Tourist Company of Nigeria (TCN) Plc, the hotel and hospitality giant is spending more to produce each unit of products as rising expenses wiped out all of sales culminating in a loss position.
The recurring loss position may hinder the company’s shareholders from getting the desired return on their investments hence eroding the purchasing power of owners.
For year ended June 2014, Tourist Company posted a loss after tax of N602.54 million from N125.05 million profit position it recorded the previous year. Sales were down by 2.10 N3.38 billion as weak consumer spending and insecurity in the north part of the country continues to dampen top line.
The company’s operating expenses of N3.55 billion swallowed all of the total revenue of N3.38 billion resulting in an operating loss of N169.61. Operating expenses ratio was as high as 105.02 percent which means for every N100 generated in sales, the company spent N105.02.
Analysts say the company’s rising operating expense position calls for urgent costs control mechanisms.
Despite the capital intensive nature of hotel business, Nigeria’s hotel tourism and hospitality business has been faced with conundrums such as the Ebola outbreaks, infrastructure deficits and acute conditions of unemployment and acute poverty.
These challenges are de-motivating investors that had high expectations of the Nigeria’s economy before the recent devaluations.
Domestic tourism revenue in Nigeria is targeted to triple to $12 billion within a decade, creating more than 400,000 jobs, according to the Tourism Development of Corporation of Nigeria in a 2014 report.
An industry analyst said the number of game or forest reserves and tourist attractions have reduced drastically adding that such activities increase the demand for hotel accommodation.
Tourism is a hub of investment that can generate foreign exchange, create employment and also attract foreign investment into the country. Nigeria as a country should revamp its tourism sector since the relationship between tourism and the demand for Hotel and hospitality are positively correlated.
TCN’s total assets were down by 10.60 percent to N10.60 billion in June 2015 as against N11.088 billion in June 2014.
The recurring loses recorded by TCN has culminated in negative reserves of N4.05 billion in June 2015. This represents a 17.10 percent from N3.45 billion accumulated losses recorded last year.
A negative reserve means the company has been posted more losses than profit since its existence a situation that calls for a capital reduction and reorganization scheme.
TCN is also highly geared as debt to equity ratio was 893.33 percent, which means the large chunk of company’s balance sheet is funded by lender’s money; this exposes TCN to financial risk. Total debts in the balance sheet are N10.72 billion, representing a 33.40 percent from N8.05 billion recorded last year.
The company’s share price closed at N3.51 on the floor of the exchange while market capitalization was N7.88 billion.