AVP Avon Products Inc

Distressed global beauty company, Avon Products Inc. (AVP) has moved ahead with its previously planned target of improving the health of its balance sheet by successfully culminating its refinance activities.

In accordance with its refinancing activities, Avon has closed a public offering of unsecured notes worth $1.5 billion having maturities of 3, 7, 10, and 30 years. Excluding the expenses related to the offering, the company is left with $1.48 billion as net proceeds. Apart from this, Avon replaced its old $1.0 billion Revolving Credit Facility with a new 4-year $1.0 billion Revolving Credit Facility.

This largest door-to-door cosmetic seller is planning to utilize $1.540 billion of net proceeds from refinancing activities and $650 million of available cash to repay $2.190 billion of debt. Moreover, the remaining funds under the refinancing activities will provide financial flexibility to support the company’s turnaround strategies.

The company believes that the refinancing activities will result in a rise of 10% in interest expenses compared with fiscal 2012 owing to increased maturity period and reduced dependency on floating rate debt. Moreover, the interest expenses will also get affected, if the company prepays its $65 million and $25 million worth of notes due in 2014 as a result of one-time charges related to prepayments.

At the end of fiscal 2012, Avon has cash and cash equivalents of over $1.2 billion and total debt of approximately $3.2 billion, which included an outstanding debt of $572 million maturing in fiscal 2013. During the fiscal 2012 it paid $104.3 million as interest expense on these outstanding debts.

Of late, Avon has been facing challenges on various fronts including declining top and bottom lines and highly-leveraged balance sheet.

In Nov 2012, Avon outlined some strategic measures focused on accelerating the top-line growth, trimming down costs and improving working capital. Management is in the process of easing business issues and directing the company toward growth trajectory, bringing back its competitive position among peers like Revlon Inc. (REV), L’Oreal SA (LRLCY) and The Est (EL).

As part of its strategy, in November, Avon slashed its quarterly dividend by 6 cents to 23 cents per share. Management believes that the reduction in dividend, coupled with efforts to improve working capital should ease the financial burden on the company.

Moreover, in Dec 2012, Avon moved ahead with its earlier announced target of bringing down costs by $400 million through 2015. As the first move toward this direction, the company has laid down plans to cut about 1,500 jobs globally and cease operations in the South Korea and Vietnam markets.

We believe that the company’s turnaround strategies are paying of, which is evident from it’s recently released fourth-quarter 2012 operating results. After reporting dismal results over the past 6 quarters, Avon posted better-than-expected total revenue and earnings results for the fourth quarter.

 
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