Ales reports tumbling profits

By Guy Montague-Jones

- Last updated on GMT

Related tags Sales Profit

Natural cosmetics and perfume player Ales Group reported a
slump in half year operating profit as costs escalated.

The French-based company, which owns the Lierac, Phyto and Conon brands, had experienced strong growth in 2006 after developing its international presence. However, for the six months ending 30 June 2007, net sales rose 1.7 per cent to €89m and operating profit was slashed to €9.2m from €13.9m in the same period last year. In constant terms, accounting for the effects of exchange rates and other factors, sales rose by 2.7 per cent. Operating margins shrunk six percentage points to 10 per cent as production costs rose 7.8 per cent to €35.5m and the company lost €2.1m in the destruction of what the company called 'obsolete products'. The company also endured high one-off charges and distributors returned €0.4m worth of unsold products. Ales reported particularly low sales growth in France, which accounts for 41 per cent of the company's sales. The company blamed bad weather on low sales of its slimming and sun care products in the country. Mintel analyst Nica Lewis told "Bad weather tends to affect sales of summer stock. Not only can sales drop because there is less need for sun protection but women are less exposed and are therefore less concerned about their appearance."​ In order to reinvigorate the firm's brands, Ales increased its spending on sales and marketing by €3.5m compared to the same period in 2006. While sales and marketing expenditure contributed significantly to the 37.2 per cent fall in net profits, the company is banking on the long-term impact of the investment on the visibility and attractiveness of its brands. Ales expects this past expenditure and important product launches to lead to higher sales in the second half of 2007. The company also forecasts improved margins but does not expect profits to return to 2006 levels. Commenting on the financial results, Mintel analyst Lewis said: "Ales' Lierac brand is on trend and the group has launched several interesting products recently but the natural market is very competitve now." ​She said that apart from suffering from the bad weather the company may have too many overly specialised products and should perhaps have considered developing organic ranges.

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