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Multinationals amongst those hardest hit by Venezuela currency devaluation

By Simon Pitman , 14-Feb-2013
Last updated on 14-Feb-2013 at 17:45 GMT

Following on from last week’s announcement by the Venezuelan government that it is to once again devalue its currency, some of the world’s biggest cosmetic and personal care players have said they will be hit.

Those players include some of the biggest names in the business, with names such as Avon, L’Oreal, Unilever and Colgate-Palmolive, all expecting to take significant hits that will impact their global financial results during the course of 2013.

Earlier this week, an already troubled Avon announced a record loss making quarter as it starts to pay off a comprehensive restructuring program that aims to streamline the business.

However, the company says that things may get worse before it gets better and the currency devaluation looks set to deepen it troubles. The company said that it expects the devaluation will affect its business to the tune of $50m during 2013.

Colgate-Palmolive may have to adjust forecasts

Further to this Colgate-Palmolive issued a press release in relation to the government announcement stating that because of the currency devalutation the company would absorb balance sheet charges that will effectively wipe out projected double-digit growth in global EPS for 2013.

P&G also made extensive reference to the possibility of devaluation in Venezuela during an earnings call just prior to the government announcement, and did state that it was a risk to earnings potential during 2013.

The government chose to devalue its currency by 32 percent last Friday, a move that forced personal care giant Colgate to announce an expected drop in earnings for the current quarter.

The Venezuela government is believed to have spent big during the 2012 election campaign to get Hugo Chavez re-elected, which has also been coupled, once again, with runaway inflation.

Second major devaluation in recent years

Back in January 2010 the Venezualan government also chose to devalue the currency in an effort to shore up demand for locally produced goods.

Then the move served to prop up the Venezuelan economy, during a time when the country, as a major exporter of oil worldwide, had been hard hit by falling demand for oil in the light of the global recession.

At the time, Chavez cut the exchange rate of the Venezuelan bolivar against the US dollar to 4.3 bolivars per dollar to 2.15, while maintaining a subsidized rate of 2.6 per dollar for essential products such as food and medicines.

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