Eurofinance Miami

Alfredo Elespuru

VP Global Treasury

May 2016

ORIFLAME HOLDING AG

Agenda

• About Oriflame

• Background • Strategic objectives

• Key actions

• Local currency invoicing (LCI)

• Framework

• Objective

• Characteristics

• How does it work?

• Results

• Latam

• Special considerations

• Q&A

2

• Beauty company selling direct

• Around 3 million beauty consultants

• €1.2 billion in sales annually

• 95% of orders online

• 1,000 cosmetic products, of which 1/3 are new each year

• New catalogues every third week in 40 languages

• Manufacturing in Poland, Russia, China & India

• Around 6,500 full-time equivalent employees

• Listed on Stockholm Nasdaq exchange and domiciled in Switzerland

Oriflame in brief

5/12/2016 3 Copyright ©2016 by Oriflame Holding AG

2008

2015

4

1968 1988 1998 2008 2015

1960s -1970s 1980s 1990s 2000s

HOME PARTIES + PERSON TO PERSON

SELLING

+ NETWORK

MARKETING

+ ONLINE ORDERING

+ BUSINESS TOOLS

2010s

+ ONLINE SELLING

& RECRUITING

Offline orders Online orders

0 Facebook fans

>7 million Facebook fans

38% of all orders online

95% of all orders online

1.5 billion page views

3.3 billion page views

45 million site visits

175 million site visits

21 million visitors

60 million visitors

Copyright ©2016 by Oriflame Holding AG

48 years of history and transformation

5

Cash Flow

Q4’15 Q4’14 YE’15 YE ’14

Net profit before income tax, €m 24.7 21.0 67.3 74.2

Op. profit before changes in wc,

€m 34.3 7.0 116.4 92.9

Change in working cap. and

provisions, €m 47.0 73.5 46.7 44.8

Operating CF, €m 68.8 66.0 122.2 90.0

CF Investing Activities, €m (2.3) 21.1 (15.5) (6.0)

Q4 operating cash flow €68.8m (€66.0m)

• Net profit before tax €3.7m

• Non-cash items in net profit before tax €23.6m

• Impact from changes in working capital and

provisions €-26.5m

– Inventories €-16.7m

– Receivables, prepaid exp., asset derivatives €+13.0m

– Payables, accrued exp., liability derivatives €-28.8m

– Provisions €+6.0m

• Interest, charges, taxes €+2.0m

Copyright ©2016 by Oriflame Holding AG

0

50

100

150

200

250

Q4 13 Q1 14 Q2 14Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15

Total inventory€m

0

25

50

75

100

125

150

Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15

Operating cash flow Capex€m

Regions

Turkey,

Africa

& Asia

Europe

Latin America

CIS

2015 YTD Regional Split

6 Sales Active consultants Adj. Operating profit

11% (10%)

21% (21%)

32% (44%)

36% (25%)

10% (9%)

23% (21%)

23% (43%)

44% (27%)

8% (7%)

17% (16%)

39% (47%)

36% (30%)

Background

• Oriflame exposed to 40+ currencies: emerging

markets

• Changing geographical footprint

• Euro as reporting/functional currency

• Increasing volatility of its key currencies

• Business “too” concerned with exchange rates

• Operating profit unprotected in the short term

• Balance sheet hedging in 2010

7

8

Group currency sales impact since 2010

Sensitivity analysis showing the effect on group operating

profit from a 1% change of the EUR against the currencies in

five of the largest sales markets

• Russia RUB

• Indonesia IDR

• India INR

• China CNY

• Mexico MXN

Copyright ©2016 by Oriflame Holding AG 30%

10% 9% 4% 8%

Strategic Objective

• Reduce Profit &

Loss and cash

flow volatility

caused by f/x • Cost of sales

• IC payables in Local

Currency

• Approach to cash

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What did we decide to do?

• Risk management

• New hedging policy

• Local Currency Invoicing (LCI): 15 currencies active

• Natural hedging

• Cash

• Re-defined financing of local entities: policies

• Implement two notional pools

• Intercompany loans in Local Currency

• Re-launch the cash flow reporting process

• Swift net

• Shared services as an extended arm of Global Treasury

• Balance sheet • Convert all liabilities to local currency

Copyright ©2016 by Oriflame Holding AG

10

Framework for LCI

• New hedging policy

• Approved and applied without hesitation

• Clear guidelines (85%,5%...)

• Risk management committee

• Empowered Global Treasury

• Extreme situations even with approval of BoD

• Treasury management system

• Critical to support program

• Accounting

• Reporting

• Analyses

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12 12/05/2016

Objective LCI

• It is a risk management

program that aimed at:

– minimizing profit and

loss and cash flow

volatility caused by FX

• By:

– concentrating FX risk at

group level and hedging

exposures effectively

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Characteristics of program-LCI

• Fix a “price”

• 6 months

• Announced 3 months in advance

• Hedging starting up to 12 months before:

• Build up layers

• Market efficient sizes

• 5%

• Impact on P&L according to inventory turnover

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LCI Hedging concept*

60 days

Released to COS when goods are sold to third parties

Cash flow hedge accounting

Oct X0

FX rates

determined/agreed

(LCI rates) Sales Forecast

Sales OCGB to

Local markets

booked

Sales OCGB to

Local markets

settled

PLEXOCI/COS

FX HEDGES

Maturity of Hedges

Jan X1 Jun X1 Aug X1

FX on receivables

and related hedges

"MARGIN" RISK

"RE-MEASUREMENT" RISK

*PLEX: profit and loss on exchange impacting below the operating profit line

OCI: Other comprehensive income ( Equity account) and COS is cost of sales

14 Copyright ©2016 by Oriflame Holding AG

What makes it work?-LCI

• Convertible currency (CC) or

• Non CC can be converted by exporter in-country

• Hedging must be possible and size of exposure

• Forwards and options available

• “Cost” of hedging

• Invoice in local currency: customs clearance

• Comply with IFRS • Highly probable forecast

• 80-120 rule

• Documentation and testing

• IFRS 9 (new)

15 Copyright ©2016 by Oriflame Holding AG

Final

fwd

Points

Fwd pts in

Mar 15

Based on

spot

Based on

6m

average

Based on

worst 5y

rate

Based on

best 5y

rate

Spot 75.25 62.64 100.28 38.31

29/02/2016

31/03/2016 52,445 55,400 80.49 67.88 105.52 43.55

28/04/2016 56,873 66,300 80.94 68.33 105.97 44.00

27/05/2016 63,968 67,400 81.65 69.04 106.68 44.71

29/06/2016 69,985 76,350 82.25 69.64 107.28 45.31

29/07/2016 81,291 82,700 83.38 70.77 108.41 46.44

31/08/2016 91,065 90,650 84.36 71.75 109.39 47.42

30/09/2016

82.18 69.57 107.21 45.24 6 months forward average

Outright

60 days payment

EUR/RUB

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Pricing the LCI rate

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P&L Accounts

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• Key rates

– LCI rate

– Actual rate

– Hedging rate

• Only true if hedge is 100 % efficient:

– Done for 100% of the amount

– From forecasts that are 100% accurate (time and amount of purchases)

– With payments received from the market at the same time as the hedge matures

18 12/05/2016 Copyright ©2015 by Oriflame Cosmetics Global SA

Business Unit Rate Rate

Local market = Actuals - LCI

Trading company = LCI - Hedging

Consolidated = Actuals - Hedging

LCI Margin impact – Market, Trading & Consolidated

Local Markets

Good forecasts critical to a good hedge execution

By updating the forecast earlier if important assumptions change

Paying within payment terms (not before, not after)

Global Treasury

By aligning hedging maturity dates with sales and payment dates whenever possible

Supply chain can become critical to the success

Reporting and analyses

Group Accounting

Correct booking of A/R

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Key success factors of the LCI program

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20 12/05/2016

Forecast Accuracy (an example)

Actual Fcst

2015-01 2015-02 2015-03 2015-04 2015-05 2015-06 2015-07 2015-08

517,980 508,666 471,618 412,769 399,684 472,350 488,998 521,516

510,155 393,537 356,625 326,942 313,215 410,151 473,939

514,971 454,045 287,376 308,009 321,706 460,363

692,761 195,487 241,141 370,147 340,479

399,528 154,356 254,612 443,446

466,432 212,922 299,805

206,003 221,486

320,331

Accuracy: Forecast is … higher (lower) than actual

1 Month ahead 0% -24% -34% -51% -67% 3% -31%

2 months ahead -8% -49% -28% -48% 24% -6%

3 months ahead -40% -18% -34% 80% 38%

4 months ahead 0% -33% 56% 6%

5 months ahead 1% 99% 44%

6 months ahead 137% -32%

Copyright ©2016 by Oriflame Holding AG

Quantitative:

Program applied to 75% of sales or 17 countries*

Significant gross margin protection in 2015

Savings in bid/ask spreads

Savings in closed euro bank accounts

Cash balances reduced and more concentrated

Qualitative:

Markets can forecast better

Focus on core business

Aligned with economics of the business

Improved communication with markets and better cash control

*4 from Latin America

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Results-LCI

Copyright ©2015 by Oriflame Cosmetics Global SA

Special comments for Latin America*

Mexico

• Convertible currency

• Top 10

• 8% of the exposure

• Program fully applied

• No issues

• Improves local profitability

• Netting successfully

applied in Latam with

change

Colombia

• COP not supported by

customs clearance

• USD

• Reduced bid/ask spreads

• Increased liquidity

• Use of USD to pay USD

liabilities of Trading

company

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* Trading company in Europe

Copyright ©2016 by Oriflame Holding AG

Final considerations for company based in Latam

• Relationship between the importer and exporter (risks

and rewards)

• Deductibility of possible losses

– on hedging

– Transaction loss (A/P or A/R)

• Transfer pricing considerations

• Convertibility of currencies of importer to USD or other

currencies by exporter

• Use of free zones

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12/05/2016 24 Copyright ©2016 by Oriflame Holding AG