Avon Products, Inc. (AVP)

AVP 
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Avon Products, Inc. (AVP)

February 21, 2013 12:30 pm ET

Executives

Sherilyn S. McCoy - Chief Executive Officer and Director

Kimberly A. Ross - Chief Financial Officer and Executive Vice President

Analysts

Sally Dessloch

Presentation

Sally Dessloch

Let's extend a warm welcome to Avon's new senior management team as they make their CAGNY debut. With us today are Sheri McCoy, Chief Executive Officer; and Kimberly Ross, Executive Vice President and Chief Financial Officer. They are joined by Amy Chasen, Group Vice President of Investor Relations.

Avon is the world's largest direct seller of beauty products, and it has an attractive footprint in emerging markets. The new management team which brought on board after several years of disappointing results. The team is making early progress in stabilizing the business as evidenced by their fourth quarter earnings. While we recognize the recovery may not be a straight-line, we look forward to hearing more about what lies ahead for Avon. Sheri, let me turn the podium over to you.

Sherilyn S. McCoy

Okay, thank you, Sally. It's great to be here and have the opportunity to talk to you about how we're moving Avon forward and give you a vision of our future. Obviously, it's an interesting time for Avon. 2012 was a very challenging year. I will say that we are seeing early signs of stabilization, and we're very focused on our key priorities and confident that we going to restore health to the Avon business.

Before I begin, what I'd like to do is just ask you to refer to the cautionary statement in the appendix of today's slides. We look at the agenda. What I will spend most of my time talking about is growth. We'll go through our 3 strategic priorities: Our gross platform and how we'll drive those, we'll talk about simplification and efficiency, and we'll talk about improving our organizational effectiveness.

Let's start with our vision. It's about returning Avon to its rightful place as an iconic beauty brand, and importantly, reinforcing our global leadership in direct selling and fulfilling our mission of empowering women. Certainly, Avon has many special characteristics and special elements. It's an iconic brand with high global awareness, and we compete in very attractive beauty categories, strong geographic footprint, very heavily indexed in developing markets. We have over 6 million representatives globally who love the brand and love Avon, we have quality products at a good price, and we have a powerful legacy of empowering women.

We look at the macro view. Certainly the categories we compete in, the beauty category is growing, is large and is very competitive. Direct selling is large and growing and the channel continues to evolve. We see that consumers are shopping in new ways and looking for information in new ways, and multichannel and multi-approach is becoming the norm. And certainly we're dealing with a number of global macroeconomic issues as we look at some of the challenges in places like Western Europe and we see some slowing growth in places like China.

If you look at the Beauty category, it's a $300 billion category projected to grow 6% in the next 5 years. If you look at developing markets, they're projected to grow 12%. For perspective, if you look at Avon's portfolio today, 75% of our business is in developing markets, so we're well-positioned for growth. If you look at the global -- the direct selling industry has had healthy trends and we project that they'll be healthy moving forward.

If we talk about our consumers, we see a complex dynamic today between retail, direct selling and online where people getting information and looking for information in all different places, as well as purchasing in all different places. We see that mobile is really revolutionizing how people think and how people shop. But what we do know is that word-of-mouth and advise from friends is the key driver in terms of purchase intent. And if you think about our 6 million plus representatives globally, that bodes well for Avon.

Let's talk about our current situation. Avon has been underperforming for years. Our financial health has eroded, and unfortunately we've disappointed stakeholders. Our problems didn't develop overnight, and they're going to take time to fix and it's not a single solution. With that said, we have a clear sense of urgency. We have a clear path forward to restore Avon to health. We have a relentless focus on putting the representative and the consumer at the center of our business in terms of how we're making decisions. We're focused on our priority activities, and we're holding people accountable for results.

We've made progress in the last 9 months. Focusing on talent, critically important to get the right talent and the right people the right job. We've set expectations in terms of accountability and driving more discipline in organization. We're focusing on what matters most which are our priority geographies and our priority categories. We're fast tracking social media and digital where we've been behind. And we've begun to reduce the cost base, and we're very focused on cost and cash management and improving our capital structure.

So let's talk about moving forward. As we look at our strategic roadmap, we've been clear that by 2012, we will deliver revenue growth, mid-single digit; operating margins, low-double digit; and cost savings of $400 million. Aggressive goals, but reasonable.

We have 3 strategic priorities: executing our growth platform; driving simplification and efficiency to get cost out, as well as to be more effective; and improving our organizational effectiveness in terms of capability and talent capability. I'm going to spend most of my time today on growth. And as we look at 3 areas that I'll talk to, it's about innovating the consumer proposition, it's transforming the representative experience and it's optimizing our geographic footprint.

I'm starting with innovate consumer proposition because this is really critical in terms of how we think about the brand. It's also important as we look at the earnings opportunity for our representatives, she needs to have the right product portfolio. And when I'm out talking with representatives, what they say to me is they want to make sure that we're investing in the brand and that we're doing the right things from a product portfolio so that she has the opportunity to earn.

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