Avon 2005 Annual Report Download - page 3

2005฀ANNUAL฀REPORT฀฀23
• our ability to implement our Sales Leadership program globally, to
increase Representative productivity, and to compete with other
direct selling organizations to recruit and retain Representatives;
• the impact of changes in market trends, purchasing habits of
our consumers and changes in consumer preferences, particu-
larly given the global nature of our business and the conduct of
our business in primarily one channel;
• our ability to protect our intellectual property rights;
• the risk of an adverse outcome in our material pending and
future litigations;
• our access to financing; and
• the impact of possible pension funding obligations and increased
pension expense on our cash flow and results of operations.
Additional information identifying such factors is contained in
Item 1A of our Annual Report on Form 10-K for the year ended
December 31, 2005, filed with the U.S. Securities and Exchange
Commission. We undertake no obligation to update any such
forward-looking statements.
OVERVIEW
Business
We are a global manufacturer and marketer of beauty and related
products. Our business is conducted worldwide, primarily in the
direct selling channel. Our reportable segments are based on geo-
graphic operations in four regions: North America, Latin America,
Europe and Asia Pacific. We presently have sales operations in
63 countries and territories, including the United States, and
distribute products in 51 more. In December 2005, we announced
changes to our global operating structure. Effective January 1,
2006, we began managing operations in Central and Eastern
Europe and also China as stand-alone operating segments.
These changes increase the number of operating segments to
six. Effective January 1, 2006, we also began centrally manag-
ing Brand Marketing and the Supply Chain. Product categories
include Beauty, which consists of cosmetics, fragrances, skin care
and toiletries; Beauty Plus, which consists of fashion jewelry,
watches, apparel and accessories; and Beyond Beauty, which
consists of home products and gift and decorative products.
Sales from Health and Wellness and mark. are included among
these categories based on product type. Sales are made to the
ultimate consumer principally through approximately 5.1 million
independent Representatives, who are independent contractors
and not employees of Avon. The success of our business is highly
dependent on recruiting and motivating new Representatives.
We view the geographic diversity of our businesses as a strategic
advantage. In developed markets, such as the United States, we
seek to achieve steady, profitable growth, while in developing and
emerging markets we have higher growth targets.
Our Latin American and European segments drove revenue growth
in 2005. Revenue for our Asia Pacific segment was flat, while
revenue declined in our North American segment. Within North
America, our U.S. business has been addressing competitive issues
in the Beauty category. We have also been repositioning our
business with a planned mix shift from the Beyond Beauty to the
Beauty Plus category, including the 2005 exit of the toy business.
During 2005, we experienced general weakness across each of
our four regions. Internationally, this weakness included sales
shortfalls in China and deceleration of growth in Central and
Eastern Europe, as well as Latin America (when excluding the
impact of foreign exchange).
Strategic Initiatives
In November 2005 we announced a four-point turnaround plan to
restore sustainable growth to our business. This plan includes:
• Committing to brand competitiveness by focusing research and
development resources on product innovation and by increasing
our advertising.
• Winning with commercial edge by more effectively utilizing
pricing and promotion, expanding our Sales Leadership program
and improving the attractiveness of our Representative earnings
opportunity as needed.
• Elevating organization effectiveness by redesigning our structure
to eliminate layers of management to take full advantage of our
global scale and size.
• Transforming the cost structure so that our costs are aligned to
our revenue growth and remain so.
Restructuring Initiatives
In connection with our four-point turnaround plan, in November
2005, we announced a multi-year restructuring plan. In the
fourth quarter of 2005, we began actions associated with our
multi-year restructuring plan and incurred costs of $56.5 pretax to
In the fourth quarter of 2005,
we began actions associated
with our multi-year restructur-
ing plan and incurred costs of
$56.5 pretax to implement
these initiatives.