Oriflame hit by euro strength

Natural cosmetics maker Oriflame has reported a steady increase in
sales for the first nine months of the financial years, although
the most recent quarter bucked that trend, reflecting increased
costs and currency movements in international markets.

The Sweden-based company, which relies on direct sales of cosmetics to some 55 different markets, said that September had proved to be a particularly good month, with new sales staff and product launcheshelping to push sales. However, the impact of increased costs associated with a 1 per cent increase in staff and the strength of the euro against the Swedish krona meant that sales slipped by 5 per cent to reach €142.4 million, compared to €149.7 million.

However, a more favourable trading environment earlier on in the year helped to counter-balance the figure for the first nine months of the year. For this period sales grew by 3 per cent to reach €473.4 million compared to €460 million in the corresponding period last year.

Added costs hit profits harder though, and the downward trend has continued through in each quarter of the financial year. Profit after tax for the third quarter fell by 59 per cent to €14.7 million, down from 35.5 million in the corresponding quarter of 2004. For the nine month period profits fell 24 per cent to reach €54.8 million.

On a regional basis, sales have proved to be volatile, with all but the western European market showing a downturn. In the CIS and Baltic region sales fell by 6 per cent to reach €64.7 million, a figure that was further impacted by the strength of the euro.

Meanwhile, sales in western Europe increased 16 per cent to reach €17,3 million, following particularly strong sales in Holland, Portugal and Spain. This result was boosted by currency gains together with an increased sales force backed up by greater productivity.

Latin America is continuing to prove a challenging environment for the company, after it registered a 16 per cent drop in sales to €6.6 million. The company said it would continue to rebuild its platform in this region in an effort to turn around the negative trend.

In Asia sales decreased by 5 per cent to €7.7 million, after depreciations of local currency hit results in Indonesia, India and Sri Lanka.

However, one of the company's most eagerly awaited opportunities is its entry into the China market. The China government has decreed that by the end of the year all direct sales in the country will once again be legal, paving the way for the company's entry into this rapidly growing market. Currently the China cosmetics market is valued at €4 billion, but that figure is expected to grow ten-fold by the year 2010. Oriflame​ is now constructing a manufacturing plant in the country and aims to enter the market in 2006.

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