In 2020, Transcorp Hotels faced a devastating blow as the global shutdown brought the travel industry to its knees. With flights grounded and tourism at a standstill, hotel rooms sat empty, turning once bustling properties into ghost towns. Cash flow plummeted, and the company was left reeling, ultimately recording a staggering N6.3 billion loss.
Fast forward to the first half (H1) of 2024, Transcorp Hotels established itself as Nigeria’s most profitable hospitality business. Transcorp Hotel posted a net income of N6.6 billion, which was 169 percent higher than the N2.46 billion net income recorded in H1 2023.
Cash flow management is a serious issue in the hospitality scene, due to the nature of the business. The demand for hotel services varies based on the time of the year, which explains why hotels record the bulk of their annual revenue in the last quarter of the year, as it is the holiday season.
In H1 of 2024, Transcorp Hotels’ net income exceeded the N6.1 billion recorded for the entire year of 2023, despite being in a typically low-demand period. Analysts project that Transcorp Hotels will achieve 100 percent profit growth by the end of 2024.
Away from its impressive revenue and profit numbers, more impressive has been the group’s cash management. With an equity ratio of 0.54 as of H1 2024, as well as an average equity ratio of 0.53 since 2021, the company has displayed a balanced usage of equity and debt to finance its operation. Transcorp Hotel is in a position of moderate leverage, which is allowing it to make necessary expansionary moves.
The group is currently constructing a Lagos hotel to be known as Transcorp Hilton, Lagos. In Abuja, Transcorp Hotels Plc is also constructing a 5000-seater event centre.
Read also: Transcorp Hotels’ earnings reach 11-year high, up 164% in H1
Transcorp Hotels’ financials since 2021 tell a story of smart business decisions and cash flow optimisation. For example, the company took the bold step of offloading Transcorp Hotels Calabar, which had been on a run of losses since 2020.
Transcorp Calabar had been a profitable venture pre-COVID, and from 2020 to 2021, the hotel tried to cut its losses from N144 million in 2020 to N3.5 million in 2021. In 2022, Transcorp Hotels Calabar’s cash retention strategy came under scrutiny as operating expenses grew by 37 percent, significantly outpacing the 17 percent increase in gross margin. In 2024, Transcorp Hotels Plc took the step of divesting away from Transcorp Hotels Calabar for a total sum of N2.5 billion to focus on its more profitable businesses.
By focusing attention on its more profitable ventures, Transcorp Hotels recorded revenue of N163,000 per available room in H1 of 2024, representing a 57 percent growth from the N103, 646 revenue per available room recorded in H1 2023.
One key strategy that has kept Transcorp Hotels on top of its game is paying more attention to its high-margin services. In the hospitality industry, room service is the highest margin industry. Transcorp Hotel room business generated a gross margin of 85 percent in H1 2024, while its food business which generated a gross margin of 38 percent.
Unlike some of its contemporaries, Transcorp Hotel has stuck with a quite conservative approach to its hospitality business. Its Abuja hotel, Transcorp Hilton, does not have a casino like Federal Palace Hotel and Casino owned by Tourist Company of Nigeria.
Transcorp has also adopted a smart financial management strategy, with its operations financed more by equity than by debt. Since 2021, Transcorp has spent about N27.3 billion on repaying principal and interest loan payments, in contrast with N111.2 billion received in new loans during the same period. By adopting a balanced mix of debt and equity, the company’s risk management strategy has proven attractive to investors.
Although, Transcorp Hotels has been dealing with negative working capital since 2021, a consistent decline from N16 billion negative working capital to N7.85 billion as of H1 2024 is a display of improved liquidity and a sign that the company is generating more cash flow.
Operational costs over the years have increased. However, inflationary pressures have hit every business in Nigeria. However, the company displayed operational efficiency with its operating margin, from 27 percent in financial year (FY) 2021 to 29 percent in FY 2022 to 32 percent in FY 2023, and 41 percent in FY 2024.
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