Business News of 2014-08-07

Fortunes of Unilever shaken by falling cedi

Fast moving consumer goods manufacturer, Unilever Ghana Limited, made a loss of GH¢6.5 million in the first six months of the year due mainly to the steep fall in the value of the local currency.

According to an unaudited report from the company, the phenomenon raised the company's cost of operation but dampened consumer sentiments towards its products.

The report signed by the Managing Director, Madam Maiden E. Arkutu, and the company's Brand Building Clarence Nartey, said the loss was in spite of a 17.9 per cent jump in Unilever's gross revenue, which rose from GH¢158.4 million in the first half of last year to GH¢186.8 million the same period this year.

“Operating cost remains a challenge to the business in the face of the higher depreciation of the cedi and inflation,” the company said in its half year financials, which was released the week ending August 1.

The cedi has since the beginning of this year lost about 33 per cent of its value to the United States Dollar on the back of speculative demand which saw supply falling short of demand.

The situation has fuelled inflation, a measure of the rate at which prices of goods and services increase over time, to a 10-month high of 15 per cent as of June, this year, making it difficult for consumers to keep to their household budgets.

Given that Unilever produce mainly for households, a weakened consumer sentiment, as confirmed by the Bank of Ghana (BoG) in its Monetary Policy Committee (MPC) report, on the back of rising inflation and a weaker currency, would lower demand for the company's products, while pushing its cost of operation to unbearable levels.

The company's half-year results showed that while pre-tax profit suffered a 42.7 per cent decline, dropping from GH¢18.5 million in the same period last year to GH¢7.9 million in the period under review; cost of sales rose from GH¢112.2 million in the first half of 2013 to GH¢150.3 million in the first six months of this year.

The increment in cost of sales was further compounded by similar increases in administrative and distribution expenses.

Looking ahead

Unilever, which deals in leading brands such as Lipton, Blue Band Margarine and Pepsodent, among other things, is not the only company suffering from the current challenges in the country.

PBC Limited, the biggest buyer of cocoa beans in the country, halted its moves to secure US$30 million loan from France, citing the impact of the declining cedi on interest payment as the basis.

Although the BoG and the government have assured the people of brighter prospects in the coming months, Unilever said its business continued to worsen in the face of these challenges.

"The operating environment continues to worsen for our business. This will translate into higher input cost arising from increases in oil prices, utility tariffs and depreciation of the cedi against major trading currencies," the company's results indicated.

Going forward, the report said Unilever would “continue to align its strategies with the operating environment in order to create value for shareholders.”

Source: graphic.com
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