Venezuelan currency devaluation to cost Colgate $275m
The company has filed a form 8-K with the Securities and Exchange Commission, following guidance from the commission that the company should retroactively change its accounting procedures.
This means that the charge will appear on the company’s balance sheet as of January 1, 2010, as a loss adjustment in its 'other comprehensive income'.
Colgate says that the $275m primarily represents the premium paid to acquire cash in US dollars and bonds at the parallel market rate to make up for cash it held in Bolivars at the time of the currency devaluation.
Kimberly-Clark also acknowledges Venezeula loss
Colgate made the announcement at the end of last week, while today Kimberly-Clark reaffirmed that its profits in 2010 would also be hit by the impact of the Venezuelan currency devaluation, at an investor meeting, although no specific figure was given.
On January 10 the Venezuela government announced the devaluation of the currency in an effort to shore up demand for locally produced goods.
The move serves to prop up the Venezuelan economy. As a major exporter of oil worldwide, the country’s economy has been hard hit by falling demand for oil in light of the global recession and the ensuing hyper inflation that had affected the country’s economy.
Venezuela bolivar-US dollar exchange rate halved
The government cut the exchange rate of the Venezuelan bolivar against the US dollar – the main currency for international trade in the country – to 4.3 bolivars per US dollar to 2.15, while maintaining a subsidized rate of 2.6 bolivars per US dollar for essential products such as food and medicines.
Cosmetics and personal care products have not been classified as essential products by the government and as a result this is likely to lead to a long list of imported cosmetics increasing significantly in price. Indeed, many analysts believe prices could more than double.
As well as Kimberly-Clark and Colgate, several other global players including Avon have said they are also likely to be significantly impacted by the decision to devalue the currency because they have traditionally traded in US dollars in the country.