Avon 2004 Annual Report Download - page 17

Latin America’s net sales grew 13% in
2004 with increases in nearly all markets
in the region, reflecting growth in units and
active Representatives, partially offset by
the negative impact of foreign exchange.
increase in average order per Representative.
• In Western Europe, net sales in U.S. dollars and local
currencies increased primarily from growth in the
United Kingdom, resulting from new product
launches and consumer motivation programs such
as gift with purchase programs.
• In the second quarter of 2003, Avon began consoli-
dating its Turkish subsidiary which increased net sales
by $47.2 in 2003, and favorably impacted unit growth
in Europe by 2 points (see Note 17, Acquisitions).
The increase in operating margin in 2003 in Europe was
most significantly impacted by the following markets:
• In Central and Eastern Europe, operating margin
improved (which increased segment margin by 1.3
points) driven by an improvement in gross margin in
nearly all markets. In Russia, the gross margin improve-
ment resulted from a change in pricing strategy and
the elimination of sales tax in July 2003. In Poland, the
gross margin improvement was driven by lower con-
sumer motivation programs such as gift with pur-
chase, as well as pricing strategies, and lower
obsolescence expense.
• In Western Europe, operating margin improved (which
increased segment margin by 1.0 point) primarily due
to a higher gross margin. This increase resulted from
lower product costs, due to supply chain benefits
including the closure of a manufacturing facility in the
United Kingdom, price increases in certain markets
and the exit of certain non-core categories.
• In South Africa, operating margin declined (which
decreased segment margin by .6 point) resulting
from inventory adjustments in that market.
Latin America
2004 Compared to 2003
%/Point Change
Local
2004 2003 US $ Currency
Net sales $1,932.8 $1,716.3 13% 14%
Operating profit 479.1 406.3 18% 21%
Operating margin 24.8% 23.7% 1.1 1.1
Units sold 11%
Active Representatives 11%
Net sales increased in 2004 with increases in nearly all mar-
kets in the region, reflecting growth in units and active
Representatives, partially offset by the negative impact of
foreign exchange, primarily in Venezuela and Mexico.
• In Brazil, net sales increased, primarily reflecting an
increase in units and active Representatives, driven
by field sales incentive programs and new product
launches, as well as favorable foreign exchange.
• In Venezuela, net sales increased significantly, prima-
rily due to growth in units and active Representatives,
partially offset by the negative impact of foreign
exchange. Net sales also benefited from field sales
incentive programs and higher prices.
• In Argentina, net sales increased significantly, driven
by growth in active Representatives and units,
reflecting new product launches and consumer
incentive programs.
• In Mexico, net sales increased, driven by growth in
units and active Representatives, almost entirely off-
set by the negative impact of foreign exchange. Net
sales benefited from new product launches and field
sales incentive programs.
The increase in operating margin in Latin America was
most significantly impacted by the following markets:
• In Venezuela, operating margin increased (which
increased segment margin by .8 point) reflecting a
lower expense ratio resulting from sales growth and
general cost containment initiatives. Operating
margin was also favorably impacted by an improve-
ment in gross margin resulting from higher prices,
as well as supply chain savings mainly due to a
lower cost of materials.
• In Brazil, operating margin increased (which
increased segment margin by .6 point) resulting from
an improvement in gross margin, reflecting savings
associated with supply chain Business Transforma-
tion initiatives and the impact of a sales tax reform in
2004, which allows Avon Brazil to receive tax credits
on inventory purchases.
• In Mexico, operating margin decreased (which
decreased segment margin by .5 point) primarily due
to a lower gross margin reflecting an unfavorable mix
of products sold. Additionally, operating margin was
unfavorably impacted by a higher expense ratio result-
ing from unfavorable comparisons to 2003 (the sec-
ond quarter of 2003 included a gain from the sale of a
warehouse property in Mexico City as the Company
transitioned to a new distribution facility in Celaya).