Interim Management Statement 1 January - 31 December 2023 CORRECTION

2024-02-21 08:30

Three months ended 31 December 2023

• Euro sales decreased by 25% to €199.1m (€264.4m) and local currency sales decreased by 15%.
• The adjusted EBITDA amounted to €6.2m (€37.8m) and the adjusted EBITDA margin was 3.1% (14.3%).
• The adjusted operating profit was €0.3m (€30.4m) and the adjusted operating margin was 0.1% (11.5%). The currency impact on the operating margin was 500 bps negative.
• The adjusted net profit was €-19.6m (€17.9m).
• The adjusted cash flow from operating activities was €47.9m (€50.9m) and adjusted cash flow before financing activities was €43.3m (€42.8m).
• Additional non-recurring costs amounting to €9.0m were recorded during the quarter and excluded from the adjusted figures.

Twelve months ended 31 December 2023

• Euro sales decreased by 19% to €750.9m (€925.4m) and local currency sales decreased by 12%.
• The adjusted EBITDA amounted to €39.0m (€106.5m) and the adjusted EBITDA margin was 5.2% (11.5%).
• The adjusted operating profit was €14.8m (€76.3m) and the adjusted operating margin was 2.0% (8.2%). The currency impact on the operating margin was 260 bps negative.
• The adjusted net profit was €-81.8m (€49.0m).
• The adjusted cash flow from operating activities was €35.7m (€73.0m) and the adjusted cash flow before financing activities was €11.6m (€43.5m).
• Non-recurring costs amounting to €34.2m were recorded during the year and excluded from the adjusted figures.

Strategic progress

• Cost reduction programme delivering ahead of expectations
  • As announced in the previous quarter, Oriflame launched a comprehensive cost and efficiency programme to increase profitability, reduce working capital while at the same time ensuring continued strategic investments in product and market development. The programme has delivered above expectations:
  • The progress on working capital reduction has been particularly successful with more than €40m improvement during the quarter, primarily driven by strong inventory management execution. This contributed to a solid operating cash flow despite the continued difficult sales conditions.
  • Total savings expected to deliver the previously announced €45m savings which will allow for additional investments to support the turnaround of the company. The total restructuring costs for the programme amounted to €27.5m.

• The new commercial strategic initiatives are well under way
  • The new organisation platform is already in place, several additional markets with the new BCM (Beauty Community Model) were implemented during the quarter, and additional focus on marketing and portfolio management was planned or is under implementation.
  • Whilst it is too early to see the tangible results of all initiatives, there are several encouraging factors around the Beauty Community Model (BCM) and marketing initiatives which are expected to support the sales turnaround.

Operational highlights

• Sales were still weak with Euro sales dropping 25% and local currency sales decreasing 15%. Adverse exchange rate impacts from weaker local currencies in several markets, with the Russian Rouble having the largest impact, explain the higher Euro sales drop.
• In Europe & CIS, sales in Euro were 29% lower and sales in local currencies 16% lower versus the same quarter last year with a significant negative impact from the weaker Russian Rouble. The improved productivity among members, supported by price increases, was not enough to offset the lower member base.
• In Latin America, sales dropped 19% in Euro and 22% in local currencies from lower recruitment leading to fewer members, partially offset by improved activity and productivity levels of members.
• Asia continues its decline in sales due to less members and productivity in most markets with the exception of Indonesia which showed an encouraging sales growth versus the same quarter prior year. Sales in Euro were down 22% and decreased 16% in local currencies.
• In Türkiye & Africa sales decreased by 28% in Euro while local currency sales dropped by 3%. The Euro sales drop is primarily the result of strong currency devaluation in Türkiye and Nigeria. In local currencies, Türkiye and Nigeria both show sales increases whilst product import and availability challenges in other markets lead to a sales decline in local currencies for the region during the quarter.
• Gross margins dropped significantly in the quarter, where negative impacts from exchange rates, product cost inflation including volume under-recoveries and inventory write-offs/provisions dominated and weighed down the quarter. Prior year same quarter was also positively impacted by a one-off reversal of VAT provisions. Price inflation was lower than previous quarters partially from a higher share of sale promotions leading to a healthier inventory level at the end of the quarter.
• Adjusted EBITDA margin dropped from 14.3% to 3.1% where the drop in sales and gross margin negatively impacted the margin.
• Adjusted cash flow before financing activities was stronger than the same quarter previous year ending at €43.3m due to decreasing working capital from ongoing initiatives on inventory, accounts receivables and accounts payables. The RCF was drawn €20m in the beginning of the quarter to support restructuring payments and €16m was repaid before the end of the quarter leaving a balance of €4m at year-end. The remaining €4m was repaid early January and the RCF is undrawn at the date of publishing this interim report.

Significant events during and after the quarter

• During the fourth quarter of 2023, the annual impairment test was performed on the brand and goodwill and resulted in an impairment loss of €230.7m on the goodwill, which was fully impaired, and an impairment loss of €17.5m on the brand. The total impairment loss was recognised within administrative expenses and excluded from the adjusted results.
• The Company has hired Rothschild & Co to advise on its refinancing options.
• The Board of Directors have resolved to not pay any dividends during 2024.
• The company has approved the sale of certain property and assets in various jurisdictions which are reported as of 31 December 2023 as Assets held for sale for a total of €8.6m. This includes the Hungarian entity owning mainly land and property which was part of the consideration received for the sale of the Russian manufacturing entity during the second quarter 2023.

Other

Conference call for the financial community

The company will host a conference call on Wednesday 21 February 2024 at 10.00 CET.

Participant access numbers:
Sweden: +46 (0)8 5051 0031
United Kingdom: +44 (0) 207 107 06 13
United States: +1 (1) 631 570 56 13
Denmark: +45 3 272 7526
Finland: +358 94 245 0051

The conference call will also be audio web cast in "listen-only" mode through Oriflame's website: www.oriflame.com or through the following link creo-live.creomediamanager.com/b913e8e8-e597-4beb-8825-61c75bb1f536

Financial calendar for 2024

The date for the first quarter 2024 report is planned to be published on 23 April 2024

For further information, please contact:
Anna Malmhake, Chief Executive Officer
Carl Rogberg, Chief Financial Officer
Vanessa Wendle, [email protected] Tel: +41 799 220 173