
|
(17,173
|
)
|
|
d.
|
The Group should have recognized under Mexican FRS certain derivative financial instruments that
are described in note 17. Therefore as an error correction, the Group has recognized these derivative financial instruments on
the combined statement of financial position as of the date of transition to IFRS. and accounted for them subsequently in accordance
with IFRS 9. The effects of the change, in the combined statement of profit or loss and comprehensive income, and in the combined
statement of financial position, are presented below:
|
In thousands of Mexican Pesos (“Ps.”)
|
|
As of
January 1,
2017
|
|
|
Year ended
December 31,
2017
|
|
|
Year ended
December 31,
2018
|
|
Combined statement of profit or loss and comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss in valuation of derivative financial instruments
|
|
|
|
|
|
|
-
|
|
|
|
(16,629
|
)
|
Pre-tax adjustment
|
|
|
|
|
|
|
-
|
|
|
|
(16,629
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined statement of financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments – Current portion
|
|
|
-
|
|
|
|
-
|
|
|
|
8,509
|
|
Derivative financial instruments – Long-term portion
|
|
|
-
|
|
|
|
-
|
|
|
|
8,120
|
|
Related tax effect
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,989
|
)
|
Total adjustments to Retained Earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,640
|
)
|
|
e.
|
The Group recalculated its value-added tax (“VAT”) payable balance.
|
The effect of this error correction
on the combined statement of financial position, are presented below:
Combined statement of financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value-added tax payable
|
|
|
(5,765
|
)
|
|
|
(6,067
|
)
|
|
|
(5,741
|
)
|
Total adjustments to Retained Earnings
|
|
|
(5,765
|
)
|
|
|
(6,067
|
)
|
|
|
(5,741
|
)
|
Adjustments of transition
to IFRS
The following adjustments are
related only to the effects of transition to IFRS of the Group that resulted in the following changes in accounting policies derived
from differences between Mexican FRS and IFRS:
|
f.
|
In accordance with previous GAAP, the Group presented restricted cash as part of the “cash
and cash equivalents” line item and solely disclosed the nature of the restriction in the notes to the financial statements.
However under IFRS, restricted cash is required to be presented as a non-current asset if the restriction extends beyond twelve
months. The Group reclassified it by Ps. 20,087 and Ps. 22,088, at the end of December 31, 2017 and 2018, respectively. As of January
1, 2017, the Group had no restricted cash. Changes derived from this adjustment on the combined statement of cash flows are described
at the end of this note.
|
|
g.
|
In accordance with previous GAAP, the Group recognized inflation effects on its financial information.
Beginning on January 1, 2008, the Group discontinued the recognition of the effects of inflation in its combined financial statements
since Mexican economy no longer qualified for inflation recognition according to Mexican FRS B-10. However, certain fixed assets
and capital stock that were restated by inflation and recognized through December 31, 2007 when Mexico’s economic environment
ceased to be deemed as inflationary. In accordance with IFRS, Mexico’s economic environment was deemed inflationary up to
December 31, 1997. The Group elected to use Mexican FRS values for Molds, equipment and leasehold improvements, net, as deemed
cost at the date of transition. In regards of capital stock, an adjustment is being made to derecognize inflation effects by Ps.
1,544 recorded under previous GAAP. The effects of the change, in the combined statement of financial position, are presented below:
|
In thousands of Mexican Pesos (“Ps.”)
|
|
As of
January 1,
2017
|
|
|
Year ended
December 31,
2017
|
|
|
Year ended
December 31,
2018
|
|
Combined statement of financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net parent investment
|
|
|
1,544
|
|
|
|
1,544
|
|
|
|
1,544
|
|
Total adjustments to Net parent investment
|
|
|
(1,544
|
)
|
|
|
(1,544
|
)
|
|
|
(1,544
|
)
|
|
h.
|
In accordance with previous GAAP, liabilities from seniority premiums and severance payments were
recognized as a provision and were calculated by independent actuaries based on the projected unit credit method using nominal
interest rate. Further, under Mexican FRS, deferred PTU was recognized from temporary differences that resulted from comparing
the accounting and tax bases of assets and liabilities. As part of the IFRS adoption, the Group derecognized its liability regarding
employee benefits, as well as the asset regarding deferred PTU because these items have not met the recognition criteria under
IAS 37 and IAS 19 and in conjunction with transitioning to IFRS. The effects of the change, on the combined statement of profit
or loss and comprehensive income, and the combined statement of financial position, are presented below:
|
In thousands of Mexican Pesos (“Ps.”)
|
|
As of
January 1,
2017
|
|
|
Year ended
December 31,
2017
|
|
|
Year ended
December 31,
2018
|
|
Combined statement of profit or loss and comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
-
|
|
|
|
(1,119
|
)
|
|
|
(814
|
)
|
Pre-tax adjustment
|
|
|
-
|
|
|
|
1,119
|
|
|
|
814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined statement of financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefits
|
|
|
(5,188
|
)
|
|
|
(5,796
|
)
|
|
|
(7,164
|
)
|
Deferred income taxes – deferred PTU
|
|
|
(744
|
)
|
|
|
(233
|
)
|
|
|
(788
|
)
|
Related tax effect
|
|
|
(1,333
|
)
|
|
|
(1,669
|
)
|
|
|
(1,913
|
)
|
Total adjustments to Retained Earnings
|
|
|
3,111
|
|
|
|
3,894
|
|
|
|
4,463
|
|
|
i.
|
In connection with the adjustment discussed at preceding note f., and as part of the IFRS adoption,
the Group recognized its liability regarding employee benefits only for seniority premiums as required by IAS 19, which was calculated
by independent actuaries based on the projected unit credit method. The effects of the change, on the combined statement of profit
or loss and comprehensive income, and in the combined statement of financial position, are presented below:
|
In thousands of Mexican Pesos (“Ps.”)
|
|
As of
January 1,
2017
|
|
|
Year ended
December 31,
2017
|
|
|
Year ended
December 31,
2018
|
|
Combined statement of profit or loss and comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
-
|
|
|
|
183
|
|
|
|
309
|
|
Pre-tax adjustment
|
|
|
-
|
|
|
|
(183
|
)
|
|
|
(309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined statement of financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefits
|
|
|
935
|
|
|
|
1,283
|
|
|
|
1,355
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
(115
|
)
|
|
|
165
|
|
Related tax effect
|
|
|
281
|
|
|
|
385
|
|
|
|
407
|
|
Total adjustments to Retained Earnings
|
|
|
(654
|
)
|
|
|
(783
|
)
|
|
|
(1,113
|
)
|
|
j.
|
As part of IFRS adoption, the Group recalculated the amortized cost of this debt and additional
interest to be recognized was determined for 2017. The effects of the change, in the combined statement of profit or loss and comprehensive
income, and in the combined statement of financial position, are presented below:
|
In thousands of Mexican Pesos (“Ps.”)
|
|
As of
January 1,
2017
|
|
|
Year ended
December 31,
2017
|
|
|
Year ended
December 31,
2018
|
|
Combined statement of profit or loss and comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
417
|
|
|
|
1,089
|
|
Pre-tax adjustment
|
|
|
|
|
|
|
(417
|
)
|
|
|
(1,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined statement of financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
-
|
|
|
|
417
|
|
|
|
1,506
|
|
Related tax effect
|
|
|
-
|
|
|
|
(125
|
)
|
|
|
(452
|
)
|
Total adjustments to Retained Earnings
|
|
|
-
|
|
|
|
(292
|
)
|
|
|
(1,054
|
)
|
|
k.
|
As part of IFRS adoption, the Group elected to apply the optional exemption for business combinations
permitted by IFRS 1, by which:
|
|
●
|
the classification of former business combinations under Mexican FRS is maintained;
|
|
●
|
there is no re-measurement of original ‘fair values’ determined at the time of the
business combination (date of acquisition); and
|
|
●
|
the carrying amount of goodwill recognized under Mexican FRS is not adjusted, other than in specific
instances.
|
Therefore, the Group elected
to continue with the carrying amount of goodwill recognized under Mexican FRS but tested it at the transition date for impairment
as required under IFRS 1. No impairment loss was determined at that date. The Group applied the requirements of IAS 36 in testing
goodwill at the transition date, for further reference See Note 2n.
|
l.
|
As part of IFRS adoption, the Group reclassified the cost of a promotional points program from
the Operating expenses line on the combined statement of profit or loss to the Net revenue line considering, because
the main objective of this program is to encourage the increase in sales volume. This reclassification had no effect on the Profit
of the year line item on the combined statement of profit or loss. The effect of the change, in the combined statement
of profit or loss and comprehensive income is presented below:
|
In thousands of Mexican Pesos (“Ps.”)
|
|
As of
January 1,
2017
|
|
|
Year ended
December 31,
2017
|
|
|
Year ended
December 31,
2018
|
|
Combined statement of profit or loss and comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
|
|
|
|
(10,861
|
)
|
|
|
(37,806
|
)
|
Operating expenses
|
|
|
-
|
|
|
|
(10,861
|
)
|
|
|
(37,806
|
)
|
Pre-tax adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Material adjustments to the statement
of cash flows
Restricted Cash of Ps. (2,001) and Ps.
(20,087) was presented as part of the cash and cash equivalents under Mexican FRS. These balances were presented on the statements
of cash flows as part of the financing activities under IFRS. There no other material differences between the statements of cash
flows presented under IFRS and the statements of cash flows presented under Mexican FRS.
* * * * * *
7,226,025 Ordinary Shares
1,671,900 Warrants
250,000 Unit Purchase Option
Betterware
de México, S.A.B. de C.V.
PROSPECTUS
September 14, 2020
Until October 6, 2020 (25 days after the
date of this prospectus), all dealers that buy, sell or trade our ordinary shares, whether or not participating in this offering,
may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.