Wella reports a drop in profit

Wella, the German maker of hair-care and beauty products, has
forecast a 'year of challenges' for 2004 after the group reported a
significant drop in net profit. Recently acquired by Procter &
Gamble, the company was hit hard by higher tax payments and
currency declines, writes Claire Johnston.

Profit before taxes - ammounting to €239.4 million - was up 0.2 per cent on the previous year, however net profit declined by 8.7 per cent - to €130.5 million - due to a 45 per cent tax rate increase as a result of substantially reduced latent tax claims.

Net sales fell 2.3 per cent to €3.3 billion in comparrison to 2002. Operating profit for the group also fell 2.4 per cent to €3.1 billion compared to €3.2 billion the previous year.

"The persistently difficult overall economic situation in many regions of the world and particularly in Germany, which is an important market for Wella, has burdened the business. Nevertheless the company has once again achieved a good result - even in light of the prevailing uncertainty associated with the P&G acquisition process," said a Wella spokesperson.

Wella had previously warned that the takeover by Procter & Gamble in March last year may hurt sales and profit.

Sales in Wella's Professional Division - that accounted for 46.6 per cent of sales - exceeded the previous year by 3 per cent on a currency-adjusted basis due to the expansion of its market position world-wide.

Market share gains were posted in the Asia/Pacific Region, particularly in Australia and China with the most significant growth recorded in Europe, particularly in the large Professional markets of Italy, France and Spain.

Wella's Consumer division was negatively hit in Europe however, due to a weak economic environment. Sales fell 9.2 per cent from €1 billion to €932.3 million. Even after adjusting for currency effects, sales fell by 1.6 per cent.

"2004 will be a year of great challenges for Wella. For the Consumer business Wella expects a turn-around of the declining trend, it has been transferred step by step into the P&G organization on the basis of the global license contract. In the medium term, Wella expects an improved earnings situation," said a Wella spokesperson.

The Cosmetics & Fragrances Division furthered its international expansion and performed the best overall for the group. Cosmopolitan Cosmetics, Cologne, under whose umbrella all activities of the Cosmetics & Fragrances Division are bundled, continued its growth course in the 2003 fiscal year with sales rising to €842.8 million from €772.9 million a year earlier, a 9 per cent increase.

The growth was generated mainly by the successful introduction of new fragrances in 2003 helped by Escada, Gucci, Montblanc, Rochas, Dunhill, Cindy Crawford, Naomi Campbell and Yardley. In addition, diversification of products across all price segments enabled high organic growth for the company in light of the generally restrained consumption.

In 2004 Wella expects its fragrance unit to see the strongest growth out of all its divisions.