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Avon Announces Final Initiatives of Restructuring Program

Posted: January 9, 2008
Avon Products, Inc. announced the final initiatives of the restructuring program under its turnaround plan, begun in late 2005. The company now expects to achieve annualized savings of approximately $430 million once all initiatives are fully implemented by 2011-2012, compared to the original objective of $300 million. These savings are projected to reach $300 million in 2009. The company now anticipates total costs to implement the restructuring initiatives to be approximately $530 million instead of $500 million, of which the company will have recorded approximately $460 million through the fourth quarter of 2007 and the remainder by the end of 2009.

As a result, the company said that it expects to incur a charge of approximately $120 million in the fourth quarter 2007. Included in this charge are: restructuring of some international direct selling operations, most significantly in Germany; realigning supply chain operations in Western Europe and Latin America; outsourcing call centers and transaction processing functions; and several other minor initiatives. Costs associated with previously announced restructuring initiatives are also included in the fourth-quarter charge.

Avon said that as a result of the initiatives announced today approximately 4,000 positions would be impacted globally, with a net reduction totaling approximately 2,400 positions when the initiatives are fully implemented.

"With today's announcement we now expect the annualized savings of our restructuring program to be approximately $430 million when fully implemented, $130 million ahead of our initial estimates," said Charles Cramb, vice chairman, chief finance and strategy officer, Avon. "Continuing transformation as part of a turnaround mentality is now a 'way of life' for Avon as we enter the third year of our turnaround. While we anticipate additional initiatives to further improve organization effectiveness and drive cost savings to fuel growth, they will not be reported as part of our turnaround plan."

Avon also announced that under its Product Line Simplification (PLS) initiative, it has finalized its analysis to define its optimal product assortment and made decisions on exit strategies for non-optimal products. The company will record a charge of approximately $110 million in the fourth quarter, primarily for inventory write-offs resulting from the exit decisions taken. In addition to the $430 million in savings from the restructuring program, the company continues to expect benefits from PLS to commence in the second half of 2008, and to reach a full annualized run rate in excess of $200 million by the end of 2009. Avon also said it does not anticipate any further PLS inventory charges in the future.