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Update: Avon Highlights Initial Restructuring Actions Under 2009 Program Announced In February

Second-Quarter Charge of Approximately $77 Million Includes Initiatives to Realign Supply Chain Manufacturing and Improve Operating Model Effectiveness in Key Geographies 2009 Program on Track to Achieve Total Annualized Savings of Approximately $200 Mill

PRNewswire-FirstCall
NEW YORK
Jul 22, 2009

Avon Products, Inc. (NYSE: AVP) today highlighted the initial restructuring actions under the new 2009 program it announced in February to continue driving the long-term transformation of its cost structure and to increase efficiency and organization effectiveness across its global operations.

Avon said that it expects total costs to implement the initiatives approved to date to be approximately $165 million, including a charge of approximately $77 million pretax in the second quarter of 2009. When combined with costs of approximately $13 million to implement initiatives from its 2005 restructuring program, the company said that it will incur a total charge of approximately $90 million in the quarter, or $0.19 per share, including $0.05 per share for a one-time restructuring tax charge.

Charles Cramb, Avon's Vice Chairman, Chief Finance and Strategy Officer, said, "When fully implemented, the initiatives approved to date reflect almost half the costs to implement the 2009 restructuring program, and are expected to generate approximately 60% of the targeted annualized savings. As a result, we are on track to achieve our stated goal of approximately $200 million in total annualized savings by 2012-2013, with costs to implement all initiatives expected to be in the range of $300-$400 million."

Summary of Restructuring Initiatives

Avon said that the restructuring initiatives announced today will include realignments in its global supply chain manufacturing footprint and improvements in operating model effectiveness in key geographies. As a result, the company said that approximately 2,300 positions will be impacted globally, with a net reduction of approximately 1,200 positions when the initiatives are fully implemented by 2012-2013.

Supply Chain Manufacturing. Avon said that the second-quarter 2009 charge will include costs-to-implement realignments of supply chain manufacturing operations, primarily in North America, Western Europe, and Central and Eastern Europe.

In North America, the company said that it will close its facility in Springdale, Ohio by mid-2012. The company said that production will shift to its manufacturing sites in Morton Grove, IL, and Celaya, Mexico, and to contract manufacturers. In line with this, the Springdale-based return goods operation will also close, with the function being relocated to another Avon U.S. facility or outsourced in the U.S. The existing customer service call center will continue to operate and will relocate in Springdale or the greater Cincinnati, Ohio vicinity.

In Western Europe, Avon said that it is planning to close its manufacturing facility in Neufahrn, Germany and that it has entered into the required formal information and consultation processes with the economic committee and works council in Germany. The company said that it expects to phase-out operations by mid-2011 and plans to transfer production volume to other Avon manufacturing facilities, including Garwolin, Poland and to contract manufacturers.

In Russia, the company said that it is planning to improve processes, reconfigure equipment and streamline operations at its facility in Naro Forminsk in order to meet increasing demand more cost-effectively.

Operating Model Effectiveness. Also included in the second-quarter 2009 charge are costs to continue improving Avon's operating model effectiveness in Latin America and Western Europe. In Latin America, the company said that it plans to regionalize commercial marketing and leverage other key business support functions such as sales support, supply chain and administration across multiple markets. Avon also said that it plans to integrate its commercial marketing departments in the U.K. and Spain to create a single consolidated commercial marketing organization to better serve the company's markets across Western Europe, the Middle East and North Africa.

"The initiatives announced today result from our 'constant turnaround mentality' and reflect our continuing determination to transform our cost structure, improve operating efficiencies, and be a stronger competitor globally as we drive Avon's turnaround strategies and address the current macro-economic challenges," Mr. Cramb said.

Avon, the company for women, is a leading global beauty company, with over $10 billion in annual revenue. As the world's largest direct seller, Avon markets to women in more than 100 countries through 5.8 million independent Avon Sales Representatives. Avon's product line includes beauty products, as well as fashion and home products, and features such well-recognized brand names as Avon Color, Anew, Skin-So-Soft, Advance Techniques, Avon Naturals, and Mark. Learn more about Avon and its products at www.avoncompany.com.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Statements in this release that are not historical facts or information are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "estimate," "project," "forecast," "plan," "believe," "may," "expect," "anticipate," "intend," "planned," "potential," "can," "expectation" and similar expressions, or the negative of those expressions, may identify forward-looking statements. Such forward-looking statements are based on management's reasonable current assumptions and expectations. Such forward-looking statements involve risks, uncertainties and other factors, which may cause the actual results, levels of activity, performance or achievement of Avon to be materially different from any future results expressed or implied by such forward-looking statements, and there can be no assurance that actual results will not differ materially from management's expectations. Such factors include, among others, the following:

  --  our ability to implement the key initiatives of and realize the gross
      and operating margins and projected benefits (in the amounts and time
      schedules we expect) from our global business strategy, including our
      multi-year restructuring initiatives, product mix and pricing
      strategies, enterprise resource planning, customer service
      initiatives, product line simplification program, sales and operation
      planning process, strategic sourcing initiative, outsourcing
      strategies, zero-overhead-growth philosophy, cash flow from operations
      and cash management, tax, foreign currency hedging and risk management
      strategies;
  --  our ability to realize the anticipated benefits (including any
      projections concerning future revenue and operating margin increases)
      from our multi-year restructuring initiatives or other strategic
      initiatives on the time schedules or in the amounts that we expect,
      and our plans to invest these anticipated benefits ahead of future
      growth;
  --  the possibility of business disruption in connection with our
      multi-year restructuring initiatives or other strategic initiatives;
  --  our ability to realize sustainable growth from our investments in our
      brand and the direct-selling channel;
  --  a general economic downturn, a recession globally or in one or more of
      our geographic regions, such as North America, or sudden disruption in
      business conditions, and the ability of our broad-based geographic
      portfolio to withstand such economic downturn, recession or
      conditions;
  --  the inventory obsolescence and other costs associated with our product
      line simplification program;
  --  our ability to effectively implement initiatives to reduce inventory
      levels in the time period and in the amounts we expect;
  --  our ability to achieve growth objectives or maintain rates of growth,
      particularly in our largest markets and developing and emerging
      markets;
  --  our ability to successfully identify new business opportunities and
      identify and analyze acquisition candidates, and our ability to
      negotiate and consummate acquisitions as well as to successfully
      integrate or manage any acquired business;
  --  the effect of political, legal and regulatory risks, as well as
      foreign exchange or other restrictions, imposed on us, our operations
      or our Representatives by governmental entities;
  --  our ability to successfully transition our business in China in
      connection with the resumption of direct selling in that market in
      2006, our ability to operate using the direct-selling model permitted
      in that market and our ability to retain and increase the number of
      Active Representatives there over a sustained period of time;
  --  the effect of economic factors, including inflation and fluctuations
      in interest rates and currency exchange rates, and the potential
      effect of such fluctuations on our business, results of operations and
      financial condition;
  --  general economic and business conditions in our markets, including
      social, economic and political uncertainties in the international
      markets in our portfolio;
  --  any consequences of the internal investigation of our China
      operations;
  --  information technology systems outages, disruption in our supply chain
      or manufacturing and distribution operations, or other sudden
      disruption in business operations beyond our control as a result of
      events such as acts of terrorism or war, natural disasters, pandemic
      situations and large scale power outages;
  --  the risk of product or ingredient shortages resulting from our
      concentration of sourcing in fewer suppliers;
  --  the quality, safety and efficacy of our products;
  --  the success of our research and development activities;
  --  our ability to attract and retain key personnel and executives;
  --  competitive uncertainties in our markets, including competition from
      companies in the cosmetics, fragrances, skin care and toiletries
      industry, some of which are larger than we are and have greater
      resources;
  --  our ability to implement our Sales Leadership program globally, to
      generate Representative activity, to enhance the Representative
      experience and increase Representative productivity through
      investments in the direct-selling channel, and to compete with other
      direct-selling organizations to recruit, retain and service
      Representatives;
  --  the impact of the seasonal nature of our business, adverse effect of
      rising energy, commodity and raw material prices, changes in market
      trends, purchasing habits of our consumers and changes in consumer
      preferences, particularly given the global nature of our business and
      the conduct of our business in primarily one channel;
  --  our ability to protect our intellectual property rights;
  --  the risk of an adverse outcome in our material pending and future
      litigations;
  --  our ratings and our access to financing and ability to secure
      financing at attractive rates; and

  --  the impact of possible pension funding obligations, increased pension
      expense and any changes in pension regulations or interpretations
      thereof on our cash flow and results of operations.

Additional information identifying such factors is contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the U.S. Securities and Exchange Commission. We undertake no obligation to update any such forward-looking statements.

First Call Analyst:
FCMN Contact: sharon.samuel@avon.com

SOURCE: Avon Products, Inc.

CONTACT: Media: in New York, NY, Sharon Samuel, +1-212-282-5322, or in
Springdale, OH, Jennifer Vargas, +1-212-282-5404, or Investors: Renee
Johansen, or Yana Friedman, +1-212-282-5320

Web Site: http://www.avoncompany.com/

 
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