Intermediate3 min readThe Economy and Saving in Egypt · 3/13
How the Dollar Rate Affects EGX Sectors
When the dollar moves against the pound, some companies gain and others are squeezed. What separates them is a simple question: in which currency does the company's money come in, and in which does it go out?
What you will learn
Judge a company's sensitivity to the dollar from its revenue, costs and debt.
See why the sector name alone is not enough to judge by.
An Egyptian company usually reports in pounds, but part of its revenue or costs may be tied to the dollar. When the dollar strengthens against the pound, any money coming in dollars grows when counted in pounds, and so does any money going out in dollars. The net result depends on which side is bigger.
Earns in dollars, spends in poundsA stronger dollar can lift its profit in pounds
Sells in pounds, imports its inputsIts costs rise unless it can raise prices
Owes debt in dollarsThe debt itself grows when counted in pounds
Earns and spends in poundsLess direct effect, though inflation still reaches it
Four common profiles. One company can combine several at once.
Two companies, one exchange rate
An invented exampleAn invented company, Sinai Exports, sells 10 million dollars a year and spends EGP 300 million, all locally. At 40 pounds to the dollar its revenue is 400 million and its profit 100 million. At 50, revenue becomes 500 million and profit 200 million. Another invented company, Delta Home Goods, sells EGP 400 million and imports 5 million dollars of materials: those cost 200 million and now cost 250, so its profit falls from 200 to 150 million unless it raises prices.
The figures are invented, simplified and before tax. In reality the effect does not show up in a day: a company may hold inventory bought at the old rate, or contracts with fixed prices for a while, so the change appears in results over months.
The sector name is not enough
It is easy to say "exporters win" or "importers lose", but companies differ within the same sector. A company exporting half its output while carrying large dollar debt may lose more than it gains. To find out, check the financial statements and disclosures for revenue currency, the share of imported inputs and debt in foreign currency.
Watch outA one-off currency gain is not the same as real growth in the business. If profit rose only because of a currency revaluation, it may not repeat next year.
Look at the sectors
Open the sectors page to see how each sector is doing, and follow the exchange rate on the rates page.