Avon 2006 Annual Report Download - page 3

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A year ago, I wrote to you about the
challenges we faced in 2005 and our
commitment to address them through a
comprehensive turnaround plan. One year
later, I am pleased to tell you that we have
moved forward aggressively against every
aspect of our plan. With 8% revenue growth
in a year that was anticipated to be fl at or
up only slightly, we are ahead of where we
expected to be this early in the turnaround.
Underpinning these results is a signifi cant
acceleration of our investments in growth.
Our fi rst priority was to step-change our
advertising investment, and in 2006 we
increased advertising by more than 80%,
to $249 million. To fund this investment,
we launched a major restructuring plan to
signifi cantly reduce our cost base. In the fi rst
year of the plan, we delivered approximately
$100 million in savings. These savings, and
more, were invested back into the business
to fuel the top line.
Our progress in 2006 also refl ected major
changes to our organizational structure
to address our growing size. With $8.8
billion in revenues in 2006, the company
has increased over 60% in size since I was
named CEO in 1999. By implementing our
new global operating model last year, we are
now better positioned to leverage our global
scale and compete in the global marketplace,
while still maintaining the strengths of our
entrepreneurial roots.
So overall, we feel good about our early
progress with our turnaround. Through
heightened analytical rigor, we have been able to
target our investments for maximum return and
confi rm our belief that Avon continues to remain
a growth model. At the same time, we are
aware that we’re still only a year into a multiyear
effort with a lot more work ahead of us. We are
committed to managing our business for the
long-term, and will take the necessary steps to
restore Avon to sustainable growth.
Against this backdrop, let me provide an
update on our turnaround plan. As you’ll recall,
the plan has four parts: 1) Commit to Brand
Competitiveness; 2) Win with Commercial
Edge; 3) Elevate Organization Effectiveness;
and 4) Radically Transform the Cost Structure.
I'll look at progress against each part of the
plan as well as priorities for 2007.
COMMIT TO BRAND COMPETITIVENESS
We entered 2006 planning a 50% increase
in advertising but raised spending given the
strong paybacks we were seeing from these
investments. In fact, we now anticipate that
by the end of 2007, our advertising spending
will be more than double 2005’s level—a year
ahead of what we had originally planned.
Advertising helped drive an 8% increase in
overall beauty sales, with particular strength in
the skin care and fragrance categories. In skin
care, we were pleased to be able to restore
growth to our fl agship Anew anti-aging skin
care brand. We also successfully launched our
mass-priced anti-aging skin care brand,
Avon Solutions Ageless Results.
In the fragrance category, successful
strategic alliances and celebrity tie-ins
contributed to a strong performance.
To our shareholders
2006 Annual Report