PDG will continue to sell Oriflame’s products in the UK and Ireland on a franchise basis effective from Jan 1, 2006. Under the sale terms, Oriflame is liable for all costs associated with the transfer and will also assume the outstanding pension liabilities. The company expects this to negatively impact its 2005 result by around €4 million.
Oriflame’s UK operations have been loss-making for many years. In 2004 it made an operating loss of €1.8 millionon sales of €4.9 million, and it is expected to make a loss of 1.8 mln eur on sales of €4.3 million in 2005.
Oriflame said it expects the franchise agreement to result in a breakeven result on its UK sales business for the following three years.
PDG is a nationwide shopping-at-work provider based in Newcastle, north-east England.
PDG said the initial acquisition price is a nominal amount, and that it will pay Oriflame a contingent deferred payment based on a reducing percentage of turnover over the first three years. This amount is capped at a maximum of £5 million, although it is expected to be substantially lower, PDG said.
PDG said it will bring substantial recruitment skills, which it believes will help turn the Oriflame UK business around, after several years of declining trade.
PDG said its directors plan to restructure the operations of Oriflame to eliminate ongoing losses, and believe that the acquisition will have little impact on its current year results and be earnings-enhancing in its first full year of ownership.