Constant currencies

[SimonPB]

Constant currency, a term that is going to be used more and more as companies globalize and start earning in various currencies that are different from their reporting currency. Unfortunately, it’ll also be abused a whole lot as well.

In a nut shell the issue is that a company operating in more than one currency will at times have currency moves that can boost profits and at other times hurt them.

For example, MTN reports in Rands but earns in Rands, Niria, Rial, Lira and more. So, they may have a great period in Nigeria but when converting those Niria back to Rands the profits may look less great or even turn into a loss. The inverse is also true a weak set of Nigerian results may be boosted by currency moves. Of course, at times there may be no currency moves of note and the whole issue will be moot. But the more different currencies one operates in the more chance of some moving against or in favour of the reporting currency.

This is the reality for many companies and what matters is how they deal with it. What we tend to see is lots of blame when the currency moves hurt profits but no mention when they help. This is not just a South African issue as I have seen a number of US companies doing exactly this.

But companies must trust and respect their shareholders and just tell us how it is.

Shoprite* recently published a trading update for the year ending June 2017. Sales in Nigeria in Niria increased by 50.24% but when converted back into Rands the increase was actually a decrease of 6.98%. They didn’t try and fudge the issue reporting growth in Rands while later in the update they highlighted currency moves that helped and hindered depending on the currency.

However, MTN seriously fudged the issue when reporting results for the six months ending June 2017 when they stated, “Group revenue up by 6,7%* (decreased by 18,5%)”? Now sure the * saves them but what they mean was revenue was down 18.5% but up in constant currency.

As an investor, we care about both numbers but we want them to be published fairly and the ideal is tell us the real number so we can get an idea of how the results for the company actually are. Then give us segmental constant currency numbers so we can see how individual operational areas are doing.

Simon

*The writer holds shares in Shoprite