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Oriflame results hit by geopolitical tensions in Ukraine and Russia

By Simon Pitman+

26-Aug-2014
Last updated on 26-Aug-2014 at 13:08 GMT2014-08-26T13:08:32Z

Oriflame results hit by geopolitical tensions in Ukraine and Russia

The continued political tensions in Ukraine and Russia are impacting Sweden-based Oriflame, underlined by the fact that the direct sales player's latest quarterly results show falling sales.

The interim results for the three months ending in June showed that Euro fell by 14% to €310.4m, compared to €359.7m. In local currency terms this figure was a fall of 1%, reflecting negative currency translation.

Adjusted net profit fell from €19.9m in the corresponding period last year, to €12.1m, while EBITDA was €23.3m compared to €34.5m in the previous year.

For the six months period ending in June, net Euro sales were also down 14% to €637.6m, which was a fall of 2% in local currencies, while net profit fell from €47.9m to €24.0m.

Poor European and CIS sales to blame

The company derives a significant portion of its sales from the Central and Eastern European markets, and over the years has particularly developed Russia as one of its mainstay markets, having invested significantly in distribution and representatives there.

“The second quarter performance follows in the path of recent quarters; our key growth regions continue to deliver both from a sales and margin perspective while we have yet to turn around business performance in Europe and CIS – where in main markets we still face tough geopolitical and economic conditions,” said CEO Magnus Brännström.

“We are focusing on executing our strategy and initiatives, while at the same time aligning our organization to further improve efficiency.”

Mounting political tensions could spell more problems

With tensions mounting between Russian and Western governments over who gets the upper hand in governing the Ukraine, trade sanctions imposed on Russia are already said to be hurting the economy, with the Russian government predicting that GDP may be below earlier forecasts of 0.5%.

In return the Russian authorities have been coming down heavily on many Western companies trading in the country, which only this week led to the closure of a number of McDonald’s fast food restaurants closed in Moscow for ‘sanitary violations’.

In a similar move, Oriflame earlier this month confirmed that Russian authorities had seized papers from its Russian headquarters in Moscow as part of an ongoing tax probe in the country.

According to the Russian authorities, the tax investigators are trying to establish whether or not taxes amounting to as much as 3 billion rubles were paid during the period 2006 to 2010.

Currently, the company’s biggest market is Russia, which accounts for more than half of its annual income, approximately €1.5bn in revenues derived from over 60 countries worldwide.

Nothing to hide

In an official statement, the company said it was visited by police at various locations in the Moscow area as part of the investigation, which came without warning.

“The event came as a complete surprise to the company as it has been fully co-operating with the authorities since the beginning of the investigation,” a company spokesperson said in the statement.

The first investigation into the alleged taxation discrepancies happened several years ago, but according to the company several independent taxation experts had concluded that nothing was improper in Oriflame’s practices during the period and that its taxation level was high.

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