Oriflame takes big hit from currency translations as profits fall
The company reported that local currencies sales for the fourth quarter were up 5%, but in Euros this figure was down by 5% to €353.7m, compared to €371.2m in the corresponding quarter last year.
The lower Euro sales were significantly impacted by negative foreign currency translations, which mainly centered on unrest in Ukraine and Russia, and the economic impact.
Lower sales also hit profits
The dent in sales also impacted profits, with EBITDA down from €52.0m to €34.4m, while the operating profit fell from €44.7m to €28.4m and net profit fell from €25.0m to €3.3m.
For the full year, the company reported that local currency sales were up 1%, but down 10% in Euros to €1.265m compared to €1.406m in 2013.
EBITDA for the year was down from €166.5m to €122.5m, while net profit fell from €84.4m to €47.0m.
A year of challenges
“2014 has been a year marked by challenges of various kinds for Oriflame,” said Magnus Brännström. Oriflame CEO.
“The geopolitical instability in our important markets Russia and Ukraine and the sharp devaluation of their currencies have impacted operations, sales and margins negatively.”
However, the CEO also stressed that there had been some positive growth in other markets that had offset some of the losses in Russia and Eastern Europe, with the performances in Turkey, Africa and Asia described as ‘very strong’.
Russian tax probe
As well as geopolitical difficulties and currency head winds, the company has also had to tackle a tax probe by Russian authorities into its dealings in the country.
After several years of ongoing investigations, the company confirmed in December last year that it hadreceived an official claim of RUB 1.0 billion (approx €17.5 m) from the authorities relating to royalty payments including income tax, VAT and penalty for the years 2009 and 2010.
“The decision is surprising and disappointing as such court decision implies that there is no recognition of royalty charged for commercial values that are created elsewhere in the Group and that are necessary for the local Russian entity to carry out its operations,” said the company in an official statement following the announcement.
