Transcorp raises turnaround hopes in Q1 2021

Transnational Corporation of Nigeria (Transcorp) has begun the 2021 financial year with high hopes for a turnaround. Its first-quarter operations ended March shows a new momentum in earnings that topped up revenue with N9 billion and realised as much as 54 percent of the 2020 full year profit in the three months of the year.

The conglomerate is picking up from loss of revenue for the second year in 2020, closing the year with the lowest turnover in four years — resulting in a drop of 80 percent in pre-tax profit.

The upturn in the first quarter gives signals that management has overcome its challenges and that an upswing in earnings can be expected this year. Turnover grew by 59 percent or N9 billion year-on-year in the first quarter to over N24 billion. With a further likely gain in momentum in the course of the year, it is expected that turnover could approach the previous high of N104 billion attained in 2018.

The revenue gain has recharged profit capacity, which saw a big turnaround in the bottom line from less than N81 million in the first quarter of last year to over N2 billion at the end of March 2021. The figure is already more than the N1.6 billion group pre-tax profit the company posted at the end of 2020.

It is also as much as 54 percent of group after tax profit last year. The company had applied a tax credit of over N2 billion to patch up a drop of 80 percent in pre-tax profit last year. The developments present positive signals that a major turnaround is to be expected for Transcorp in 2021.

A major improvement in the company’s main income line – electricity generation is the revenue growth driver so far this year. Earnings from electricity generation nearly doubled at 96 percent year-on-year in the first quarter. This produced over 55 percent of turnover during the period. There was also a strong growth of 61 percent in revenue from capacity charge during the period.

The upswing in revenue in the first quarter was also accompanied by some cost moderation. Input cost continued growing ahead of turnover however but a slowdown in administrative cost and a decline in finance expenses saved some costs for the company.

Transcorp recorded a general moderation in costs in the first quarter – resulting in a big gain in profit margin from 0.5 percent in the same period last year to 8.4 percent at the end of the first quarter.

Input cost grew ahead of revenue at 75 percent to N14 billion compared to 59 percent increase in turnover. It claimed 57 percent of revenue compared to 52 percent in the same period last year. Gross profit therefore grew at a slower pace than revenue at 42 percent to over N10 billion at the end of the first quarter.

This is a strong turnaround from a drop of about 7 percent in gross profit at the end of the 2020 financial year. It is also an improvement of the position last year when cost of sales grew against a decline in turnover.

The other pressure from the side of cost is a foreign exchange loss of N727 million. This is a downturn from a foreign exchange gain of N144 million in the same period last year.

The company made cost savings from administrative expenses and impairment loss on financial assets during the period. Administrative expenses increased only moderately at less than 10 percent to N3.6 billion year-on-year. Also, impairment loss on financial assets, which was as large as N4 billion at the end of last year, amounted to N90 million in the first quarter.

A major increase of 96 percent in other operating income to N244 million added to the positive developments in operations for Transcorp during the review period.

The result of improved revenue and moderated costs is an increase of 67 percent in operating profit to almost N7 billion at the end of the first quarter. This is a rebound from a drop of 20 percent in operating profit at the end of last year.

This was boosted by a reversed movement in net finance expenses from an increase of 12 percent at the end of the prior financial year to a drop of 11 percent year-on-year to N3.7 billion in the first quarter. This is despite an increase in the company’s debt portfolio from N119 billion at the end of 2020 to over N121 billion at the end of March 2021.

A major upturn in after tax profit from less than N81 million in the same period last year to N2 billion for the first quarter, gives a signal that the first significant profit recovery may be expected for Transcorp in 2021.