Restructuring forces Avon to fire 1,300 staff

The approval for the contract terminations was given during a committee meeting of the Board of Directors at the end of last week, of which notification was given to the Securities and Exchange Commission on Monday.

The company said that its restructuring initiatives will mean total costs of $500m before taxes, at the upper end of the $300 - 500m estimate originally given back in November. The company added that of these costs a significant proportion will be incurred during the course of 2006.

The filing also confirmed that the group intends to take layers out of the organization's working hierachy, simplifying its back office management structure, in a move that aims to bring the upper management closer to the sales team.

Avon currently has 49,000 full-time employees, of which 8,700 were employed in the United States and 40,300 in other countries.

The company said it expects that the staff losses will lead to charges of $95 - 100m before taxes, which will include approximately $73m relating directly to employee costs, and the rest being spent on impairment and termination costs.

These costs will account for approximately $70 million from the company's first quarter results in 2006, a figure that is expected to significantly impact the company given its stagnant performance in the North American market of late.

In February of this year Avon announced a big drop in its fourth quarter profits following the closure of its Indonesian manufacturing operations and the associated costs.

That closure cost the company $22m and led to a 36.7 per cent drop in profits, which stood at $183m.

This gives reason for industry experts to believe that the year ahead will be a tough one for Avon. However, the financial world has also applauded Avon's restructuring plan, claiming that in the long-term it should pay significant dividends for the company.