CaseStudy Revlon

ORGANIZATIONAL POLICY & STRATEGY

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PROGRAM MASTER OF BUSINESS ADMINISTRATION COURSE ORGANIZATIONAL POLICY & STRATEGY

CASE STUDY – REVLON


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Acknowledgement

This paper was undertaken during enrollment of master degree of business administration and it is a great

opportunity to share this paper for an academic knowledge and development as well as self-improvement

management skills.


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Executive Summary

Revlon was founded in 1932 by brothers Charles (Joseph Revson and Charles Lachmann) with a $300

investment from nail products to beauty products. In 1937, Revlon successful started selling products in

department stores and drug stores. Revlon was taken public in 1996 traded on the New York Stock

Exchange.

Today, Revlon is the global company which offering the products over 100 countries and products focus on

skin care, cosmetics, personal care, fragrance and professional products.

In this case study, the strategic management is focusing on the following:

Identify the firm’s vision, mission, objectives and strategies

Develop the statement of vision and mission of the firm

Identify external opportunities and threats

Construct Competitive Profile Matrix (CPM)

Construct External Factor Evaluation (EPE)

Identify internal strengths and weakness

Construct Internal Factor Evaluation

Prepare Strengths-Weakness-Opportunies-Threats Matrix (SWOT), Strategic Position and Action

Evaluation Matrix (SPACE), Internal-External Matrix (IE), Grand Strategy Matrix, Quantitative

Strategic Planning Matrix (QSPM) with advantages and disadvantages of alternative strategies.

Should Revlon concentrate its efforts on international market, given the low value of the dollar and

competitive pressure? Which countries should Revlon focus on?

Should Revlon diversify its operations or develop joint ventures with other cosmetics companies? Would

jewelry be good industry to enter given the aging society?

Does Revlon have too many brands? Should the company keep brands such as ColorStay and get rid of

brands such as Mitchum?

Should Revlon agree to sell itself to Perlman or to a rival firm? What is Revlon worth on the market?


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The firm’s vision, mission, objectives and strategies

Revlon Perspectives

To create and develop the most consumer-preferred brands;

To be the most valuable partner to our retail customers;

To profitability grow the business and its value for our stakeholders.

The statement of vision and mission of the firm

Revlon does not have visible vision and mission but emphasize on company perspective. It is disadvantage

to Revlon because the direction of the company is fully depending on the leader, Chief Executive Officer.

Because of the company led by leader, it is put the company on risk which each leader has different strategy

and it may not relate the core value of the company.

Therefore, it is suggested the vision and mission for Revlon due to enhancing the primary objective of the

company function and business particularly products penetration to customer needs and wants:

Vision

To be consumer-preferred brands and valuable business partners of growing the business to maximizing the

value for the stakeholders.

Mission

To be premier beauty global company

To be the best choice of customer’s products

To be the best place to work

The vision is defined the core values of Revlon that the business model focus on the brand and offering

product by utilize the resources and contribute the time value of money. This vision is the company direction

towards branding and quality products which offering to the customer needs and wants. Thus, it is giving the

lifestyle long term goal for the company to build potential business for the continuously profit making.

In order to achieve this vision, the missions are needed to define. Premier beauty global company is defined

the growth of business model and structure that continuously focus on core products such as beauty products

penetrate the international market and product developments to satisfy the customer needs. The best choice

of customer’s products is defined the quality of the offering products which giving the highest satisfaction

for customer especially branding that build the strengths and opportunities to compete in the competitive

market and rivals. The best place to work is defined the important of human capital and development that

focus on quality productivity for the maximization of output and welfare of the employees so that proud of

belonging could be built to minimize the labour turnover and motivate the employees for better productivity

especially rewards and incentive.


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External opportunities and threats

External Opportunities

Well established of distribution channels that it is ability to serve the market and customers

ISO 9000 certification contribute the product quality assurance to compete globally

Unique organization chart giving an advantage of effective decision making locally and globally

Meeting the demand and supply of online business

Brand awareness through participation of women’s health programs

Beauty market is lucrative and continuously growth

External Threats

Differentiation of culture and population aging affecting the brand and products offering

Lack of effective research marketing and product penetration resulted loss of market share

Consecutive financial losses resulted low confidence of investor and low motivation of employees

Justification

Revlon developed the distribution channel that serving the customers over 100 countries which it is giving

external opportunities to introduce new products easily. And Revlon also achieved ISO 9000 certification

that giving an advantage to enter the new market and boost the trust of customers who believe the quality

product. Furthermore, Revlon’s organization chart is restructured to manage the business and operation

efficiently and serve the speed of decision making. In beauty market, Revlon only achieved low market

share which it is the potential of growing the market share to meet the demand and supply.

However, different people cultural and aging of geographical will impact the offering products. Example,

youngster is preferable skin care products instead of cosmetic products. Revlon did not perform effectively

on new products perhaps the marketing research information is not fully evaluated and studied. Thus, low

confidence from investor in this company because it is suffering losses for 8 consecutive years.


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Competitive Profile Matrix (CPM)

Revlon L'Oreal Estee Lauder

Critical Factors Weight Rating Score Rating Score Rating Score

Market share 0.14 2.00 0.28 4.00 0.56 3.00 0.42

Marketing 0.11 3.00 0.33 4.00 0.44 4.00 0.44

Financial position 0.10 2.00 0.20 4.00 0.40 3.00 0.30

Product quality 0.06 3.00 0.18 3.00 0.18 3.00 0.18

Customer loyalty 0.09 3.00 0.27 4.00 0.36 4.00 0.36

Sales distribution 0.09 4.00 0.36 4.00 0.36 4.00 0.36

Global expansion 0.05 3.00 0.15 3.00 0.15 3.00 0.15

Production capacity 0.05 3.00 0.15 3.00 0.15 3.00 0.15

Organization structure 0.06 3.00 0.18 3.00 0.18 3.00 0.18

Customer service 0.06 3.00 0.18 3.00 0.18 3.00 0.18

Price competitive 0.07 3.00 0.21 3.00 0.21 3.00 0.21

Management experience 0.12 3.00 0.36 3.00 0.36 4.00 0.48

Total 1.00 35.00 2.85 41.00 3.53 40.00 3.41

Justification

In CPM, Revlon is gauged by L’Oreal and Estee Lauder because they are fully focuses on beauty markets

and products. Therefore, CPM can generate the reliability analysis.

In beauty markets and business, market share, marketing and management are essential because this factors

the fundamental business model. Example, demand comes from customers (market) and supply will be

provided by informing the customers (marketing). Managing this business is challenging because the

management needs to understand the customers’ needs and wants (management experience). In addition, to

survive this business is depending on financial status (bottom line objective from stakeholders).

In CPM, Revlon scored low point in market share and financial position because it is only capture average

3% market share (refer to appendix iv) and continuously losses. The others’ factors are moderate because it

is just scored the acceptance compare with rivals (L’Oreal & Estee Lauder) except sales distribution. Sales

distribution is scored high because Revlon serving over 100 countries. The total CPM Score for Revlon is

2.85 which it is reasonable (refer to appendix iv for benchmarking).

Last and not least, the weaknesses can be transformed to strengths of the company if the management is

ability identify the causes of issues/problems which it will lead the know-how solution.


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Construct External Factor Evaluation (EPE)

Key Factors Weight Rating Score

External Opportunities Well established of distribution channels that it is ability to serve the market and customers

0.15 4.00 0.60 ISO 9000 certification contribute the product quality assurance to compete globally

0.12 4.00 0.48 Unique organization chart giving an advantage of effective decision making locally and globally

0.10 3.00 0.30 Meeting the demand and supply of online business 0.08 2.00 0.16 Brand awareness through participation of women’s health programs 0.10 3.00 0.30 Beauty market is lucrative and continuously growth 0.05 3.00 0.15

Subtotal 0.60 19.00 1.99

External Threats Differentiation of culture and population aging affecting the brand and products offering 0.10 3.00 0.30 Lack of effective research marketing and product penetration resulted loss of market share 0.10 3.00 0.30 Consecutive financial losses resulted low confidence of investor and low motivation of employees 0.20 2.00 0.40

Subtotal 0.40 8.00 1.00

Total 1.00 27.00 2.99

Justification

The weight score of external opportunities is high for the following:

Well distribution channel - Ability to serve customers over 100 countries

ISO 9000 certification - Quality products is entrusted the customers’ trust

Online business potential - New untapped market for products’ expansion

Brand awareness - Partnership brands to create the existing of products

(customer mind set)

The weight score of external threats is high for the following:

Financial losses - Because of debts and over cost, it is burden the company expansion

and competition such as product development need fund.

External opportunities, Revlon scored high for well distribution and ISO 9000 because they are ready to

serve the customers globally offering quality products. However, they scored low for beauty market because

they only penetrated 3% market share against rivals (refer to appendix iv).

External threats, Revlon scored high for financial losses because they are not making profit. Thus, it is also

influence the productivity such as more profit more bonus payout.


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Internal strengths and weakness

Internal Strengths

Ability to serve the customers over 100 countries

Cost control management to minimize resources wastage

Restructure management functions and divisions for effective productivity

Quality standard accreditation contribute the product quality to satisfy the customers expectation

Manageable debtors aging

Internal Weakness

Product line is limited to beauty

Lack of innovative and creativity of product development

High debt equity ratio resulted risk-taking firm

Deficit retain earning result low confidence for firm share and investment

Justification

In internal strengths Revlon is ability to serve customers globally with offering ISO 9000 certified products.

Thus, they are successful managing debtors aging (refer appendix iii) resulted turnover cashflow is effective.

In addition, cost control measure is important since Revlon is suffering losses.

Nevertheless, management functions and divisions are restructured to further strengthening the company

position. Based on this experience, Revlon should able to come back in profit once the organization structure

is fully completed and gauge the performance index effectively.

In internal weakness, Revlon only focusing on beauty products resulted alternative market share is untapped.

In addition, some new products are not doing well due to it may lack of specialization/expertise of know-

how customer needs and wants.

As a result, it is giving return on losses in stead of return on investment. Moreover, product development

funds are wasted if the products rejected by customers and markets.


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Internal Factor Evaluation

. Weight Rating Score

Internal Strengths Ability to serve the customers over 100 countries 0.15 4.00 0.60 Cost control management to minimize resources wastage 0.08 2.00 0.16 Restructure management functions and divisions for effective productivity 0.05 3.00 0.15 Quality standard accreditation contribute the product quality to satisfy the customers expectation

0.12 4.00 0.48 Manageable debtors aging 0.15 3.00 0.45

Subtotal 0.55 16.00 1.84

Internal Weakness Product line is limited to beauty 0.10 3.00 0.30 Lack of innovative and creativity of product development 0.10 3.00 0.30 High debt equity ratio resulted risk-taking firm 0.10 3.00 0.30 Deficit retain earning result low confidence for firm share and investment

0.15 3.00 0.45

Subtotal 0.45 12.00 1.35

Total 1.00 28.00 3.19

Justification

The weight score of internal strengths is high for the following:

Well distribution channel - Ability to serve customers over 100 countries

ISO 9000 certification - Quality products is entrusted the customers’ trust

Low debtors aging - Debtors collection is manageable resulted strong cashflow

The weight score of internal weakness is high for the following:

Financial earning deficit - Low confidence level by shareholders and investors resulted low

funding and investment

Internal strength, Revlon scored high because they is already serving over 100 countries resulted logistic of

products are effective especially new product (easier to pursue customers’ purchasing power). Others scored

moderate except cost control management. Cost control management is not able to justify the positive

financial result and this exercise is still ongoing.

In internal weakness, Revlon scored high for financial deficit because this factor influences the productivity

and company business. Example, management is only able to offer nominal salary increments instead of

promotion salary.

Last and not least, the challenges / issues are must be identified so that correction of business model,

strategy and solution can be achieved.


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Strengths-Weakness-Opportunities-Threats Matrix (SWOT)

Strengths

Product quality assurance through ISO 9000 certification

Product distribution and worldwide network (over 100 countries)

Continuously sales growth

Unique organization chart and functions for effective management and productivity

Debtors aging is manageable

Weakness

Products line is limited to beauty

Lack of innovation and research product development

Debt risk taking

High inventory aging

Opportunities

Continuously demand of beauty products

Branding for products penetration and market segmentation

New market segment of online channel that untapped

Threats

Strong competition from rivals

Product’s price competitiveness resulting low profit margin

Fluctuation of cost rising low purchasing of beauty products


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Strategic Position and Action Evaluation Matrix (SPACE)

FS

Conservative

Aggressive

CA IS

Defensive Competitive

ES

Internal Strategy Position External Strategy Position

Financial Strength (FS) Environment Stability (ES)

Return on investment 2.00 Technological changes -2.00

Leverage 2.00 Rate of inflation -3.00

Liquidity 2.00 Demand variability -3.00

Working capital 3.00 Price range of competing products -3.00

Cashflow 3.00 Barriers to entry into market -3.00

Inventory turnover 2.00 Competitive pressure -3.00

Earnings per share 2.00 Ease of exit from market -3.00

Price earnings ratio 2.00 Price elasticity of demand -3.00

Risk involved in business -3.00

Average Financial Strength 2.25 Average Environment Stability -2.89

Competitive Advantage (CA) Industry Strength (IS)

Market share -3.00 Growth potential 3.00

Product quality -3.00 Profit potential 2.00

Product life cycle -3.00 Financial stability 3.00

Customer loyalty -3.00 Technological know-how 3.00

Competition's capacity utilization -2.00 Resource utilization 2.00

Technological know-how -3.00 Ease of entry into market 2.00

Control over suppliers and distributors -3.00 Productivity, capacity utilization 3.00

Average Competitive Advantage -2.86 Average Industry Strength 2.57

X-Axis = -2.89 + 2.25 = -0.64

Y-Axis = 2.57 - 2.86 = -0.32

Coordinate (-0.64, -0.32)

Justification

Based on all evaluations and matrix, SPACE is described.


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Internal-External Matrix (IE)

Justification

It is based on the score of EPE and IFE.


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Grand Strategy Matrix

Rapid Market Growth

Str

on

g C

om

peti

tiv

e P

osit

ion

Quadrant 1 Quadrant 2

Wea

k C

om

peti

tiv

e P

osit

ion

Market development Market development

Market penetration x Market penetration

Product development x Product development

Forward integration Horizontal integration

Backward integration x Divestiture

Horizontal integration Liquidation

Related diversification

Quadrant 3 Quadrant 4

Retrenchment Related diversification

Related diversification Unrelated diversification

Unrelated diversification Joint ventures

Divestiture

Liquidation

Slow Market Growth

Note

Quadrant 1: (Many internal Strengths, Many external Opportunities) - Calls for an aggressive strategy

Quadrant 2: (Many internal Strengths, Grave external Threats) - Calls for a diversification strategy

Quadrant 3: (Critical internal Weakness, Grave external Threats) - Calls for a defensive strategy

Quadrant 4: (Critical internal Weakness, Many external Opportunities) - Calls for a turn around style strategy.

Justification

Based on all evaluations and matrix, Grand Strategy Matrix is described.


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Quantitative Strategic Planning Matrix (QSPM)

Strategy 1 Strategy 2 Strategy 3

Market Penetration

Product Development

Backward Integration

Key Factors Weight AS TAS AS TAS AS TAS

Opportunities Continuously demand of beauty products 0.40 4.00 1.60 4.00 1.60 2.00 0.80 Branding for products penetration and market segmentation 0.35 3.00 1.05 4.00 1.40 3.00 1.05 New market segment of online channel that untapped 0.25 2.00 0.50 3.00 0.75 2.00 0.50

1.00 3.15 3.75 2.35

Threats Strong competition from rivals 0.40 3.00 1.20 3.00 1.20 3.00 1.20 Product’s price competitiveness resulting low profit margin 0.35 3.00 1.05 3.00 1.05 4.00 1.40 Fluctuation of cost rising low purchasing of beauty products 0.25 3.00 0.75 3.00 0.75 3.00 0.75

1.00 3.00 3.00 3.35

Strengths Product quality assurance through ISO 9000 certification 0.25 4.00 1.00 3.00 0.75 3.00 0.75 Product distribution and worldwide network (over 100 countries) 0.30 3.00 0.90 3.00 0.90 2.00 0.60 Continuously sales growth 0.10 2.00 0.20 2.00 0.20 2.00 0.20 Unique organization chart and functions for effective management and productivity 0.20 2.00 0.40 2.00 0.40 3.00 0.60 Debtors aging is manageable 0.15 3.00 0.45 2.00 0.30 2.00 0.30

1.00 2.95 2.55 2.45

Weakness Products line is limited to beauty 0.40 3.00 1.20 4.00 1.60 2.00 0.80 Lack of innovation and research product development 0.30 3.00 0.90 3.00 0.90 2.00 0.60 Debt risk taking 0.20 3.00 0.60 2.00 0.40 3.00 0.60 High inventory aging 0.10 2.00 0.20 2.00 0.20 3.00 0.30

1.00 2.90 3.10 2.30

Total 4.00 12.00 12.40 10.45

Justification

Based on all evaluations and matrix, QSPM is described.


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Should Revlon adopting Avon’s door-to-door sales tactics? Do you think that is good strategy or not

and why? If yes, to what extend should this new forward integration strategy be pursued? If China,

why not put salespersons on the ground in other countries such as India and even the United States?

Revlon should adopting door-to-door sales strategy in China that it is similar with Avon because of the

following:

Effectiveness to communicate with customers directly and closer understand their expectations so that

product and service improvement can be achieved

Minimize the operation cost via utilize the Multi-Level-Marketing Concept so that win-win situation can

be achieved. Example, people get job as business instead of employment and customers get the best

economic benefits (less involvement of third-party resulted low cost).

Easier to build customer loyalty via using word of mouth strategy. It is easier to serve one-to-one

because marketer is able to focus customer needs and wants.

Revlon should use 5’s P Marketing Strategy for the new forward integration strategy in China. The 5’s P

Marketing Strategy is consisting of Proposal, Product, Price, Promotion and Place.

Proposal is the business start-up plan that the person can become sales agent based on the conditions as

follows:

Fully compliance of domestic regulations

Fully attend the training courses such as sales, sole proprietorship, product and hospitality

Products are the goods from Revlon to the customer that sales agent know-how to demonstration and advise

the application usage. Revlon will be offered the product training to sales agent so that direct selling can be

started. Any challenges/issues during personal selling shall refer to Revlon so that solution can be provided.

Thus, it will giving advantage for both that sales agent can use the solution and Revlon can further

understand the customer behavior, expectation and perceive. As a result, brand and customer royalty can be

built.


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Price is the cost of the products that customer can enjoy as well as sales agent can make profit. Revlon

should set the reasonable pricing so that customer can enjoy the value of money and sales agent can earn

more money (product profit margin). In addition, price incentive can be introduced based on the conditions:

Larger volume purchase by sales agent can enjoy additional discount

Annual volume purchase by sales agent can enjoy the cash bonus and premium insurance

package

Promotion is the sales incentive that sales agent and customer can be enjoyed. Example, Revlon cosmetics

product can be offered 30% discount at retail value of $1000 if the customer purchase more than $1000

products from all brands.

Place is the products distribution channel. Sales agent will deliver the product to customer directly which the

sales amount below $500. Any purchase amount is more than $500, Revlon will utilize the courier service to

delivery the purchased product. Therefore, it is giving the sales agent to focus directly to customer with fully

utilize working hours. In addition, Revlon can offer online commerce to sales agent and customer for the

following purposes:

Sales agent

o Online request products for personal selling

o Online request delivery of products to customer directly resulted saving costs

o Online seek product information, announcement and training

Customer

o Online purchase product

o Online seek product information especially promotion


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Should Revlon concentrate its efforts on international market, given the low value of the dollar and

competitive pressure? Which countries should Revlon focus on?

Revlon should concentrate the international market because it is contributing half revenue although low

value of dollar in the competitive situation. Revlon should focus the following countries because of the

following:

China (Shanghai)

1. Population is about 18 millions and GDP per capita is about US$12,529 (nominal)

2. High demand for cosmetics and fragrances

3. Gross domestic products continuously growth resulted growth of customer purchase power

4. Competitors are not fully penetrate the market segment and customer group

5. Revlon can utilize Shanghai for Chinese Regional Sales and Distribution. Example, sales expansion

to Taiwan, Korea, Japan, Hong Kong and Macau due to cost effectives and similarity customer

behavior which ease to market the products

South Africa


2. Competitors are not fully penetrate the market segment and customer group

3. Resources availability and lower business cost for plant investment to supply international market

4. Majority African is English educated resulted communication effectiveness for employment,

business opportunities such as Multi-Level-Marketing, etc

5. Revlon can utilize Cape Town for Africa Regional Sales and Distribution. Example, sales expansion

to Equatorial Guinea (GDP Per Capita US $14,941), Seychelles (GDP Per Capita US $10,112),

Gabon (GDP Per Capita US $9,987), Botswana (GDP Per Capita US $7,554) and Mauritius (GDP

Per Capita US $6,872)

Middle East (United Arab Emirates)


2. High demand for cosmetics and fragrances

3. Large market for halal products and less halal certified competitors

4. Revlon can utilize Dubai for Middle East Regional Sales and Distribution. Example, Bahrain (GDP

Per Capital US $20,500), Egypt (GDP Per Capital US $4,400), Jordan (GDP Per Capital US $4,800),

Kuwait (GDP Per Capital US $22,800), Oman (GDP Per Capital US $13,400), Saudi Arabia (GDP

Per Capital US $12,900), Tunisia (GDP Per Capital US $7,600) and Turkey (GDP Per Capital US

$7,900)

Source : http://en.wikipedia.org for economic statistics

http://en.wikipedia.org/


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Should Revlon diversify its operations or develop joint ventures with other cosmetics companies?

Would jewelry be good industry to enter given the aging society?

Revlon should diversify its operations at international such as Regional Center of Sales and Distribution

because of the following:

To serve the customer better by understanding their needs and wants especially cultural differentiation.

Example, Chinese-China, Chinese-Taiwan, Chinese-Macau and Chinese-Hong Kong are having similar

purchasing behavior and cultural. Therefore, if Revlon products and business model are successful in

China, it can be diversified to Taiwan, Macau and Hong Kong easily.

Localized management and decentralized the decision making so that they can get closer with customer

needs and wants and ease develop the new product and penetrate the market segment. Example, African

customer enjoy the nail product instead of cosmetics and skin cares resulted Revlon can further study the

potential nail development such as most favorable nail color, style, etc so that sales and profit can be

potentially growth and expand to African countries.

International plant is more cost effective than United States result the potential of saving operation and

business cost. Example, China Plant can supply the products to United States, Dubai Plant can supply

Middle East, etc. Therefore, it is developing the strategy distribution channel and cost effectiveness to

serve the customer efficiently (On Time Product Availability).

Revlon current situation is not suitable for joint ventures because this company is suffering debts and

losses. Joint ventures may result Revlon losing the brand if it is not successful and high risk.

Jewelry is unrelated business to Revlon which it is not a good option to penetrate at this moment because of

the following:

Jewelry business is new experience to Revlon result 50%-50% ratio successful. However, introduce new

brand and product are needed large fund which Revlon difficult to source due to high debts.

Revlon’s customer is bonding with beauty brands and products result they may not keen on jewelry.

Jewelry business is too competitive due to fast changeable fashion and design resulted huge cost which

Revlon could not fulfill.


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Does Revlon have too many brands? Should the company keep brands such as ColorStay and get rid

of brands such as Mitchum?

Yes, Revlon have too many brands that losing the focus on the customer needs and wants especially those

are not making profit. Revlon should downsize the brands by eliminating the products lines of losing

profitability so that cost savings can be achieved to survive the business. In addition, Revlon should re-study

the brands for the following objectives:

Fast moving product lines will be continued to serve the market and speed replenishment the products so

that it is always available for customer to buy.

High profit margin product lines but serving niche market should aggressive advertise for brand

awareness and it’s application usage advantage so that this product can growth the market share

Re-size the product line so that more customer is affordable to buy so that it can boost the sales and

profitability

Re-Engineering the brand value so that customer loyalty can be retained and growth. Example,

cosmetics for beauty differentiate instead of cover-up unbeautiful, fragrance is for refreshment lifestyle,

etc.

Last and not least, Revlon should keep ColorStay and Mitchum because of the following:

Develop a brand and product lines are taking long period and huge investment. Therefore, Revlon should

re-engineering the application usage so that it can suit the customer needs and wants

Revlon is suffering losses and debts which re-engineering business model is more relevant and re-utilize

the resources especially brands to boost sales and profitability

Demand for ColorStay is potential and Mitchum is just beginning to growth the market share. As a

result, it is an opportunity to serve the market with re-strategy the business model so that these brands

can growth well


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Should Revlon agree to sell itself to Perlman or to a rival firm? What is Revlon worth on the market?

Revlon should agree to sell itself to Perlman because of the following:

Perlman understood Revlon core value of business and beauty market since 1985 which bought all stock

from public shareholders. In addition, Perlman bailouts Revlon by buy non-purchase stock in 2006 result

Perlman keen on this beauty business.

Revlon has 75 years history of providing high-quality products at affordable prices over 100 countries

result it is a strong and potential company that the business shall continue and rise.

Revlon is smallest beauty company compare with L’Oreal, Avon and Estee Lauder result it is worth

buyout for the lucrative market and Revlon is still ability to growth the market share especially halal

market (over US billions value of demand)

Based on financial statement (refer to appendixes), Revlon’s value computation as follows:

Class B Stock EPS Revlon Market Worth

31,250,000 21.43 31,250,000 x 21.43 = 669,687,500

Class A Stock EPS Revlon Market Worth

390,001,154 21.43 390,001,154 x 21.43 = 8,357,724,730

344,472,735 21.43 344, 472, 735 x 21.43 = 7,382,050,711

Grandtotal 16,409,462,941

Class B Stock P/E Revlon Book Value

31,250,000 2.49 31,250,000 x 2.49 = 77,812,500

Class A Stock EPS Revlon Book Worth

390,001,154 2.49 390,001,154 x 2.49 =971,102,873

344,472,735 2.49 344,472,735 x 2.49 =857,737,110

Grandtotal 1,906,652,484

Based on this computation, the market value for Revlon is shown as below:

Revlon Market Worth 16,409,462,941 (a)

Revlon Book Worth 1,906,652,484 (b)

Revlon Debts 2,161,700,000 (c)

Estimate Value 12,341,110,458 (a) - (b) - (c)

Offer Value at 80% 9,872,888,366

Generally, Buyer will only offer at maximum 80% price to buy the company which it is similar with

insurance compensation scheme (maximum 80% of market value).


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Appendix I – Income Statement

Revlon

2006 2005 2004

Total revenue 1,331.40 1,332.30 1,297.20

Cost of revenue 545.50 508.10 485.30

Gross profit 785.90 824.20 811.90

Operating expenses 0.00 0.00 0.00

Research & development 0.00 0.00 0.00

Selling, gen. & admin 808.70 757.80 717.60

Restructuring cost & others 27.40 1.50 5.80

Total operating expenses 836.10 759.30 723.40

Operating income / loss -50.20 64.90 88.50

Income from cont oper 0.00 0.00 0.00

Interest income -1.10 -5.80 -4.80

Equity Income 0.00 0.00 0.00

Exchange gain/loss -1.50 0.50 -5.20

Other expense 3.80 -0.50 2.00

Interest expense 148.80 130.00 130.80

Amortization debt costs 7.50 6.90 8.20

Loss early extinguishment of debt 23.50 9.00 90.70

Total Others 181.00 140.10 221.70

Income before tax -231.20 -75.20 -133.20

EBIT -52.80 59.60 78.50

Income tax expense 20.10 8.50 9.30

Net income -251.30 -83.70 -142.50

Gross Profit Margin 59% 62% 63%

Operating Profit Margin -4% 5% 7%

Net Profit Margin -19% -6% -11%

Key Performance Against Last Year 2006 2005 2004 Revenue 0% 3%

Cost 7% 5%

Gross Profit -5% 2%

Operating Income -177% -27%

EBIT -189% -24%

Net Income -200% 41%

Sales by Geographic

US 57% 59% 61%

International 43% 41% 39%

Sales by Products

Cosmetics, skin care & fragrance 62% 68% 67%

Personal care 38% 32% 33%


Page 22 of 24

Appendix II – Income Statement 2006 2005 2004

Assets

Current assets

Cash & cash equiv 35.40 32.50 120.80

Short-term invest 0.00 0.00 0.00

Net receivables 207.80 282.20 200.60

Inventory 186.50 220.60 154.70

Other current assets 58.30 56.70 69.70

Total current assets 488.00 592.00 545.80

Long-term investments 0.00 0.00 0.00

Property, plant & Equip 115.30 119.70 118.70

Goodwill 186.20 186.00 186.10

Intangible assets 0.00 0.00 0.00

Accumulated amortization 0.00 0.00 0.00

Other assets 142.40 146.00 149.90

Def long-term asset charges 0.00 0.00 0.00

Total Assets 931.90 1,043.70 1,000.50

Liabilities

Current Liabilities

Account payable 95.10 133.10 95.20

Short/Current 9.60 9.00 36.60

Long-term debt 0.00 0.00 10.50

Other current liabilities 272.50 328.40 283.20

Total Current Liabilities 377.20 470.50 425.50

Long-term debt 1,501.80 1,413.40 1,308.20

Other liabilities 175.70 162.40 286.70

Deferred long-term 107.00 93.30 0.00

Liability charges 0.00 0.00 0.00

Minority interest 0.00 0.00 0.00

Negative goodwill 0.00 0.00 0.00

Total Liabilities 2,161.70 2,139.60 2,020.40

Stockholders' Equity

Common stock -1,229.80 -1,095.90 -1,019.90

Retained earnings 0.00 0.00 0.00

Treasury stock 0.00 0.00 0.00

Capital surplus 0.00 0.00 0.00

Other stockholders' equity 0.00 0.00 0.00

Total stockholders' equity 0.00 0.00 0.00

Total Liabilities and SE 931.90 1,043.70 1,000.50

Working Capital 110.80 121.50 120.30

Note of stockholders breakdown

Class B common stock 0.3 0.3 0.3

Class A common stock 3.8 3.4 3.4

Additional paid-in capital 884.9 764.8 510.3

Treasury stock -1.40 -0.80 0.00

Acc. Deficit -1,993.20 -1,741.90 -1,658.20

Acc other comprehensive loss -124.20 -121.70 124.30

Total stockholders' deficiency -1,229.80 -1,095.90 -1,019.90


Page 23 of 24

Appendix III – Key Index

2006 2005 2004

Net Sales 1,331 1,332 1,297

COGS 546 508 485

Gross Profit 786 824 812

Operating Income -50 65 89

Net Income -251 -84 -143

EBIT -53 60 79

Interest Charges 149 130 131

Gross Profit Margin 0.59 0.62 0.63

Operating Profit Margin -0.04 0.05 0.07

Net Profit Margin -0.19 -0.06 -0.11

Receivable Turnover 0.16 0.21 0.15

Receivable Collection Period 56.97 77.31 56.44

Inventory Turnover 2.92 2.30 3.14

Inventory Turnover Days 124.79 158.47 116.35

Return on Assets -0.27 -0.08 -0.14

Return on Total Assets -0.06 0.06 0.08

Return on Equity -0.28 -0.11 -0.28

Current Ratio 1.29 1.26 1.28

Quick Ratio 0.80 0.79 0.92

Debt Total Assets Ratio 2.32 2.05 2.02

Debt Equity Ratio 0.82 0.97 1.64

Times Interest Earned Ratio -0.35 0.46 0.60

P/E 21.43 20.85 20.02

EPS 2.49 2.57 2.16

P/E Ratio 8.61 8.11 9.27

Current Assets 52% 57% 55%

Fixed Assets 48% 43% 45%

100% 100% 100%

Current Liabilities 40% 45% 43%

Long-Term Liabilities 191% 160% 159%

Equity -132% -105% -102%

100% 100% 100%


Page 24 of 24

Appendix IV – Key Competitive Matrix

Financial Information (in $ Millions)

Revlon L'Oreal Avon Etee Lauder

2004 2005 2006 2004 2005 2006 2004 2005 2006 2004 2005 2006

Sales 1,297 1,332 1,331 19,097 20,346 22,106 7,748 8,150 8,764 5,742 6,280 6,464

Operating Profit/Loss 89 65 -50 2,925 3,172 3,557 1,229 1,149 761 649 727 620

Total Assets 1,001 1,044 932 5,705 6,352 6,786 4,148 4,761 5,238 3,708 3,886 3,784

Loans & Debts 1,355 1,516 1,618 2,195 3,104 4,661 866 767 1,171 462 680 698

Shareholders' Equity 514 769 889 16,555 20,520 20,474 750 794 790 1,734 1,693 1,622

Key Performance Index Against Previous Years

Revlon L'Oreal Avon Etee Lauder

2004 2005 2006 2004 2005 2006 2004 2005 2006 2004 2005 2006

Sales 3% 0% 7% 9% 5% 8% 9% 3%

Operating Profit/Loss -27% -177% 8% 12% -7% -34% 12% -15%

Total Assets 4% -11% 11% 7% 15% 10% 5% -3%

Loans & Debts 12% 7% 41% 50% -12% 53% 47% 3%

Shareholders' Equity 50% 16% 24% 0% 6% -1% -2% -4%

Sales Growth Analysis 2004 % 2005 % 2006 %

Revlon 1,297 4% 1,332 3% 1,331 3%

L'Oreal 19,097 53% 20,346 53% 22,106 54%

Avon 7,748 22% 8,150 21% 8,764 22%

Estee Lauder 5,742 16% 6,280 16% 6,464 16%

Total Market Growth 35,888 100% 38,113 100% 40,671 100%

Note :

Procter & Gamble and Unilever are excluded because their core business is not focus on beauty industry.

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CaseStudy Revlon