Revlon Inc (REV) 2013 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Revlon's fourth-quarter and year-end earnings release conference call. At the request of Revlon today's conference is being recorded. If you have any objections you may disconnect at this time.

(Operator Instructions)

And now I would like to turn the conference over to Ms. Elise Garofalo, Revlon's Senior Vice President, Treasurer, and Investor Relations. You may begin, Ms. Garofalo.

Thank you, Nicole. Good morning, everyone, and thanks for joining today's call. Earlier today we released our results for the fourth quarter and year ended December 31, 2013. If you have not already received a copy of the earnings release you can obtain one on our website at RevlonInc.com. On the call with me this morning are Lorenzo Delpani, Revlon's President and Chief Executive Officer, and Larry Alletto, Executive Vice President, Chief Financial Officer and Chief Administrative Officer.

Before I turn the call over to Lorenzo, I would like to remind everyone of a few things. First, our discussion this morning might include forward-looking statements that are based on our current expectations. Information on factors that could affect our actual results and cause them to differ materially from such forward-looking statements is set forth in our SEC filings, including our 2013 Form 10-K which we filed earlier this morning. We undertake no obligation to publicly update any forward-looking statements.

Next, our remarks today may include a discussion of adjusted operating income, adjusted EBITDA, adjusted income from continuing operations, free cash flow and certain pro forma results, all of which are non-GAAP measures. These non-GAAP measures are defined in the footnotes to our release, and are also reconciled to their most directly comparable GAAP measures in the financial tables at the end of our release.

Please note, effective with this 2013 year-end earnings release we modified the definition of adjusted EBITDA to exclude, in addition to the items defined in prior releases, certain unusual items that are not directly attributable to the Company's underlying operating performance, such as restructuring, acquisition cost, and other unusual items. Please refer to footnote A in our release for a detailed list of those adjustments. We have provide comparable reconciliations for the 2013 and 2012 periods at the end of the release.

Next, as a reminder we completed the acquisition of The Colomer Group in the fourth quarter of 2013. Our consolidated financial statements include the results of operations from this acquisition, beginning on the October 9, 2013 acquisition date. As a result of this acquisition, Revlon now operates in, and will report in two segments, the Consumer segment, which includes the Revlon business pre-acquisition, and the Professional segment, which includes the business acquired from The Colomer Group.

Also with respect to the acquisition we have provided certain [unaudited] pro forma results for the full-year 2013. Pro forma results are not necessarily indicative of the operating results that would have occurred if the Colomer acquisition had been completed for the period presented. In addition, unaudited pro forma results do not purport to project future consolidated operating results of the combined Company.

Also, please note that effective December 31, 2013, the Company is reporting the results of its China operations as discontinued operations net of taxes. As a result, prior-period amounts have been reclassified on the income statement to conform to this presentation. Finally, as a reminder our discussion this morning should not be copied or recorded. With that, I will turn the call over to Lorenzo.

Thank you, Elise. And to all of you, welcome to our first call together. My name is Lorenzo Delpani and, as you know, I am the new CEO of Revlon as of November 1. Prior to that I have been CEO of The Colomer Group since May 2007.

I just want to give you a few highlights on myself. I'm Italian, started to work my career in P&G Italy, then moved to J&J in Switzerland, then in Benckiser as a general manager in Scandinavia. Then I led the innovation and new initiative in Reckitt Benckiser in London. And moved to manage Southwestern Europe for Reckitt Benckiser in Barcelona. And, finally, joined Colomer in May 2007.

And later in my Colomer period I moved to the United States. So, in a sense, I have experience in four multinationals between marketing, commercial, general management, different roles, leading to my previous assignment in Colomer, as well is now, as of November 1, I am extremely excited to be leading this new opportunity.

I want to give some color to the rationale for the acquisition of The Colomer Group and give some details about it, because maybe some of you are not fully aware of that business. As you heard from Elise, we're going to consider it a separate segment. The Colomer Group was -- before the year 2000, the Professional division of Revlon. At that time, they may have called it in a different way, but that is how we define it.

It was spinned off by Revlon in 2000, and was bought by CVC and other minority shareholder. And CVC has developed the business, and then I took over in 2007 and we managed last year to sell it back to Revlon. So, essentially, was a Revlon asset that had an independent life and story, and then came back to the Company.

The channels that Colomer Group operates in is primarily Professional. And when we talk Professional, we refer to salons and hair salons or nail salons. And we address this channel directly. We have an army of salespeople. And, for example, that's primarily the model in Europe where we have approximately 600 salespeople and 37,000, approximately, customers. And that basically is a direct business.

Or indirectly through major wholesaler and broker, like, for example, in the US, where we sell through these macro distributors. The key primary category in which we operate are professional hair and professional nail. Even if we also have some mass brands in Spain and multi-cultural brands in the United States. And the key brands are, for nail, CND. And the primary franchises that have been very successful in the past years are Shellac and Vinylux.

And then Revlon Professional for the haircut business. American Crew, that is a leading grooming brand in the Professional channel for men. Orofluido, Uniq One. And then in the Mass, Natural Honey and Llongueras are the key one. And in the multi-cultural segment, in the kiosk [set] is Crème of Nature.

In the past years The Colomer Group has developed its business substantially. And we have been arguably one of the most innovative professional beauty company. And in this sense, our recent stream of innovation has performed extremely well. So, I will move to the acquisition rationale. And essentially the rationale for our acquisition is simple, like any other acquisition. Acquisition is done to enhance the value of the combined entities. This, for us, is driven essentially by these macro reasons.

First, we wanted to reunite the Revlon brand globally. So, the Revlon brand and asset is now fully owned by Revlon. We bought new brands, new products, with growth potential. It has given more global presence and therefore provides us more geographical opportunities and scale in some of our international geographies.

It was a very important opportunity to challenge the status quo and boost the innovation capability. And we, Revlon, bought critical mass. And, in fact, today we are approximately reaching the $2 billion mark. And obviously this integration will deliver clear synergies in departmental, in cost of goods, in our purchasing. And we have different and other scale factors that will lead and generate more value.

To give you an idea, and that is pro forma -- it is a pro forma information, as Elise clarified in her introduction -- the combined entity has $1.9 billion in net sales. Would have had that in 2013 -- $1.9 billion in net sales. And the total Company adjusted would have been $348 million as a combined entity.

So, as I said before, I'm very glad to be given the opportunity to lead this combined entity forward. And we have been working in the past months a lot on the integration. Integration has been the key effort of our initial period, as well as the definition of incremental opportunities, along the key pillars that we have just described before.

The new Company vision, or the, let's say, refreshed Company vision, is to establish Revlon as the quintessential and most innovative beauty company in the world by offering products that make consumers feel attractive and beautiful. This may sound like a bold statement, or quite ambitious, yet we mean it. We are here to win, and we are here to make it happen. It is an inspiration, of course, for us, and we believe in it. And through this mission, we will generate value for our shareholders.

And I will give a little color on the integration. In the acquisition, the target that was set forth was to achieve $25 million of cost reductions through our initial work. We have identified the opportunity up to $35 million, approximately, and Larry will give more detail on that. The primary source of cost reduction are in cost of goods and departmental. That is the 80/20 of the benefits.

In departmental one of the primary benefits is basically the opportunity to integrate all the [business] expansions. So, we are keeping a model whereas the two segments have independent marketing and sales because we serve different channels with different assets. So, for the time being and the foreseeable future, we will keep those financially independent. But all other functions in the background. We are in progress in the advanced stage of full integration. And that is the key source of these synergies.

But we have also obviously taking -- this is not just an integration, this is also an opportunity for us to look at the business in a fresh way and in different angles. We have looked beyond the synergy of integration, identified various incremental opportunities to optimize the allocation of our resources and therefore generate value.

Stemming from this analysis, we have announced the exit from China, which targets approximately $11 million of annualized cost reduction ongoing. And this goes on top of the $35 million from integration. We are at approximately right now around $46 million of improvement and I think that is not bad for three months of dedication.

Our key focus for 2014 will be to successfully integrate the two companies and preparing a foundation for future profitable growth. And in this effort, we are obviously taking 360 degrees full diagnostic of brands, processes, country, people, et cetera. Now, I will turn it over to Larry who that will work you through our earnings. I thank you for participating into this call and we will connect later.

Thank you, Lorenzo. This is Larry Alletto. Before I go over the earnings (technical difficulty) Lorenzo's comments regarding the integration. I would refer all of our listeners to the 8-K that we filed in regards to China in December, and then earlier this quarter for the integration savings.

But in regards to those, let me just point out, Lorenzo had mentioned, that our current estimate is $30 million to $35 million of annualized savings, with associated costs of $40 million to $45 million. We've disclosed that we expect to realize $10 million to $15 million of those savings in 2014. And regards to the $40 million to $45 million of costs, we've disclosed that we expect cash expenditures associated with that to be approximately $30 million to $35 million in 2014.

Let me just build upon one thing that Elise mentioned. All the results that I will be talking about will exclude the impact of certain unusual items. So, again, I would refer the listeners to our press release and earnings release this morning and for the reconciliation of all those unusual items in the footnote. Also, as I go through the earnings, I will be referring to the Consumer division and the Professional division. Again, the Consumer division is the legacy Revlon and the Professional division is the acquired Colomer Group business.

Let me start with net sales. For the full-year 2013, net sales were $1.49 billion versus $1.39 billion in 2012, for a sales increase of 7%. I would like to point out that the 2013 results do include the Professional division since October 9. And that increase was $116.8 million. On an organic growth basis, as reported, net sales would have been down 1.3%. Ex-FX or without the impact of foreign currency changes, net sales organically would have been up 1.3%.

Let me now give you some color regarding the US region. Again, because of the brief period of time that we have had in regards to The Colomer Group since October 9, these regional comments will be focusing on the Consumer division. In the US, sales increased 0.1% to $800.4 million, which included a full-year of Pure Ice in 2013. The US had higher net sales of SinfulColors, Revlon Beauty Tools, Revlon ColorSilk hair care. These net sales increases were offset by declines in Almay. Net sales decreased on an absolute basis for Almay and on a relative basis versus the color cosmetic category in the United States.

In regards to Europe, EMEA sales decreased 2.3% to $180.2 million. However, on an ex-FX basis net sales increased 5.2%. Higher net sales of Revlon color cosmetics in the UK and certain distributor territories, and fragrances and other beauty care products in South Africa, were partially offset by declines in other beauty care products in France.

In regards to Asia-Pacific, net sales decreased 2.2% to $204.5 million. And on an ex-FX basis net sales increased 4.3%. Higher net sales of Revlon color cosmetics in Japan, and Revlon and SinfulColor cosmetics in Australia, were partially offset by declines in other beauty care products in Hong Kong.

In Latin America and Canada sales decreased 5% to $192.8 million. On an ex-FX basis net sales decreased 0.8%. This decrease included the negative impact of $12.7 million of lower net sales in Venezuela. Excluding Venezuela, net sales in the region were higher due to Revlon color cosmetics in Argentina, Mexico, certain distributor territories; other beauty care products in Argentina and certain distributor territories; and Revlon ColorSilk hair color in the region. And they were offset by decreases in sales of Revlon and Almay color cosmetics in Canada.

Switching over to earnings, total Company adjusted operating income in 2013 decreased $25.7 million, or 11.1%, to $206.8 million. The primary drivers of this decline were the negative impact of foreign currency of $14 million, an increase in depreciation and amortization, which was due in part to the acquisition accounting of The Colomer Group, and higher incentive compensation from the previously disclosed 2013 long-term incentive plan transition grant.

Adjusted EBITDA decreased 4.7% to 283.7%. The primary driver for this decline was the negative impact of foreign currency of $15.1 million. Similar to adjusted operating income, it was further impacted by the higher incentive compensation, as previously disclosed.

I would like to pause for a moment and build upon Lorenzo's comment regarding the pro forma full Company profile. In particular, if TCG were included for the full-year, pro forma segment sales would have been $1.9 billion. These were comprised of $1.377 billion for Revlon Consumer, and Revlon Professional of $531 million. Pro forma segment profit would have been $420.2 million, comprised of Revlon Consumer of $347.1 million and Revlon Pro of $73.1 million. Total combined pro forma EBITDA would have been $348.4 million.

Flipping now to taxes, provision for income taxes was $46 million in 2013 compared to $43.7 million in 2012. Cash taxes paid net of refunds for 2013 was $12.7 million as compared to $18 million in 2012. Adjusted income from continuing operations decreased 34.7% to $50.4 million. Adjusted EPS of $0.96 as compared to $1.47 in 2012.

Lastly, due to our decision to exit the China business, we are now recording the results of operations as discontinued operations. Please note 2013 included the impact of $20 million of previously mentioned and disclosed restructuring charges.

In regards to our balance sheet and cash and liquidity, I would like to point out that as of December 31, 2013 available cash was $234.5 million. At December 31 available borrowings under our revolver was $150.2 million. Late last year we upsized our revolver to $175 million, and, since, our increase in available borrowings has gone from $150.2 million up to $165.2 million.

Most recently, as announced on February 26, we repriced the $675 million tranche of our term loan. The spread decreased 50 basis points, the LIBOR floor decreased 25 basis points, for 75 basis points of total savings. Annualized savings to the Company expressed in dollars is $5 million.

Now, moving over to the fourth quarter. Net sales in the Consumer segment is down 2.4%, as reported, or up 0.7% on an ex-FX basis. The US was down slightly, offset by positive net sales performance in international markets. And the fourth quarter continued to be negatively impacted by Venezuela in Almay. Net sales for the fourth quarter for the Professional division was $116.8 million, representing the period from which we had acquired it.

In the fourth quarter, total Company adjusted EBITDA declined $9.3 million year-over-year. This was partially a result of negative foreign currency of $5.4 million, higher brand support in SG&A, and the phasing of incentive compensation accrual in the fourth quarter. Net cash from operating activities of $117.5 million compared to $86.2 million last year. With this, we have concluded our prepared remarks and we would now like to open up the call for your questions. Operator, please prompt the participants for questions.

(Operator Instructions)

[Kevin Zeitz] from Citi.

Hi, good morning. I had a question about the fourth quarter. It looked like the core Consumer segment was down pretty significantly from a segment profit basis.

And I was wondering if all of that is the incentive comp. Or it looked also like maybe the currency was a driver, as well. But I was wondering if you could talk about some of the other drivers besides those two.

Again, we have called out the primary drivers. As you point out, FX consistent with the year was a negative driver. Also on a year-over-year basis higher brand support and phasing that brand support in the fourth quarter was another one of them.

And then the phasing of the incentive compensation accrual for the incentive compensation is being accrued for through the third quarter at a lower rate so there had to be an adjustment for the fourth quarter. Those were the primary drivers.

Can you quantify them? Or did you just rank order them at least for us in terms of how you just listed those out?

We have just quantified FX.

Okay. Would you say that, of the three, FX was the main one and then brand support and then incentive adjustment?

Again, we just quantified the brand support and haven't disclosed specifically the other line items.

I'm just trying to understand the reconciliation between adjusted EBITDA and the segment profit numbers that you put out. I am not sure I could reconcile the two from the numbers that are in the release.

The primary difference, and there is a footnote that goes through the reconciliation, but between adjusted EBITDA and the segment profit, the primary difference is the unallocated corporate expense for the total. So, we come down to segment profit for the two divisions, and then we have corporate, and that's how we got to the adjusted operating income pro forma for the full Company.

I see. Okay, I think I am getting there. And then my last question is, the $348 million of pro forma EBITDA, does that include synergy expectations and any cost saving expectations either from the exit of China or the synergy expectations?

Let me clarify that for you. First, that is a historical number for 2013, so it is not inclusive of the integration savings that we pointed out that we've ranged $30 million to $35 million. As the numbers have been reported, China is being treated as a discontinued op, so therefore the sales, earnings, et cetera, are excluded from that $348 million. Hopefully that helps you.

That does. All right, thanks very much.

Aaron Rosen, [Archu].

Good morning. I just have a couple questions, please. The working capital performance in the fourth quarter was very strong. You alluded to that being due in part to the TCG acquisition.

I am wondering how much of that -- is this sticky? Is this cash that was generated from working capital at all at risk to be reversed as the 2014 year goes by?

No, because this was primarily driven by working capital, as you stated.

And if you would allow me to give a little bit more color, the Professional business is strongly seasonal. We intend to launch innovation in the first part of the year. And there is a disproportionate investment than has been historical. And as we grow, tends to be in the second part of the year, typically we start to be more generative and more cash.

And we are very careful in managing our cash delivery without any peaks and valleys simply due to the seasonality of cost of revenue. And that's it basically.

Okay. So, whatever we're seeing here is not one-time in nature, it is just the normal seasonality of the business as it relates to the inclusion of TCG?

I think that's a good characterization.

Okay, thank you. The next question, just on the restructuring. You have clearly laid out the benefits and the timing at which those are going away or in. Have you said -- and maybe I missed this -- what the cash restructuring payments are going to be in 2014?

Yes, it is in the 8-K. The cash amount is $30 million to $35 million in 2014.

Okay. And that is inclusive of both integration on TCG and China?

No. Let me give you the detail on China. Specifically the $30 million to $35 million was apples to apples with the $45 million to $50 million of costs in regards to China. The costs were in 2013. For 2014, the cash portion expended is expected to be $18 million.

Okay. And then just finally, on China, I'm going back and looking at previous quarters for 2013, as they were previously reported. And it seems like the numbers have moved as that's been now classified as a discontinued op. I

t looks like China was a loss for the first three quarters. That, now that it has been excluded, has served to benefit the year-to-date numbers. Is that a correct characterization?

I think if you look at the footnote, and I do call out, as I called out, there is $20 million in 2013 which is the restructuring charge. And in our 8-K, when we filed it back in December, we had suggested and approximated that the annual cost savings would be $11 million. So, I think if you look at the footnote and you look at the restructuring charge, you can see how we got to that type of estimation.

We had also said in the 8-K that we expected a realization of approximately $8 million in 2014. But, again, because it has been backed out of the operations you need to look at it with that lens.

Okay. But the benefits from China are going to be additive to the $348 million of pro forma that you've disclosed as a historical number for 2013?

No, because the results are not in the $348 million. If it were a loss then it is not in the $348 million -- that loss isn't. You should look at the $348 million as the Revlon Consumer and Professional division without China.

Okay, understood.

Did that make sense?

Yes. So, there is no incremental benefit we should really be expecting going forward from China. It's in the pro forma number.

Yes, that is the right way to look at it.

All right, thank you very much.

Connie Maneaty from BMO Capital Markets.

Good morning. Given how important Revlon color cosmetics sales still are to the total Company, what was the growth rate of sales in 2013?

We don't disclose performance by brand.

But qualitatively, as you can imagine, is one of our core assets and franchise. And is a priority for us. And there is no reason for it not to continue to be a priority.

Okay. On the Professional business, what is the sales split between sales to nail salons and sales to hair salons?

We say, approximately, I would say -- it's a bit more complex because you could talk about the Professional segment. As I said, we have also a piece of it that is retail in Spain. And we also have a multicultural division that is also operating in a hybrid channel, namely the top five Americans plus B&Bs. And, therefore, don't have right now the percentage of the nail segment.

I would say that if I exclude the Consumer, approximately be more than half is nail and less than half is hair. But that is mainly driven by the Shellac and Vinylux development. But, as I said, this percentage has to be considered in light of the totality of the business.

Okay. When the acquisition was announced, and I assume you have probably seen the report we wrote on it based on Euromonitor data, I don't know if the conclusions from that were right or wrong, so I would love your perspective on it. But it suggested, the data suggested, that over, say, the prior eight years, in the hair salon business, TCG's market share went up a little bit.

But it looked as though it was out marketed by John Paul Mitchell, L'Oreal, Estee Lauder and P&G. So that, while TCG gained a little bit of share in professional hair care, the others gained 20 times as much. So, is that the right -- can you give us a little perspective on historically what was going on?

Basically I cannot comment to the source you mentioned. We don't use that source. And I don't know many that do in our industry. And, in any case, we have a different perception.

We have, first of all, we do not have formal market share that are in the professional industry. Historically, the information that we have comes from consolidation at the industry level by country in some sort of association that pulls the information together. The data of this association have been quite inconsistent because not every company reports such information. And, let's say, we are seeing a significant gap with the source you mentioned.

So that, I can't really comment on the comment, let's say, that our point of view and our reality is quite different. To the point that some of the competitors that you mentioned for us are not even competitors. But the fact is, in our understanding, and based on our, as I said, limited information, we have been maintaining to developing our market share in the past years.

Okay. If I could ask a few more. The Professional sales from the date of acquisition were about $117 million. Do you have what the change was from the same period a year ago, and also on a pro forma basis what the year-over-year change was?

We are only accounting for the acquisition since the date of acquisition. In one of the footnotes for business combination within the 10-K, number 2 -- I'll just pull it out, Connie, if you haven't had time to go through it yet -- so, it is footnote 2 business combinations. For the total, on an apples to apples to the $1.908.9 billion (sic -- $1.9 billion -- see above) that we had mentioned, in 2012 the comparable number was $1.911 billion.

Okay. And just one final one. Where in the P&L is the inventory step-up charge booked? Is it in restructuring or is it in cost of goods? And was everything sold through in the December quarter or is there more to go in March?

Connie, you will find it in the cost of goods, and there is a little bit more for the first quarter.

Okay. That's it for me. Thanks very much.

Grant Jordan from Wells Fargo.

Good morning. Thanks for taking the question. My first question it was helpful to get the $348 million pro forma EBITDA. Can you give us a sense as to what the pro forma EBITDA would've done year over year for the fourth quarter?

No, we just have it, again, in the footnote 2 business combinations. We have tried to be able to provide some visibility into the year over year. But we don't have that, we're just for the fourth quarter counting it since October 9 for the 2013 reporting period.

How would you say the profitability for Colomer on a year-over-year basis trended throughout 2013?

In 2013 on a pro forma basis, and just to give an indication, we have developed our profit. And we can't give more color to that because we have agreed not to provide those details.

Okay. I'm asking -- it seems like the Revlon business was down for most of the year pretty consistent. Just trying to get a sense for the Professional side of the business. Is a growing? What have the trends been like?

I think its important to have Lorenzo talk a little bit about the business to give you some color. Again, just in terms of refresh you to the 10-K, when you get a chance to see it, we do provide income from continuing operations before income taxes for the 2012 period and the 2013 period. And that income from continuing operations would be after depreciation and after unallocated corporate overhead.

Do you have any plans to file pro forma quarterly results?

No. What you see for the fourth quarter will continue on for the first, second and third. So, you'll start to see year-over-year numbers for the Professional when we anniversary the acquisition in the fourth quarter.

To give you a bit of color on the business, the Colomer business since May 2007 when I joined, then basically after approximately 12 to 18 months, started a growth pattern that has been consistent quarter by quarter since the acquisition. So, regardless of external data sources that may give you different color, my sources are internal. And internal reference is that we have been developing the business, both in top line and in bottom line.

And most importantly, and other things we did is to restructure our business and clean up a lot of dead ends and pieces of business that were less strategic. So, in what Revlon acquired last year is a fairly healthy, clean business. And this statement does not mean that it will continue to be in the future. I'm just giving you a disclaimer.

But as least as far as concerned 2013, the business is in (inaudible) shape, and the main driver of this is our innovation model. And we have been launching fewer, bigger, better innovation, as I like to say. And this innovation had, in some cases, blockbuster status. Like, for example, Shellac. And followed recently by Vinylux, as well as overall of our American Crew brand.

Some successful introduction of new brands altogether, like Uniq One and Orofluido that went from zero to significant size in few years. Those brands often are not accounted by these external sources. And so net-net, the business is healthy.

And as we know, past performance doesn't predict future performance. Anything can happen. Some of our geography, like everybody else, are exposed. We are exposed in Europe and we had significantly developed in some European countries where the crisis is deeper. And so the situation is always challenging with these market challenges. But as of 2013, the business was healthy.

That is very helpful. Would you say in terms of the growth for Colomer, it sounds like a lot of that was driven by new products. How much of it was driven by expansion into new geographies for the Company?

It was mainly driven by new products. I actually, in my tenure, I retrenched from geographies because I like to focus on fewer, bigger, better everything -- fewer, bigger, better brands; fewer, bigger, better countries; fewer, bigger, better people; fewer, bigger, bigger across the board. It is bit my motto and focus.

We were owned by a private equity, we were seeking an exit, so at the time it was not our priority to expand geographically. Now, being part of a company that is built to last, it is our responsibility to look at the opportunity to develop geographically. Frankly, I don't expect to focus much on this part of the strategy for the foreseeable future, for the short-term future, because we have other opportunities in the short term.

Okay. My last question, can you comment on your view on the Company's level of debt, and how comfortable you are with the balance sheet and the leverage statistics?

I think the most important thing, Grant, is, as I pointed out, the liquidity that we have in terms of the cash balance, as well as the $165 million unused on our revolver. I think that is a very good indication for the health of the business and the balance sheet.

Okay. Thank you very much.

Kevin Zeitz from Citi.

Thanks for taking the follow-up. The $5 million of segment profit that came out of the Professional segment this quarter, I imagine that is not the kind of margin run rate we should expect for the business. So, I was wondering if you could talk about the seasonality of the business from a cost perspective, because I know the fourth quarter is typically the most profitable quarter for the legacy Revlon business.

First of all, the numbers you talk about, remember that they are not a full quarter. They reflect the incorporation as of October 9. That's approximately a quarter.

It is a bit of an anomaly in the sense that a few things came together. Like, one thing that in Colomer we didn't used to do, and that is part of a philosophical attitude, is to really focus on quarters. And, therefore, we prepared in that quarter some purchases and investments for new things that we are launching.

You know that part of the new accounting standards, when we buy marketing material, we have to expense it regardless when we use it. So, there is an unusual, let's say, overweight of branch support items that are affecting the period. As well as some innovation shifts, innovation timing shifts.

But, as Larry indicated in his segment profit, the total pro forma non-GAAP reconciliated information on our profit on a yearly basis is $73 million. And that is up versus last year. And up versus previous year. And up versus previous year.

So, basically this last quarter is not an indication of that. It is unlike Revlon, we are, I would say last quarter is not the most profitable. We generate cash more than profit. And, so, there is a seasonality of cash to profit. And that also is difficult to do with our networking capital dynamics.

So, I would say that provides enough color. And I want to restate again that our past performance does not reflect at all the future performance because in our business we play every day in every salon, and every day in every store.

Kevin, just following up on Lorenzo, the Professional business is different than the Consumer business. I want to highlight that, if you are trying to drive parallels. And then also just state that in the fourth quarter the Colomer business performed as we expected it to.

Okay, that is really helpful. And I was wondering on the Consumer business, can you talk about the state of retail inventories, and how retailers approached the quarter from an inventory stocking level?

Sorry, we don't typically comment on the customers and inventory dynamics.

Okay. For more of a bigger picture question, you said your focus has been on fewer, bigger, better. As you are looking at the legacy Revlon business, this is obviously a number of smaller brands in the personal care and fragrance area. Can we expect that you might look to divest some of those? I won't hold you to anything permanently, but I am just curious, are your strategies more leaning towards divestitures versus acquisitions as you are looking at the legacy business?

We don't give comments on our future, and we have agreed that we don't give forward statements. Said that, on a broadly speaking, we will probably do both divestment and acquisitions. It's part of the portfolio cleaning exercise.

And when you characterize it primarily divesting, that may not be necessarily what we do. As I said, we are right now through the diagnostic phase and we have no conclusive plan yet. And if we would have them, we would not disclose them for obvious reasons. That's basically the point.

Okay. I will take another run at Grant's question on the balance sheet. Clearly, there are no liquidity concerns, but could you talk maybe just from a long-term standpoint at what kind of leverage ratio that you would be comfortable running the business with? Or would you say that the leverage ratio you have now, that that is a level that you are comfortable with from a long-term perspective?

On that first, we don't have a target leverage. And we are certainly comfortable with the current amount of leverage that we have. And if you look historically at Revlon, they have from time to time had higher leverage, then subsequently used excess cash flow to pay down. So, again, we don't have a target leverage, but we are comfortable with both our liquidity and the existing leverage we have right now.

Okay, I appreciate that. Thanks guys.

Connie Maneaty from BMO Capital.

Thanks. Just a couple follow-ups. In Latin America, can you tell us what exchange rate you are using in Venezuela? Is it the 6.3% or 11.7%?

For the 2013, the official is 6.3%, for 2013.

And for 2014?

We have not made a disclosure to determination on the exchange rate to use.

Okay. Also in Latin America, what was the sales growth rate if you exclude inflationary pricing in Argentina?

We don't disclose that. But I can say that, just to give you a size and scope, and maybe this will help you out, Connie, Argentina is less than 2% of our net sales.

Is that of the Consumer business or of the total Company?

Of total Company 2013.

Okay, great. And just the last question, with all the departures at the upper levels of management over the last few months, how close to complete is your going-forward team at this point? And if you are looking to add talent, in what positions or capabilities would that be?

Some of the changes that seems to be quite dynamic, in your reports, according to your perception, predated my arrival. And some individuals left on their own, and some changes are made, are driven by the new requirements of the new vision, and the combined business going forward.

I am looking at profiles that are obviously talented consumer goods background type of individuals. And with international experience, with global breadth. And, most importantly, that they have three characteristics that they have displayed -- that they are achievers and they have achieved in their life meaningful results; that they have proven innovation skills because innovation will be one of our competitive advantages. As I said, we want to become one of the most innovative beauty companies in the world so we need innovators to do that. And, most importantly, people that drive, really, the business.

We call this achievement, innovation and drive -- or, AID -- and this is how I want to aid the business. And in looking at the team across the skill set that I just described, I have made some adjustments. And we have Incorporated recently a couple of individuals to the (inaudible) team.

And one is Gianni Pieraccioni. Gianni Pieraccioni is 30 years experience in consumer goods industry, working in a company like Procter, J&J, Pepsi, luxury business. And most recently was the Chief Commercial Officer of Alitalia, where he managed a multi-billion dollar business. And he is going to join us now to deal with the Consumer business. And he is going to lead it from a, let's say, mainly commercial standpoint.

On the Professional side -- as I said I'm going to keep them separate, I have appointed Sennen Pamich. Sennen Pamich was already in the Pro business, leading the US business, and is now on a broad basis taking care of Pro.

So, the departure of Chris, when that happened, we have substituted with two people that are essentially now slightly lower level, but focusing on the segments independently, because we have a segment focus. These people bring on the table, in my view, exceptional managerial talent. And I am extremely confident that they are an asset for our future.

I am not going to comment in details on other changes except to say that the team I have in place, I may not be done with it because I still need to address some areas in marketing. But, frankly speaking, in principal the team I have in place is a very strong team, and pretty much I am almost done basically.

Just one more, what is your assessment of Revlon Consumers R&D pipeline or capabilities?

I think that from a second custom point, Revlon, first of all, it's a very good characterization. It is an assessment, therefore it is an opinion. As such, it is not a fact. This opinion may be incorrect and you cannot rely on it.

Said that, I think that the technical capability of the Revlon team are ranging from category to category from very good to excellent. And from our standpoint we are strong, we have strength and extremely responsible manufacturers. And in the capability of Revlon Consumer coupled with ours, the Pro, which will be probably a bit more entrepreneurial and a bit less structured than the one of Revlon, will make a good combination to feed future innovation pipeline. So, from an R&D standpoint, we are in good shape.

Okay, thank you.

And this is an opinion.

Yes, thanks so much.

At this time we have no further questions. I will turn the conference back over to our speakers for any closing remarks.

Great. Thank you, everyone, for participating today. We look forward to speaking again to you after our first quarter. Thank you.

Once again, ladies and gentlemen, that does conclude today's conference. We appreciate your participation today.