Q4 Earnings Jan Jamie Wilson - MarketScreener.com

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Q4 Earnings Jan Jamie Wilson - MarketScreener.com
Q4 Earnings
    February 14, 2019

    Jan         Jamie
Zijderveld      Wilson
   CEO            CFO

                         1
Q4 Earnings Jan Jamie Wilson - MarketScreener.com
Non-GAAP Reconciliation
    and Forward-Looking Statements
     Non-GAAP Reconciliation                                                 Forward-Looking Statements
     This material will reference certain non-GAAP financial                 This material contains “forward-looking statements” that are made
     measures, which we believe to be useful to investors, although they     pursuant to the safe harbor provisions of the Private Securities
     should not be considered superior to the measures presented in          Litigation Reform Act of 1995, including statements relating to
     accordance with GAAP.                                                   revenue trends, cost savings, annualized tax rate, impacts of
     A reconciliation of these non-GAAP financial measures                   foreign exchange, efforts to implement new digital strategies,
     to their comparable GAAP measures is included in the appendix and       improved representative engagement training, recruitment and
     in our earnings release, located on the Investor Relations section of   service, product launches and advertising spend. Because
     our website.                                                            forward-looking statements inherently involve risks and
                                                                             uncertainties, actual future results may differ materially from those
     Note: This material will reference constant-dollar revenue              expressed or implied by such forward-looking statements. These
     rates. Foreign currency impact is determined as the difference          risks and uncertainties include, but are not limited to, the
     between actual growth rates and constant-dollar growth rates. Actual    possibility of business disruption, competitive uncertainties, and
     growth rates including foreign currency impact, are included in our     general economic and business conditions in Avon’s markets as
     earnings release, located on the Investor Relations section of our      well as the other risks detailed in Avon’s filings with the Securities
     website.                                                                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.

2
Q4 Earnings Jan Jamie Wilson - MarketScreener.com
AGENDA
        February 14, 2019

    ▪ 2018 Overview
    ▪ Q4 Financial Results
    ▪ Business Update
    ▪ Q&A

3
Q4 Earnings Jan Jamie Wilson - MarketScreener.com
A reminder of our journey

    Q2                                             Q3                      Q4
    Short Term Fixes                               Launched Open Up Avon   Started Building a New Avon

                                                                           Push – Reboot Social Selling
    Fixing Service

    Instituting Culture of Performance and Speed                           Pull – Demand creation to Improve brand value

    Refocusing on Representative Satisfaction                              Increase Access - Unlock E-commerce & Asia

                                                                           Dramatically Simplify & Open up
    Top Market Focus

4
Q4 Earnings Jan Jamie Wilson - MarketScreener.com
Jamie Wilson
                                                       CFO

          LFL Q4 Financial Results
           Like-For-Like (LFL) provides comparable year
                 over year figures that exclude the impact
          of the adoption of the new accounting standard
                            on revenue recognition and all
                                   non-GAAP adjustments

Format –The pages in this presentation use Like-for-Like comparisons for Constant $ (C$) revenue and Adjusted non-GAAP information for the quarter

5
Q4 Earnings Jan Jamie Wilson - MarketScreener.com
Q4              LFL1 – Revenue showing improving trends
                    Continued investments in Representatives impacting margin

                            Revenue 2                            Adj. Gross                                        Adj. Operating
                             Growth                               Margin                                               Margin

                               -1.4%
         Total
                               Constant
                                                                      60%                                                          6%
         Avon                   Dollar                             -140bps                                                       -420bps

                -0.7%
                Q4 top 10
                 markets                                          Q4 Improving revenue trends
                                                         Q1'18           Q2'18                 Q3'18                Q4'18
                                               0.0%
                                               -1.0%
                                               -2.0%                                                                     -1.4%
                                                                                   *                                                    C$’18
                                               -3.0%                                                             -2.3%
                                                                            -2.6%
                                                                       -2.9%                                                            Excl. ANZ
                                               -4.0%                                             -3.6%
                                               -5.0%   -4.2%                                -4.4%

    1.   All information is LFL                                   * (ANZ) Australia, New Zealand discontinued May 2018
6   2.   C$ Revenue from Reportable Segments
Q4 Earnings Jan Jamie Wilson - MarketScreener.com
Q4          LFL Revenue1 - Representative productivity improving

                 Revenue 1 Growth                                                                                 Revenue 1 Growth Drivers

                                                                                                                                   -6%
                                                                                                                                   Active
                                                                                                                                   Reps
                                            -1.4%
                                           Constant
                                            Dollar

                                                                                                                           -7%      +6%        +4%
                               -2%                         +1%                                                             Units   Price/Mix   Avg R e p
                                                                                                                                                Sales
                               Beauty                     Fashion
                                                          & Home

                                                                                                               Improving Revenue Management
                                                                                                             With More Productive Representatives

    1. C$ Revenue from Reportable Segments
7   Note Reported figures: C$ revenue 2%, Adjusted C$ revenue 2%, Active Reps -6, End Reps -8%, Units -7%, Price/Mix +9%
Q4 Earnings Jan Jamie Wilson - MarketScreener.com
Q4                 LFL Adjusted Operating Margin
    Decline largely driven by investments in Representative experience

                                                                        ($77.8M) (420bps)

                                 9.9%                          (140bps)
                                                                                                 (280bps)
                                                                                                                    5.7%

                               Q4 2017                             Adj. GM                        Adj. SG&A       Q4 2018
                               F$ Adj. OM                                                                         F$ Adj. OM

           Adj. GM - FX, and higher                              Adj. SG&A – Investments in                    Cost
          material and logistics costs,                         Representatives, advertising,                 savings
          partially offset by favorable                         brochure cost and increased                    $40M
                mix and pricing                                        transportation

8    Note – Reported figures: Q3 2018 F$ GAAP operating margin = -3.5%; see appendix for reconciliation
Q4 Earnings Jan Jamie Wilson - MarketScreener.com
Q4                 Other Key Metrics
    Tax rate reductions continue into 2019

                                                                                         2018             2017          Variance
    Q4 – LFL Income Tax Provision                                                        ($3M)           ($51M)               $48M
    Q4 – Cash Flows from Operating Activities                                            $161M            $236M           ($75M)
    Q4 – LFL Adjusted Diluted EPS                                                        $0.07            $0.12           ($0.05)
    December 31st – Gross Debt                                                           $1.59B           $1.90B          ($310M)
    Q4 - FX Impact on Revenue                                                            (12%)              2%                (14%)
    Q4 - FX Impact on Adj. OP                                                           (150bps)         (30bps)         (120bps)

      Continue to deliver on adj.                               Debt               New              FX pressure expected
      tax rate reductions in 2019                             reduction           Credit           to continue at a similar
        83% 76%                                              during 2018          Facility             rate in Q1 2019
                    64%
                           50%                                $310M               €200M

       2016 2017 2018 2019 E
9    Note – Reported figures: Income tax provision = $7m; Diluted EPS = ($0.19)
Q4 Earnings Jan Jamie Wilson - MarketScreener.com
Jan Zijderveld
          CEO

     Business
      Update

10
Q4            LFL Revenue Growth
                   Sequential improvement in 4 of the top 5 markets

                        C$ LFL Revenue Growth

                        Q1       Q2       Q3       Q4                            Comments
                                                             Improving underlying trend. Step up in field activation
     Brazil           (12.4%) (11.2%)    (12.5%) (4.6%)         during holiday resulted in better average order.

                                                           Innovation in F&H and Fragrance. Training efforts behind
     Mexico            (6.3%)   0.1%      7.2%    2.3%       Stellar Circle helping productivity and average order.

                                                               Overall Russian beauty market declined in Q4.
     Russia            (3.7%)   (0.5%)   (8.7%)   (1.4%)   Avon gained market share through success in fragrance.

                                                            Pricing to offset devaluation, improving active Reps on
     Argentina         19.1%    24.5%    18.7%    23.2% appointment events, while units are down, NPU improved.

                                                                 Higher NPU and UPR. Regaining momentum
     Philippines       (2.7%)   0.4%      3.7%    5.3%                    after Q2 service issues.

11                                                                   NPU – Net per Unit; UPR – Units Per Rep
Brazil turnaround
     2019 Returning to growth with significant profit improvement
               Reboot Social selling                            Improve Value of brand                       Simplify & Open up

              War room → Obsession to serve                            Invest in brochure                     Reduce 37% of portfolio

     •    Consistent delivery service
                                                                                                      5,859
     •    Improve fill rate               OBSESSÃO                                                                          3,700
     •    Better boxes                    POR SERVIR!

                                                                                                     Aug 2018               2019

                          Invest in HER                                Rejuvenate Brand                          Fuel for growth
     •   Segmented approach                                                                  •   Inventory reduction
     •   Field management & sales leadership
                                                                                             •   New credit & collection process
     •   Digital tools
                                                                                             •   Simplify supplier base
     •   Training & recognition
                                                                                             •   Leaner & simpler organization

                 Reset campaign planning                            Net revenue management                   E-commerce step change
     •   Change campaign leadership                     •   Improved pricing                 •   Separate E-comm business unit

     •   Revamp process                                 •   Optimizing promotions            •   Treat as new channel                   Q4
                                                                                                                                 Q3
     •   Revenue management team                        •   Better mix & portfolio
                                                                                                       Q1            Q2
                                                                                                      $.9m          $1.1m

12
Opening Up Avon
     Push – Reboot Social Selling
     Make it easier for Her to do business and earn money

     Pull – Demand creation to increase value of brand
     Sharpen portfolio & revenue management
     Accessible on trend innovative beauty brand

     Unlock E-commerce & Asia
     Access beyond physical brochure

     Dramatically simplify & Open Up
     Re-energize, Re-organize & live our purpose to improve Her life

13
1a. Reboot Social Selling
     Two focus areas making it easier for Her to do business and earn more

       Differentiating Her Experience               Building Repeatable Models

                                                  Step 0   Great Service

                                                  Step 1   More Quality Recruiting

                                                           Segment
                                                  Step 2   Support, tools & service

                                                  Step 3   Increase Her earnings

                                                  Step 4   Training & Tools to Grow
                                                           Improve ease of business

                                                  Step 5   Retain & Recognize

14
1b. Segmentation is key to improving Representative experience
                                         Characteristics          Support/Tools                Training

       Buyers                          Loves beauty products      Bundles
      ~70% of          Beauty          Orders ~ 1/2 campaigns     Digital activation       Bite-sized trainings
     E-Rep                                                        Extra sample offers      Product and sales tips
     Representatives   enthusiast      Stays ~1.5yrs
     ~20% of Revenue

                                        PT earning opportunity    New client packs         Beauty Academies
                       Part-time        Orders ~2/3 campaigns     Bundles                  Online trainings
                                        Stays ~2.5yrs             Academy Program          Video product stories
        Earners                                                                            Leader led training
        ~30% of
     Representatives
     ~80% of Revenue
                                                                                           Beauty experts training
                                       Primary income             High intensity support   Webinars with experts
                       Full-time       Active in most campaigns   Tools to manage          FB live streaming
                                       Stays for 3+ years         network                  events

      18% of Reps                        E-commerce focus             E-Appointment
          have         E-Rep             Developing as                 IMBrochure
                                                                                            Segmented FB group
                                                                                               Online training
     My Avon Stores    Online            digital influencers          My Avon Store

15
1c. Enhanced recruiting methods
        Repeatable recruiting models showing good progress
                                          Small Scale
         Large Scale                                                                                E-Recruit &
                                          Opportunity                Beauty Bars in
         Opportunity                                                                               Appointments -
                                        Meetings - South             Malls - Russia
        Meetings - India                                                                               Brazil
                                             Africa

            AVON                                       Q4 New                          +12%
                             53K                                                    Appointments
                                                      Appointments
             Q4            Recruiting
                            events                         170K
                                                                                      over Q3

16                     Avon Training Academy Driving Improved Narrative and Shared Learnings
1d. Step change in training with intent
        Testing and learning is key to effective repeatable training models

                                                                                       Power of Cumulative Training
                    Q4 Mexico Training Results
                                                                               Central Europe testing effect of each module

                                Stellar Circle
       Invested in 40K of our most productive Reps driving
          their AvO up >25% versus national average

                                      AVON             >15K       ~700K                 ~500K
                                                       Training                          Trained
                                        Q4              events
                                                                  Trained in
                                                                                          online
                                                                   person
17      AvO – Average Order; ARS – Average Rep Sales
Opening up Avon

     Push – Reboot Social Selling
     Make it easier for Her to do business and earn money

     Pull – Demand creation to increase value of brand
     Sharpen portfolio & revenue management
     Accessible on trend innovative beauty brand

     Unlock E-commerce & Asia
     Access beyond physical brochure

     Dramatically simplify & Open Up
     Re-energize, Re-organize & live our purpose to improve Her life

18
2a. Sharper, clearer, simpler portfolio for growth
                We streamlined Avon Care and grew 10%

         Full Brand            Streamline         Simplified
         Relaunch             Architecture       Formulations

                                                                 +10%
                                                                Growth
                                                ~1.2M
                              40%                   Savings
                                                                 2018
                                 SKU
                               Reduction        +100bps
                                                 Gross Margin

19
2b. 2019 - Holistic building blocks for Anew relaunch
        Refocus on core brand to unlock growth and improve Her earnings

           Brand Image          Enhanced Training   Launch Skincare       New Innovative Brand
             Refresh              Toolkit for Her      Regimes                  Platforms

                                                                                       Q2

                                                                                         Q3
                                                                              Q4

                 40%                                       ~1.2M
                                                           +10% Savings
                 Reduction in
                 Global SKU’s                             +100bps
                                                                for
                                                               2018

20
2c. More Value
        Improve revenue management process

                    Average               Bundles & Regimes             Improved
                 Brochure Price             Higher Prices              Net Pricing

                      +6%                                                                  Q4 ‘18
                                 Q4 ‘18                                                     +6%
                                 $3.52                                            Q3 ‘18
            Q4 ‘17
                                                                        Q2 ‘18     +2%
            $3.33
                                                                         +2%
         Q4 $3.52
                                                              Q1 ‘18
                                                               -1%

                      Q4                        Q4
                                               20%
                                                                                 Q4
                     Improved                                                Price/Mix
                 Average Order                bundles                            +6%
                       +5%

21
Opening Up Avon
                                                                       Avon brand is bigger than its sales
                                                                                                     KNOW AVON
     Push – Reboot Social Selling
     Make it easier for Her to do business and earn money

     Pull – Demand creation to increase value of brand
     Sharpen portfolio & revenue management
     Accessible on trend innovative beauty brand

     Unlock E-commerce & Asia
     Access beyond physical brochure

                                                                                                     DON’T KNOW
     Dramatically simplify & Open Up                                                                 AVON
     Re-energize, Re-organize & live our purpose to improve Her life                                BUY FROM THE
                                                                                                    BROCHURE

22
3a. Digital solutions for Her to sell more
         Tools and training to make doing business easier for Her

             Avon B2B                      Mobile Friendly                      Online
            Fully Digital                  Order Placement                    Appointment

         100% of markets have        2018- 21 markets, ~80% of Rep base
        online ordering capability     3 markets added January 2019       94% Adoption rate in Brazil

23
3b. Driving E-commerce as New Channel
               Sell beyond the brochure : B2B2C

                                                   Instant Message               My Avon
             E-Commerce                                                                             Representatives
                                                    Brochure (IMB)                 Store
             Sales Growth                                                                            as Influencers
                                                     60 markets*                23 markets

                                                  IMB Unique View Growth
                        2X

                 H1                  H2
                                                    Q1   Q2   Q3   Q4

                                                                            18% of Reps opened
                                                                              My Avon E-store
      H2 on line sales 2X H1                       Average conversion                              Weekly digital content
      2018 +56% over 2017                        increase of 132% in Q4                            for E-reps to publish
                                                                           Biweekly enhancements

24    *Markets including 6 distributor markets
3c. Unlock Asia
        Big Avon Brand – Small Avon Business

             Breakout India                                                    Breakout China
            India Best Quarter since 2013                                         China new Open Up
              Focus on Mass recruiting                                           Three channel strategy

                                                                      Revamp Avon        E-Commerce           Unlock Retail
                                                                     franchise stores    Digital selling

                                                                                        A leading Fragrance
                                                                                              in China

                Step change recruitment                                          +30% growth in TMall sales
              +14% Active Reps; +10% ARS

                                                                                             12%
                        26%                                                                 Q4 Growth
                      Q4 Growth
25                                         ARS – Average Rep Sales
Opening Up Avon

     Push – Reboot Social Selling
      Makeit iteasier
     Make       easierfor
                        forHer
                            Hertotododobusiness
                                        businessand
                                                 andearn
                                                     earnmoney
                                                          money

     Pull – Demand creation to increase value of brand
     Sharpen
      Sharpenportfolio
               portfolio&&revenue
                            Revenuemanagement
                                     management, accessible on trend
     Accessible
      innovativeon trendbrand
                 beauty   innovative beauty brand

     Unlock E-commerce & Asia
     Access
      Accessbeyond
             beyondphysical
                    physicalbrochure
                             brochure

     Dramatically simplify & Open Up
     Re-energize,
      Re-energize,Re-organize
                   Re-organize&&live
                                  liveour
                                       ourpurpose
                                           purposetotoimprove
                                                        improveHer
                                                                Herlife
                                                                      life

26
4a. Dramatically simplify & Open up
            Leaner - Simpler → Faster

                               Much Leaner                                               Much Simpler
                                                                              SKU                       Inventory
            Asset Sales                        Head Count
                                                                            Reduction                   Reduction
     Fit4Purpose infrastructure                Reduction
                                                                              25%+                         15%

                                      25
                                                    -8%
                                                           -10%
     • Sold China Manufacturing       20
                                                                    • Q4 ~5K SKU reduction      • Tighter controls on F&H
       facility in 19 weeks                                         • Focus on the core         • New governance process
     • Rye office exit and sale       15                            • Focus on higher margin    • Inventory process reset
     • Other assets under review             2017   2018   2019
                                                                    • Improving service
                                     • Planned annualized savings
                                       ~$100M

          +$44M                                     8%                   -6%                      ~$88M
          China Facility Net                 2018 Reduction              SKU’s in                    Inventory
              Proceeds                          of global                Q4 vs. Q3                      Adj.
                                               resources
27
4b. Inject talent, add capabilities & improve wiring
            Leaner - Simpler - Faster

             Inject New Talent                   Closer to Market                    Personal Targets
               & Capabilities                     P&L with GM                        For all managers

     • 24 of 33 top executives changed   • Marketing & R&D in market for     • All managers - 5 personal targets
     • Blend new & existing talent         faster Innovation                   aligned with new strategy
     • New Capabilities                  • E2E supply chain responsibility   • Fuel4Growth Program Management
                                         • New GloCal communities to drive     Office
                                           repeatable models                 • 70% Bonus on local performance

               73%                                 P&L                             Targets
               of top executives                                                         New level of
                                                   Responsibility                       accountability
                    changed
                                                                                          for 2019

28
Summary - Progress during Q4

                 H2 2018                               Train H2 – 500k                  200 new products
                                                                                          & 50% faster
                                                       ~1.2M Q4
     ▪ Training and Incentives for Her                                                    >300 products

     ▪ Expand E-commerce;
       E-brochure and My Avon Store                 Target $400M fuel for                   Relaunch
                                          WORK IN    growth over 3 years     WORK IN         Brand
                                         PROGRESS                           PROGRESS
     ▪ Turnkey Innovation                                $20M Q4

     ▪ Open Up to Partners
                                                    Improve Pricing focus                Multiple new top
     ▪ Fuel for Growth                                                                     executives
                                                     +6% price/ mix Q4                 73% of senior leaders
     ▪ Strengthen Avon Brand
     ▪ Inject New Talent
                                                    $10M Training for Her                   E-brochures
                                                                                          in + 40 markets
                                                       Met $10M goal
      Build New Performance Culture                                                        60 markets Q4

29
Turn Arounds
     Take Time & Perseverance

                                               Open-Up          Optimized            Simpler
      Fix
     Basics
                          Strategic
                           Clarity
                                              More Access        Team &
                                                               Organization
                                                                                     Sharper
                                                                                     Leaner
                                                                                                        Focus on
                                                                                                        Execution   2019
                                               More Value

       Reset                            Stabilize                 Accelerate                    Momentum
     ▪ Restore basics                 ▪ Stabilize revenue      ▪ Low single digit         ▪ Mid single digit
     ▪ Talent injection               ▪ Slight margin           revenue growth                 revenue growth
     ▪ New performance                  improvement            ▪ Low double digit         ▪ Mid double digit
       culture                                                  margin                         margin

     2018                   2019                        2020                  2021                Future
30
Thank You

31
Appendix

32
Q4                 (LFL) Like for Like Versus Reported and Adjusted Results
                                                                                                                                                                    Adjusted
                                                                                                                                                      Reported        (Non-    Like-for-Like
                                                                                                                                                       GAAP          GAAP)         (LFL)

     Like-for-like provides                          Reportable Segments C$ revenue growth                                                                 2%         2%           (1%)

     comparable year over                            Reportable Segments F$ revenue growth                                                                (9.9%)     (9.9%)       (12.8%)
        year figures that
                                                     Total Avon Gross Margin                                                                              49.6%      56.1%        59.7%
     exclude the impact of
      the adoption of the                            Total Avon SG&A % of revenue                                                                         53.2%      50.6%        54.0%
         new accounting
                                                     Total Avon Operating Margin                                                                          (3.5%)      5.5%         5.7%
     standard on revenue
                                                     Total Avon Diluted EPS                                                                               ($0.19)    $0.07         $0.07
     recognition from our
     Non-GAAP measures                               Effective Tax Rate                                                                                    7.8%       8.8%         7.2%

                                                        Note: Numbers in table may not tie out due to rounding

33   Format –The pages in this presentation use Like-for-Like comparisons for Constant $ (C$) revenue and Adjusted non-GAAP information for the quarter
Q4                LFL Gross Margin Improved on Price
     SG&A increased on Representative experience

                                Adj. Gross Margin                                                   Adj. SG&A % of Revenue
                                      -1.4%                                                                                            +2.8%

                                                                                                                                                  2.1%

                      0.8%                                                                                                             1.0%
                                                                                                                          1.2%

                                                   0.2%                                                  ( 1.5%)                                            54.0%
                                                                                            51.2%
       61.1%                      ( 1.4%)
                                                                ( 0.9%)     59.7%
                                                                                          Adj SG&A 17   Cost Saving    Consumer     Rep & Field   Other   LFL Adj SG&A
      GM Adj 17     Price/Mix    Supply Chain   Cost Savings     Other    LFL GM Adj 18                               Investments   Investment                 18

           Note: numbers in chart may not tie out due to rounding

     • Price/Mix primarily due to favorable inflationary pricing                          • Cost savings of $20M
     • Supply chain decrease driven by materials price and                                • Other – Inflation, fuel cost increases
       logistics
     • Other – primarily FX partially off-set by newness

      Note – LFL figures in Reported currency (F$)
34    Reported unadjusted figures: GM/SG&A of 49.6% and 53.2%
Q4 Liquidity Remains Strong after 2018 Debt Reduction

                              Cash From Operations                                                                                    Liquidity

       271                                                                         93                                                      199
                                                                                                                                                                           735
                     -303
                                                                                                           536

                                                     65           -15

                                                                                                     Cash & Cash                   Available Credit          Available           Liquidity   2
                                      75
                                                                                                 Equivalents  Q4 '18                   Facility 1
     4Q17 YTD     Adj. cash      Timing and      Working          Other   2   4Q18 YTD
       CfO       provided by      one-time       Capital                        CfO
                  Earnings        activities 1                                                            Maintain strong liquidity and focus on debt reduction
                                                                                                 1. €200M facility converted to $228M less outstanding letters of credit
                                                                                                 2. Liquidity as of February 14 th 2019

      1. $75 Including IPI Cash receipt
35    2. Mainly driven by lower Sales Tax & Other Taxes for Brazil & Pensions (UK & Corporate)
Q4     Non-GAAP Reconciliation
     Three Months Ended December 31, 2018

36
Q4     Non-GAAP Reconciliation
     Twelve Months Ended December 31, 2018

37
Q4     Non-GAAP Reconciliations
     Impact of change in revenue recognition standard

38
Q4     Non-GAAP Reconciliations
     Impact of change in revenue recognition standard, continued

39
Q4     Non-GAAP Reconciliations
     Impact of change in revenue recognition standard, continued

40
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