Environmental Scanning and Industry Analysis of Splash Corporation

In partial fulfillment of Business Accounting Technology for the requirement of the subject Business Policy and Strategy

Lavinia Junio

Merryjoy Sinad

Gemma Lou Vargas

March 10, 2014

Table of Contents

I. Company Profile

II. PESTLE Analysis

III. Porter’s Five Forces Analysis

IV. Matrix Analysis

V. SWOT Analysis

VI. Market Analysis

VII. Financial Statement Analysis

VIII. Strategy

IX. Exhibit

X. Reference

I. Company Profile

The Splash Group is composed of wholly-owned Philippine companies with business

interests in personal care manufacturing and marketing, international distribution, and recently,

health and wellness products development and marketing. Founded in 1985, Splash was able to

grow from a Php12,000 backyard business into a Php4 billion enterprise through the vision,

innovation, and commitment of its founders, Dr. Rolando B. Hortaleza and Dr. Rosalinda A.

Hortaleza. Being consistently in the Top 300 corporations in the Philippines since 1998, the

Company has established its reputation as one of the formidable players in the Philippine

personal care industry.

Splash carries the brands Extraderm, Maxi-Peel, and Skin White. It also carries one of the

fastest growing skin care brands in the Philippines – Biolink. In 2002, the Company invested in a

Php400 million state-of-the-art manufacturing complex in Canumay, Valenzuela City which is

expected to meet the Company’s capacity requirements in the medium-term. The Company

established the Splash Research Institute in 1997. Through state-of-the-art facilities and

equipment, and a research staff of more than twenty (20) chemists, pharmacists and engineers,

SRI carries out the design and development of innovative products and packaging systems,

thereby keeping Splash at the forefront of the personal and health care industries. It strives to

maintain a two (2)-year rolling pipeline of new products. SRI also ensures that all products made

available to the market are backed up by rigid clinical tests to guarantee superior efficacy, safety,

stability and over-all product excellence. Splash has grown into a multi-billion peso company,

with two of its core products, exfoliant and skin whiteners, dominating their segments with

market shares of 86% and 41%, respectively, based on an AC Nielsen Philippine Retail Index

Report dated June 2007. The Company is ranked sixth in the Philippine personal care industry,

the only Filipino owned company in the top 10.The Company aims to strengthen its presence in

the personal care markets in the Asia-Pacific region and to gain a foothold in the affluent markets

of Europe and North America through its health and wellness products. To date, Splash has

established market presence in over 30 countries through its distributors and local exporters.

These countries include Algeria, Australia, Bahrain, Canada, Egypt, Hong Kong, India,

Indonesia, Iran, Japan, Jordan, Korea, Kuwait, Lebanon, Malaysia, Nigeria, Oman, Pakistan,

Qatar, Saudi Arabia, Singapore, Sudan, United Arab Emirates, Vietnam and the United States.

Early beginnings

Splash Corporation started out in 1985 as just a backyard business when the Hortalezas decided

to invest their P12,000 cash gifts from their wedding and put up RBH Cosmetics. The company’s

very first products were repackaged acetone and cuticle remover.

In 1987, Hortaleza, seeing a fad in growing hair-style decided to sell high-quality but affordable

hair spray, letting the company earned its first one million peso in sales. The couple eventually

renamed their company to Splash Cosmetics from Hortaleza Cosmetics.

In 1993, the Hortalezas were able to afford sophisticated technologies and renamed the company

to Splash Manufacturing Corporation. By 1997, Splash established the Splash Research Institute

complete with state-of-the-art facilities and equipment, and a research staff of more than 20

chemists, pharmacists and engineers. Its main purpose is to design and develop of innovative

products and packaging systems. Splash tries to keep a two year rolling pipeline of new products,

backed by rigid clinical tests.

General

Splash corporation was incorporated and registered with the Philippine Securities and Stock

Exchange on September 30, 1991. On November 15, 2007, the company’s shares of stock were

listed and traded in the Philippine Stock Exchange. Its registered address is 5th Floor W-Office

Building, 11th Avenue corner 28th Street, Bonifacio Global City, Taguig City.

Since the company’s incorporation in 1991, it has expanded and broadened its horizon. To

accelerate its international expansion, on August 5, 2009 P.T. Splash Cahaya was incorporated in

Indonesia. In 2010, the following subsidiaries were also established: Splash H&B SDN BHD in

Malaysia, Splash H&B Limited in Nigeria, Splash Global PTE. LTD., in Singapore. The

company also established a representative office in Vietnam in 2010. To further strengthen its

distribution in the Philippines, the company established Acceleron Distribution Corporation

(ADC) in December 2009. In January 2012, SEC approved the change of ADC’s corporate name

to Prime Global Distribution Corporation (PGDC).

In 2009, the company created a new revenue stream by going into the direct selling business and

reach into its undeserved market. Direct selling is a very personal and intimate way of reaching

the target market. The first branch in Starmall Shaw Blvd. was launched in November 2009. As

of December 31, 2011, it has put up 12 branches and 22 independent business contractors

nationwide. The Group marked its entry into the food business with the purchase of 80% of

equity of Barrio Fiesta Manufacturing Corporation for P472 million on August 2011.

Splash Corporation and its subsidiaries have 428 employees in the Philippines and abroad

engaged in the research and development, manufacture and sale of a broad range of health and

beauty products. The Group’s consolidated revenues totalled P3,250 million in 2011; P2,988 in

2010; and P2,722 million in 2009.

There were no material reclassifications, merger, consolidation, nor any bankruptcy,

receivership, or similar proceedings filed during the period.

Corporate Cause

We shall uplift the pride and economic well-being of the societies we serve.

Mission

Splash is a world-class company that is committed to making accessible, innovative, high-quality

and value personal care products for everyone.

Vision

We are a marketing company in the beauty, personal and healthcare industries where we shall be

known for strong brand management of pioneering, high-quality and innovative products derived

from extensive research, to improve the well-being of our consumers. We shall do this through:

Leading edge trade and consumer marketing systems. Pursuit of excellence in all other business

systems. We shall be generous in sharing the rewards with our employees, business partners,

stockholders and our community for the realization of our corporate cause.

Core Values

Faith in the Almighty

We believe that our success is made possible by the infinite goodness and guidance of God. All

our triumphs, therefore, are dedicated to His greater honor and glory.

Ethical Governance

Our organization shall uphold the highest levels of ethical standards and professionalism in the

conduct of its business.

Personal Integrity

We are committed to uphold honesty when conducting business. Our career is based on ethics.

Our service, founded on sincerity.

Sense of Belonging

We are colleagues, friends, one family. We shall maintain a strong relationship among

individuals in our organization, based on genuine caring, understanding, and righteousness.

Social Responsibility

We pursue social responsibility by giving back to the community and making contributions of

enduring value.

Customer Orientation

We listen to our consumers. We get to know them. Because we exist for them, their deepest

desires fuel ours. They are our true partners in innovation.

Productivity & Excellence

We aim to go beyond our limits. We seek to be better by doing things right, by working smart.

And thus, produce more than expected, and deliver even before the expected time.

Pioneering and Innovative

By driving opportunities and challenging the status quo, we are able to come up with

breakthrough, first-in-the-market, value-adding products.

Business Developments

In 2002, Splash invested in a P400 million state-of-the-art manufacturing complex in

Canumay, Valenzuela City which is expected to meet the Company's capacity requirements in

the medium-term. On November 15, 2007, the Splash’s shares of stocks were listed in

the Philippine Stock Exchange under the stock symbol SPH.

In 2009, the company made three major moves. In August, P.T. Splash Cahaya was incorporated

in Indonesia as part of company’s expansion overseas. On November, the company went into the

direct selling business by launching the First Business Center. A month later, Splash established

the Acceleron Distribution Corporation to distribute certain brands to large-scale supermarkets.

Segments of Business

Splash Corporation’s brands continue to maintain their leadership and dominant positions in the

categories where they compete, despite the influx of new, competitive products.

Whitening:

While having stable market share, Skin White regains its position as number 1 whitening lotion

as its transition to the new packaging is close to completion and stocks are more available at the

trade outlets. Skin White Soap continues to be threatened by the launch and introduction of new

scientific soaps with international brand recall as well as the aggressive and perpetual building

activities as buy-one, take-one, of local players.

Exfoliant:

After gaining 3 points from the last period, Maxi-Peel Soap continues its growth momentum

gaining another 5 points in December to push it over 80% share of the market. The continued

gains are due to its consistent in-store promo and awareness generated by airing a soap-specific

T.V. commercial in May. Maxi-Peel Solution remained stable as it continued its dominance and

ownership of the face solution segment.

Hair:

Kolours Hair Dye’s 3 points share gains makes it again the dominant and leading premium hair

dye brand in the industry. In-store brand ambassadors and push girls helped the brand’s

improved shares. Vitress shares slipped slightly but continue to be the far dominant hair cuticle

cost in the country, its slight share decline was due to the steep price discounting of its

competitor.

In 2009, Splash renamed its product categories from Skin Care into Skin Whitening. This

segment contributed 45.6% of the company’s revenues in 2009. Skin White leads this segment

with P1.06 billion sales. Skin Exfoliant’s leading brand is Maxipeel. Total revenues for this

brand amounted to P930 million in 2009. Under the Hair Care, Kolours and Vitress are leading

brands in the Premium Hair Dye category and hair cuticle coat category respectively.

Food supplement consist of products with naturally-derived ingredients which promote health

and general well-being. Brand under the food supplement is the Theraherb VCO.

II. PESTLE Analysis

Politico-Legal-Environment

Economic Socio-cultural Technological

Patents and Trademarks

Government Approval and Regulation

Compliance with Environmental Laws

Unemployment rate and consumer’s disposable income

Older population tends not to be interested in the latest products

Foundation establish by Splash Corporation

Research and Development of new product using cutting edge technology

TABLE 1

Politico – Legal

This factor looks at how government regulations and legal issues affect a business’s chance to be

profitable and successful.

Patents and trademarks

Splash Corporation owns over 100 trademarks and to protect these trademarks by

registering in the markets where it sells or intends to sell the products. The trademarks of

the Company’s brands (e.g, Maxipeel, Extraderm, Skinwhite, Biolink, Theraheb) are

registered in more than 50 countries including the ASEAN group, the European Union,

USA, Canada China/Hongkong, Japan, South Korea, Taiwan, India, Iran, Jordan, Kuwait,

Qatar, Saudi Arabia and the UAE. The group utilizes formulations covered by Utility

Model Patents registered with the Intellectual Property Office of the Philippines.

Government Approval and Regulation

The company complies with all the relevant regulatory requirements of the Food

and Drug Administration (FDA) and equivalent regulatory agencies in every country

where its products are sold.

As part of regulatory controls for the Cosmetics Industry, the Department of

Health (DOH) adopted the ASEAN Harmonized Cosmetic Scheme and ASEAN

Technical Documents as long as these do not conflict with Philippine laws. This scheme

aims for the mutual recognition of product registration approvals for cosmetics in the

member states. The Group sees this as an advantage in terms of being able to compete

with the ASEAN countries.

The DOH recently issued the Implementing Rules and Regulations (IRR) of

Republic Act 9711 or the Food and Drug Administration of 2009, thereby strethening the

technical capacity of FDA in performing its mandate of regulating food, drug and

cosmetic products to ensure public health and safety. The group likewise vie view this an

advantage in reducing or eliminating unregulated and /or non compliant products from

the market.

Compliance with Environmental Laws.

These are the following rules that the Philippine Government implemented with regards

to protecting the environment, and in with the company has to comply with:

a. Presidential Decree 1586 [Philippine Environmental Impact

Statement (EIS) System of 1978]

The EIA System was formally established in 1978 with the enactment of Presidential

Decree no. 1586 to facilitate the attainment and maintenance of a rational and orderly

balance between socio-economic development and environmental protection. EIA is a

planning and management tool that will help government, decision makers, the

proponents and affected communities decide whether the benefits of a project will

outweigh the negative consequences or risks on the environment. The process assures

implementation of environment-friendly projects.

b. Republic Act 6969 (Toxic Substances, Hazardous and Nuclear

Wastes Control Act of 1990)

The law aims to regulate, restrict or prohibit the importation, manufacture, processing,

sale, distribution, use and disposal of chemical substances and mixtures that present

unreasonable risk to human health. It likewise prohibits the entry, even in transit, of

hazardous and nuclear wastes and their disposal into the Philippine territorial limits for

whatever purpose; and to provide advancement and facilitate research and studies

on toxic chemicals.

c. Republic Act 8749 (Clean Air Act of 1999)

The law aims to achieve and maintain clean air that meets the national air quality

guideline values for criteria pollutants, throughout the Philippines, while minimizing the

possible associated impacts to the economy.

d. Republic Act 9003 (Ecological Solid Waste Management Act of

2000)

In partnership with stakeholders, the law aims to adopt a systematic, comprehensive and

ecological solid waste management program that shall ensure the protection of public

health and environment. The law ensures proper segregation, collection, storage,

treatment and disposal of solid waste though the formulation and adoption of the best

eco-waste practices.

e. Republic Act 9275 (Clean Water Act of 2004)

The law aims to protect the country’s water bodies from pollution from land-based

sources (industries and commercial establishments, agriculture and community/household

activities). It provides for a comprehensive and integrated strategy to prevent and

minimize pollution through a multi-sectoral and participatory approach involving all the

stakeholders.

Economic Factor

Economic factors mainly affect the purchasing power of customers. The more customer demand

for the product the more profit to the organization, at the same time if there is no customers

demand it’s going to affect the organization in a negative manner.

According to the United Nations World Economic Situation and Prospects 2014 (WESP)

report “Translating economic growth into employment opportunities remains a significant

challenge in the Philippines. Despite growth of 7.6 per cent in the first half of 2013, the

unemployment rate rose to 7.3 per cent in July as the economy failed to create sufficient full-

time jobs to accommodate the rapidly growing labor force”.

Usually a rise in the unemployment rate indicates that a part of customer base has lost

their purchasing power. Many consumers will change their purchasing habits due to a lack of

disposable income. As a result of this decreased spending, many consumers have turned towards

substituting name brand products for their generic alternatives (Consumer Reports). Another

alternative is due to the lack of disposal income, consumer instead of buying products for

beautification purposes, will just focus on buying the essential goods which are food, shelter or

clothing.

Socio-Cultural

This issue analyzes the demographic and cultural aspects that can help determine whether

a business can compete in the current market. One of the challenges for the company is the older

population. Older population tends not to be interested in the latest products rather they

interested in the simple one.

In Exhibit 6, shows the Splash Corporation foundation banner wherein they apply their

social responsibility on giving back something to the society. This foundation named Ang

Hortaleza gives free medical mission, free seminars for those people who does not have jobs so

they will be able to use the skills they learned for earning money.

Technological

This factor takes into consideration the technology issues that impact how an organization brings

its product or service to the marketplace. Depending on the technology available, it can make it

easier or harder to enter the industry and increase production level.

The Company established the splash Research Institute (SRI) to continuously develop, by

employing cutting-edge technology, new products that will meet the growing needs of the

personal care market. It adopted the “open innovation” concept, whereby the Company

collaborates with the suppliers to come up with new and better products formulations in a cost

effective matter. The Company ensures that there is a ready stream of new products that it can

launch at any given time based on a rolling eight-quarter plan.

SRI’s department (Product Research and Development, Packaging Innovations, Product

Testing and Documentation, and Skin Research) work interdependently towards creating

innovative products which address the felts and latent needs of consumers.

Intensity of existing rivalry - HIGH

Presence of International and local competitor

Quality products and customer loyalty

III. Porter’s Five Forces Analysis

Bargaining power of suppliers

Critical production inputs are similar

Inputs have little impacts on costs

Diverse distribution channel

Low concentration of suppliers

High competition among suppliers

2 or more suppliers for each type of raw material

There is no existing major supply contract

Threats of new competitors - LOW

Entry barriers are high Advanced technologies are required Strong brand names are important High capital requirements Strong distribution network required Registration and government regulation

are high

Threats of substitutes - LOW

Limited number of substitutes Substantial product differentiation Substitute product is inferior Substitute is lower quality Substitute has lower performance

Bargaining power of customers

buyer choice Large number of

customers Product is important to

customers Low dependency on

distributors Limited information

availability Low buyer price sensitivity Buyers requires special

customization

Threat of new entrants

A new entry into this industry is not an easy trade. New entrants have to compete with large giant companies. Most of the multinational companies invest good amount of capital for research and development and marketing expenditures. For new entrant a capital required for business is huge. The funds are required for investment in R&D production, distribution and marketing which covers advertising cost which is crucial in this industry. (Splash Corp. Annual Report 2012). A major challenge for new entrants are advertising and positioning of products in the minds of consumers, as market is flooded with many national and international brands. Another issue is price sensitive market. The new entrants have had to work out innovative strategies to satisfy Filipino’s preferences and budgets to establish a hold in the market.

In addition to that, restrictions, allowable active ingredients, and other registration requirements should be complied in accordance to Bureau of Food and Drugs (BFAD). Like food and drugs, all cosmetic and skin care products must be registered with the BFAD before they could be sold in the market. Besides rigorous requirements for registration, the registration process itself is tedious. Average time that it takes to register a product with the BFAD is from 6 to 18 months. (www.fda.gov.ph)

The threat of substitute products

The consumers have a lot of brand choice as cosmetic market is flooded with many brands. Due to this demand, product becomes more elastic. So the treat of substitute is high. Some of the substitutes include herbal and organic hair and skincare products.

Bargaining Power of Buyer

Consumer buying power is very high. To retain consumers is very challenging task. In cosmetic industry consumer does not always stick to one brand of skincare or hair care because the switching costs are very low. This means that buyer power is high and demand for favorable prices. Brand awareness is more in urban Philippines, but brand loyalty is less towards the products, whereas brand awareness is less in rural India and brand loyalty is more.

 

Distribution Channels

The Group primarily sells its major products to supermarkets and drugstore, top wholesalers, large convenience stores, and regional distributors. The regional distributors handle two other major trade groups namely Modern Trade and General Trade. Modern trade consists of all large accounts outside of the top supermarkets. General Trade is composed of small retail trade

outlets including groceries, drugstores, sari-sari stores and market stalls. With the launch of the direct selling business in November 2009, the company increased its distribution through the independent dealers. International Operations use local consolidators and in country distributors to sell its products nationwide. The table summarizes their percentage contribution to sales, indicating relative balance of revenue sources:

Account Group % Contribution to Sales Served By

2012 2011 2010

National Accounts

41% 39% 41% SC

Modern Trade 16% 16% 16% Distributors

General Trade 43% 45% 43%

Totals 100% 100% 100%

In 2012, no single customer accounted for 20% or more of the Company’s sales.

Bargaining Power of Supplier

Buyer supplier power is low. Suppliers are often are insignificant in scale compared to major cosmetic manufacturers. Chemical producers have wide variety of sources to earn revenues; they are not completely dependent on cosmetic manufacturers.

Splash Corporation uses raw materials (primary chemicals and fragrances) that are commonly and readily available. Value creation comes from the mixture and synergy of chosen materials. The company purchases most of its raw material requirement locally to ensure short delivery lead times. Imported raw materials are procured through the representatives or local affiliates of foreign suppliers. Purchases are paid in pesos so that currency risks are not taken. Furthermore, the Company normally has 2 or more accredited suppliers for each type of raw and packaging materials, ensuring uninterrupted availability. The company avails of 60 to 90 day payment terms provided by suppliers. There is no existing major supply contract.

Threat of established rivals

The internal rivalry in cosmetic industry is very high. There is a presence of domestic players and International players in the market. Foreign brands, which have long established a loyal following amongst Filipino buyers, continued to overtake their local counterparts in 2012. (http://www.euromonitor.com/beauty-and-personal-care-in-the-philippines/report)

In order to succeed, the Splash Corporation competes by differentiating its product offerings through innovation. It therefore avoids head-to-head competition with large global companies by targeting market niches that it can profitably develop.

The Company considers as its principal competitors the following global cosmetic and personal care companies:

Unilever Philippines

Colgate Palmolive Phils. Inc.

Procter & Gamble Phils. Inc

L’Oreal Philippines, Inc.

Beiersdorf AG

Johnson & Johnson, Phils. Inc

Avon Cosmetics, Inc

The latest AC Nielsen data shows that Splash Corporation is still the leading personal care company and ranks fifth behind the large multinationals like Unilever and Procter & Gamble. Splash Corporation however out ranks other global personal care companies like L’Oreals and Beiersdorf AG in Philippine retail.

Source: Splash Corporation Annual Report 2012

IV. Matrix Analysis

Change of Brand Choice of the consumers/ Threat of Substitutes

The probability of occurrence and Probable Impact on Splash Corporation is high because of

many competitors with different variety of choices of Personal Beauty products is out in the

market. It entails low sales for the period if the consumer does not purchase such product.

Threat of New Entrants

The probability of occurrence is high but Probable Impact on Splash Corporation is medium

because Splash Corporation have establish name in a local market the possibility of new entrants

of getting some of its market is low the reason is to test such new products and after they

experience there is a possibility to retain as Splash Corporation’s consumer or be a consumer for

the other brand that newly exist.

Probable Impact on CorporationHigh Medium Low

P

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abil

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of O

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High Change of Brand Choice

of the consumers/ Threat of

Substitutes

Threat of New Entrants

Medium Maintain or Exceed the

Sales for the period

Marketing Strategy

Low Product Liability Risk

Regulatory risk   Bargaining power of Suppliers

Bargain power of Suppliers

The probability of occurrence and Probable Impact on Splash Corporation is low because Splash

Corporation has a wide variety of suppliers that are willing to supply raw materials for the

company. If one supplier backs out it will have low impact to the corporation due to other

replacement suppliers.

Maintain or Exceed the Sales for the period

The probability of occurrence medium but Probable Impact on Splash Corporation is high

because Splash Corporation will be stable if they maintain such sales and if they do exceed its

better for them to earn higher profit. It has a medium impact in a way the investments that they

do on food industry will be a good help for the company.

Marketing Strategy

The probability of occurrence and Probable Impact on Splash Corporation is medium because

Splash Corporation has a good marketing strategy wherein they maintain medium class markets.

They advertise their products through different ways such as TV ads, posters and Product

Testing to the market such as sampling.

Product Liability Risk

The probability of occurrence is low but Probable Impact on Splash Corporation is high because

Splash Corporation will be in sued and that will increase the litigation expense of the company

and would have a high impact on the companies Income Statement.

The group’s customers might encounter for various reasons defective and substandard products

which could bring about harmful effects like skin irritations and allergies, among others.

To mitigate this risk the group through Splash Research Institute undertakes exclusive clinical

testing before the product is introduced to the market. It also follows strict manufacturing

standards to prevent the production of the defective products.

Regulatory Risk

The probability of occurrence is low but Probable Impact on Splash Corporation is Medium.

The product being manufactured marketed and sold by the group are subject to standards and

regulations by government and regulatory agencies, particularly the Department of Health

(DOH-FDA) and the DTI which from time to time may introduce new rules and regulatory

policies or promulgate changes in the interpretation or enforce of existing laws and regulations.

These might directly affect the operations and profitability of the group or maybe costly to

comply with.

V. SWOT Analysis

Strengths

Barriers of market entry Skilled workforce High growth rate Domestic market Unique products Pricing power Diversification

Weaknesses

Tax structure Unknown Future profitability High loan rates are possible Future competition Small business units Investments in research and

development

Opportunities

Growing economy Global markets New products and services Innovation

Threats

Price changes Bad economy Substitutes products

Strengths

Unique products help distinguish Splash Corporation from competitors. Splash

Corporation can charge higher prices for their products, because consumers can’t get those

products elsewhere. Unique Products has a significant impact, so an analyst should put more

weight into it. Unique Products will have a long-term positive impact on this entity, which adds

to its value. This statement will lead to an increase in profits for this entity.

Customers typically rebel against price increases by switching to competing products, but

if a company has pricing power, customers will continue using splash corporation products and

services. Splash Corporation has the ability to charge customers higher prices. Pricing Power

has a significant impact, so an analyst should put more weight into it. Pricing Power will have a

long-term positive impact on this entity, which adds to its value. This statement will have a

short-term positive impact on this entity, which adds to its value.

Diversification they invested in a different industry such as Food industry where they bought

shares from barrio fiesta condiments. They also acquired Moon dish Corporation.

Opportunities

Greater innovation can help Splash Corporation to produce unique products and

services that meet customer’s needs. Innovation has a significant impact, so an analyst should put

more weight into it. Innovation will have a long-term positive impact on this entity, which adds

to its value. This statement will have a short-term positive impact on this entity, which adds to its

value. This qualitative factor will lead to a decrease in costs. This statement will lead to an

increase in profits for this entity. Innovation is a difficult qualitative factor to defend, so

competing institutions will have an easy time overcoming it.

Weaknesses

The Splash Corporation is paying loan with high amount of interest due to the long term.

The company entered into a floating Rate Notes (FRNs) Facility Agreemment with four (4) local

banks for the issuance of 1 Billion FRN’s. The FRNs were issued on August 31, 2007 and are

payable as follows 50 million annually for the next four years and balloon payment of 800

million in august 2012.

The company decreases its working capital due to different investing activities such as

acquisition of Moondish Foods Corp and they also bought shares from barrio-fiesta condiments.

Threat

A bad economy can hurt Splash Corporation’s business by decreasing the number of

potential customers. Bad Economy has a significant impact, so an analyst should put more

weight into it. Bad Economy will have a long-term negative impact on this entity, which

subtracts from the entity's value. This statement will lead to a decrease in profits.

The availability of substitute products hurts Splash Corporation’s ability to raise prices,

because customers can easily switch to another product or service. Substitute Products has a

significant impact, so an analyst should put more weight into it. Substitute Products will have a

long-term negative impact on this entity, which subtracts from the entity's value. This statement

will have a short-term negative impact on this entity, which subtracts from its value. This

qualitative factor will lead to an increase in costs. This statement will lead to a decrease in

profits. Substitute Products is an easy qualitative factor to overcome, so the investment will not

have to spend much time trying to overcome this issue.

VI. Market Analysis

CURRENT MARKET SEGMENTATION

In every company or business you need to know your market segmentation. The Geographic

Demographic and Psychographic Geographic.

Demographic

Also we need to know about the Age, Gender, Religion, and Nationality, Generation of the

customer. Age ±all of the ages are applicable. Gender ± male and female Religion ± all of the

religion are applicable Nationality- all are applicable Generation ± Baby Boomers, Gen X & Y,

all are applicable.

Since their products is widely offered to different stores such as supermarkets, mercury drugs

and many more.

Psychographic

Also we need to know the social class, Personality and Lifestyle of the customers. Social Class ±

all social classes can purchase in Splash Corporation because it has low prices items . Personality

± all kinds of personality are applicable to Splash Products Lifestyle- also all are applicable.

VII. Financial Analysis

Liquidity Ratios

Liquidity is a firm’s ability to satisfy its short – term obligations as they come due. It is

important to measure liquidity because it also refers to the solvency of the firm’s overall

financial position – the ease with which it can pay its bills.

Exhibit 1 presents the liquidity ratios used to evaluate Splash Corporation. Current ratio

measures the firm’s ability to meet its short- term obligation. An analysis of the current ratio of

Splash Corporation shows that the firm is considered liquid. Company with 2 to 1 or higher

current ratio is good. A higher current ratio indicates a greater degree of liquidity. Splash

Corporation is most liquid in 2012 with 2.4013 it means it has the ability to pay its short term

obligations with its current assets.

The quick ratio is similar to the current ratio except that it excludes inventory, which is

generally the least liquid current asset. The quick ratio provides a better measure of overall

liquidity. Quick ratio greater than 1 is considered acceptable to the industry. Quick ratio in 2011

is higher than 2012 due to the high inventory of the said year.

Working Capital measures how much in liquid assets a company has available to build its

business. The positive working capital ratio of the company only proves that its current assets are

really sufficient to satisfy its current liabilities. For the years 2011 and 2012 the working capital

of Splash Corporation is positive. This indicates that the company can liquidate its working

capital to quickly pay off its debt, if it has to do so.

Profitability ratio

Profitability ratios measure the company's use of its assets and control of its expenses to

generate an acceptable rate of return. These measures enable analysts to evaluate the firm’s

profits with respect to a given level of sales, a certain level of assets, or the owners’ investment.

Exhibit 2 illustrates the profitability ratios used to evaluate Splash Corporation. Return on

Assets Ratio (ROA) measures the overall effectiveness of management in generating profits with

its available assets. Analyzing the Return on Total Assets of Splash Corporation from 2011 and

2012, there is a decreasing trend in return on total assets. It is because the total assets are bigger

in 2012 than 2011. The higher the ratio is the better for the company.

Gross Profit margin measures the percentage of each sales remaining after the firm has

paid for its goods and what remains is the profit. For the years 2011 to 2012, the Gross Profit

ratio shows an increasing trend. This is good for the company for this only mean that there is a

bigger buffer for fixed and other expenses of operations. This positive can also indicate that the

company is improving its sales and decreasing its cost of sales.

Net Profit margin measures the percentage of remaining after all cost and expenses

including interest, taxes, and preferred stock dividends have been deducted. Net Profit margin of

Splash Corporation from the period 2011 up to 2012 is an increasing positive figure

which is good for the company.

Solvency Ratios

Solvency ratios are the methods used to find out the firm’s ability to meet its long-term

requirement obligations and thus remain solvent and avoid insolvency or bankruptcy.

Exhibit 3 presents the solvency ratios used to evaluate Splash Corporation. Debt to

Equity ratio is a measure of a company's financial leverage. It indicates what proportion of equity

and debt the company is using to finance its assets. The debt to equity ratio of the company

shows an increasing trend from 2011 to 2012. This indicates that the assets of the company are

mostly financed by liabilities than investments. The debt ratio of the company shows an

increasing trend which is a negative sign which means that the company is increasing its

liabilities as the resource of its assets. The Equity ratio measures the proportion of the total assets

that are financed by the owner and not by the creditors. The ratio shows a decreasing trend for

the years 2011 up to 2012. It means that the company obtains most of its assets from its creditors

and not from stockholders.

Efficiency Ratios

Efficiency ratios measure the quality of a business' receivables and how efficiently it uses

and controls its assets, how effectively the firm is paying suppliers, and whether the business is

overtrading or under trading on its equity (using borrowed funds).

Exhibit 4 shows the Efficiency ratios used to evaluate Splash Corporation. The Receivable

turnover measures how many times the company’s accounts receivable have been turned into

cash during the year. The receivable turnover of Splash Corporation shows that the company

converted accounts receivable into 4.4762 times during 2011 and 2.8095 times on 2012. The

turnover of receivable decreased. This indicates that the firm has difficulty in collection during

the year and it should improve its credit policies. Moreover, the average collection period of the

firm increased from 82 days to 130 days for the years 2011 and 2012. This indicates that the

company had inefficient credit policies and there are accounts that have difficulty in paying. .

Inventory turnover is a ratio showing how many times a company's inventory is sold and

replaced over a period. The inventory turnover has a decreasing trend. The days inventory of

Splash Corporation has an increasing trend from 101 days to 134 days. It means that the

company is having a hard time in managing its inventories. Generally, the faster the inventory

sells, the fewer funds are tied up in inventory and more profits are generated.

VIII. Strategy

The Splash Corporation do the focus strategy that is based on choice of Narrow competitive

scope within an industry. Beauty products manufacturer Splash Corp. is diversifying into food

manufacturing with a deal to acquire 80 percent of Barrio Fiesta Manufacturing Corp. for P472

million.

The acquisition, which seeks to boost the company’s position in the fast-moving consumer good

segment, does not include the Barrio Fiesta chain of restaurants.

“Acquiring a legacy brand such as Barrio Fiesta definitely establishes our place in the food

industry,” said Splash chief executive officer Rolando Hortaleza. “As in the personal care

business, which we have built for 26 years, we intend to establish our mark in the food industry,

starting off with the Barrio Fiesta brand of products. This will propel the company to be a major

player in this industry.”

The manufacturing unit produces and sells meal essentials and condiments used in everyday

meals of Filipinos locally. These products are also exported and consumed by overseas Filipinos.

“We intend to be big in this sector of the food industry because we believe with the Barrio Fiesta

brand we now have a credible brand name that evokes images of tasty and quality food,

memories of celebration and Filipino tradition, that we can expand to other food lines and which

we can capitalize in our marketing and distribution capabilities in specific countries,” Hortaleza

said.

Splash plans to launch various food products in the next two years as part of its goal to be a

major player in the food industry.

Founded in 1985, Splash grew from a P12,000 backyard business into a P4-billion enterprise

under the auspices of the Hortalezas. It carries the brands Extraderm, Maxi-Peel and Skin White

as well as one of the fastest growing skin care brands in the Philippines.

Barrio Fiesta Manufacturing was established in 1987 to bring to the tables of Filipino families

high quality food and to share the experience they gained in Barrio Fiesta restaurants since 1958.

Its products range from sautéed shrimp paste to ready-to-eat canned meals, sauces such as white

vinegar, fish sauce, soy sauce and lechon (roast pig) sauce, to fruit preserves and other

condiments. In keeping with its commitment to home-style cooking, Barrio Fiesta products have

no preservatives.

IX. Exhibit

EXHIBIT 1 – LIQUIDITY RATIOS

2012 2011

Current Ratio Current Assets/Current Liability

2.4013 2.3968

Quick Ratio Current Assets - Inventory/Current Liability

1.9164 1.9219

Working Capital Ratio Current Assets - Current Liability

562,236,923.00

454,118,854.00

EXHIBIT 2 – PROFITABILITY RATIOS

2012 2011

Return on Assets Ratio Net Profit/ Average Total Assets 0.0186 0.0201

Gross Profit Ratio Gross Profit/Sales 0.5698 0.5313

Net Profit Ratio Net Profit/Net Sales 0.0257 0.0245

EXHIBIT 3 – SOLVENCY RATIO

Solvency Ratio 2012 2011

Debt to Equity Ratio Total Liability/Total Equity 1.0710 0.6218

Debt Ratio Total Liability/ Total Assets 0.5929 0.3834

Equity Ratio Total Equity/ Total Assets 0.5536 0.6165

EXHIBIT 4 – EFFECIENCY RATIO

2012 2011

Receivable Turnover Net Sales/ Average Accounts Receivable

2.8095 4.4762

Ave. Collection Period 365 days/ Receivable Turnover 129.9184 81.5426

Inventory Turnover Cost of Goods Sold/Inventory 2.7219 3.6325

Ave. Days Inventory 356/Inventory Turnover 134.0966 100.4798

EXHIBIT 5 – PRODUCTS OF SPLASH CORPORATION

EXHIBIT 6 – FOUNDATION BANNER

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