Avon 2014 Annual Report Download - page 17

as Brazil and in developing and emerging markets, such as Mexico and Russia. Our revenue in 2014 was $8,851.4 million, compared with
$9,955.0 million in 2013 and $10,561.4 million in 2012. Our gross margin in 2014 was 60.5%, compared with 62.1% in 2013 and 61.2%
in 2012. Our operating margin in 2014 was 4.5%, compared with 4.3% in 2013 and 5.0% in 2012. In 2014, we had a loss from continuing
operations, net of tax of $384.9 million, compared with a loss from continuing operations, net of tax of $1.0 million in 2013, and income
from continuing operations, net of tax of $93.3 million in 2012. Reversing these trends will depend on our ability to improve financial and
operational performance and execution of our global business strategy. There can be no assurance that we will be able to reverse these
trends.
To reverse these trends in revenue, margins and net income and to achieve profitable growth, we also need to successfully implement
certain initiatives including our restructuring and cost-savings initiatives, and there can no assurance that we will be able to do so. Our
achievement of profitable growth is also subject to the strengths and weaknesses of our individual markets, including our international
markets, which are or may be impacted by global economic conditions. We cannot assure that our broad-based geographic portfolio will be
able to withstand an economic downturn, recession, cost or wage inflation, commodity cost pressures, economic or political instability,
competitive pressures or other market pressures in one or more particular regions.
Failure to reverse declining revenue, margins and net income and to achieve profitable growth could have a material adverse effect on our
business, prospects, financial condition, liquidity, results of operations and cash flows.
Our business is conducted worldwide primarily in one channel, direct selling.
Our business is conducted worldwide, primarily in the direct-selling channel. Sales are made to the ultimate consumer principally through
direct selling by Representatives, who are independent contractors and not our employees. At December 31, 2014, we had approximately
6 million active Representatives worldwide. There is a high rate of turnover among Representatives, which is a common characteristic of the
direct selling business. In order to reverse losses of Representatives and grow our business in the future, we need to recruit, retain and
service Representatives on a continuing basis. Among other things, we need to create attractive Representative earning opportunities and
transform the value chain, restore field health and sales force effectiveness, successfully implement other initiatives in the direct-selling
channel, successfully execute our digital strategy, including e-commerce, improve our brochure and product offerings and improve our
marketing and advertising. There can be no assurance that we will be able to achieve these objectives. Additionally, consumer purchasing
habits, including reducing purchases of beauty and related products generally, or reducing purchases from Representatives through direct
selling by buying beauty and related products in other channels such as retail, could reduce our sales, impact our ability to execute our
global business strategy or have a material adverse effect on our business, prospects, financial condition, liquidity, results of operations and
cash flows. Additionally, if we lose market share in the direct-selling channel, our business, prospects, financial condition, liquidity, results of
operations and cash flows may be adversely affected. Furthermore, if any government bans or severely restricts our business method of
direct selling, our business, prospects, financial condition, liquidity, results of operations and cash flows may be materially adversely affected.
We are subject to financial risks related to our international operations, including exposure to
foreign currency fluctuations and the impact of foreign currency restrictions.
We operate globally, through operations in various locations around the world, and derive approximately 89% of our consolidated revenue
from our operations outside of the United States (“U.S.”).
One risk associated with our international operations is that the functional currency for most of our international operations is their local
currency. The primary foreign currencies for which we have significant exposures include the Argentine peso, Brazilian real, British pound,
Canadian dollar, Chilean peso, Colombian peso, the euro, Mexican peso, Peruvian new sol, Philippine peso, Polish zloty, Romanian leu,
Russian ruble, South Africa rand, Turkish lira, Ukrainian hryvna and Venezuelan bolívar. As the U.S. dollar strengthens relative to our foreign
currencies, our revenues and profits are reduced when translated into U.S. dollars and our margins may be negatively impacted by country
mix if our higher margin markets, such as Russia, experience significant devaluation. In addition, our costs are more weighted to U.S. dollars
while our sales are denominated in local currencies. Although we typically work to mitigate this negative foreign currency transaction impact
through price increases and further actions to reduce costs, we may not be able to fully offset the impact, if at all. For example, in 2014, our
revenues declined 11% compared with 2013 due to unfavorable foreign exchange, and were relatively unchanged on a Constant $ basis.
Our success depends, in part, on our ability to manage these various foreign currency impacts and there can be no assurance that foreign
currency fluctuations will not have a material adverse effect on our business, assets, financial condition, liquidity, results of operations or
cash flows.
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