Avon 2008 Annual Report Download - page 4

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In addition to these positive performances
across all of our Beauty categories, in 2008
Active Representatives increased a strong 7%.
Representative growth was broad-based across
geographies as we continued to aggressively
invest in initiatives to improve the Avon
earning opportunity and make it easier for our
Representatives to sell and run their businesses.
A Year in Two Chapters
We feel very good about our revenue growth
in 2008, but for Avon, as for most companies,
the story of the year was a tale in two
chapters. Following three quarters of strong
performance, our revenue results in the fourth
quarter were impacted by the worsening
global economic environment as well as by
very signifi cant negative movements in foreign
exchange rates.
These volatile external headwinds also
impacted our operating margin results. For
the fi rst three quarters of the year, we tracked
ahead of our full-year operating margin goal
to approach 2005’s level of 14%. However,
the negative impact of foreign currency
exchange and slowing local currency
revenue growth signifi cantly affected fourth-
quarter profi ts. As a result, we achieved a
full-year 2008 operating margin of 12.5%,
below our original expectation but still a full
370-basis point improvement over 2007’s
operating margin of 8.8%.
In terms of 2009, it would be safe to say that
none of us have a crystal ball for how the
year will play out. The unprecedented scale
of the global economic downturn and the
magnitude of the foreign currency exchange
impact will certainly continue to pressure
businesses around the globe. It is prudent to
assume that these pressures will continue for
the foreseeable future, so we are fully prepared
to manage through a very challenging year.
Having said that, I believe that we enter this
period of unprecedented headwinds with three
exceptional competitive assets that position us
to emerge as an even stronger and healthier
business when the economy improves. These
assets include:
• progress with our turnaround plan which has
given us a stronger foundation for success;
• our fundamentally advantaged business
model which offers both an income-
generating opportunity and “smart value”
products;
• and third, our decades of experience
managing through economic downturns.
Progress with Our Four-Point
Turnaround Plan
At the end of 2005, Avon embarked on a bold
journey to transform the business and position
the company for sustainable growth over the
long term. As a result, Avon is a far stronger
business today than we were just three short
years ago.
We have signifi cantly enhanced the competi-
tiveness of our iconic beauty brand through
an elevated focus on product innovation. We
have also achieved breakthrough levels of
awareness with the launch of our new “Hello
Tomorrow” advertising campaign. Our overall
advertising expenditure of nearly $400 million
in 2008 was almost three times the amount
we invested in 2005. These investments have
helped strengthen our brand image and have
enabled us to command higher price points
for many of our most innovative products, par-
ticularly in Skin Care and Fragrance.
As part of our turnaround, we have also
invested an incremental $200 million to
improve the value proposition for our
Representatives. This has included improving
commission structures in key growth markets
around the world. We have also accelerated
the roll out of our Sales Leadership program,
which allows our Representatives to earn
two ways: by selling to customers and by
recruiting other Representatives. In 2005,
only fi ve markets had implemented Sales
Leadership; today more than 30 markets are
providing this increased earning opportunity
to their Representatives.
While improving earnings, we have also ag-
gressively expanded the web-based tools
available to help our Representatives man-
age their businesses. In fact today, 25 of our
markets boast online ordering rates of 50% or
more, with these numbers rising every day.
To help fund these investments, over the
past three years we have dramatically
transformed our cost structure through a
set of bold initiatives including a multi-year
restructuring, the simplifi cation of our product
line, and a strategic sourcing program that
leverages our global scale and buying power.
Previously estimated to deliver $830 million
in savings and benefi ts, these programs are
overachieving their targets and are now
expected to yield nearly $900 million in
savings and benefi ts when fully implemented
in 2011-2012.