After Argentina’s newly formed government weakened its peso currency in order to improve the economic conditions in the country, Godrej Consumer Products (GCPL) said that the impact of the same on profitability remains minimal. “As disclosed in the previous quarterly performance updates, the profitability of the Latin America and SAARC business has been flat in H1FY24. Hence, the overall impact of devaluation on profitability remains minimal,” the company said in a regulatory filing.
Argentina’s President Javier Milei, who has been sworn in as president of the second largest economy in South America, devalued the peso over 50 per cent to 800 per dollar as part of shock measures needed to deal with an economic emergency. This, the company said, has resulted in a negative mid-single digital impact on consolidated sales performance in Q3FY24. GCPL said, “As the Argentinian economy is facing hyperinflationary pressures, accounting regulations require the YTD statement of profit and loss to be translated at the closing rate for presentation in consolidated financial statements. Hence, the impact of the devaluation of the Argentine Peso of the financial statement for 9MFY24 has been recorded in the 3QFY24. This has resulted in a negative mid-single digit impact on consolidated sales performance in 3QFY24.”
Argentina’s economy has been in hyperinflation accounting since FY 2019. The company said that the actions taken by the Argentinian government are ‘progressive as they will aid economic growth in the long run’ and will further improve consumption. “These steps would also improve forex availability, easing economic activities in the country,” it said.
GCPL further stated a few actions that need to be taken in response to the announcement by the government of Argentina.
a. As per IndAS 29, current cost statement of profit and loss, before restatement, generally reports costs current at the time at which the underlying transactions or events occurred. Therefore, all amounts need to be restated into the measuring unit current at the end of the reporting period by applying a general price index.”
b. As per IndAS 29, parent that report in the currency of a hyperinflationary economy may have subsidiaries that also report in the currencies of hyperinflationary economies. Its financial statements are translated at closing rates.
c. Following the IndAS 29, the below points are ensured while preparing the consolidated financial statements for the company: a) The base local currency numbers are restated with a hyperinflation index to bring them at current price levels. b). Base numbers plus hyperinflation impact computed in point (i) above in local currency, is converted at a closing exchange rate, as mentioned in point (b) above, for presentation in consolidated financial statements.