Unilever issues profit warning over collapsing currencies in 'emerging markets'
Jim Armitage is the City editor of The Independent and London Evening Standard group of newspapers. He has been a reporter and editor for more than 20 years and was recently shortlisted for the Press Gazette financial journalist of the year and The Society of Editors financial journalist of the year awards. He contributes news, investigative reports and comment to the Independent titles plus a daily column in the Evening Standard.
Tuesday 01 October 2013
Unilever, the Magnum ice cream to Dove soap giant, issued a profit warning last night, blaming the collapsing currencies in so-called “emerging markets” such as Brazil and India.
Meanwhile, despite warm words from Western political leaders on improving economic data, it said developed markets remained “flat to down”. As a result, it warned of a €500m (£417m) shortfall in sales this quarter.
Emerging market currencies have plummeted over the past few months in anticipation of the US Federal Reserve tapering off its quantitative easing programme. Those with big budget and current account deficits have been worst hit.
Unilever said it now expected the current quarter’s underlying sales growth to come in at 3 to 3.5 per cent. Investors had previously expected growth of 5 per cent.
The currencies of Brazil and India, which have been particularly badly smashed by concerns about their economies, have hurt Unilever especially badly as they are two of its biggest global markets. Indonesia is another major economy that has performed badly for the company.
Unilever has suffered from the foreign exchange moves largely because its emerging markets regions buy raw materials in dollars with their local currencies .
Unilever anticipates that the emerging market economies’ GDP growth, an annualised 9 per cent in the first half of the year, has now fallen to 6 per cent.
Although Unilever is the first in its sector of fast-moving consumer goods to warn on its growth rates, sports group Adidas rapped out a similar alert in the middle of September, citing the same reasons.
Markets were shocked by the announcement, largely because it was not issued until after the stock market had closed for the evening.
Sources at the company said the numbers had only just come to light from collating all of September’s monthly sales statistics from its various divisions.
On the positive side, Unilever said the fourth quarter should be better due to a number of one-off factors like the launch of several new products that would be boosted by extra marketing investment. Unilever chief executive Paul Polman, pictured left, still anticipates meeting his woolier target of beating the market’s sales volumes.
Graham Jones, an analyst at Panmure Gordon, said: “Unilever is skilled at handling volatility in emerging markets. Until now the strength of the emerging markets had masked its disappointing developed markets business. This update flags that in developed markets it needs to work harder. We had predicted emerging markets will have weakened but we had also expected some growth in the developed markets but this wasn’t the case.”
The shares were expected to open sharply down this morning.
Jim Armitage: This is how it begins
This is how it begins. If you had any doubt Britain would be affected by the bursting of the emerging markets bubbles pumped up by QE in recent years, here is the proof. The Fed drove speculators to lend ridiculous amounts of money, at ridiculously low interest rates, to badly run countries that could ill afford to borrow. Now that QE’s taps are set to turn off, Western money is running home and those economies are left to suffer. Our biggest and best firms are feeling the blowback, without real growth in developed markets to compensate. Dividends, and with them, our savings, will be damaged. Brace yourselves.
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