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- Economic Socio-cultural Technological

Environment
 Patents and  Unemployment  Older  Research and
Trademarks rate and population Development
 Government consumer’s tends not to of new
Approval and disposable income be interested product using
Regulation in the latest cutting edge
 Compliance with products technology
Environmental  Foundation
Laws establish by
Splash
Corporation
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.
 III. Porter’s Five Forces Analysis
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

Bargaining power of customers Bargaining power of suppliers

Intensity of existing
 buyer choice rivalry - HIGH  Critical production inputs
 Large number of are similar
customers  Presence of  Inputs have little impacts
 Product is important to International and on costs
customers local competitor  Diverse distribution
 Low dependency on  Quality products channel
distributors and customer  Low concentration of
 Limited information loyalty suppliers
availability  High competition among
 Low buyer price sensitivity suppliers
 Buyers requires special  2 or more suppliers for
customization each type of raw material
 There is no existing major
supply contract

Threats of substitutes - LOW

 Limited number of substitutes

 Substantial product differentiation
 Substitute product is inferior
 Substitute is lower quality
 Substitute has lower performance
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 41% 39% 41% SC

Accounts

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

 Probable Impact on Corporation
High Medium Low
High Change of Threat of New
Brand Choice Entrants
of the
Probability of Occurrence

consumers/
Threat of
Substitutes 
Medium Maintain or Marketing  
Exceed the Strategy
Sales for the
period

Low Product Regulatory risk   Bargaining power

Liability Risk of Suppliers

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.

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 Weaknesses
 Barriers of market entry  Tax structure
 Skilled workforce  Unknown
 High growth rate  Future profitability
 Domestic market  High loan rates are possible
 Unique products  Future competition
 Pricing power  Small business units
 Diversification  Investments in research and
development

Opportunities Threats
 Growing economy  Price changes
 Global markets  Bad economy
 New products and services  Substitutes products
 Innovation

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 2.4013 2.3968

Liability

Quick Ratio Current Assets - 1.9164 1.9219

Inventory/Current Liability

Working Capital Ratio Current Assets - Current 562,2 454,1

Liability 36,923.00 18,854.00

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 2.8095 4.4762

Receivable

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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