Q4 Earnings Jan Jamie Wilson - MarketScreener.com
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Q4 Earnings
February 14, 2019
Jan Jamie
Zijderveld Wilson
CEO CFO
1
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
AGENDA
February 14, 2019
▪ 2018 Overview
▪ Q4 Financial Results
▪ Business Update
▪ Q&A
3
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
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$) revenue and Adjusted non-GAAP information for the quarter
5
Q4 LFL1 – Revenue showing improving trends
Continued investments in Representatives impacting margin
Revenue 2 Adj. Gross Adj. Operating
Growth Margin Margin
-1.4%
Total
Constant
60% 6%
Avon Dollar -140bps -420bps
-0.7%
Q4 top 10
markets Q4 Improving revenue trends
Q1'18 Q2'18 Q3'18 Q4'18
0.0%
-1.0%
-2.0% -1.4%
* C$’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 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 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 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 = ($0.19)
Jan Zijderveld
CEO
Business
Update
10Q4 LFL Revenue Growth
Sequential improvement in 4 of the top 5 markets
C$ 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 RepBrazil 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
12Opening 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
131a. 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
141b. 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
151c. 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 Learnings1d. 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 SalesOpening 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
182a. 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
192b. 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
202c. 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%
21Opening 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
223a. 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
233b. 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 markets3c. 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 SalesOpening 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
264a. 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
274b. 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
28Summary - 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 $10M goal
Build New Performance Culture 60 markets Q4
29Turn Arounds
Take Time & Perseverance
Open-Up Optimized Simpler
Fix
Basics
Strategic
Clarity
More Access Team &
Organization
Sharper
Leaner
Focus on
Execution 2019
More Value
Reset Stabilize Accelerate Momentum
▪ Restore basics ▪ Stabilize revenue ▪ Low single digit ▪ Mid single digit
▪ Talent injection ▪ Slight margin revenue growth revenue growth
▪ New performance improvement ▪ Low double digit ▪ Mid double digit
culture margin margin
2018 2019 2020 2021 Future
30Thank You 31
Appendix 32
Q4 (LFL) Like for Like Versus Reported and Adjusted Results
Adjusted
Reported (Non- Like-for-Like
GAAP GAAP) (LFL)
Like-for-like provides Reportable Segments C$ 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 quarterQ4 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
36Q4 Non-GAAP Reconciliation
Twelve Months Ended December 31, 2018
37Q4 Non-GAAP Reconciliations
Impact of change in revenue recognition standard
38Q4 Non-GAAP Reconciliations
Impact of change in revenue recognition standard, continued
39Q4 Non-GAAP Reconciliations
Impact of change in revenue recognition standard, continued
40You can also read
