Avon announces next step in restructuring program

By Simon Pitman

- Last updated on GMT

Related tags Company Ongoing restructuring plan Management

Avon Products has filed a new report with the US Securities and
Exchange Commission (SEC) outlining the latest initiatives for its
ongoing restructuring plan, leading to further charges of up to
$15m for redundancy and organizational initiatives.

Although the company did not outline which staff would have their contracts terminated under the agreement, the focus is likely to be middle management, falling in line with the company's objective of cutting back the global staff operating in this area.

The company said that the charges would be in the region of $12 - $15m, of which $11 - $14m would be accounted for by employee-related costs and a further $1m for 'other costs'.

According to the SEC release, the Board of Directors agreed to the latest initiatives in the restructuring program during a board meeting on December 15 and are expected to be implemented in the first quarter of 2007.

The latest restructuring and resulting job losses are part of an ongoing program to restructure trim the workforce in an effort to save between $300m - $500m a year and will be implemented until 2009.

In June of this year the company's workforce stood at 48,000, following more than 2,000 job cuts that were announced in April and May.

The job losses are being announced incrementally in an effort to soften the blow of cutting down the total global workforce by an estimated 20 per cent, as well as giving the company time to implement the program gradually.

Last month the company announced another initiative that meant charges of up to $12m to outsource some services, while earlier this month the company said it would be trimming its global workforce by a further 100 people as the result of ongoing outsourcing initiatives.

Avon CEO Andrea Jung says that the savings from the restructuring program will be reinvested in increased ad spend, internet marketing, together with further investment in research and development in an effort to increase speed to market of new products.

Further investment is also expected to go into the China market, where market growth has remained in double figures for the past two years. Avon also became the first direct sales cosmetic company to receive a license to sell door-to-door in the country, a move that is expected to give it a head start in this rapidly evolving category.

The restructuring program should go a long way towards the company's major aim in 2007 will - to turn around its underlying growth, which in recent years, has been impacted by a poor performance in both the US and Asian markets outside of China.

Ultimately the company believes that by trimming back its operation costs, this will help trigger an up-turn in underlying growth towards the end of 2007 and in to 2008.

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