Oriflame quarterly profits hit by expenses

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Direct sales player Oriflame has announced a significant drop in
its first quarterly profits despite a healthy increase in sales.
The results reflect last year's IPO and refinancing expenses,
reports Simon Pitman.

The company revealed that euro currency sales increased by 4 per cent, up from €175.1 million in the first quarter of 2004 to € 181.6 million in the first quarter of 2005. But despite the healthy increase in sales, expenses hit the company hard in the quarter causing adjusted net profits to plummet 13 per cent, down from €28.0 million in the first quarter of 2004 to €24.3 million.

The increased costs hit operating profit hard, leading to a 15 per cent decrease, down from €32.2 million in 2004 to €27.2 million in the first quarter of 2005. The company said that alongside the increased expenses, operating profit had also been hit by improved delivery conditions as well as loyalty programmes for consultants.

However, the underlying results looked much stronger, with profits after tax (unadjusted) coming in at €27.1 million, an increase of 18 per cent, compared to the 19.8 per cent for the first quarter of 2004. Likewise, the refinancing meant that the company's debt fell by 61 per cent, down from €109.3 million in the first quarter of 2004, to €42.4 million in the first quarter of 2005.

On a regional basis it was once again the emerging markets where sales increases proved to be strongest. The company's mainstay market, CIS and Baltics, increased local currency sales by 5 per cent, but only by 1 per cent in euro currency terms, to reach €93.9 million.

In the Central Europe and Mediterranean sales increased by 6 per cent in local currency terms and 13 per cent in euro currency. Oriflame said that these figures were driven by an increase of 11 per cent in the workforce in this region.

In Western Europe the figures were relatively flat, with a 1 per cent increase in sales representing a 2 per cent increase in euro currency sales, which meant an overal figure of €17.7 million. The company said this was driven by another 11 per cent increase in the workforce, counterabalanced by an 8 per cent decrease in productivity.

In Asia local currency sales were up 7 per cent, which represented a 3 per cent increase in euro sales, to reach €7.2 million. In Latin America local currency sales were up 3 per cent, but dipped by around 0.5 per cent in euro currency to reach €6.0 million.

Looking ahead to the rest of 2005, Oriflame​ says that a year of heavy investments are likely to impact operational margins by around 2 to 3 per cent. Investments in both the Russian and Chinese markets, as well as increased expenditure on marketing, catelogue development, product development and the continued expansion of the sales force are all expected to impact the bottom line.

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