SEC settlement talks cast shadow over Avon

Avon, the troubled cosmetics company, warned that a potential SEC settlement to resolve corruption allegations could have an adverse impact on its business as it reported a fall in sales and a quarterly loss.

Since 2008 the US authorities have been investigating the New York-based company over possible bribery in China and elsewhere.

On Thursday, Avon said it remained in discussions with the Securities and Exchange Commission and the Department of Justice and that any settlements with them were likely to include penalties that "could, depending on the amounts of the settlements, materially adversely impact [its] liquidity, financial condition and ongoing business".

It said the SEC had already proposed the terms of a potential settlement including monetary penalties that it said were "not warranted". It added that there was "no assurance that our efforts to reach settlements with the government will be successful".

Shares in the company tumbled 14.5 per cent to $22.40 in pre-market trading on Thursday.

The disclosure came as the door-to-door seller reported grim figures that suggested that the turnround effort led by Sheri McCoy, chief executive, still has a long way to go.

Avon has spent several years struggling to reverse falling sales and profits while grappling with operational and legal troubles. Ms McCoy was hired from Johnson & Johnson last year to bring a fresh approach.

Revenues at the New York-based group fell 7 per cent from a year ago to $2.3bn, although excluding the effect of currency moves they were down only 1 per cent.

In China, its revenues declined by 67 per cent - a precipitous fall that led the company to record an impairment charge of $42m as it lowered its long-term growth and earnings projections for the country.

That charge contributed to a group-wide net loss of $5.5m. Wall Street analysts had expected it to record a profit. At an operating level its North America business also made a loss.

The devaluation of the Venezuelan currency hurt the group too, wiping $15m from its operating profit.

Ms McCoy, who described the quarter as "tough", acknowledged "continued weakness in some parts of our business, particularly North America". Even so, she said: "Avon is headed in the right direction, parts of our business are stabilising, and we are making progress toward our three-year financial goals."

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