In the challenging economic landscape of Nigeria, the industrial sector is navigating a complex web of obstacles. The convergence of exchange rates, the floating Naira, and the removal of fuel subsidies have cast a shadow over the sector’s performance, affecting financial stability and corporate operations.
Examining the Performance:
Within the NGX Industrial Index, consisting of prominent companies like Berger Paints, Beta Glass, BUA Cement, CAP, CUTIX, Dangote Cement, MEYER, Notore, TRIPPLEG, and WAPCO, a closer look reveals divergent outcomes in revenue, pre-tax profit, share price year-to-date gains, and the sector index.
Mixed Results: Dangote Cement, Notore, and BUA Cement found themselves in the red, collectively reporting foreign exchange losses of -N129.811 billion. In contrast, Beta Glass, CAP, and WAPCO reported a combined foreign exchange gain of N3.49 billion.
Cumulative Impact: When factoring in the cumulative effect of foreign exchange fluctuations, an overall 8.19% reduction in total pre-tax profit occurred, totaling N372.573 billion for the first half of 2023.
Dangote Cement’s Struggles: Dangote Cement faced the harshest blow, with a staggering foreign exchange loss of N113.63 billion, marking a 179.47% year-on-year increase.
For instant, most of these losses, a whopping 91.43%, materialized in the second quarter due to exchange rate unification and the Naira’s shift to a floating rate.
Notore’s Plunge: Notore reported a substantial foreign exchange loss of N14.05 billion, coupled with plummeting revenue and a drastic 1,558% decline in pre-tax profit. The company’s revenues dropped by 68.97%, exacerbated by a 249% surge in finance costs.
BUA Cement’s Marginal Growth: BUA Cement experienced a foreign exchange loss of N2.137 billion, marking a 103% year-on-year increase. Coupled with higher interest expenses, this led to only a marginal 2.75% increase in pre-tax profit to N76.425 billion.
WAPCO’s Gain: WAPCO – Lafarge stood out among gainers, reporting a N2.237 billion gain in foreign exchange, contributing to an 18% growth in pre-tax profit. However, a 5.16% year-on-year decline in profit after tax occurred due to elevated income tax expenses.
The Broader Picture: Except for Notore, the other companies reported revenue growth, highlighting the complexity of the industrial sector’s performance.Industrial Index Performance:
The Industrial Index, designed to benchmark the sector’s performance, showed early promise with a 2.21% growth in the first quarter but slipped to 1.42% in the second quarter, resulting in a modest first-half gain of 3.66%.
However, it posted a mere 0.25% gain in August 2023, trailing behind other sectors like Oil and Gas, Banking, Consumer Goods, and the NGX index.
Foreign Exchange Losses’ Impact: Foreign exchange losses had a significant impact on company earnings and investor sentiment, likely contributing to the Industrial Index’s underperformance compared to other sectors.
Individual Rankings: Berger Paints emerged as the Index’s top performer, boasting an impressive year-to-date gain of 83.33%, currently ranking 38th on the NGX.In contrast, Dangote Cement, despite a five-year high closing of N369.80, ranks 65th in year-to-date performance.
BUA Cement’s shares saw a decline of -13.19% from its 52-week high, closing at 86.55 on September 1, 2023, while Lafarge experienced a -6.03% dip from its 52-week high, closing at 29.60 on the same date.
in the same vein: The Aggregate Index Score (AIS) of MAN’s MCCI declined to 52.7 points in the second quarter of 2023 from 54.1 points obtained in the first quarter of 2023. The index score of the current quarter, though below that of the previous quarter, indicates that manufacturers generally show resilience and retain confidence in the economy.
However, across sectoral groups, operators in Motor Vehicle & Miscellaneous Assembly with an index score of 46.7 exhibited further loss of confidence as they fell below the 50-point benchmark. These operators were adversely affected by the exorbitant new premium rate for motor insurance and the abrupt subsidy removal which significantly worsened sales performance and increased the consumer’s preference for fairly used vehicles as a result of low purchasing power.
Similarly, among industrial zones, activities in Abuja (40), Rivers/Bayelsa (40.5), Cross-Rivers/Akwa-Ibom (45), Kano (46.2), Kaduna (47.8) and Oyo/Ondo/Ekiti/Osun (48.6) were depressed by the high-cost operating environment in the second quarter of 2023 as underlined by their index scores which fell below the benchmark points
In a nutshell, the industrial sector’s journey in Nigeria’s challenging economic landscape remains a dynamic and ever-evolving narrative, shaped by policy shifts and market forces.