Oriflame Drops After Russia Seizes Documents in Tax Probe

Oriflame Cosmetics SA (ORI) confirmed that Russian authorities seized documents from its Moscow office as part of an ongoing tax probe in the country, one of the Swedish beauty company’s two largest markets.

Oriflame shares dropped as much as 6.7 percent to their lowest intraday price in a decade following a report of the probe on Russian newswire Interfax. The cosmetic maker denies any wrongdoing and the company has “nothing to hide,” spokeswoman Johanna Palm said today by phone.

Russian tax authorities are investigating the possibility that more than 3 billion rubles ($84 million) in taxes from 2006 to 2010 weren’t paid, Interfax reported. The Moscow police and Russian tax service declined to comment by phone to Bloomberg News.

Oriflame, which generates more than half of its revenue from countries in the former Soviet Union, traded 0.5 percent lower at 146.30 kronor as of 12:32 p.m. in Stockholm, bringing this year’s decline to 26 percent.

“Oriflame like every other corporate aims to optimize their tax payments, obviously within the boundaries set by regulation,” Haakon Aschehoug, an analyst at DNB ASA said in an e-mail, adding this is an old case and not a change in Russian government policies. “Worst case, Oriflame is fined.”

Of the 17 analysts who cover the stock and share their ratings with Bloomberg, nine advise clients to sell, while six have hold recommendations and two have buy ratings.

’Exceptional Nature’

“With sharply devaluating currencies and challenges of exceptional nature in our two largest markets Russia and Ukraine, there is no doubt the company is facing very tough conditions,” Chief Executive Officer Magnus Braennstroem said on May 7 as the company reported sales in the CIS region declined by 24 percent to 154.9 million euros ($207 million) for the three months through March. The Luxembourg-based company is due to report second-quarter earnings Aug. 14.

Oriflame is exposed to contingent liabilities amounting to as much as 24.4 million euros, representing potential litigations of 19 million euros related mainly to tax legislation, and other claims of 5.4 million euros, according to its annual report.

To contact the reporter on this story: Katarina Gustafsson in Stockholm at kgustafsson@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net Kim McLaughlin, John Bowker

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