nu skin presentation slides
TRANSCRIPT
Calon LochridgeClaire Larson Josh Millheim
Trevor Morgan Jaron Beckwith
Our presentation will examine Nu Skin’s current situation and make
recommendations on how to build the most success from there
Background
ageLOC Spas
ageLOC Resorts
Tiered Membership System
Reflection
Nu Skin is a leader in the anti-aging and supplement industry, generating
large commissions for distributors
$1,158 $1,248 $1,314 $1,518
$1,720
$2,132
$3,177
2007 2008 2009 2010 2011 2012 2013
• Nu Skin dominates both the anti-aging and supplement
industry through innovation and commitment to its business
principals.
• In 2013 Nu Skin was ranked the 8th largest MLM worldwide
according to revenue.
• MLM with 1.1 million distributors worldwide. Their goal is to
create more income for distributors than any other company.
• In 2013 Nu Skin paid $1.48 billion in commissions (47% of
revenue) and commissions and incentives paid to date are over
$11 billion.
The MLM structure that has given Nu Skin so much success has lead to a
negative perception by others
-$15.00
$5.00
$25.00
$45.00
$65.00
$85.00
$105.00
$125.00
$145.00
Nu Skin Stock Prices Last 18 Months
People’s Daily Report
• Nu Skin has battled a negative perception, highlighted
by the People’s Daily Report and the backlash the
followed.
• While revenue has been steadily increasing, it is
expected to drop 19.4% in 2014, further fueling
negative perception and reflecting Nu Skin’s stock
price.
• Both Nu Skin corporate and distributors suffered,
impeding their goal of generating more income for its
distributors than any other company.
• Nu Skin needs to bolster their image and create new
revenue streams to create wealth for distributors and
win back their high stock prices.
$500
$1,500
$2,500
$3,500
2010 2011 2012 2013 2014 2015
Revenues: Past and Forecast
ageLOC Spas
ageLOC Resorts
Tiered Membership System
To improve public perception and generate new streams of revenue, Nu Skin should
develop ageLOC Spas, ageLOC Resorts, and a Tiered Membership System
Capture maximum market share of the Health Spa Industry and improve brand perception by
investing in traditional spas and health spa resorts
Massage Envy10%
Country Ranch3%
Woodhouse Spa2%Golden
Door1%
Other84%
Market Share
Massage Envy10%
Country Ranch3%
Woodhouse Spa2%
Golden Door1%
Nu Skin5%
Other79%
Desired Market Share
• 84% of the health and wellness spa industry comprises
of other companies with less than 1% market share.
• Out of the $15.4 billion industry, $13 billion is and open
market for Nu Skin.
• Leverage anti-aging products and
move into both traditional spas and
large scale health spa resorts.
• Our 5-year goal capture a
projected 5% market share.
• Market share capture will improve
public perception of Nu Skin
Brand.
Nu Skin can save on purchase costs over competitors, this will incentivize Distributors to
invest in the ageLOC Spa franchise.
12.9% 12.9%
43.5% 43.5%
23.4%
3.5%
7.2%
7.2%
8.9%
28.8%
0.0%
10.5%
21.0%
31.5%
42.0%
52.5%
63.0%
73.5%
84.0%
94.5%
Industry Nuskin
Profit
Rent & Utilities
Marketing
Depreciation
Purchases
Wages
Other
Industry Cost Comparison• Nu Skin will supply products reducing product
cost by 85% and increasing profit margin
approximately 20% higher than competitors.
• Identify Lapis or Ruby PIN title Distributors and
offer opportunity to franchise ageLOC spa.
• Charge franchise fee of 35% in exchange for
free product supply from Nu Skin Corporate.
• Offer new spa customers the opportunity to join
the Nu Skin team or register as a customer with
Distributor in their area.
Nu Skin
The ageLOC Spa Entrance Strategy has Nu Skin entering spas in six locations, each with
high Asian population to build initial market share.
• Build 1.7% Market Share with
ageLOC Spa.
• Franchise spas in 3 locations of
historically high Nu Skin activity
(West Coast, Pacific Northwest,
and Southwest).
• Build 3 more spas on the East
Coast in areas where we want
Nu Skin to expand.
• All spas are located in
metropolitan areas with an Asian
population of 10% or greater.
ageLOC Spa
United States Entrance Plan
• ageLOC Resort will capture an additional 3.3% market share to complete five-year goal is to
capture 5% market share of the $15.4 billion health spa industry.
• ageLOC Spa will have positive discounted cash flows (DCF) for owners ($92,388,138) and Nu
Skin ($223,148,008).
• Franchise fees for resorts will be lowered to 20% to adjust for investment and financing.
1.7%
3.3% 5%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Spa Resort Total
MARKET SHARE GROWTH
$-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
2014 2015 2016 2017 2018
SPA AND RESORT REVENUE
ageLOC Resort will be a larger scale inclusive resort that will improve brand image, facilitate
sign-up of distributors, and increase revenue.
Note: DCF analysis use an imputed WACC of
7.65% - calculations found in appendix.
The ageLOC Resort Entrance Strategy has Nu Skin simultaneously building two resort locations, one in Los Angels and one in Miami
ageLOC Resort
ageLOC Spa
United State Entrance
Plan• Contract ageLOC Resort in Los
Angeles and Miami.
• Resorts will be offered to
current distributors and
entrepreneurs with Nu Skin
providing the option to finance.
• The resorts are also placed in
areas with 10% or greater Asian
populations.
Implement a Tiered Membership System allowing distributors to opt in to a monthly fee in
exchange for business support.
Level 1 – Business Materials
•Monthly business cards and brochures
Level 2 – Internet Marketing
•Provide website and social media help to distributors
Level 3 – Training
•Free web access/registration to monthly trainings
Level 4 – Lead Generation Consultation
•Monthly support from our new lead generation support team
Level 5 – Scanner
•Monthly lease to the Biophotonic Scanner (with down pmt)
• Leverage existing partnerships to print
and sent monthly supply to subscribers.
Note: Distributors DO NOT have to subscribe to the membership system
• Provide assistance in social media and
current Sound Concepts website (OPS).
• Free on-site sales and business trainings
every month and access to webinars.
• Create a team of strategists to assist
subscribers in generating new leads.
• Provide monthly lease of Nu Skin’s S3
Scanner as a major sales aid.
Breakdown of costs, revenue and profits at five years of implementation for the tiered
membership program.
Note: We estimate that the effect of this plan on distributor success will cause an increase in Nu
Skin’s overall revenue in addition to the revenue brought in by membership fees.
$13,272,000
$27,964,680
$45,634,620
$65,350,620
$-
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
2015 2016 2017 2018
Tiered Membership Revenue• Revenues
• Four year projection
• $65 million by 2018
• Margins
• Roughly 77%
• Profits
• Low fixed costs, high margins
• Other Benefits
• Distributor buy-in
• Indirect revenue
• Projections based on a percentage buy in from
selling distributors, based on the numbers from
the 2013 annual report. Number of distributors
grown each year through a linear extrapolation.
Our timeline shows five years of development for Nu Skin, moving from simple implementation
of the tiered membership system into worldwide expansion of the spa/resort program.
Year 1
• Advertise and Educate on the new tiered membership system.
• Develop resources and hire employees when necessary for additional support. Sign on distributors and begin providing service
Years 1-2
• During this time we will identify Lapis/Ruby distributors who would make a good fit as a spa/resort franchiser
• We will also complete research on what services should be offered, the most attractive spa packages, etc.
Years 3-4
• During these years we will build the six spas and two resorts, tracking them closely to examine their performance.
Years 5+
• Assuming the spas/resorts perform well, we will expand the programs world wide, repeating the above processes.
$298.22 $297.06 $321.24
$344.72 $367.06
$-
$100.00
$200.00
$300.00
$400.00
$500.00
$600.00
2014 2015 2016 2017 2018
Total Americas Revenue with Proposed Programs
Projected Revenue Spa/Resort Revenue Tiered Membership Revenue
The combination of our different programs has Nu Skin conservatively at 233.21 mm by 2018, primarily
in the US market. This does not take into account added revenue due to more effective distributors.
$13.27
$127.16
$175.37
$233.21
*Note: Nu Skin revenue projections done with a linear percent growth model .Top number represents the
total revenue increase from both the ageLOC Spas/Resorts and the tiered membership plan
Appendix
• Health Spa Industry Data - http://clients1.ibisworld.com.erl.lib.byu.edu/reports/us/industry/ataglance.aspx?entid=4186
• Benchmark: Massage Envy http://www.massageenvyfranchise.com/Portals/0/2014%20FDD%20-%20Item%207%20Table.pdf,
http://www.massageenvyfranchise.com/franchise-cost, http://www.massageenvy.com/real-estate.aspx
• Internet Research: http://www.franchisechatter.com/2011/06/27/massage-envy-spas-average-unit-volume-tops-1m-says-its-
president-dave-crisalli-in-this-exclusive-interview/
• Benchmark: Golden Door -http://clients1.ibisworld.com.erl.lib.byu.edu/reports/us/industry/majorcompanies.aspx?entid=4186,
http://spas.about.com/od/west/p/goldendoor.htm
• Franchising: http://www.fixr.com/costs/build-hotel
• Financial: http://finance.yahoo.com/q/ae?s=NUS+Analyst+Estimates, http://ycharts.com/companies/NUS/revenues_ttm
• Revenue by Brand: file:///C:/Users/CalonFrank/Downloads/Revenue%20by%20Brand.pdf
• Annual Report: http://www.nuskin.com/corpcom/en_US/newsroom.html,
file:///C:/Users/CalonFrank/Downloads/NUS%20annual%20report%20final.pdf
• Demographics:
http://en.wikipedia.org/wiki/Demographics_of_Asian_Americans#mediaviewer/File:AA_Alone_or_in_Combination.jpg
• Land and Cost Analysis: http://www.realtor.com/realestateandhomes-search/Miami_FL/type-land,
http://www.landandfarm.com/search/FL/Miami-land-for-sale/, http://www.fixr.com/cost-estimates/?description=build+pool,
http://www.hwhotels.com/checklist.html
Sources
$2,560.00 $2,550.00
$2,757.57
$2,959.15
$3,150.90
$-
$500.00
$1,000.00
$1,500.00
$2,000.00
$2,500.00
$3,000.00
$3,500.00
2014 2015 2016 2017 2018
Total Revenue with Proposed Programs
Projected Revenue Spa/Resort Revenue Tiered Membership Revenue
$13.27
$233.21
$175.37
$127.16
*Note: Nu Skin revenue projections done with a linear percent growth model .Top number represents the total
revenue increase from both the ageLOC Spas/Resorts and the tiered membership plan
The combination of our different programs has Nu Skin conservatively 233.21 mm by 2018, primarily in
the US market. This does not take into account added revenue due to more effective distributors
Year Revenue Percent Growth
2007 $1,158
2008 $1,248 8%
2009 $1,314 5%
2010 $1,518 16%
2011 $1,720 13%
2012 $2,132 24%
2013 $3,177 49%
2014 $2,560 -19%
2015 $2,550 0%
2016 $2,757.57 8%
2017 $2,959.15 7%
2018 $3,150.90 6%
Revenue projections (based on a percent growth model)
y = -0.0083x + 0.1561
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
0 2 4 6 8 10
An exhibit of the calculations that went into the costs and revenues associated with the spa and
resort structure, compared to benchmark.
Benchmark ageLOC Spa ageLOC Resort
Revenue $ 1,463,000,000 $ 261,800,000 $ 508,200,000
Franchise % $ 117,040,000 $ 91,630,000 $ 76,230,000.0
Cost (CoGS) $ 17,837,820.0
Wages $ 636,405,000 $ 113,883,000 $ 221,067,000
Rent $ 105,336,000 $ 18,849,600 $ 36,590,400
Other $ 188,727,000 $ 33,772,200 $ 65,557,800
Net Profit $ 117,040,000 $ 91,630,000 $ 76,230,000
Total $ 167,860,000
Nu Skin/Benchmark Costs and Revenues
Note: Franchise % is bases on a 8% franchise fee for
benchmark (massage envy), a 35% fee for ageLOC
Spa, and a 15% fee for ageLOC Resort
Assumptions regarding revenue growth over five year period and Nu Skin cost percentages
compared to industry data
2014 2015 2016 2017 2018
Spas 0 0 4 6 6
Resort 0 0 1 1 2
Spa Rev $ - $ - $ 61,086,667 $ 91,630,000 $ 91,630,000
Resort Rev $ - $ - $ 38,115,000 $ 38,115,000 $ 76,230,000
Total $ - $ - $ 99,201,667 $ 129,745,000 $ 167,860,000
Spa Cost Breakdown
Category Industry Nuskin
Profit 8.9% 28.8%
Wages 43.5% 43.5%
Purchases 23.4% 3.5%
Depreciation 2.1% 2.1%
Marketing 2.0% 2.0%
Rent & Utilities 7.2% 7.2%
Other 12.9% 12.9%
Total 100.0% 100.0%
Spa/Resort Revenue Growth Assumptions
Note: Industry related data was
taken off IBIS world. Link:
http://clients1.ibisworld.com.erl.lib.by
u.edu/reports/us/industry/ataglance.
aspx?entid=4186
Level 2014 2015 2016 2107 2018
0 Subscribers 1,335,000 1,309,470 1,349,796 1,429,608 1,488,734
Revenue $- $- $- $- $-
1 Subscribers - 12,500 26,339 42,985 61,555
Revenue $- $125,000.00 $263,390.00 $429,850.00 $615,550.00
2 Subscribers 0 6,250.00 13,170.00 21,493.00 30,778.00
Revenue $- $125,000.00 $263,400.00 $429,860.00 $615,560.00
3 Subscribers 0 3,750.00 7,902.00 12,896.00 18,467.00
Revenue $- $562,500.00 $1,185,300.00 $1,934,400.00 $2,770,050.00
4 Subscribers - 2,500 5,268 8,597 12,311
Revenue $- $187,500.00 $395,100.00 $644,775.00 $923,325.00
5 Subscribers 0 530 1,116 1,820 2,607
Revenue $- $106,000.00 $223,200.00 $364,000.00 $521,400.00
Total Rev/Month 1,106,000 2,330,390 3,802,885 5,445,885
Total Distributors 1,335,000 1,403,591 1,517,399 1,614,452
Total Rev/Year 13,272,000 27,964,680 45,634,620 65,350,620
Tiered Membership System yearly breakdown
Year Number of Selling Distributors
2011 41,816
2012 51,790
2013 102,117
2014 102,117
2015 102,117
2016 107,584
2017 117,558
2018 127,532
Number of Selling Distributors projections (based on a linear growth model)
y = 30151x - 6E+07R² = 0.8701
0
20,000
40,000
60,000
80,000
100,000
120,000
2010.5 2011 2011.5 2012 2012.5 2013 2013.5
A breakdown of estimated profit margins associated with the tiered
membership program (appendix).
Level 1:
• 500 business cards: $5
• 300 pamphlets: $20
• Total cost: $25/distributor
• Distributors pay $120/year. (120-25)/120=.79 margin
• This is conservative, as not all distributors will take advantage of full quantity
Level 2
• Incorporates $25 of cost from tier
• Web design team creates templates: $25,000 spread out over 5 years= $5000/25000 subscribers= $.20/year (negligible)
• Domain and Hosting: $15/month*12 months= $180
• Distributor pays 240/year. (240-180-25)/240= .15 margin
Level 3
• Recording quarterly training (negligible)
• Distribution via web page (negligible)
• Distributor pays 900/year. (900-180-25)/900= .77 margin
Level 4
• 30 consultants with expertise in specific regions. Each with salary of $100,000. $3,000,000/15,000 distributors=$200 cost
• Distributor pays 1,800. (1800-200-180-25)/1800= .78 margin
Level 5
• Scanner production and distribution cost= $250
• Distributor pays $2400. (2400-250-200-180-25)/2400= .73 margin
Breakdown of costs, revenue and profits at five years of implementation for
the tiered membership program.
Note: We estimate that the effect of this plan on distributor success will cause an increase in
Nu Skin’s overall revenue in addition to the revenue brought in by membership fees.
Level PerksSubscribers in
2018 Cost Revenue Per Year Profit Margin Net Profit
0 No support1,488,734
$ -- $ --
1 Brochures/business cards61,555
$ 10.00 $7,386,600.00
0.79$5,835,414.00
2 Internet Marketing30,778.00
$ 20.00 $7,386,720.00
0.15$1,108,008.00
3 Training18,467.00
$ 75.00 $33,240,600.00
0.77$25,595,262.00
4Lead Generation
Consultation 12,311 $ 150.00
$11,079,900.00 0.78
$8,642,322.00
5 Scanner2,607
$ 200.00 $6,256,800.00
0.73$4,567,464.00
Total Rev. $65,350,620
Net Profit$45,748,470.00
DCF Analysis of cash flows from the ageLOC resort for Nu Skin and for the owner of the resort
assuming a WACC of 7.65%.
ageLOC Resort (Nu Skin)Year 1 Year 2 Year 3 Year 4 Year 5
Cash Flow $ 51,125,881 $ 53,324,293 $55,617,238 $58,008,779 $60,503,157
Present Value $47,493,499 $46,016,316 $44,585,077 $43,198,354 $41,854,762
Total $223,148,008
ageLOC Resort (Owner)Year 1 Year 2 Year 3 Year 4 Year 5
Cash Flow $ 9,035,796 $ 25,468,206 $26,563,338 $27,705,562 $28,896,901
Present Value $8,393,822 $21,977,844 $21,294,270 $20,631,957 $19,990,245
Total $92,288,138
Cash Flows (Nu Skin)
EBT*(1-T) 66,855,922
Depreciation -
(Capex) -
(Change NWC) (17,837,820)
Cash Flow $ 49,018,102
Cash Flows (Owner)
Earnings 7,901,722
Depreciation 16,516,500
(Capex) (14,845,276)
(Change NWC) $ (537,150)
9,035,796
Initial Outlay (15,382,426)
Analysis of Cash Flows
*Calculations of WACC on next slide
Present Value of Cash Flows
• Nu Skin Cash flows are calculated as shown to the right.
• Owner cash flows in year 1 are netted with initial outlay to
represent the cash flows after investments.
• Owner cash flows in year 2 are assuming no change in NWC
Analysis of land, building and start up costs associated with ageLOC Resort to reach an
estimated initial outlay.
AssumptionsLand Analysis (LA):
Acres Cost Per Acre58.25 $ 319,000 $ 5,476.39 10.41 $ 139,000 $ 13,352.55 35.91 $ 1,250,000 $ 34,809.25 10.29 $ 950,000 $ 92,322.64 20.64 $ 288,000 $ 13,953.49 7.35 $ 825,000 $ 112,244.90 8.23 $ 100,000 $ 12,150.67 6.95 $ 1,389,990 $ 199,998.56 4.27 $ 195,000 $ 45,667.45
16.79 $ 795,000 $ 47,349.61 Average $ 57,732.55 Median $ 45,667.45
Land Analysis (Miami):Acres Cost Per Acre
9.6 $ 225,000 $ 23,437.50 2.00 $ 395,000 $ 197,500.00
10.13 $22,000,000 $ 2,171,767.03 9.68 $ 8,000,000 $ 826,446.28 1.22 $ 4,000,000 $ 3,278,688.52
13.42 $ 395,000 $ 29,433.68 9.02 $ 850,000 $ 94,235.03
10.00 $ 999,999 $ 99,999.90 15.68 $ 1,750,000 $ 111,607.14
Average $ 759,235.01 Median $ 154,553.57
Average Land Costs $ 390,023.19 Median Land Costs $ 92,322.64
Average Median $ 100,110.51
Resort Costs:
Cost per Sq/Ft $ 463
Avg. Room Size (sq/ft.) 420
Number of Rooms 75
Square Footage (Rooms and Lobby) 31,500
Square Footage (Spa) 10,500
Number of Saunas 10
Number of Hot Tubs 5
Number of Pools 3
Cost Per Sauna $ 3,200
Cost Per Hot Tub $ 8,000
Cost Per Pool $ 50,000
Resort Acreage $ 2.5
Investments:
Building (14,595,000.00)
Land (250,276.27)
Pool/Hot Tub/Sauna (222,000)
Spa Equipment $ (315,150.00)
Total Investment $(15,382,426.27)
Initial Outlay = $15,382,426
47%
1%1%1%
50%
Initial Investment Costs
Building
Land
Pool/HotTub/Sauna
Spa Equiptment
Cost of Equity 11.66%Weight of Equity 0.47Beta 1.68
Cost of Debt 6.19%Weight of Debt 0.53RFF 2.35%
ERP 7.89%
WACC 7.65% Tax Rate 34.22%
Computation of Nu Skin’s Weighted Average Cost of Capital (WACC) using market data.
• Nu Skin’s Beta found on Google Finance
• Risk Free Rate set at the rate of a 10-year T-
bill.
• Equity Risk Premium set at the 10-year return
on S&P 500.
• Tax rate calculated as the three-year average
from Nu Skin’s financials
• Cost of Equity determined as
CAPM [RFF+β(ERP-RFF)]
• Cost of Debt calculated as the
median of Nu Skin’s current
outstanding bonds.
• Weight of Equity = Equity/Total
Assets
• Weight of Debt = Debt/Total
Assets.
Amortization SchedulePeriod Cash PMT Interest Income Principle
0 15,382,426 1 $1,758,700 1,176,473.40 582,227.06 14,800,199.21 2 $1,758,700 1,131,943.71 626,756.75 14,173,442.46 3 $1,758,700 1,084,008.31 674,692.15 13,498,750.31 4 $1,758,700 1,032,406.74 726,293.72 12,772,456.59 5 $1,758,700 976,858.60 781,841.86 11,990,614.73 6 $1,758,700 917,062.04 841,638.42 11,148,976.31 7 $1,758,700 852,692.14 906,008.32 10,242,968.00 8 $1,758,700 783,399.13 975,301.33 9,267,666.66 9 $1,758,700 708,806.47 1,049,893.99 8,217,772.67
10 $1,758,700 628,508.84 1,130,191.62 7,087,581.06 11 $1,758,700 542,069.92 1,216,630.54 5,870,950.51 12 $1,758,700 449,020.00 1,309,680.46 4,561,270.06 13 $1,758,700 348,853.48 1,409,846.98 3,151,423.07 14 $1,758,700 241,026.05 1,517,674.41 1,633,748.66 15 $1,758,700 124,951.80 1,633,748.66 (0.00)
Total $15,382,426.27 Present Value $5,092,433.36
Interest 7.65%Payment $1,758,700
Amortization schedule of payments received from ageLOC spa owners, assuming that Nu Skin
offers franchising at a rate equal to WACC.
• Nu Skin can make
an addtional $5
million through
financing.
• This schedule
assumes the
issuance of a 15
year note with
interest due
annually.