Strengthening our business in a challenging year
2010 was a more difficult year than expected with external as well as internal challenges. The recovery after the financial crisis has taken long time in several of our markets, especially in southern Europe, and has meant a more unpredictable market than we are accustomed to. In Russia and Indonesia, new product registration laws have been introduced that affected our sales negatively in the short term, and we left Iran after the authorities shut down our operations in the country. In the beginning of the year we were struggling with offering good service levels to our sales consultants. During all of 2010 we took several initiatives to improve the situation, which we also saw the result of in the second half of the year.
As a whole, we still feel that we managed relatively well compared with our competitors, having increased our market shares in key markets. We addressed weak demand during the year with increased sales promotions, which to some extent was at the expense of margins. For the year, we were able to grow our sales by 8 percent in local currency and 15 percent in euro, while remaining profitable with an operating margin of just over 11 percent.
Turbulence and growth – part of our everyday operations
With many challenges behind us, still more lie ahead. This is part of what Oriflame does every day as a consequence of our strategy and business model, which, coupled with an attractive product offering and a strong brand, are also our strength. Since the very beginning more than 40 years ago, we have operated in emerging markets that offer potential but where changes and uncertainty are at times a normal condition. Geographical diversity, with operations in over 60 markets, especially fast-growing developing countries, allows us to counterbalance risks and at the same time achieve a high growth rate.
The fact that we have gotten used to turbulence doesn’t mean that critical events don’t affect us. The shutdown of our operations in Iran was a difficult time for everyone involved, and we are carefully analysing the events there to learn a lesson for the future. But I can unequivocally say that we will continue to offer people in CIS, Africa, Asia, Latin America and other exciting future markets the opportunity to change their lives. Despite potential obstacles along the way, we see the long-term opportunities for strong growth and development for the company – and for the individuals who decide to join us.
Investing in long-term growth
Considering that 2010 was a year of special challenges, we are proud to have been able to continue to drive important long-term issues.
We worked toward our aim of being closer to our customers, including extensive efforts to shorten lead times, normalise inventory levels and improve supply chain efficiencies. We began construction on a new production unit outside Moscow, which will open in 2012, and established two new distribution centers in Budapest, Hungary and Kiev, Ukraine.
During the year we intensified our branding work. We developed a new logo and a new payoff – Oriflame Sweden. At the same time we became a sponsor of the Women’s Tennis Association (WTA) tour to strengthen our brand in a way that we feel perfectly matches what Oriflame wants to stand for: charismatic, driven women who want to accomplish something big on their own.
In connection with the branding work, we articulated our values using the attributes Natural, Ethical and Progressive, although they have always been fundamental to Oriflame. It was natural, therefore, to take the next step in our sustainability work during the year by adopting a new long-term environmental strategy. The work plan formulated by the board includes concrete actions and measurable environmental goals throughout the value chain. We are also establishing a better structure for charitable work through a central organisation.
Just as different cultures are part of our operations, new ideas and channels are as well. We see the growth of social networks on the Internet as a natural extension of Oriflame’s direct sales concept and a new sales opportunity. The Internet, social media and mobile applications are becoming increasingly important channels for Oriflame’s branding work: in recruiting, leadership development and sales. Oriflame will continue to invest in these new channels through improved skills and by creating tools. Regardless of the channel, however, it’s what consumers think of Oriflame and our products that determines whether or not they buy our products, which is why we constantly have to strengthen our brand and product offering.
Sustainable business model
In 2011 our focus is clearly on strengthening profitability, which we will achieve by avoiding last year’s extraordinary sales promotions, controlling inventory levels, improving the service level and increasing gross margins. We are aware of the challenges we face, including in the form of increased commodity prices and political concerns in certain markets. But our conviction that Oriflame’s business model is sustainable is stronger than ever. With 40 years on the market and seven as a publicly listed company, Oriflame is just beginning its journey. And with all of its amazing employees and consultants, helping each other and themselves to fulfilling each and every one’s individual dream, I am convinced that this journey will be long and successful.
Chief Executive Officer