Ukraine’s Crisis Hits Oriflame as Currency Losses Take Toll

Oriflame Cosmetics SA (ORI), the Swedish beauty products retailer that generates about half its sales from the former Soviet Union, is being pummeled by a slump in Ukraine’s hryvnia and the Russian ruble.

“We are impacted very negatively by the currency, which is weakening further as a result of the political sentiment,” Johanna Palm, head of investor relations at Oriflame, said today by phone. “It’s of course worrisome when two of our biggest markets are in conflict with each other, but we continue as usual with our business.”

Moves by Russia to annex Ukraine’s Crimean peninsula mark the biggest dispute between Russia and the West since the fall of the Iron Curtain. The standoff threatens to disrupt more than two decades of economic and diplomatic integration between former Cold War enemies. Companies trying to operate in the area, including Danish brewer Carlsberg A/S, have seen their shares drop as investors look for an exit.

Shares in Oriflame have plunged 24 percent this year, while Carlsberg, the biggest brewer in Russia, has lost 12 percent in the period. Russia, the Baltics and other former Soviet Union states accounted for 51 percent of Oriflame’s sales last year.

The hryvnia has weakened 17 percent against the euro this year. Russia’s ruble is down 11 percent in the period.

Oriflame fell as much as 4.3 percent to 145.3 kronor in Stockholm trading, its biggest intraday drop since March 3 and lowest price since April 2005. It fell 1.7 percent at 2:51 p.m. local time. Of the 17 analysts who cover the stock and share their ratings with Bloomberg, 11 advise clients to sell while three have hold recommendations and three have buy ratings.

‘Negative Impact’

The situation in Ukraine, which is Oriflame’s second-biggest market, will “have a negative impact, though it is difficult to estimate what the impact will be on the bottom line,” Haakon Aschehoug, an analyst at DNB ASA in Oslo who has a sell rating on Oriflame shares, said by phone today.

“As long as there is unrest on the streets and the nervousness that we see now, the country is in financial distress,” Aschehoug said. “A lot of things are going on at the same time that most likely have a negative impact on consumer spending in Ukraine. On top of all this, you have the currency, which has been weak for a while.”

The U.S. and Germany are threatening sanctions against Russia if it doesn’t back down from annexing the mostly Russian-speaking Crimea, which holds a referendum in two days on whether to split from Ukraine and join its former Soviet-era master. Ukraine’s government says Russian troops have taken over the southern region and are amassing on its eastern border.

“We are handling this situation, we are used to operating in countries where it is politically unstable sometimes,” Oriflame’s Palm said. “This is actually not a new situation for us.”

To contact the reporters on this story: Katarina Gustafsson in Stockholm at kgustafsson@bloomberg.net; Veronica Ek in Stockholm at vek@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net Niklas Magnusson, Tasneem Brogger

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