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Forex Losses: A Major Challenge for Nigeria’s Industrial Sector



In Nigeria, the economy and businesses are grappling with persistent issues related to the unification of exchange rates, the floating of the Naira, and the removal of fuel subsidies. These challenges have had far-reaching effects on different sectors, particularly on financial stability and the operations of corporations.

When we focus on a specific sector, such as the industrial sector, and take a closer look at both the NGX industrial sector index and the financial performance of companies operating within this sector, we can observe how these policies have had varying impacts. These effects are evident in factors like their revenue, pre-tax profit, year-to-date share price gains, and the overall sector index.

It’s important to note that while some companies within the industrial sector have witnessed significant declines in certain performance indicators, others have managed to perform relatively better despite the challenging economic environment.

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

A review of the financial performance of eight of these companies, Berger Paints, Beta Glass, BUA Cement, CAP, Dangote Cement, MEYER, Notore, and WAPC, reveals that among these companies, Dangote Cement, Notore, and BUA Cement, reported a combined foreign exchange losses of -N129.811 billion, while 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, it led to an overall reduction of 8.19% in their total pre-tax profit, which amounted to N372.573 billion in the first half of 2023

Dangote Cement: Dangote Cement led in foreign exchange losses recording a significant foreign exchange loss of N113.63 billion.

This represents a 179.47% year-on-year increase, the highest in the past five years.

Specifically, 91.43% of these losses occurred during the second quarter. In Q2, foreign exchange losses surged by 362.79%, reaching N103.837 billion.

This surge reflects the impact of the unification of the exchange rates and the Naira’s shift to a floating exchange rate system

According to the H1 2023 financial notes, the net exchange loss on foreign-denominated transactions was primarily attributed to the sharp devaluation of the Nigerian Naira in June 2023.

The Naira went from ₦465/$ at the end of May 2023 to ₦756/$ in June 2023, resulting in a net exchange loss of ₦116.1 billion on third-party loans and payables within the Nigerian entities.

These losses had a direct effect on the decline in pre-tax profit, which decreased from N264.89 billion to N239.86 billion during the reviewed period.

Notore also reported a substantial foreign exchange loss of N14.05 billion in H1 2023. Coupled with low revenue and a significant increase in finance costs, this contributed to a pre-tax loss of N38 billion, representing a 1,558% decline.

The company managed to generate revenue of N7.92 billion, a substantial decline of 68.97% for the H1, 2023.

The situation was further exacerbated by a significant 249% increase in finance costs, which had a pronounced impact on the company’s bottom line.

BUA Cement reported a foreign exchange loss of N2.137 billion in H1 2023, marking a significant year-on-year increase of about 103%. Coupled with elevated interest expenses, this dampened pre-tax profit, resulting in only a marginal increase of 2.75% to N76.425 billion when compared to H1, 2022, trailing Dangote Cement.

WAPCO – Lafarge led the foreign exchange gainers, recording a N2.237 billion gain in foreign exchange.

This contributed to a growth of 18% in pre-tax profit.

However, despite this positive performance, the company experienced a year-on-year decline of 5.16% in profit after tax, primarily due to high-income tax expenses.

Also, Beta Glass and CAP Plc reported FX gains, while MEYER and Berger Paints have no record of FX gains/(losses).

An important distinction to note is that, with the exception of Notore, the other companies reported revenue growth.

The Index: The Industrial Index, designed as a benchmark for investment purposes to monitor the performance of the Industrial Sector, showed a growth of 2.21% in the first quarter.

However, this growth declined to 1.42% in the second quarter, resulting in a moderated first-half gain of 3.66%.

The Index’s performance continued a downward trajectory, posting a minimal 0.25% gain in August 2023.

This underperformance was consistent across various time periods compared to other indices, including sectors such as Oil and Gas, Banking, Consumer Goods, and the NGX index, all of which posted double-digit growth, in contrast to the modest 1.42% recorded in the Industrial Index during the second quarter.

Considering the impact of foreign exchange losses on company earnings and investor sentiment, it is reasonable to view this as a key contributing factor to the underperformance of the Industrial Index during the specified period, as evidenced by individual company performance relative to others in the sector.

Berger Paints, the Index’s top performer with an impressive YTD gain of 83.33% is currently ranked 38th on the NGX.

Dangote Cement, closing at a five-year high of N369.80, ranks 65th on the NGX in year-to-date performance

BUA Cement has posted a year-to-date loss of 1.64%. As of the last trading day on Friday, September 1, 2023, the stock closed at 86.55, marking a -13.19% decline from its 52-week high of 99.70, reached on January 11, 2023.

On Friday, September 1, 2023, Lafarge closed at 29.60, marking a -6.03% decline from its 52-week high of 31.50, reached on July 10, 2023.