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Waterloo, Sweden, Jan 8, 2007 - (Hugin) - Three months ended 30 June 2007
* Local currency sales increased by 27% and Euro sales increased by 25% to €269.6m (€215.7m). * Average size of the sales force increased by 24% to 2,242,800 consultants and productivity in local currency increased by 3%. Closing sales force was up by 26%. * EBITDA increased by 21% to €42.8m (€35.4m). * Operating margin before restructuring costs was 14.0% (14.5%), resulting in an operating profit of €37.7m (€31.3m). * Net profit before restructuring costs increased by 31% to €29.1m (€22.3m). * Establishment of new operational platform on plan. Negotiations with the various representative bodies have been completed. The restructuring charges are now expected to amount to €30 - 35m. * New outlook: Sales growth for 2007 is expected to be well above 15% in local currency and operating margins excluding restructuring costs to be slightly better than in 2006, despite the current negative currency effects.
Six months ended 30 June 2007
* Local currency sales increased by 22% and Euro sales increased by 20% to €538.2m (€449.7m). * Net profit before restructuring costs increased by 12% to €59.7m (€53.4m). * EPS after dilution increased by 19%, to €1.06 (€0.89). * Cash flow from operating activities amounted to €57.7m (€56.6m).
1) Before restructuring costs of €1.7m. 2) Before restructuring costs of €2.2m.
SALES AND EARNINGS
Three months ended 30 June 2007
Sales in local currencies increased by 27% and by 25% in Euro to €269.6m compared to €215.7m in the same quarter last year. Unit sales were up by 29%.
Sales growth in local currencies was driven by a 24% increase in the average size of the sales force and a 3% productivity improvement. Closing sales force increased by 26% or 474,500 to 2,267,200 consultants.
Local currency sales in Asia, CIS & Baltics, Latin America, Central Europe & Mediterranean and Western Europe & Africa increased by 60%, 37%, 25%, 12% and 10% respectively. The sales growth was a result of strong product launches and a higher sales force generated by successful recruitment campaigns.
Gross margins improved to 70.3% (69.7%) mainly as a result of production gains from higher volumes and lower write offs of obsolete products. The operating profit before restructuring costs increased by 21% to €37.7m (€31.3m) reflecting increased sales. Operating margins before restructuring costs amounted to 14.0% (14.5%) and were negatively affected by currency movements of 0.6 percentage points. Higher selling expenses were a result of sales enhancing activities, such as various recruitment campaigns and events during the period, partly related to the 40th anniversary of Oriflame. The company saw a positive leverage on administrative costs despite higher costs for incentive programmes for management and staff.
Profit before tax increased by 23% to €31.9m (€25.9m). Results were positively affected by €0.5m in profits on foreign exchange in the quarter, while foreign exchange losses amounted to €3.0m last year. Restructuring charges, related to the creation of a new operational platform for the company affected profit before taxes by €1.7m during the quarter.
Net profit increased by 24% to €27.6m (€22.3m) and fully diluted earnings per share increased by 32% to 0.49 (0.37).
Six months ended 30 June 2007
Sales in local currency increased by 22% and by 20% in Euro to €538.2m (€449.7m). Unit sales were up by 21%.
Sales growth in local currency was driven by a 21% increase in the average size of the sales force and a 1% productivity improvement.
Gross margins improved to 70.1% (69.9%). Net profit increased by 9% to €58.2m (€53.4m).
Cash flow from operating activities increased by 2% to €57.7m (€56.6m).
OPERATIONAL HIGHLIGHTS
Marketing and Products
During the quarter, the skin care and fragrance categories showed higher than average sales as a result of continued strong sales of the Ecollagen and the launch of Pure Nature range as well as two key fragrance launches.
Within Oriflame Beauty, Oriflame's most important brand within the colour cosmetics category, one of the key product introductions was Power SHINE, semi-sheer, high gloss lipsticks. The successful launch of Power SHINE was supported by an integrated communication campaign including print, press and sales support material. TV advertising campaigns were run in key markets.
The toiletries category was partly driven by strong product launches of foot care products. Sales was also supported by the successful launch, in the Central Europe & Mediterranean region of the Optifresh toothpaste, Oriflame's first ever product within Oral care.
During the spring, Oriflame successfully collaborated with the famous Russian designer Valentin Yudashkin, promoting one of his specially designed cosmetics bags.
To further strengthen Oriflame Beauty brand equity, Oriflame will collaborate with international make up artist, Barbara Braeunlich. The collaboration will assist Oriflame in development of key seasonal looks and to create innovative collections of new trends of shades and tones.
Global Supply
The very strong sales growth in the period resulted in challenges for the end-to-end supply chain, leading to unsatisfactory service levels in major markets.
The Product Fulfilment Project, Oriflame's review of its entire supply chain, is proceeding according to plan. The project is expected to generate long term benefits in the form of improvements of service levels in the company's main markets, with visible effects beginning to materialise towards the latter part of this year.
In June, Oriflame completed a major upgrade of its supply chain system by implementing the IFS ERP-system. The IFS system is now supporting a large part of both the New Product Development and Product Fulfilment processes in one seamlessly integrated system.
Oriflame is continuing to implement the new group distribution centre structure, building up the Warsaw distribution site to service the company's operations in Northern Europe. The Warsaw distribution site is expected to be operational in the first quarter 2008.
New Operational Platform
The negotiations with the various representative bodies regarding the new operational platform have been closed and a final decision to implement the change has been made. A new office has been found at a prime location in Stockholm and major recruitment campaigns have been running. The project is on time and the new platform is expected to be up and running in the first quarter 2008.
The restructuring charges are now expected to be of €30 - 35m over two years, €5m higher than earlier communicated, mainly as a result of higher than expected staff redundancy costs.
REGIONAL HIGHLIGHTS
CIS & Baltics
Local currency sales in the second quarter 2007 increased by 37% as a result of a 32% increase in the average size of the sales force and a 3% productivity improvement compared to last year. Euro sales increased by 32% to €144.9m (€109.6m) and closing sales force was up by 36% year on year. All markets performed well, particularly Kazakhstan, Azerbaijan and Mongolia. Sales in Russia increased by 27% in local currency.
Sales increase was strong due to a higher sales force, the result of successful recruitment campaigns and catalogue promotions, in addition to events celebrating Oriflame's 40th anniversary.
Operating margins decreased to 19.4% (21.8%) resulting in an 18% increase in operating profit to €28.1m (€23.9m). The margin decrease was principally due to negative exchange rate movements and higher selling costs.
Central Europe & Mediterranean
Local currency sales in the second quarter increased by 12% driven by a 3% increase in the size of the sales force and an 8% productivity improvement. Closing sales force was up by 4%.
Euro sales increased by 15% to €64.1m (€55.8m) helped by stronger currencies in many key markets. Sales growth was particularly strong in Slovakia and Czech Republic due to a good implementation of marketing activities as well as strong leadership development and recruitment. Sales growth in Poland was also strong due to a well executed pricing strategy and attractive customer offers.
Operating profit increased by 8% to €12.7m (€11.9m). Operating margins decreased to 19.9% (21.1%). Selling expenses were higher as a result of the efforts to regain momentum in the sales force by innovative recruitment campaigns.
Western Europe & Africa
Sales increased by 10% in local currency and in Euro to €25.5m (€23.3m) as a result of a 18% increase in the size of the sales force partly offset by a 6% productivity decrease. Growth was particularly strong in Portugal, Egypt and Morocco while Norway, Sweden and Holland reported lower sales during the period. Closing sales force was up by 17%.
Operating margins amounted to 15.8% (15.2%) resulting in an operating profit of €4.0m (€3.5m).
Latin America
Local currency sales in the second quarter increased by 25% driven by a 26% increase in the average sales force partly offset by a 1% decrease in productivity. Euro sales increased by 22% to €12.4m (€10.2m). Oriflame is seeing a continuation of a good sales trend, especially in Mexico, Peru and Colombia.
Operating margins decreased to 11.0% (15.4%) resulting in an operating profit of €1.4m (€1.6m). Margins were lower as a result of negative currency effects as well as increased recruitment and other sales support initiatives.
Asia
Local currency sales in the second quarter increased by 60% driven by a 53% increase in the average sales force and a 4% increase in productivity. Euro sales increased by 53% to €16.0m (€10.4m). Oriflame posted very strong growth in all countries and particularly in India and Vietnam.
The strong sales trend is to a high degree attributed to Oriflame's focus on sales and recruitment processes which has led to many leaders in the region taking more responsibility for the training and recruitment of the sales force.
Operating profit increased to €0.9m (€-0.1m) as a result of positive scale benefits from higher sales.
CASH FLOW AND INVESTMENTS
Cash flow from operating activities amounted to €27.3m (€27.1m) during the second quarter and €57.7m (€56.6m) in the six month period. A €9.9m increase in EBITDA in the six month period was offset by €10.5m in higher working capital requirements compared to the same period last year. The increase in working capital was principally due to a €9.9m higher increase in receivables.
Cash flow from investing activities during the first six months amounted to €-13.2m (€-18.7m). Capital expenditure was lower mainly due to the investments in the CIS Supply Centre in the same period last year.
FINANCIAL POSITION
Net interest-bearing debt amounted to €203.5m by the end of the period compared to €86.1m at the end of the second quarter 2006 and €193.5m at year-end 2006. Interest-bearing debt increased mainly as a result of the €56.1m paid in dividends in May. The net debt/EBITDA ratio was 1.32 (0.59) and interest cover amounted to 8.2 (12.3) in the six month period.
PERSONNEL
The average number of employees during the second quarter 2007 was 6,296 (5,476).
ANNUAL GENERAL MEETING
At the Annual General Meeting on 21 May 2007, the following were re-elected as Board members:
Lennart Björk Magnus Brännström Jonas af Jochnick Robert af Jochnick Helle Kruse Nielsen Christian Salamon
The following were elected as new Board members:
Marie Ehrling Lilian Fossum Alexander af Jochnick
Robert af Jochnick was re-elected to serve as Chairman of the Board.
INCENTIVE PROGRAMME
Under the terms of the Share Incentive Plan for the years 2005-2007, 110 key employees invested in Oriflame shares leading to the purchase of 67,851 investment shares.
OUTLOOK FOR 2007 AND LONG TERM FINANCIAL TARGETS
The outlook for 2007 has been changed. Oriflame expects sales growth for 2007 to be well above 15% in local currency. In the previous outlook, the company expected sales growth to be well above 10% in local currency.
Oriflame's outlook with regards to margins is unchanged. Operating margins excluding restructuring costs are expected to be slightly better than in 2006 despite the current negative currency effects.
Oriflame's long term financial targets are to achieve local currency sales growth of 5-10% per annum and to reach an operating margin of 15% in 2009.
A number of factors impact sales and margins in-between quarters: * Effectiveness of individual catalogues and product introductions * Effectiveness and timing of recruitment programmes * Timing of sales and marketing activities * The number of effective sales days per quarter * Currency effect on sales and results
OTHER
This report has not been reviewed by the Company's auditors.
A Swedish translation is available on www.oriflame.com.
The Company will host a conference call at 15.00 CET on Wednesday 1 August. The conference call will be web cast in "listen-only" mode through Oriflame's website: www.oriflame.com.
To participate in the conference call you are kindly requested to call +32 (0)2 290 1407. A replay of the conference will be available on the Company website.
Oriflame Cosmetics S.A. 20 rue Philippe II L-2340 Luxembourg www.oriflame.com Company registration no B.8835
Oriflame Cosmetics is an international cosmetics company selling direct, with sales in 59 countries. Oriflame offers a complete range of high quality skincare, fragrances, colour cosmetics, toiletries and accessories, marketed through a sales force of independent sales consultants. Although the company has grown rapidly it never lost sight of its original business concept - natural Swedish cosmetics, sold from friend to friend. Oriflame is a co-founder of World Childhood Foundation. Oriflame is listed on the Nordic Exchange.
The full report including tables can be downloaded from the following link:
