Three months ended 30 September 2007 * Local currency sales increased by 24% and Euro sales increased by 22% to €229.6m (€188.8m). * Average sales force increased by 24% to 2,151,000 consultants and productivity was constant in local currency. Closing sales force was up by 17%. * EBITDA before restructuring increased by 44% to €26.1m (€18.1m). * Operating margin before restructuring costs was 8.6% (7.3%), resulting in a 42% increase in operating profit to €19.7m (€13.8m). * Net profit before restructuring costs increased by 33% to €11.9m (€9.0m). * Establishment of new operational platform ahead of plan. * New long term financial target: Oriflame has raised its target for annual sales growth from 5-10% to around 10% in local currency. The operating margin target for 2009 remains at 15%. The outlook for 2007 remains unchanged. * Operating cash flow amounted to €-17.5m (€-0.4m) principally due to €26.3m in higher build-up of inventories compared to last year. Nine months ended 30 September 2007 * Local currency sales increased by 23% and Euro sales increased by 20% to €767.8m (€638.4m). * Net profit before restructuring costs increased by 16% to €72.4m (€62.4m). * EPS after dilution and before restructuring increased by 21% to €1.28 (€1.06). * Cash flow from operating activities amounted to €40.2m (€56.2m). FINANCIAL Rolling SUMMARY 3 months 12 (€ Million) ended 9 months ended months, Year 30 September 30 September Oct 06- End 2007 2006 Change 2007 2006 Change Sep 07 2006 Sales 229.6 188.8 22% 767.8 638.4 20% 1,047.3 917.9 Gross margin, % 70.5 68.9 - 70.2 69.6 - 69.7 69.1 EBITDA 26.1[1] 18.1 44% 117.0[2] 97.0 21% 164.7[2] 144.6 Operating profit 19.7[1] 13.8 42% 98.7[2] 84.1 17% 141.7[2] 127.1 Operating margin, % 8.6[1] 7.3 - 12.9[2] 13.2 - 13.5[2] 13.8 Profit before tax 13.4[1] 10.3 31% 82.9[2] 71.4 16% 113.3[2] 101.7 Net profit 11.9[1] 9.0 33% 72.4[2] 62.4 16% 100.5[2] 90.5 EPS, diluted, € 0.21[1] 0.16 34% 1.28[2] 1.06 21% 1.91[2] 1.52 Cash flow from operating activities (17.5) (0.4) n.m 40.2 56.2 (28%) 105.6 121.6 Net interest-bearing debt 229.3 249.6 (8%) 229.3 249.6 (8%) 229.3 193.5 Sales force, average, '000 2,151 1,739 24% 2,153 1,769 22% 2,024 1,808 [1] Before restructuring costs of €9.6m. [2] Before restructuring costs of €11.8m. SALES AND EARNINGS Three months ended 30 September 2007 Sales in local currencies increased by 24% and by 22% in Euro to €229.6m compared to €188.8m in the same period last year. Unit sales were up by 22%. Sales growth in local currencies was driven by a 24% increase in the average size of the sales force and a constant productivity. Closing sales force increased by 17% or 294,400 to 2,065,800 consultants. Local currency sales in Asia, CIS & Baltics, Latin America, Central Europe & Mediterranean and Western Europe & Africa increased by 34%, 29%, 28%, 15% and 6% respectively. Gross margins improved to 70.5% (68.9%) mainly as a result of lower provisions for obsolete products and production gains from higher volumes. Negative currency effects in the CIS region was offset by price increases while Oriflame had positive currency effects in Central Europe. The operating profit before restructuring costs increased by 42% to €19.7m (€13.8m) reflecting higher sales and improved margins. Operating margins before restructuring costs improved to 8.6% (7.3%) as a result of higher gross margins, leverage on fixed overhead costs as well as higher marketing expenses in the third quarter last year. Margins were however, as a consequence, held back by higher conference costs compared to last year partly as a result of Oriflame's 40th anniversary having over 1.0 percentage point negative impact on margins. Currency movements had a 0.2 percentage point negative effect on operating margins. Profit before tax amounted to €3.8m (€10.3m). Results were negatively affected by €1.7m in foreign exchange losses during the quarter, while Oriflame saw foreign exchange profits amounting to €0.2m last year. Restructuring charges, related to the creation of a new operational platform for the company, affected profit before tax by €9.6m during the quarter. Net profit amounted to €2.4m (€9.0m) and fully diluted earnings per share amounted to €0.04 (€0.16). Diluted EPS excluding restructuring costs increased by 34% to €0.21 (€0.16). Nine months ended 30 September 2007 Sales in local currency increased by 23% and by 20% in Euro to €767.8m (€638.4m). Unit sales were up by 21%. Sales growth in local currency was driven by a 22% increase in the average size of the sales force and a 1% productivity improvement. Gross margins improved to 70.2% (69.6%). Net profit decreased by 3% to €60.6m (€62.4m). Net profit excluding restructuring costs increased by 16%. Cash flow from operating activities decreased to €40.2m (€56.2m) mainly due to a higher build of inventories compared to the same period last year. OPERATIONAL HIGHLIGHTS Marketing and Sales Support During the quarter, the toiletries and fragrance categories showed higher than average sales growth. Strong growth of toiletries was partly the result of the continued successful roll out of the oral care products Optifresh Toothpaste and Toothbrush. The overall top sellers in the quarter were the fragrances Elvie Summer Magic and the new design of the fragrance Soul EDT. Oriflame also launched Ascendant a new fragrance for men. Within skin care, the focus during the quarter was on the core product range Time Reversing skin care by adding an eye and lip contour cream and a restoring hand cream. The formulations of Time Reversing Restoring Day and Night creams and Time Reversing Instant Illuminating Serum have been enriched. Highlights in the colour cosmetics category were the introduction of two key products building the Oriflame Beauty brand combining the wisdom of nature with the best of science: Wonderlash - an innovative mascara with a patented brush developed exclusively for Oriflame, and Colour Attraction - a lipstick using a breakthrough microsphere technology. Both product launches were supported by an integrated communication campaign including print, press, TV and sales support material. Recognition of top leaders is an important part of Oriflame's business. In September, Oriflame held its largest annual Global Gold Conference ever for top consultants in Spain with over 3,800 participants. This was the first ever global such event with participants from all regions celebrating Oriflame's 40th anniversary. Global Supply Oriflame has during the third quarter carried out an inventory build up in anticipation of the fourth quarter, being the most important selling period of the year. The Product Fulfilment Project, Oriflame's review of its entire supply chain, is proceeding according to plan. The project is expected to generate long term benefits in the form of improved service levels in the company's main markets, with visible effects beginning to materialise towards the latter part of this year. In 2007 the benefits will come primarily from more effective and efficient inventory management. Service levels are expected to improve as the new distribution network is rolled out throughout the company during 2008 and 2009. Oriflame is continuing to move inventory closer to its main markets with Warsaw now continuously serving as the main group warehouse. This site will be expanded further to serve as a distribution centre with pick & pack capabilities expected to be operational during the first quarter 2008. The company will also intensify the efforts of looking at sourcing opportunities closer to its main markets. The purpose of these changes is to increase flexibility and reduce lead-times wherever possible, all with the aim at improving the service levels in the company's main markets. New Operational Platform The overall project is somewhat ahead of time and the new operational platform is expected to be fully up and running in the first quarter 2008. The recruitment activities are proceeding according to plan and the new office in the centre of Stockholm is ready for occupancy. The restructuring charges are expected to amount to €30 - 35m over two years as previously communicated with the largest share occurring in 2007. REGIONAL HIGHLIGHTS CIS & Baltics Local currency sales in the third quarter 2007 increased by 29% as a result of a 31% increase in the average size of the sales force and a 1% productivity decrease compared to last year. Euro sales increased by 24% to €119.0m (€95.7m) and closing sales force was up by 20% year over year. All markets performed well, particularly Kazakhstan, Mongolia and Lithuania. Sales in Russia increased by 25% in local currency. Sales increase was strong due to a higher sales force, the result of successful recruitment campaigns and catalogue promotions, in addition to events celebrating Oriflame's 40th anniversary. In the comparable period in 2006, Oriflame lost sales due to a licence requirement to import fragrances in Russia. Operating margins improved to 14.0% (12.9%) resulting in a 35% increase in operating profit to €16.7m (€12.4). Margins improved as a result of lower obsolete stock provisions and lower sales and marketing costs. This was partly offset by higher costs for conferences and recognitions for the sales force. Negative currency effects on margins were offset by price increases. Central Europe & Mediterranean Local currency sales in the third quarter increased by 15% driven by a 6% increase in the size of the sales force and a 9% productivity improvement. Closing sales force was up by 6%. Euro sales increased by 21% to €55.7m (46.1m) helped by stronger currencies in many key markets. Sales growth was particularly strong in Czech Republic and Slovakia due to a good implementation of marketing activities as well as strong leadership development and recruitment. Sales growth in Poland continued to be strong due to a well executed pricing strategy and attractive customer offers. Operating profit increased by 28% to €10.2m (€8.0m). Operating margins improved to 18.3% (17.3%) mainly due to stronger local currencies. Western Europe & Africa Sales increased by 6% in local currency and in Euro to €20.8m (€19.6m) as a result of a 13% increase in the size of the sales force partly offset by a 6% productivity decrease. Growth was particularly strong in Spain, Egypt and Morocco while Finland, Holland and Norway reported lower sales partly due to timing effects in the closing schedules of the catalogues compared to last year. Closing sales force was up by 8%. Operating margins amounted to 8.3% (9.7%) resulting in an operating profit of €1.7m (€1.9m). Margins were lower mainly due to more sellout actions. Latin America Local currency sales in the third quarter increased by 28% driven by a 29% increase in the size of the sales force partly offset by a 1% decrease in productivity. Euro sales increased by 23% to €12.4m (€10.1m). Sales growth was strong in all markets and particularly in Colombia and Mexico. Closing sales force was up by 28%. Operating margins decreased to 10.2% (12.9%) resulting in an operating profit of €1.3m (€1.3m). Margins were lower mainly due to negative currency effects. Asia Local currency sales in the third quarter increased by 34% driven by a 44% increase in the size of the sales force partly offset by a 6% productivity decrease. Euro sales increased by 28% to €15.0m (€11.7m). Oriflame posted strong growth in all countries and particularly in India and Sri Lanka. Closing sales force was up by 28%. The strong sales trend is to a high degree attributed to Oriflame's focus on sales and recruitment processes which has led to many leaders in the region taking more responsibility for the training and recruitment of the sales force. Operating margins were 6.9% (8.7%) resulting in an operating profit of €1.0m (€1.0m). Margins were lower mainly due to negative currency effects. CASH FLOW & INVESTMENTS Cash flow from operating activities amounted to €-17.5m (€-0.4m) during the third quarter and €40.2m (€56.2m) in the nine month period. A €20.1m increase in EBITDA excluding restructuring costs in the nine month period was partly offset by €18.8m in higher working capital requirements compared to the same period last year. The increase in working capital was principally due to a €31.7m higher build-up of inventories. Cash flow from investing activities during the first nine months amounted to €-22.4m (€-30.5m). Capital expenditure was lower mainly due to the investments in the CIS Supply Centre in the same period last year. FINANCIAL POSITION Net interest-bearing debt amounted to €229.3m by the end of the period compared to €249.6m at the end of the third quarter 2006 and €193.5m at year-end 2006. Interest-bearing debt increased mainly as a result of €56.2m in dividends paid in the second quarter. The net debt/EBITDA ratio was 1.39 (1.78) and interest cover amounted to 10.2 (9.0) in the nine month period. MANAGEMENT AND SHARES In order to balance their portfolios, members of the Executive Committee may sell shares during the trading window following the third quarter 2007 report. PERSONNEL The average number of employees during the third quarter 2007 was 6,411 (5,453). NEW LONG TERM FINANCIAL TARGETS Oriflame's Board of Directors has adopted a new financial target for sales growth, following a revision of the strategic scenario and reflecting the Company's geographical and product mix. Oriflame's target is to achieve local currency sales growth of around 10% per annum. The previous growth target was to achieve local currency sales growth of 5-10% per annum. Oriflame's margin target remains unchanged: Oriflame has a target to reach an operating margin of 15% in 2009. A number of factors impact sales and margins in-between quarters: * Effectiveness of individual catalogues and product introductions * Effectiveness of recruitment programmes * Timing of sales and marketing activities * Number of effective sales days per quarter * Currency effect on sales and results OUTLOOK FOR 2007 The outlook for 2007 is unchanged. Oriflame expects sales growth for 2007 to be well above 15% in local currency. Operating margins, excluding restructuring costs, is expected to be slightly better than in 2006 despite the current negative currency effects. NOMINATING COMMITTEE FOR ORIFLAME'S 2008 AGM Oriflame and its main shareholders are in the process of forming a nominating committee for the Company's 2008 AGM. For contact please send a mail to corporate.governance@oriflame.be. AUDIT Report on Review of Interim Financial Information by the Réviseur d'Entreprises To the Shareholders, Oriflame Cosmetics S.A. 20, rue Philippe II L-2340 Luxembourg Introduction We have reviewed the accompanying consolidated condensed balance sheet of Oriflame Cosmetics S.A. and it's subsidiaries ("the Group") as at 30 September 2007, and the related consolidated condensed statements of income, changes in equity, cash flows and related notes for the nine month period then ended (the "interim financial information"). Management is responsible for the preparation and presentation of this consolidated interim financial information in accordance with IAS 34, 'Interim Financial Reporting'. Our responsibility is to express a conclusion on this interim financial information based on our review. Scope of Review We conducted our review in accordance with the International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated interim financial information as at 30 September 2007 is not prepared, in all material respects, in accordance with IAS 34, 'Interim Financial Reporting'. Luxembourg, 23 October KPMG Audit S.à r.l. 2007 Réviseurs d'Entreprises D.G. Robertson OTHER A Swedish translation is available on www.oriflame.com. The Company will host a conference call at 15.00 CET on Wednesday 24 October. The conference call will be web cast in "listen-only" mode through Oriflame's website: www.oriflame.com. To participate in the conference call you are kindly requested to call +44 (0)20 7162 0125 24 October 2007 Magnus Brännström Chief Executive Officer For further information, please contact: Magnus Brännström Chief Executive Officer Telephone: +32 2 357 5529 Gabriel Bennet Chief Financial Officer Telephone: +32 2 357 5526 Patrik Linzenbold Investor Relations Telephone: +35 2 26 Manager 203 232 Oriflame Cosmetics S.A. 20 rue Philippe II L-2340 Luxembourg www.oriflame.com Company registration no B.8835 Oriflame's year-end report 2007 will be announced on 20 February 2008. Oriflame is an international cosmetics company selling direct, with sales in 59 countries. Oriflame offers a complete range of high quality skincare, fragrances, colour cosmetics, toiletries and accessories, marketed through a sales force of independent sales consultants. Although the company has grown rapidly it has never lost sight of its original business concept - natural Swedish cosmetics, sold from friend to friend. Oriflame is a co-founder of World Childhood Foundation. Oriflame Cosmetics is listed on the Nordic Exchange. The full report including tables can be downloaded from the following link:
CORRECTION: INTERIM REPORT 1 JANUARY - 30 SEPTEMBER 2007
| Source: Oriflame Cosmetics S.A.