Q1 Earnings
May 2, 2019
Jan Zijderveld
Gustavo Arnal
CEO
CFO
Miguel Fernandez
Global President
2
Non-GAAP Reconciliation
This material will reference certain non-GAAP financial
measures, which we believe to be useful to investors, although they
should not be considered superior to the measures presented in
accordance with GAAP.
A reconciliation of these non-GAAP financial measures
to their comparable GAAP measures is included in the appendix and
in our earnings release, located on the Investor Relations section of
our website.
Note: This material will reference constant-dollar revenue
rates. Foreign currency impact is determined as the difference
between actual growth rates and constant-dollar growth rates. Actual
growth rates including foreign currency impact, are included in our
earnings release, located on the Investor Relations section of our
website.
Forward-Looking Statements
This material contains “forward-looking statements” that are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, including statements relating to revenue trends, cost
savings, annualized tax rate, impacts of foreign exchange, efforts to
implement new digital strategies, improved representative engagement
training, recruitment and service, product launches and advertising
spend. Because forward-looking statements inherently involve risks and
uncertainties, actual future results may differ materially from those
expressed or implied by such forward-looking statements. These risks
and uncertainties include, but are not limited to, the possibility of
business disruption, competitive uncertainties, and general economic and
business conditions in Avon’s markets as well as the other risks detailed
in Avon’s Form 10-K for the year ended December 31, 2018 and Avon’s
other filings with the Securities and Exchange Commission. Avon
undertakes no obligation to update any statements in this material after it
is posted to the Investor Relations section of our website.
Non-GAAP Reconciliation
and Forward-Looking Statements
3
May 2, 2019
Introduction
Q1 Financial Results
Market & Representative Update
Q&A
Today’s Agenda
Open Up Avon Strategy Update
4
Open Up Avon – Our Strategy is Clear
Open Up AvonStabilize in 2019
Stabilize revenue, slight margin improvement
5
Format: The pages in this presentation provide comparisons for Constant $
(C$) revenue and Adjusted non-GAAP information for the quarter.
Q1 Earnings
Gustavo Arnal
Q1 Financial Results
CFO
6
Q1
1. C$ Revenue from Reportable Segments
2. FCF = Cash from Operations plus Cash from investing activities
Key Financial Metrics
C$ Revenue
C$ Revenue increases
in APAC, NOLA, and
SOLA offset by decline
in EMEA
-2.9%Constant
Dollar
Adj. Operating
Margin (AOM)
AOM improved behind
pricing and cost savings,
despite FX
4.5%+50bps
Cash
On track for positive and
higher FCF generation for
FY’19
Solid Liquidity
-$117MFree Cash Flow
+6m vs 1Q’18
7
1
2
Q1
-2.9%Constant
Dollar
Improving Revenue Management
with more Productive Representatives
C$ Revenue – Productivity continues to improve
C$ Revenue1 C$ Revenue1 Growth Drivers
SOLA
+0.5%
-8.9%Active
Reps
-10.9% Units
ProductivityVolume
1. C$ Revenue from Reportable Segments;
GAAP Reported F$ (Reported currency) Revenue was –14%
8
APAC
+6.6%NOLA
+1.2%
EMEA
-9.0%
+ 6.0%Average
Rep Sales
+ 8.0%Price / Mix
1
Q1
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Q1 18 Q2 18 Q3 18 Q4 18 Q1 19
Segment C$ Revenue Trends
Philippines,
China
Growth
Significant
challenges
in Russia
Mexico
stable-
growing
Brazil
stemming
declines
Note: 2018 Revenue Trends are using Pre-Revenue Recognition Standards for comparability to 20179
APAC NOLAEMEA SOLA
Q1
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
0
0.2
0.4
0.6
0.8
1
1.2
Q1'15 Q1'16 Q1'17 Q1'18 Q1'19
Adjusted Q1 Operating Margin Improving
1. 2015-2018 Adjusted Operating Profit (AOP) Trends are using Pre-Revenue Recognition Standards,
2. 2019/2018 AOP Trends are using Post Revenue Recognition Standards
10
1 2
Q1
1. FX primarily impacting Gross Margin
Note - Reported figures: Q1 2019 F$ GAAP operating margin = (0.3)% a decrease of (350) bps; see appendix for reconciliation
Adjusted Operating Margin Pricing and cost savings offset FX pressure
F$ +50bps
Favorable
price and
mix
>$20M cost
savings largely
on lower
headcount
FX pressure
largely from
Brazil,
Argentina, and
Turkey
11
150bps
110bps-210bps
10%
Reduction in
total SG&A
1
Q1
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Brazil Real
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Argentina Peso
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Turkey Lira
Expected H2 FX Pressure Easing Q1 FX Impact Continues
FX Impact of (210)bps on Operating ProfitFX headwinds expected to ease in H2 2019
• Continued pressure from significant currency devaluation in
top markets
• (11%) Q1 impact on Revenue vs PY
• Brazilian Real pressure is easing and beginning to stabilize
• Based on current rates, expecting FX impact to smooth out
during H2 2019
as of April 20192018 F$ 2019 F$
12
~20% ~100%~50%
2019 F$ = actual rates through April and current April spot for rest of year
Q1 Free Cash Flow strong focusRemain focused on self funding cash investment needs
Expect positive cash flow generation above prior year
1. 2018 YE Third party vendor transition backlog clearing in Q1 19, partially offset by improving inventory
2. Profit, non-cash, tax, interest and other
4
13
Note: Numbers in chart may not tie out due to rounding
3
1 2
Cash from Operations (CfO) -$46M
3. Other mainly lower CAPEX spent
4. Proceeds from sale of China Manufacturing
1.
Optimizing
Working
Capital
2.
Improving
Margin
3.
Monetizing
non-core
assets
Q1
Note – Reported figures: Income tax provision = $19.5M; Diluted EPS = ($0.09)
Q1 2018 Q1 2019 Variance
Q1 – Adj. Income Tax Provision $24.4M $23.2M $1.2M
Q1 – Adjusted Diluted EPS ($0.02) $0.03 $0.05
March 31st – Gross Debt $1.9B $1.62B ($280M)
Other Key Metrics showing progress
Continue to deliver on adjusted tax rate
reductions in 2019
83%76%
64%50%-55%
2016 2017 2018 2019 E
14
Liquidity ~$620M
Q1 Earnings
Market and
Representative Update
Miguel Fernandez
Global President
15
Q1
Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Comments
Brazil
(12.4%) (11.2%) (12.5%)* (4.6%) (2.4%)
Better incentives, lower bad debt, less returns,
and portfolio simplification. Steady improvement in all areas
is helping to stem declining trends.
Mexico(6.3%) 0.1% 7.2% 2.3% 2.1%
Continued focus on training improving ARS. Implementing
accelerated approach to attract sales leaders and reignite
quality appointments.
Russia
(3.7%) (0.5%) (8.7%) (1.4%) (19.2%)
Overall Russian beauty market declined significantly.
Weaker Sales Leaders engagement caused lower Rep
numbers and activity. New leader and interventions
underway with a heavy focus on recruitment efforts across
all Sales Leaders segments.
Philippines(2.7%) 0.4% 3.7% 5.3% 12.0%
Higher ARS due to effective pricing. Regaining momentum
through Avon opportunity events outside the branches to
increase recruiting.
Argentina
19.1% 24.5% 18.7% 23.2% 44.8%
Adjusted commercial model for macroeconomic reality.
Aggressive pricing given local macroeconomic situation.
Active Reps up on training/segmented programs, E-Rep
pilot launched in March.
C$ Revenue TrendsThree top markets growing while Brazil improves
*Adjusted to exclude 1X benefit from IPI tax reversal
2018/2017 Revenue Trends are using Pre-Revenue Recognition Standards, for comparability16
1
1. Excluding IPI tax favorability Q1 19 was (6.4%) and Q4 18 was (8%)
1
ARS – Average Rep Sales
Q1
Reboot social selling Improve value of brand Re-engage consumers
Russia in Full Reset
Modern and relevantBrand Pull
17
-20
-10
0
Q1 18 Q2 18 Q3 18 Q4 18 Q1 19Russia sales
SWAT team on the ground to Reset Russia
Continues to be a challenging market
• Smarter Beauty Choice Brochures
• Driving more on-trend portfolio
- K- beauty & Fragrance
• Digital marketing
• Pop Up Stores in malls
• New narrative to reach younger Reps
• Deploy direct delivery
• Trendier innovation
Improving Productivity
• Field re-ignition strategy; Sales Leader
segmentation and engagement
• Refocus on training to boost Her earnings
(micro-influencer training)
• New Digital Training Platform and training
centers
Q1
Reboot social selling Improve value of brand Simplify & ‘Open Up’
Brazil regaining momentum Improving trends toward the end of 2019
Invest in HER
Obsession to serve Net Revenue Management
Dedicated E-commerce Business Unit
Working CapitalRejuvenate Brand
Inventory days -20
Q1 2019Aug 2018
Reduce 30% of Product Portfolio
Product Mix helping to improve sales
18
-18%
• During TV slots:
• Searches +16%
• Avon Brand Recall +5%
New Credit & Collection Process
Q1 18 Q2 18 Q3 18 Q4 18 Q1 19
0
50
100
2018 2019
Perfect order
-40
10
60
110
2018 2019
Call center calls
-15
-5
Q1 18 Q2 18 Q3 18 Q4 18 Q1 19
Brazil sales
Q1 18 Q1 19
Net Promoter Score
+13%
Q1 18 Q1 19
Q1 18 Q1 19
Bad debt -43%
Q1 18 Q1 19
Price Mix +11%
Q1
Q1 18 Q1 19
Increasing productivity of Representatives
Representatives are earning
more money
19
Average Rep Sales are improving in most
top markets
Global Average Rep Sales
+6%
8%
-1%
14%
22%
33%
1%
8%
Brazil
Russia
Mexico
Philippines
Argentina
South Africa
UK
Average Rep Sales
Q1 Training driving more productivityTrained leaders earn 15% more money
Segmented TrainingTraining with Intent
Digital Training
20
+20% Retention
+23% ARS
Scaling Digital Training
Product TrainingBeauty Advising
ANEW
Training
Fragrance
Training
ARS – Average Rep Sales
Q1
New Representative tools
Better Digital toolsTools to improve productivity and ease of doing business
New Online Ordering PlatformNew sales leader app
21
Recruitment tools:
Self appointment;
Sales leader
mobile
appointment
Launched
in Poland
Makes it easy for consumers to buy
Helps sales leaders make
recruitment and retention easy
86%
positive
feedback
Rep app for
orders and
content sharing
20% of Appointmentswere mobile in
Romanian Pilot
Q1 Earnings
Jan Zijderveld
Business Update
CEO
22
Open Up Avon
23
Number of Consumers
Avera
ge P
rice Reboot core
• Re-energize Representatives
• Improve Brochures
• Service & delivery options
• Performance culture
• Talent & capabilities
4. More Simple & Fit For Purpose
$ 6
$ 3
100M 200M
1. More Value
2. More Access
3. More Productive
Beauty Entrepreneurs
Open Up Avon
24
Number of Consumers
Ave
rag
e
Pri
ce
Reboot core• Re-energize Representatives
• Improve Brochures
• Service & delivery options
• Performance culture
• Talent & capabilities
Segment & Training DigitalEarnings
PromosPricing Mix/TierInnovation
New GenerationAsia E-commerce
1. More Value
2. More Access
3. More Productive
Beauty Entrepreneurs
Head count Inventory days Monetize non-core
Avera
ge P
rice
4. More Simple & Fit For Purpose
100M 200M
$ 6
$ 3
25
Mix and tiering
On-trend Innovation
+8%
Q1 ‘19Q1 ‘18
Price Mix
Optimizing promotions
Pricing power
1. Improving Value Drivers
1a. Improving Value Drivers – Product Levers
26
Mix and tieringOn-trend scaled Innovation
2018 2019
ScalingInnovation
+4X
Q1 18 Q1 19
Price Mix
+8%
-1%
27
Optimizing promotionsPricing power
From free gifts
To
£3.50
From
£1.99
UK
Skin So
Soft Sales
+35%
UK
ARS +7%
Nude
Bundle ARS
+9%
To bundles
1b. Improving Value Drivers – Pricing Levers
China Sales Growth E-Commerce Sales Growth New Generation of Consultants
Multiple Channel Approach
• Upgrade Franchise stores
• Build retail footprint with distributors
• Drive e-commerce with T-mall
• Dedicated E-Commerce Units
• My Avon store - 25 markets
• IMB - 6M brochure views every month
• Training Reps to become Micro-
influencers
45 % of new recruits are Millennials
• Trendier innovation
• More digital presence
• Faster delivery options
28
Avon anywhere & anytime
Q1 18 Q1 19
+74%
Online Sales
IMB – Instant Message Brochure
+29%Q1 C$ Sales
Trend
2. Driving More Access
• China Manufacturing
Facility
• Rye Office
• Malaysia Office
• New Avon / LGH&H
Much Leaner
Head Count
Reduction
Inventory
Days
Monetize
Non-Core Assets
29
Q1
Reduction
6%
$13MQ1
Reduction
20 dayCash
proceeds
in 2019
~$100M
15
17
19
21
23
25
2017 2018 Q1 19
-8%-6%
Much Simpler
Q1 18 Q1 19
-20 days
-14%
4. Leaner and Simpler
50%of women
do not feel they live
in a culture that
encourages female
entrepreneurs
30
Female Beauty Entrepreneur
Accelerator ProgramWomen’s Health Stand4her
Championing a whole new
generation of female startups while
opening up our innovation pipeline to
support our fast-beauty strategy
Global launch with 2.5B reach
Clear Purpose of Avon - Empowering Women
2019Monetize
non-core
assets
$100M
Head Count
Reduction
10%
SKU
Reduction
25%
Tax Rate
Reduction
10%-15%
2019 Year of Execution
31
Stemming
Revenue Decline
• Reboot Direct Selling
• Drive productivity
• Scale innovation &
modernize brand
Expanding
MarginDriving
Cash Flow
• Working Capital
improvements
• Divesting non-core
assets
• Improving cash tax
• Improving price mix
• Reducing cost
• Leaner & Simpler
Average
Rep Sales
>5%
Double
E-Commerce
2018
32
Looking Ahead
Q1 Earnings
Question & Answer
33
Thank You34
Appendix35
Q1
Reported
GAAP
Adjusted
(Non-GAAP)
Reportable Segments C$ revenue growth (2.9%) (2.9%)
Reportable Segments F$ revenue growth (13.9%) (13.9%)
Total Avon Gross Margin 56.4% 56.8%
Total Avon SG&A % of revenue 56.8% 52.4%
Total Avon Operating Margin (0.3%) 4.5%
Total Avon Diluted EPS ($0.09) $0.03
Effective Tax Rate (433.3%) 54.2%
Reported and Adjusted Results
Note: Numbers in table may not tie out due to rounding
36
Q1 Non-GAAP Reconciliation
37
Three Months Ended March 31, 2019
Q1 Non-GAAP Reconciliation
38
Three Months Ended March 31, 2018