The Cosmetic Market in the UK - Assignment Example

The Cosmetic Market in the UK Introduction Recent research studies have indicated that the cosmetic market in the UK still holds its economic strength amidst the difficult economic environment that businesses have been subjected to in the recent past. The UK cosmetic industry as per the recent market research will be in a position to increase its compound annual growth rate of 0.6% within the next five years. According to the forecast, this will indicate an increase of the compound annual growth rate from 2.25 billion Euros in 2013-2014 up to a value of 2.32 billion Euros by 2018-19 (King, 2013). Based on this assumption, I believe that investing 10000 Euros in the cosmetic industry will be quite advantageous in the long run. With this mind set L’Oreal Company is a wise investment opportunity with respect to this context. The UK cosmetic market got off to a very slow start in the past year, but based on the growth and the competition staged up by the various cosmetic companies the cosmetic industry managed to affirm its financial performance by the end of the year. L’Oreal is featured among the world’s biggest cosmetic markets and because of this its performance in the UK market has been quite impressive ever since its inception in the country. The ranges of products attributed to L’Oreal’s operation in the UK are perfumes, skin care, fragrances, hair colours, and styling and makeup products. L’Oreal’s main purpose is to build a strong customer relationship, which is in line with the company’s slogan. Despite being in a competitive environment with respect to beauty and cosmetic, the company still holds a high position in the market (Armitstead, 2013). Despite the challenges that have faced the cosmetic industry in the UK, L’Oreal has conveyed a substantial performance in the past year. For instance, the total sales were 5.64 billion Euros, which was quite an encouraging start for the year. Based on the 2014 first quarter sales, the sales growth of the L’Oreal Company is 3.5% as per the exchange rates and the comparable structure. Additionally, the increase of the constant exchange rate was 2.8% and the net impact depicted from the consolidation changes was -0.75% (King, 2013). Economic climate The cosmetic market in the UK has greatly progressed within the past three years and it is based on this aspect that the L’Oreal Company has been able to flourish in the country. As a cosmetic company, L’Oreal has the capability to curb the occurrence of a climate change. With a firm commitment in managing as well as reducing the carbon emissions it produces, L’Oreal was last year selected as a member of the Carbon Disclosure Project. Having managed to reduce its carbon emissions by 38.8% L’Oreal has established a great foundation with regards to economic climate. The UK has embraced the cosmetic industry fully and based on the growth of the global market with respect to cosmetic this industry has definitely set up a significant position (King, 2013). Therefore, based on the impressive sales increase and the capability of L’Oreal to foresee a brighter economic future as well as its commitment in the climate change, L’Oreal will be a wise investment choice. Findings L’Oreal and Revlon are among the highly ranked cosmetic companies in the UK. Over the past year, both companies have made a tremendous increase in their sales. The major reason for this is the fact that the global cosmetic market has managed to surpass the recession period that occurred within the past decade. Revlon deals with colour cosmetics, anti-perspirants and fragrances. The Company’s base in the UK sells its products through mass market retailers such as Wal-Mart stores. It is indicated that Wal-Mart accounts for up to 23% of the total sales of Revlon. On a global platform, the company earned an estimated 1.8 billion US dollars in sales and 950000 US dollars in the past year (Revlon, inc, 2014). With regards to its operation in the UK, the sales have also recovered from the decrease the Company had experienced over the past decade. L’Oreal in comparison to Revlon has managed to take up a competitive advantage in terms of impressive sales increase over the years as well as a wide range of products. Its sales within the last quarter of the year has amounted to 5.6 billion Euros an indication of an impressive financial performance in the course of the year. With regards to the movement of shares within the last months, both L’Oreal and Revlon have had their own fair deal in the investment sector. As per the regulatory requirements the transactions of L’Oreal and Revlon concerning the movement of their shares are usually recorded in terms of weekly and monthly declarations. As a result a table indicating the total shares which form the capital is published every month. Historical dividend rates Below are figures showing the historical dividends of L’Oreal and Revlon within the past two years (Dividend Max, 2014). L’Oreal Dividends Table EX-Dividend Date Pay Date Type Amount Currency Status Change Amount 02-Jul-12 06-Jul-12 Final 200.0c Euro Paid 15.00% 230.0c 07-May-13 10-May-13 Final 230.0c Euro Paid 8.70% 250.0c 29-Apr-14 05-May-14 Final 250.0c Euro Paid The table above shows the progress of the dividends of L’Oreal from 2012 up to the end of the first quarter of 2014. The Ex-Dividend status was given based on the company’s decision regarding the shareholders chosen to receive the dividends. The dividends were paid in two instalments within the same month. The amount of dividend rate has increased within the past two years a clear indication that L’Oreal has made major improvement in its sales within the years. Another aspect that is worth noting is the fact that the change rate over the past two years has decreased but nevertheless the amount allocated to the various stakeholders has gradually increased. Dividends tend to vary over the years based on a company’s financial performance. Based on this assumption, L’Oreal financial performance in the UK has been increasing ever since its recovery period dated back to 2010. The dividends rate of L’Oreal has thus made a positive increase over the years. The chart below shows the historical dividends of Revlon from January 2012 to May 2014 (Rev Inc, 2014): The chart above illustrates the dividends performance of Revlon in the UK within the past two years. Judging from the current market shares allocated by the Company, the dividends rate has not progressed much over the years. Nevertheless, in May 2014 a rise in the dividends allocated to the shareholders was noted. Therefore, the movement of the share has indicated a positive feedback. With regards to both L’Oreal and Revlon in terms of the movement of shares, L’Oreal has managed to stay on top of the game. L’Oreal sales over the past two year has been more than that of Revlon thus making it possible for the dividends per share that is allocated to the shareholders to be higher. The sales of L’Oreal in the last quarter of 2013 increased by 2.25 billion Euros while that of Revlon increased by 1.49 billion Euros. This is a clear indication that L’Oreal as compared to Revlon is doing quite well in the cosmetic industry. Investment Ratios The return on investment by L’Oreal for the first quarter of the year 2014 has ranged between 11- 12.38% (Armitstead, 2013). This shows that there has been an increase in the ratio of investment in comparison to the other years. As for Revlon in the first quarter of the year 2014 its return on investment has been 7.5%. (Revlon Inc, 2014).Revlon has managed to make itself a worthy investment opportunity based on its increase in its investment ratio in the UK. However, in comparison to L’Oreal, it is ranked second because of the impressive investment ratios of L’Oreal. Based on the current economic climate, it is important for various business sectors to plan their operations to precision in order to avoid any challenges that may arise in case of a recession. The cosmetic sector in the UK is currently establishing its position in the market and thus it must take up measures to ensure that it does not incur any further challenges regarding economic climate. Conclusion In conclusion, based on the findings of the movements of shares in both L’Oreal and Revlon, I have decided that L’Oreal is a wise investment opportunity. This is solely because of the progressive increase in sales within the past two years. Additionally, focusing on dividends, the amount allocated to the shareholders is also higher compared to Revlon. The cosmetic market is currently growing in the UK and with L’Oreal among the highly ranked companies; it will surely be a wise investment decision in the end. References Armitstead, L. (2013). Why L’Oreal is worth it. The Telegraph. Dividend Max. (2014). Historical and future L’Oreal Dividends. King, M. (2013). UK cosmetics manufacturing company to be worth 2.32 billion in 2019. Companies and Markets. REVLON INC. (2014).Investor Relations. Press Releases. REVLON INC. (2014). REV Dividend history and description. Read More