Is foreign currency a risk or not?

Some companies consider foreign currency is a risk but others not, yet currency movements are the way of life they have chosen and is just another business as usual excuse to add to the risk statement.

Six companies in my review: Abbott Laboratories, Abbvie, Bristol Meyers Squibb, Johnson and Johnson, Novartis and Sanofi follow this policy and consider foreign currency as a risk, with statements such as:

“Fluctuation in foreign currency exchange rates may adversely affect Abbott’s financial statements and its ability to realize projected sales and earnings.”

There are two companies which do not agree with this treatment of foreign exchange.

Astra Zenica do not mention currency at all in their Risk Overview, though they admit that they cannot influence currency exchange rates which have affected the results of their business and insist that currency movements are ‘outside the company’s control’.  Yet they do admit to foreign currency risk and exposure, but not in the Risk Overview. They have a dedicated paragraph:

“Foreign currency risk

The US dollar is the Group’s most significant currency. As a consequence, the Group results are presented in US dollars and exposures are managed against US dollars accordingly.”

So for them it is not a risk but worth putting in their report just in case a reasonable shareholder doesn’t know that exchange rates are outside their control.

GlaxoSmithKline agree and have a ‘Foreign exchange risk management’ section as part of their financial review and a ‘Foreign exchange risk’ paragraph in their Notes to financial statements, without a mention in their ‘Principal risks and uncertainties’.

So perhaps they own up to a foreign currency risk, but do not consider it material enough to include it in their Risk Overview? Perhaps they forgot to put it in? We will never know, however they have declared it clearly even if one has to read the whole report to find it.

Unfortunately there is no obligation for companies to explain why they do not include a risk in their annual reports. This finally is more interesting than companies that follow the trend and make a long list of these business as usual risks.  Readers of annual reports have to search out the reasons but generally never find them, as in this example.