Avon 2015 Annual Report Download - page 59

Latin America – 2015 Compared to 2014
%/Point Change
2015 2014 US$ Constant $
Total revenue $3,260.4 $4,239.5 (23)% 1%
Operating profit 103.1 279.8 (63)% (12)%
CTI restructuring 1.6 26.7
Venezuelan special items 120.2 137.1
Adjusted operating profit $ 224.9 $ 443.6 (49)% (17)%
Operating margin 3.2% 6.6% (3.4) (1.2)
CTI restructuring – .6
Venezuelan special items 3.7 3.2
Adjusted operating margin 6.9% 10.5% (3.6) (1.8)
Change in Active Representatives (2)%
Change in units sold (5)%
Amounts in the table above may not necessarily sum due to rounding.
Total revenue decreased 23% compared to the prior-year period, due to the unfavorable impact from foreign exchange which was primarily
driven by the strengthening of the U.S. dollar relative to the Brazilian real and the Venezuelan currency devaluation. See below for further
discussion regarding the impact of the Venezuelan currency devaluation. On a Constant $ basis, revenue increased 1%, despite the growth
rate being negatively impacted by approximately 5 points due to taxes in Brazil from the combined impact of the recognition of VAT credits
in 2014 along with a new IPI tax on cosmetics in 2015. Specifically, during 2014, we recognized $85 in Brazil for expected VAT recoveries
which did not recur in 2015, and as such, there was an approximate 2 point negative impact on the region’s Constant $ growth rate. In
addition, an IPI tax law on cosmetics in Brazil went into effect in May 2015 and has caused an estimated 3 point negative impact on the
region’s Constant $ revenue growth. Further, the markets experiencing relatively high inflation (Venezuela and Argentina) contributed
approximately 5 points to the region’s Constant $ revenue growth. The region’s Constant $ revenue growth benefited from higher average
order, which was partially offset by a decrease in Active Representatives. The region’s higher average order was positively impacted by
markets experiencing relatively high inflation (Venezuela and Argentina), as these markets benefited from the inflationary impact on pricing,
while Active Representatives was negatively impacted by these markets. Average order was negatively impacted by the taxes in Brazil.
Revenue in Brazil decreased 34%, unfavorably impacted by foreign exchange, or decreased 8% on a Constant $ basis. Revenue in Mexico
declined 15%, unfavorably impacted by foreign exchange, or increased 2% on a Constant $ basis, primarily due to higher average order.
Brazil’s Constant $ revenue decline of 8% was negatively impacted by approximately 10 points due to the combined impact of the VAT
credits in 2014 and the IPI tax in 2015 discussed above. The negative impact of these tax items were partially offset by an increase in Active
Representatives. On a Constant $ basis, Brazil’s sales from Beauty products decreased 5%, negatively impacted by the IPI tax. This negative
impact on Beauty sales was partially offset by increased sales of fragrance, which benefited from our alliance with Coty, as well as from new
product launches during the first quarter of 2015. The IPI tax also negatively impacted Brazil’s Beauty units, as we increased prices to
partially offset the new tax. On a Constant $ basis, Brazil’s sales from Fashion & Home products increased 1%. Brazil continues to be
impacted by a difficult economic environment as well as high levels of competition.
Operating margin was negatively impacted by .5 points as compared to the prior-year period due to the Venezuelan special items in
conjunction with highly inflationary accounting as discussed further below. Operating margin also benefited by .6 points as compared to the
prior-year period from lower CTI restructuring. Adjusted operating margin decreased 3.6 points, or 1.8 points on a Constant $ basis,
primarily as a result of:
• a decline of 1.9 points associated with the net impact of VAT credits in Brazil recognized in revenue in 2014, discussed above;
• a decline of 1.4 points as a result of the IPI tax law on cosmetics in Brazil, which reduced revenue as we did not raise the prices paid by
Representatives to the same extent as the IPI tax;
• a net benefit of 1.2 points primarily due to the impact of Constant $ revenue growth with respect to our fixed expenses. This includes a
reduction of corporate expenses, which are allocated from Global, partially offset by the inflationary impact on our expenses; and
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