Oriflame announces new Russian production plant and tax probe development
The Swedish company confirms that production of personal and hair care products has started and will gradually be ramped up during the coming quarters.
“Oriflame is proud to increase its presence in Russia through this €150 m investment into the new facilities in Noginsk,” comments Magnus Brännström, CEO and President.
“This is an important milestone for Oriflame’s business and long-term commitment to the region, as it further improves the service to our Consultants while creating employment opportunities in Russia and in particular in the Noginsk area.”
Equipment for the production of colour cosmetics is in the process of moving from the previous factory in Krasnogorsk to the new facility in Noginsk, where all production will be integrated.
Oriflame feels this will optimise logistics and business processes, while ensuring production close to the large and important markets in the CIS.
Site divestment
On the back of this, the site in Krasnogorsk has been divested along with the manufacturing site in Ekerö, Sweden: both have been completed.
The Swedish factory was divested through a local management buy-out, where Oriflame retains the ownership of selected production equipment.
The Krasnogorsk factory was sold to the Russian retail company X5 Retail Group. The total cash effect from both divestments amounts to €38m, of which the main part relates to Krasnogorsk.
Tax probe
Oriflame also announces that, after several years of ongoing tax investigation in Russia, there has been an announcement at the first level of tax court and the decision was not in favour of the company.
Oriflame has received 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,” says a company statement.
“Due to the current uncertainty of the situation, Oriflame has decided to recognise the full Rouble amount of the claim for income tax, VAT and penalty related to the royalty (net of tax losses carried forward, which were not recognised as deferred tax assets, but can be used to reduce the claim amount), which will impact profit and loss of the Group in Q4 2014 with the equivalent of approximately €16 m.”
