Constant currency
Capital MarketsGrowth measured by translating both periods at the same exchange rate, so the underlying performance shows through the currency move.
Also written: constant currency growth, at constant exchange rates
A group with operations in several currencies reports in one of them, and each year's foreign results are translated at that year's rates. When exchange rates move, the reported figures move with them even if every business performed identically. Constant currency growth removes that by retranslating both periods at the same rate, leaving the growth the businesses generated in their own currencies.
It is an adjustment to presentation, not to economics, and that is the point. It answers the question of what the operations did. It does not answer what the group is worth to an investor in the reporting currency, because that investor genuinely receives fewer euros when sterling falls.
The disclosure carries information beyond the number. Management quotes constant currency prominently when currency is a headwind, and reverts to reported growth when currency is helping. Reading which measure a company leads with, over several years, tells you something about how the numbers are being managed.
Watch what it does not adjust for. Constant currency strips out translation, not the transaction effect, so a company whose costs are in a currency that has strengthened against its revenue has a genuine margin problem that constant currency revenue growth will not reveal.
Worked example
Illustrative. A UK business grows from £100 to £106, up 6% in sterling. The average rate moves from €1.20 to €1.10 per pound.
Reported: €120.0 last year and €116.6 this year, a fall of about 2.8%. Retranslate this year at last year's €1.20 and you get €127.2, which is 6% growth.
Same business, same year, two figures. The 6% is what the operation did; the fall of 2.8% is what a euro shareholder received. Both are true, and an answer that only gives one of them is incomplete.