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Transcorp faces adverse pressure from costs and incomes

Transcorp faces adverse pressure from costs and incomes
November 15
21:43 2020

Adverse pressure persisted on both sides of costs and incomes for Transnational Corporation of Nigeria’s (Transcorp) in the third quarter ended September 2020. The nine months of the year ended for the conglomerate with profit down to just a little over one-quarter of the corresponding figure in 2019.

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Costs made a fresh incursion into earnings, which eroded margins. A foreign exchange loss of N1.2 billion occurred in the third quarter alone, shooting up the cumulative figure to N1.8 billion at the end of the third quarter. This is a shift from a foreign exchange gain of N442 million in the same period last year.

Further pressure came from finance expenses, as balance sheet borrowings remained in excess of N100 billion. Net finance expenses rose by 15 percent to the region of N12 billion, which claimed increased proportions of revenue and operating profit.

On the side of earnings, the company’s revenue maintained a downward movement at the end of the third quarter and this is happening for the second year. Pressure from dropping revenue and rising costs ruled the affairs of Transcorp in the third quarter.

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Turnover declined by 5 percent quarter-on-quarter to 19.4 billion but cost of sales grew by 5 percent to N11.4 billion, resulting in a 17 percent drop in gross profit over the period.

A major weakness in the third quarter came from increased incursion of cost of sales on revenue. Management responded by cutting administrative expenses by 33 percent quarter-on-quarter at the end of September. That plus a 122 percent leap in other income to nearly N748 million within the quarter helped the company to raise operating profit on quarter-on-quarter basis.

The gain in operating profit within the third quarter was however more than countered by increases in finance expenses and the foreign exchange loss. The two cost increases overturned a marginal increase in operating profit in the quarter into a drop of 53 percent in pre-tax profit quarter-on-quarter to a little over N1 billion.

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Transcorp’s year-on-year reading shows a drop of about 7 percent in turnover to N54.4 billion at the end of the third quarter operations, virtually the same margin of revenue drop at half year. The company lost nearly 27 percent of turnover in 2019 to close the year at N76 billion and revenue is going down for the second year.

Most of the company’s revenue lines faced significant drops at the end of the third quarter. Only power generation and capacity charges improved over the period under review. The energy business maintained its contribution to group turnover at 86 percent.

At N31.6 billion, cost of sales increased marginally against the drop in turnover. That eroded gross profit, which went down by close to 16 percent to N22.7 billion at the end of the third quarter.

Management axed administrative cost in the third quarter – which increased the rate of decline from a marginal figure at half year to over 15 percent at the end of the third quarter. Added to that was a leap of 155 percent in other income, which amounted to over N1.8 billion at the end of the third quarter.

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Operating profit still dropped by 9 percent to N15.5 billion at the end of September 2020. The drop was further extended by a rise of 15 percent in net finance cost to N11.7 billion as well as a shift from a foreign exchange gain of N442 million in the same period last year to a loss of N1.8 billion at the end of September 2020.

The two expense lines consumed 87 percent of operating profit at the end of the third quarter against 58 percent in the same period last year. Balance sheet debts remained huge at N102 billion at the end of September despite dropping from N114 billion at the end of 2019. The weight of the borrowings continues to bear on the company’s income statement.

Transcorp closed the third quarter operations with an after tax profit of N1.7 billion, which is a 74 percent drop year-on-year. For the owners of the company however, it is a net loss of N1.4 billion compared to N2.5 billion profit in the same period last year.

The company closed the third quarter operations with a loss of over 3 kobo per share, down from earnings per share of over 6 kobo in the same period in 2019.  It closed the 2019 operations with earnings per share of 4 kobo and gave shareholders a cash dividend of 1 kobo per share.

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