Oriflame reports strongs sales growth for 2006

By Louise Prance

- Last updated on GMT

Oriflame is going strong in the direct sales market after the
company reported a massive 20 per cent boost in sales for 2006 on
the back of strong skin care and colour cosmetics sales, despite
disappointing net profits.

Sales for the fourth quarter, ending December 2006, were up 14 per cent from the respective period during 2005, reaching €279.5m, whilst overall sales for 2006 increased a massive 20 per cent rising to €917.9 - driven by the lucrative skin care segment.

However, the company reported that overall net profits were poor, with a disappointing 3 per cent increase in the fourth quarter to €32m, mirrored by the years net profit, which also saw a 3 per cent increase to €93.5m from €90.5m.

The low net profit, in comparison to the strong sales growth was attributed to the increase in charges paid over the year, with €6.5m higher interest and charges, and €1.9m higher taxes paid.

Likewise, the company invested in a 16 per cent increase in its overall sales force, bringing it to a total of 1,896,200 consultants, incurring extra costs such as wages, administration and training.

Looking at the divisional performance, the company's concerted efforts during the year to position itself at the top of the skin care industry that were rewarded - with a 25 per cent overall increase in the skin care segment, following the successful launches of ranges such as Skindividuals and Optimals.

However, colour cosmetics sales were below expectations, rising by only 13 per cent in the full year - put down to strong product introductions in 2005.

Geographically the company saw the greatest sales increase in Asia, with Euro sales increasing by 48 per cent to €12.4m, followed by a 19 per cent increase in the CIS & Baltics region, to reach €159.1m.

Oriflame stated that Euro sales in Central Europe and the Mediterranean increased by 9 per cent to €66.4m, with sales growth being particularly strong in Romania, Serbia and Montenegro - with Greece and Hungary falling below expectations.

Western Europe and Africa remained somewhat stagnant seeing a smaller sales increase of just 3 per cent, driven by sales in Portugal, Spain and Egypt with Sweden and Norway cited as being the weaker markets.

Meanwhile, the company aims to build on the impressive sales figures in future with a long-term financial target expected to achieve local currency sales growth of 5-10 per cent annum, whilst reaching an operating margin of 15 per cent by 2009.

Oriflame expects the operating margin for 2007 to fall in line with 2006, due to the profits from the initiation of various projects during the year only expected to become apparent in the latter quarter.

Moreover, a large part of the company's development plans rest on the exploration of the new operational platform that would involve a significant investment into improving the brand image and unique selling point of the company - Natural Swedish Cosmetics.

The proposal would involve co-locating the groups' product development and catalogue functions back to Stockholm, Sweden, whilst expanding central logistic hubs in Warsaw, Poland and Moscow, Russia.

Indeed, the company intends to invest money into further R&D capabilities, establishing a skin care research centre in Stockholm to develop skin care products based on Swedish science and natural ingredients, whilst also investing a further €1.5m into the R&D centre in Dublin.

Magnus Brännström, CEO of Oriflame said "This proposal would be an important step towards realising our vision of making Oriflame the number one beauty company selling direct. We propose taking this strategic step now, in times of success, in order to secure future growth".

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