Heavy investment start to pay off for Oriflame

By Guy Montague-Jones

- Last updated on GMT

An ambitious expansion programme seems to be paying off for the
Swedish direct sales firm, Oriflame, as both sales and operating
profits register significant growth.

The Sweden-based company posted a 25 per cent increase in sales during the second quarter, taking total sales to €270m while operating profit rose 15 per cent to almost €36m during the same period. The increase in sales was driven by the fact that the direct sales company has increased its sales force by 26 per cent to 475,500 over the past three months. Oriflame also benefited from a 3 per cent increase in productivity. Financial analysts had forecast pre-tax profits of Î28.2m, which the company exceeded by €3.8m. The stock market reacted positively to the news with shares in Oriflame closing up 2.76 per cent at 354 on the Nordic Exchange. The strong results led Oriflame to revise its expectations for sales growth for the2007 financial , from just over 10 per cent to well over 15 per cent in local currency. Despite the gains Oriflame remains highly leveraged with net interest-bearing debt at €203.5m. It also faces restructuring costs of €30 - 35m over two yeas, €5m higher than earlier estimates and due to higher than expected redundancy costs. Although Orififlame's gross margins rose slightly, its operating margin slipped from 14.5 per cent to 13.3 per cent. The firm said currency movements, restructuring costs and higher selling expenses due to recruitment campaigns and events related to the firm's 40th​ anniversary celebrations were responsible. Likewise, high sales growth was said to have impacted its quality of service in major markets, which the company said it would seek to remedy by reviewing the supply chain, implementing the IFS ERP supply chain system and building a distribution site in Warsaw, Poland. During the second quarter Euro sales in Asia, CIS & Baltics, Latin America, Central Europe & Mediterranean, Western Europe and Africa, increased by 53 per cent, 32 per cent, 22 per cent, 15 per cent and 10 per cent respectively. In Asia the 53 per cent increase in sales was explained by a corresponding increase in the sales force and a 4 per cent increase in productivity. While strong growth was posted in all Asian countries, India and Vietnam performed particularly well. As Oriflame announced its Q2 results, in India the firm launched a range of lipsticks with a 3D Shine effect. In line with this the growing cosmetics market in India prompted a company spokesman to reveal that it plans to launch 100-150 new products every year in the country. In product category terms, Oriflame said that skin care and fragrance performed particularly well thanks to strong sales of the Ecollagen and new Pure Nature range. The company also celebrated the successful launch, in the Central Europe and Mediterranean region, of its first ever oral care product, Optifresh toothpaste.

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