Oriflame Intnl. - Further re Merger, etc.

RNS No 4917u
ORIFLAME INTERNATIONAL S.A.
17th November 1997

                  Oriflame International S.A.
                               
      Proposed merger between Oriflame International S.A.
                         ("Oriflame")
          and Oriflame Eastern Europe S.A. ("Oresa")

*    Both Oriflame's and Oresa's principal activities are in
     the direct sales of a broad range of cosmetic products which
     are sold direct to customers by trained independent
     consultants.
     
*    Oresa was formed in 1990 to exploit significant business
     opportunities for the direct selling of cosmetic products in
     Eastern Europe.  Since then Oresa has grown into a major
     direct sales company with turnover of #147 million and profit
     before tax of #29 million for the year to 31 December 1996.
     
*    The merger is to be effected by means of a share exchange
     on the basis of 6 New Oriflame Shares for every 1 Oresa Share.
     
*    The directors and proposed directors forecast that the
     enlarged group's consolidated profit before and after taxation
     for the year ending 31 December 1997 will not be less than
     #39 million and #31 million respectively.

*    The Merger enables Oriflame to benefit from the
     components of Oresa's success:  a unified marketing plan, in-
     house computer system, well trained management team and seven
     years experience in emerging markets.

Commenting on the merger, Robert af Jochnick, joint Chairman
and Chief Executive of Oriflame said:

     "Both companies have successfully established operations
     in emerging markets worldwide and it now makes a great
     deal of sense to bring the businesses together, creating
     organisational and marketing benefits.  Our strengthened
     management team will adopt an aggressive expansion
     programme to exploit the considerable opportunities open
     to us."

            Expected timetable of principal events

Latest time and date for receipt of form of proxy
5 December 1997, 5.30pm

EGM
8 December 1997, 10.00am

Expected completion date for the merger
9 December 1997

Dealings in the existing shares expected to recommence from
suspension and dealings in new Oriflame shares expected to
commence
9 December 1997

Registered share certificates for the new Oriflame shares
despatched as soon as is practicable but in any event no later
than
31 December 1997

Panmure Gordon & Co Limited, which is regulated by The
Securities and Futures Authority Limited, is acting for
Oriflame International S.A. and no-one else in connection with
the merger, and, accordingly, is not acting for, and will not
be responsible to, anyone other than Oriflame
International S.A. for providing the protection afforded to
customers of Panmure Gordon & Co Limited or for providing
advice in relation to the Merger.

Press enquiries:

Oriflame International S.A., Robert af Jochnick
00 468 622 3600

Oriflame Eastern Europe S.A., Jonas af Jochnick
00 322 357 5500

Panmure Gordon & Co. Limited, Christopher Collins or Mark
Cunningham
0171 638 4010

Citigate Communications, John Rudofsky or Patrick Toyne Sewell
0171 282 8000

(Today, contact with Oriflame directors can be arranged via
Panmure Gordon or Citigate Communications.)
                               
          Merger between Oriflame International S.A.
               and Oriflame Eastern Europe S.A.

Introduction

It was announced on 16 September 1997 that preliminary
discussions had taken place with the Board of Oresa on the
terms of merging the Oriflame Group with the Oresa Group.
Both Groups' principal activity is the direct sales of a broad
range of cosmetic products with particular emphasis on skin
care and treatment, and which are sold direct to customers by
trained independent consultants.  In view of the size of the
transaction, at the Company's request, the London Stock
Exchange temporarily suspended dealings in Oriflame Shares on
16 September 1997 pending approval of the Merger by Oriflame
and Oresa Shareholders.  The respective Boards of Oriflame and
Oresa have now agreed to implement the Merger.

Terms of the Merger

The Merger is to be effected by means of a share exchange on
the following basis:

     for every 1 Oresa Share       6 New Oriflame Shares

and so in proportion for any other number of Oresa Shares

The total number of shares in Oresa not already owned by
Oriflame is 7,762,000 shares representing 74.2 per cent of the
total issued share capital of Oresa.  The total number of New
Oriflame Shares to be issued in connection with the Merger
will be 45,921,918 representing 45.7 per cent of the enlarged
issued share capital of Oriflame.  No New Oriflame Shares will
be issued in respect of the 2,699,999 Oresa Shares held by
Oriflame itself or for the 108,347 Treasury Shares held in
Oresa.

The Merger is conditional upon the passing by Oriflame
Shareholders and by Oresa Shareholders of resolutions to
approve it and upon admission to listing of the Existing
Shares and the New Oriflame Shares.  The New Oriflame Shares
will be issued credited as fully paid and will rank pari passu
in all respects with the Existing Shares, including the right
to receive all dividends and other distributions declared,
made or paid hereafter, including any final dividend to be
paid on the Enlarged Group share capital in respect of the
year ending 31 December 1997, which it is expected will be
paid in May 1998.

As Robert af Jochnick, Jonas af Jochnick and Svante Pahlson-
Moller are shareholders of Oresa and Directors of Oriflame,
the Merger is a related party transaction under the Listing
Rules of the London Stock Exchange.  Because it is a related
party transaction and because of the size of the transaction,
the Merger requires the approval of Oriflame Shareholders.  In
the light of their interests, the Related Party Directors and
their associates will abstain from voting on resolution number
two which seeks approval for the Merger at the Extraordinary
General Meeting, in respect of their aggregate holdings of
25,382,540 shares representing 46.5 per cent of the current
issued share capital of Oriflame.

It is expected that listing will become effective, and
dealings in the Existing and New Oriflame Shares will
commence, on 9 December 1997.

Background to and reasons for the Merger

Oresa was established in 1990 with a share capital of
approximately #10 million to exploit significant business
opportunities for the direct selling of cosmetic products in
Eastern Europe.  The Directors of Oriflame realised that an
investment in Oresa was highly speculative, due to the high
degree of uncertainty as to where and how quickly
opportunities could be developed in those emerging economies,
some of which were politically unstable and often had a poor
sales infrastructure.

The Board of Oriflame believed that it was inappropriate to
assume the liability for the entire investment required in
Oresa as this might have exposed the Company to an
unacceptably high level of risk.  Oriflame therefore chose to
limit its stake in Oresa to that of a minority shareholding
and invested #2.5 million into Oresa.  Those who were
shareholders in Oriflame in 1990 were invited to subscribe for
an additional #7.4 million worth of shares in Oresa.  The fund
raising from Oriflame Shareholders was effected by an offer
made in a circular to the Oriflame Shareholders dated 10 July
1990 and, to the extent that it was not taken up, was
underwritten by Jonas af Jochnick without commission.  The
Related Party Directors and associates currently hold
approximately 54.0 per cent of the share capital of Oresa.

Over the last seven years, Oresa has accessed certain emerging
markets, principally in former Eastern Bloc countries and the
Far East mostly through the establishment of wholly-owned
subsidiaries.

The establishment of two parallel but discrete businesses has
created a healthy competitive environment which has enabled
both enterprises to thrive.  However, since 1990,
opportunities have been created for sharing common business
ideas and for working together in areas like product
development and manufacturing and in the improvement of the
businesses through the use of information technology.

The union of both Oriflame and Oresa will, in the opinion of
the Board, create a larger global management pool, with
opportunities to support the Company's aggressive expansion
into markets in which Oriflame has already obtained a
presence.  In addition to this, it will create a stronger
Enlarged Group balance sheet, healthy prospects for greater
profitability and a cash flow potential sufficient to meet the
needs of the Enlarged Group.  Following the Merger, Oriflame
will be represented in more then 55 countries, with a sales
force of some 500,000 self employed distributors.

Relationship between Oriflame and Oresa

Oresa has operated autonomously from Oriflame since 1990, with
an independent management team headed by Jonas af Jochnick.
Oriflame has granted exclusive licence, technical services and
product supply agreements to Oresa under which the supply of
services and products is subject to normal commercial terms.

Oresa currently contributes to Oriflame in three different
ways:

i. Oriflame supplies products to Oresa which generate a
commercial margin;

ii.  Oresa pays royalties for the use of the Oriflame
trademark;

iii     Oriflame's annual earnings include the contribution
   derived from its 25.8 per cent interest in Oresa.

Although Oriflame and Oresa have operated autonomously from
each other there has always been openness and co-operation
between the companies in areas where that co-operation has
benefited the development of both entities.  Oriflame has
received commercial payments for management time devoted to
Oresa.  A merger of the Oriflame Group and the Oresa Group
will allow that co-operation between the respective management
teams to be formalised and this should help to protect the
long term interests of the Enlarged Group.

Oresa market overview

Oresa presently operates in five regions:  Central Europe,
Eastern Europe, the Former Soviet Union ("FSU"), the Far East
and the Independent Countries, being Turkey, Greece, Albania,
Germany and the former Republic of Yugoslavia.  In the
financial period ended 31 December 1996 (1995) Oresa achieved
a turnover of #146,672,000 (#92,775,000), operating profit of
#33,637,000 (#19,522,000), profit before taxation of
#29,229,000 (#18,035,000) and had net assets of #42,863,000
(#30,339,000).

An analysis of sales by principal geographical region is as
follows:

                 Six months
                      ended
                    30 June           Year to 31 December
                       1997       1996        1995       1994
                      #'000      #'000       #'000      #'000

Central Europe       27,259     51,059        41,328   46,827
Eastern Europe       12,060     21,447        12,690 
FSU                  27,843     44,143      13,907      5,710
Far East              3,540      5,644       3,999      2,687
Independent
 Countries           14,161     24,379      20,851      2,454
                       ----       ----        ----       ----
                     84,863    146,672      92,775     57,678
                       ----       ----        ----       ----

The Growth of Oresa

Oresa has concentrated on developing the business of direct
selling of Oriflame branded products and has shown that the
direct sales technique has been particularly well suited to
the emerging markets, where undeveloped retail distribution
networks have historically existed.  With the benefit of a
unified marketing plan and an in-house computer system which
assists in the management and control of Oresa's sales force,
Oresa has grown into a major organisation, now employing
approximately 1,300 people and operating a sales force of more
than 350,000 distributors.

Manufacturing and product supply

The Enlarged Group will have two manufacturing facilities.
Some 60 million units of cosmetics products were manufactured
last year in the Dublin manufacturing facility owned by
Oriflame and the Warsaw manufacturing facilities owned by
Oresa.  Both facilities have excess capacity available for
further expansion of the Enlarged Group.  The Merger will also
enable the introduction of a more rationalised manufacturing
cycle between both facilities which will lead to improved
economies of scale.  Neither Oriflame nor Oresa are overly
dependent upon their manufacturing facilities and neither is
overly dependent upon a restricted number of external
suppliers.  The Directors therefore believe that the Enlarged
Group has a broadly spread supply source for its products.
The Board expects the Enlarged Group to improve its ability to
acquire raw materials, packaging and products on better terms
as a result of the Merger.

Currency exposure and other risks

The Oriflame Group operates in more than 55 countries, which
means that exposure to currency fluctuations is unavoidable.
The Oriflame Group policy is to hedge where practicable so as
to reduce the potential effect on the profit and loss account;
this policy will continue following the Merger.

Historically, Oresa has not hedged against its currency
exposure due to the volatile nature of a number of the
currencies in which it transacts its business.  In these
circumstances Oresa converts local currencies into a stable
currency as soon as is practicable.  The Russian Rouble, in
particular, is not a currency which can be satisfactorily
hedged and other currencies also have prohibitively high
hedging costs.

It is expected that the Board will review the existing Oresa
policy; a decision will be taken when the Board has had an
opportunity to fully review the options available.

Oresa operates in markets which are inherently riskier than
some of Oriflame's existing markets.  Inevitably, there are
business risks associated with expansion into such areas.
Many of these markets have legal and taxation systems which
are relatively undeveloped and which are subject to rapid
change and suffer from political and social instability and
unstable currencies.  Although the Enlarged Group will
therefore be exposed to these associated risks, the Board is
confident that, with the benefit of Oresa's management
experience over the last seven years in emerging markets, it
can minimise those risks to an acceptable level.

Oresa Ventures S.A.

In May 1997 Oresa Ventures S.A. was floated on the Stockholm
Stock Exchange.  The business was established in 1996 to
create capital growth opportunities through long term
investment in Central and Eastern Europe, particularly the
larger countries such as Russia, Ukraine, Poland and Romania.
The business idea of Oresa Ventures S.A. is to invest in small
and medium sized companies with high growth potential with a
focus on the consumer goods, distribution and healthcare
sectors.

Jonas af Jochnick and associated family interests currently
own approximately 53% of the share capital of Oresa
Ventures S.A.  Jonas af Jochnick acts as Chairman and Chief
Executive Officer of Oresa Ventures S.A. and will continue to
devote the majority of his time to this business.  Oresa
currently owns approximately 20.5 per cent of Oresa
Ventures S.A. and, accordingly, it is treated as an associate
company.  Oresa Ventures S.A. has proved to be successful but
operates in markets where prospects are difficult to predict.
The remainder of the Board has no intention of devoting any
management time to this investment.

Effects of the Merger

The Merger will lead to a consolidation of a number of
important functions including the integration of certain
management and administrative systems, but there is not
expected to be significant savings in overheads due primarily
to the existing cost effective structures operated by both
entities.  The Enlarged Group will benefit from its ability to
access a well trained workforce which is, in the opinion of
the Board, capable of fulfilling the Board's aggressive
expansion plans in its chosen markets.

As a result of the Merger, Oriflame and Oresa are likely to
increase the common knowledge and co-operation which has
existed since the inception of Oresa.  The Board has full
confidence that a full merger of the two management teams will
give rise to even greater co-operation and that the growth
opportunities will be enhanced by the merger of the two
organisations.

Current trading and prospects

Oriflame Group

The Directors of Oriflame have recently become aware that
profit for the current financial period to 31 December 1997 is
running below market expectation, and will consequently be
significantly below that of the previous financial year.

There are three main reasons for this shortfall.  First, and
most significantly, the continued strength of Sterling against
other currencies has led to a negative impact on the profits
of Oriflame.  Secondly Oriflame has invested in a number of
start up operations in emerging markets which have taken
longer to establish than was originally anticipated; however,
where Oriflame is now operation, those markets are showing
promising levels of performance.  These two factors have also
led to a reduction in margin as price increases have not as
yet been passed on to customers.  Thirdly, and to a lesser
degree, Oriflame has suffered from a recent change in the law
in India relating to the excise tax on certain cosmetic goods,
which has led to a threefold increase in this tax.

Oresa Group

Oresa's overall performance during the current financial year
to 31 December 1997 is in line with budget resulting in
increased profitability over the last financial year.  The
negative effects of the strength of Sterling are offset by the
benefits of the investment in Oresa Ventures S.A.  Trading has
been satisfactory in most markets, particularly Russia and
Greece, although sales in Ukraine and Turkey have been slower
than expected.

Prospects for the Enlarged Group

Despite these shortfalls, the Directors and Proposed Directors
believe that prospects for the Enlarged Group remain very
promising.  The Directors and Proposed Directors believe
Oresa's significant growth in both sales and profitability
over the last seven years has been largely due to the
development of a highly effective unified marketing plan,
supported by an experienced management team, and an in-house
computer system which assists in the management and control of
a sales force of some 350,000 distributors.  Although there
are a number of major international competitors in the direct
sales cosmetics market, the Directors and Proposed Directors
believe that the Merger and the application of Oresa's
marketing approach across the Enlarged Group's existing and
new markets should create strong opportunities for the future
business development of the Enlarged Group especially in light
of the investments already made by the Enlarged Group in
establishing its businesses in emerging markets.

Profit forecast for the Enlarged Group

Oriflame's Directors and Proposed Directors forecast that the
Enlarged Group's consolidated profit before and after taxation
for the year ending 31 December 1997 will be not less than #39
million and #31 million respectively.


END

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