Currency woes hit big personal care players in Venezuela

By Simon Pitman

- Last updated on GMT

Currency woes hit big personal care players in Venezuela
Unilever, Colgate-Palmolive and Procter & Gamble are amongst the biggest personal care players that have been significantly affected by continued currency volatility in Venezuela.

All three companies underlined the impact that currency volatility has had on their results when reporting financial results for the last quarter of 2013.

Venezuela is currently going through significant political and economic difficulties, which in recent weeks have culminated in wide-scale anti-and pro-government street demonstrations, as well as shortages of consumers staples in the shops.

Inflation hurting business

Over the past few years the government has continued to devalue the country’s currency, the Bolivar in an attempt to deal with runaway inflation. Currently inflation is running at more than 55%.

Critics of the government’s economic policies say that its authoritarian approach to handling the inflation problem have in fact been counterproductive, and in fact served to make the situation worse.

The main problem is that a dual-currency system is currently in place, which allows the government’s official rate of exchange for essential goods such as food and medicine, while for non-essential items, which encompasses most cosmetics and personal care items, higher rates of exchange apply.

Black market trading is fueling hyper-inflation

Currently the bolivar is being traded on the black market at approximately 12 the official government rate.

The government has also implemented new laws stating that companies operating in the country cannot operate at a profit margin greater than 30%. The threat of imprisonment for any company heads not abiding by this law has further contributed to the general lack of dynamism in the economy.

Although Unilever, P&G and Colgate-Palmolive only derive a small fraction of their global revenues from Venezuela, the impact of the economic stability in the country and the impact currency translation is still expected to have a significant impact on the bottom lines.

Colgate-Palmolive has most exposure to Venezuela

Back in 2010 the government devalued the currency by half. At the time Colgate-Palmolive, the biggest international personal care player in the county, deriving approximately 4% of its global revenues there, said that the devaluation had cost the company approximately $275m.

Four years later, and the on-going economic instability is still causing significant impact for the oral and skin care play, which estimates that the current currency woes will cost it up to $200m.

Although P&G and Unilever do not have as much exposure to the Venezuelan market, both companies have stated in their most recent financial statements that the continuing problems in the country will impact bottom lines.

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