Avon has announced a multi-year restructuring effort as part of a major drive to fuel revenue growth and strengthen overall performance around the world, including China.
Avon said its restructuring initiatives will include enhancement of organizational effectiveness, including efforts to flatten the organization and bring senior management closer to consumers through a substantial organization downsizing.
Avon expects to incur costs to implement these initiatives over the next several years, with a significant portion of the total costs to be incurred during 2006. Costs are expected to total US$300-$500 million before taxes, and the company projects that initial pre-tax costs of US$20-US$40 million could be incurred in the fourth quarter 2005. Avon said it will announce further details as initiatives are finalized.
The company expects that benefits from restructuring will help to fund a significant increase in consumer investment as well as improve the competitiveness of its direct selling opportunity. Advertising, market intelligence, consumer research and product innovation will be funded at higher levels, with advertising spend projected to more than double by 2008.
These actions are expected to improve revenue growth prospects beginning in 2007. The company projects that revenue will be flat to up slightly in 2006 in local currencies, and forecasts revenue growth in local currencies that will average mid-single digits after 2006.
Additionally, Avon said it expects modest improvement in its operating margin beginning in 2007, after the benefits of restructuring and higher consumer investment.
Andrea Jung, Avon's chairman and chief executive officer, commented, "With this plan, we're taking very aggressive action to address the issues we faced in 2005, and to become a far more streamlined global competitor that is closer to its consumers. By taking a comprehensive approach to our enterprise expense base and global value chain, we are identifying more efficient and effective ways of operating. We will, in turn, reinvest much of the projected savings to fuel topline growth and improve our competitive position.
"Avon's strengths remain enviable, and we continue to believe that we have the right overall strategies and a powerful business model. The actions we announced today are intended to accelerate our transformation, and return our business to a sustainable growth trajectory in both revenue and earnings per share," Ms. Jung concluded.