Transnational Corp. of Nigeria Plc growth and expansion plans, a strategy rolled out by the company to increase its share of the market, has culminated in rising borrowing costs that have weighed on bottom line as net income declined 30.15 percent.
Profit was N2.19 billion in the first quarter of 2015, compared with N3.15 billion the previous year, the Lagos-based company said in an on the website of the NSE.
Sales fell 5.12 percent to N10 billion as economic headwinds took a toll on the company’s hospitality, power, agribusiness and energy businesses.
The company that has interest in industries ranging from agriculture to oil plans to raise $1 billion to build plants.
Part of the settlement for the acquisition of assets may be by debt financing which explains the 32.72 rise in finance costs in the balance sheet of the company.
The rising borrowing costs caused the company exchange losses on foreign currency loans as devaluation of the naira exposes it to currency risk.
Analysts also attribute the faltering performance of the most diversified company in Africa largest economy to cost incurred to finance the acquisition of assets like the 1000 mega watt gas power plant at Ughelli.
The company bought the Ughelli gas plant in the Niger delta and plans to boost its output to 700 megawatts by the end of the year after spending as much as $300 million on turbine repairs.
While Transcorp expects the aforementioned expansion drive to increase profit this year, its production cost spiraled as cost of sales increased by 50.70 percent to N4.28 billion.
Cost of sales ratio increased to 42.84 percent in 2015 from 26.97 percent in 2014. It means the company is spending more to produce each unit of product.
Gross profit was down by 25 percent to N5.70 billion in 2015 as against N7.68 billion last year. Gross profit margin fell to 57.05 percent in 2015 as against 72.05 the previous year.
The falling gross profit margin means the company is not efficient in managing direct costs attributable to projects.
Transcorp’s net margin, a measure of profitability and efficiency dropped to 21.92 percent in 2015 compared with 30 percent last year. Operating profit margin was down to 40.34 percent in 2015 as against 46.15 percent in 2014.
Earnings per share EPS slid by 11.82 percent to 372k in 2015 compared with 328k in 2014.
Transcorp’s share price fell by 1.02 percent to close at N2.92 2:30pm on the floor of the exchange.
BALA AUGIE
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