Avon has made the decision to move its corporate headquarters from the US to the UK in order to further streamline and safeguard its business for the present and future.
At the same time, Avon announced it would be cutting approximately 2,500 jobs across multiple regions, including both filled and open positions.
The company anticipates that the latest actions will cost roughly $60m before taxes in Q1 2016, a figure mainly contributed to by employee-related costs. However, Avon noted, it expects to generate pre-tax savings of approximately $30m in 2016 from 1,700 job cuts. It also hopes to make roughly $20m in 2016 in annualised pre-tax savings due to reducing open positions.
In the long run, Avon predicts annualised pre-tax savings of roughly $65m-$70m by the start of 2017. Sheri McCoy, Chief Executive Officer, said: “Today, we are taking another important step forward in the execution of Avon's transformation plan. With the recent completion of the sale of the North American business, our commercial operations are now fully outside of the United States, allowing us to dramatically rethink our operating model. The actions we are taking today will bring our corporate and commercial businesses closer together, which will drive efficiencies, improve operational effectiveness and deliver significant cost savings.”
Avon’s current headquarters are located in New York, where it will continue to be incorporated ad trade on the New York Stock Exchange under AVP. It will keep its current facilities in Suffern, NY and Rye, NY.
What's the plan?
The news follows Avon’s Investor Day, held in January 2016, where it outlined its three-year transformation plan.
In the plan the company highlighted that it planned to invest in growth, improve financial resilience and drive out cost through to 2018. It cited its “strong building blocks” as a key factor behind its ability to achieve these goals, noting that it is an iconic, purpose-driven beauty brand, with innovative products and strong R&D capabilities. Avon’s basic plan is to invest $350m in growth and resource its most attractive markets to grow its representative base; then take out $350m cost and shift costs to align with revenues, providing a natural hedge on currency; and fairly improve financial resilience by strengthening its balance sheet.
Avon has a growing base of active independent sellers or representatives (up 1% in FY15), while its international business is also growing (up 3% in Fy15).
The company did acknowledge that today’s reality is that its financial performance is not where it wants it to be, and that while it has made good progress on a number of fronts, some areas were harder than expected. It also confirmed that the macro-economic impact on its business had been “massive”.
Avon acknowledged its recent decision to sell 80.1% of its North American business to Cerberus Capital Management for $170m equity investment, as well as Cerberus’ one-off investment of $435m in Avon Products. It stood by its decision, which has received criticism from Barington, stating that the deal would enable transformation of Avon’s international business and deliver the financial resources to strengthen Avon Products balance sheet. It confirmed that Avon Products maintains a 19.9% stake in the upside of Avon North America.
At the Investor Day, Cerberus identified that Avon Products and Avon North America are two different situations that need two different solutions; Avon Products is considered a growing business with stable sales representatives and a strong, highly recognised brand, while Avon North America has a declining base of representatives that is struggling with profitability and, although it is a loved brand, it has eroding relevance.
