Transcorp Hotels rebuilds revenue, sustains profit recovery

Transcorp Hotels strengthened revenue growth in 2016 after a drop in the preceding year and closed the year with the highest turnover figure in three years. The company sustained profit recovery for the second year after a drop in 2014. Revenue growth slowed down in the final quarter while profit stepped up from the third quarter records. The full year figures are virtually at par with projections.

The hospitality company closed the 2016 operations with a turnover of N15.31 billion, just 3% short of the projected figure of N15.8 billion. This represents an increase of 9.5% over the 2015 figure of N13.98 billion and the highest revenue record in three years. It is slightly below the peak turnover figure of N15.38 billion the company posted in 2013 but yet a better performance than the decline of 7.4% in 2015.

Valentine Ozigbo, managing director/CEO of Transcorp Hotels, has in his hands the task of  getting revenue to break out from the up and down swings the company has been experiencing in the past six years and show a track of stable growth. Transcorp Hotel generates its revenue mainly from hotel accommodation, sales of food and beverages, entertainment and restaurant incomes, other related service fees and rental income. It also earns significant finance income from cash balances.

Profit performance has followed even a wider swing than revenue but a strong growth in 2016 has sustained the company on the path of recovery for the second year. It ended the year with an after tax profit of a little over N4.0 billion, some 5% ahead of the projected figure of N3.8 billion. This is an increase of 17% in the year, double the 8.6% improvement in 2015 to N3.5 billion. This represents the highest profit figure in three years and yet well below its peak profit record of N6.96 billion in 2011.

Cost of sales went up slightly last year from 24% to 25% of turnover, which prevented the company from growing gross profit as fast as revenue during the year. Administrative expenses grew well ahead of revenue at over 22% in the year but an outstanding growth of 414% in other operating income to N560 million moderated the increase. Operating profit still went down slightly to N4.66 billion at the end of the year.

The company shows a finance income of N575 million net of capitalized interest expenses of N4.08 billion. That still resulted in a slight decline in pre-tax profit to N5.23 billion. A drop of over 39% in income tax expense was the only cost reduction that permitted the growth in after tax profit the company recorded in the year.

The tax reduction enabled the company to convert an increased proportion of its revenue into profit. Net profit margin improved from 25% in 2015 to 26.7% at the end of 2016.

The company’s income statement carries no interest expenses on the N20.7 billion short- and long-term debts on the balance sheet. It capitalized net interest expenses of N4.08 billion at the end of 2016, rising from about N600 million capitalized in the preceding year.

The company came under cash flow pressure last year following a sharp drop of 38% in net cash generated from operating activities and a sustained increase in investing activities. It therefore suffered a net cash decrease of N12.52 billion at the end of 2016 against a net cash increase of N11.47 billion in 2015.

The company earned 54 kobo per share at the end of 2016. It earned 46 kobo in 2015 and paid a cash dividend of 40.85 kobo per share. It was yet to announce its dividend for the 2016 operations at press time.