First Affiliate Brand Avon Announces Reorganization

After China obtained its first direct sales license, Avon announced yesterday a restructuring plan consisting of four parts, which will cost at least US$500 million.

Avon pointed out that the total cost of all restructuring plans expected to be implemented in the next three years will not exceed 500 million U.S. dollars, and hopes that the annual balance of the reorganization can exceed 300 million U.S. dollars.

Avon said that the company's largest amount of balance will be achieved through measures to streamline management and expand the scope of management of global organizations to increase organizational efficiency. Avon’s early activities focused on this area. The streamlined management project is expected to be completed in 2006 and will eventually generate an annual balance of $150 million. The company also plans to implement other projects that focus on restructuring its global production base, improving procurement and distribution processes, and regionalizing, centralizing, and outsourcing certain activities and transaction processes.

Avon said that the company expects to use its large reorganization balance to reinvest its business to boost its revenue growth. The balance will be used for increased advertising costs, more support and programs for its agents, and more product development and market research. It is estimated that in 2006 only advertising costs will increase by 50%, and by 2008 the cost will more than double in 2005.

Avon stated that after the transaction year in 2006, the company will try to limit its management expenses to the previous year level or lower to further increase profitability and achieve current reinvestment in these businesses. Avon reiterated that the company expects 2006 revenue to be equal to or slightly higher than the previous year's level, and that after 2006, revenue in local currency will increase by an average of 5%.