The ripple effect of forex losses on Nigeria’s NGX industrial sector

The ripple effect of forex losses on Nigeria's NGX industrial sector
The ripple effect of forex losses on Nigeria's NGX industrial sector

Forex – Nigeria’s economic landscape has encountered various challenges related to exchange rate unification, the floatation of the Naira, and the removal of fuel subsidies.

These issues have had far-reaching implications, affecting financial stability and the operations of businesses across sectors.

Taking a closer look at the industrial sector, we can observe the varying impacts of these policies on the NGX industrial sector index and the financial performance of companies within the industrial sector.

These impacts are reflected in their revenue, pre-tax profit, year-to-date share price gains, and the sector index.

The NGX Industrial Index comprises ten companies, including Berger Paints, Beta Glass, BUA Cement, CAP, CUTIX, Dangote Cement, MEYER, Notore, TRIPPLEG, and WAPCO.

Examining the financial performance of eight of these companies, we find that Dangote Cement, Notore, and BUA Cement reported a combined foreign exchange loss of -N129.811 billion.

In contrast, Beta Glass, CAP, and WAPCO reported an aggregate foreign exchange gain of N3.49 billion.

However, when considering the cumulative impact of foreign exchange fluctuations, an overall reduction of 8.19% in total pre-tax profit was observed, amounting to N372.573 billion in the first half of 2023.

Dangote cement leads in forex losses

Dangote Cement faced the most significant foreign exchange losses, with a foreign exchange loss of N113.63 billion.

This represented a 179.47% year-on-year increase, primarily occurring during the second quarter.

Notore also reported substantial foreign exchange losses of N14.05 billion, contributing to a pre-tax loss of N38 billion.

BUA Cement reported a foreign exchange loss of N2.137 billion, leading to only a marginal increase in pre-tax profit.

In contrast, WAPCO – Lafarge recorded a N2.237 billion gain in foreign exchange, contributing to an 18% growth in pre-tax profit.

Despite these challenges, it’s important to note that, except for Notore, the other companies reported revenue growth.

However, the industrial sector index showed underperformance compared to other indices, largely attributed to foreign exchange losses impacting company earnings and investor sentiment.

Berger Paints emerged as the top performer in the index, with a year-to-date gain of 83.33%, while Dangote Cement, despite its foreign exchange losses, closed at a five-year high.

BUA Cement faced a year-to-date loss, and Lafarge experienced a decline from its 52-week high.