Oriflame predicts more growth at the cost of operating margins

By Simon Pitman

- Last updated on GMT

Related tags: Investment

Swedish direct sales company Oriflame has said that it expects
sales to grow at faster rates, but that significant investments,
particularly in the China and Russia markets, will impact operating
margins.

The company uncovered its expectations at a presentation given in Moscow yesterday, when it also revealed direction for group strategy, regions and initiatives in marketing catalogue development and supply.CEO Magnus Brännström said that he believed sales growth would continue at 5 to 10 per cent in local currency, while the third quarter would see local currency sales growth peak in excess of 15 per cent as a consequence of successful initiatives during the first half of 2005.

For the full financial year the company reiterated that measures including improved marketing, product and catalogue development and enhancement measures to the global sales force, combined with investments in Russia and China will mean an expensive year for the company, but one that will see significant gains.

As a consequence, and despite the significant sales growth, Brännström said he expects operating margins will fall by approximately 2 to 3 per cent for 2005. In 2004 they stood at 16.3 per cent, against sales of €197.3 million.

The first priority for Oriflame​ will be to secure revenue growth through defending market share in more competitive markets and to grow market share in less developed markets, Brännström added. As a second priority, he said the group will selectively open new markets following its next opening, which will be in the China market in early 2006.

Oriflame has being racing to get its sales operations in China up and running in an effort to meet the end of the country's ban on direct sales, which is due to take place on December 1 this year. Huge growth in the personal care market there combined with the re-emergence of its direct sales industry should prove a winning combination if the company's strategy is implemented correctly.

The fact that the company also chose Moscow to make its Capital Market Day presentation is also no coincidence. The company has invested huge sums to develop its business in Russia, which is now paying dividends. Euro sales for the CIS and Baltic region grew by 13 per cent in local currency terms, to reach €103.1 million.

Reflecting the huge investment to break into these markets as well as the other efforts, the company believes that operating margins will continue to be impacted during the course of the next few years, but Brännström added his belief that it will jump back up to 15 per cent within five years.

He also stressed efforts regarding increased catalogue frequency and a continued emphasis on the company's skin care products, an area that has greatly fuelled recent growth.

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