Transcorp records upsurge in profit amid monumental challenges

Transnational Corp. of Nigeria Plc has recorded an upsurge in profit to end 2016 financial year amid a myriad of challenges such as local gas shortage and economic downturn in Africa’s most populous nation. 

For the year ended December 2016, the company’s operating profit increased by 37.79 percent to N20.71 billion from N15.03 billion the previous year.Earnings before interest and amortization (EBITDA) were up 35 percent to N21.80 billion.

The most diversified company attributed the growth at the bottom line to improved efficiency across its entire business segment.

Gross profit rose to 23.96 percent to N30.16 billion, which signifies management’s ability to control direct costs attributable to project. Transcorp defiled the headwinds as sales were up 45.81 percent to N59.42 billion.

The growth at the top line was due to a 75 percent contribution from its power business while the hospitality business accounted for a quarter of Group top lines.

Emmanuel Nnorom, President/CEO of the Group,  while commenting on the 2016 audited financial statement said that at Transcorp Hilton, the hotel business, the company leveraged its strong franchise, customer service and boutique of offerings to sustain occupancy rate, which in November 2016 rose to 66 percent.

“Notably, Transcorp embarked on a major upgrade last year, the first in the last thirty years of establishing the hotel. This renovation, which is aimed at gaining more market share, should help to increase the occupancy rate to Management’s target of 70%, upon completion, as guests relish the unparalleled offerings of the 670-rooms hotel,” said Nnorom.

“Impressively, the hotel business remains a cashcow for the Group, recording a N10.9 billion gross profit and N5.2 billion profit before tax in 2016,” The hotel subsidiary, which is also listed on the Nigerian Stock Exchange, paid a dividend of N0.40/share, translating to a yield of 8% on the unit price of N4.98 on March 3, 2017,” Nnorum added.

The year 2016 was tough for Transcorp as shortages of local gas at the factory made it practically difficult to obtain fuel. Militants in the Niger Delta region of the country damaged pipelines transporting gas to factories hence undermining the growth of oil and gas companies.

A 15 month currency peg by the central bank worsened a dollar scarcity and manufacturers were forced to buy the currency at the black market rate that is 40 percent higher than the interbank rate.

The economy contracted by 1.50 percent in the fourth quarter of the year, accounting a recent report by the National Bureau of Statistics (NBS), the country’s worst recession in 25 years. Inflation for the month of January accelerated by 18.70 percent, the highest in 15 month.

The adoption of a flexible exchange rate in June last year by the apex bank in order to allow the naira float freely and bolster liquidity stoked foreign exchange revaluation loss in the books of companies that had dollar denominated loans in their capital structure.

“Like every other company operating in the country, the relative weakness of the economy subdued potential business growth in the hotel business and more importantly, the power subsidiary had challenges with gas supply, power sector liquidity and of course FX scarcity and the associated devaluation of the Naira. Notably, the Naira devaluation led to an unrealized FX loss for the Group, arising from the power subsidiaries currency risk exposure,” said Nnorom.

Federal Government sold power assets to indigenous firms in order to bolster generation and attract the necessary investment.

Surprisingly, these firms have threatened to halt power supply over a N213 billion owed to them by Ministries, Department and Agencies of the Federal Government.

Nigerian Bulk Electricity Trading Plc (NBET), a Federal Government owned public liability company owe Transcorp Power Limited roughly N50 billion.

Nnorom however expressed his optimism on 2017, citing that the challenges are steadily abating.

In his words, he said; “gas supply is improving, at least from our experience since mid-February, and this has led to an increased power generation at our plant, from less than 300MW last year to over 400MW. We believe the enhanced engagement and commitment of the government to the Niger Delta should help sustain this positive development.”

Government is intensifying efforts to end the liquidity crisis in the power sector.

The Federal Executive council has approved the sum of N701 billion to NBET. The money will enable the agency meet its obligation to power companies.

The speedy payment of debt owed to power firms will enable  Transcorp clear the backlog of debt and reduce exposure to currency risk.

Current ratio, a measure of liquidity fell to 1.96 times in December 2016 as against 1.24 times the previous period;lower then the 2.1 times industry average.

Transcorp share price closed of 2:00on  N0.69 on the floor of the exchange, valuing the company at N28.02 billion.

BALA AUGIE