March 11, (THEWILL) – Transcorp Hotels Plc 2022 full year (FY) performance was impacted by the inflationary environment that saw the hospitality key player trudge under costs pressure.
The Group’s N4.5 billion profit before tax (PBT), a 172 percent increase year-on-year, from N1.7 billion in 2021, was prominent in the headline of the statement announcing the FY 2022 results. Also highlighted was the N31.4 billion revenue haul representing a 47 percent rise from N21.6 billion in the preceding period.
Transcorp applauds its impressive performance. However, the 2022 results reinforce the Group’s moderate growth trajectory impacted by cost pressures as seen in its profit after tax (PAT) of N2.6 billion from N1.1 billion in 2021. Enhanced returns are plagued by cost pressure.
Profits are challenged by high inflation which remains the big elephant in the room impacting on businesses, and Transcorp is no exception. Consequently, the phenomenon puts unyielding pressure on the firm’s ability to achieve enhanced dividend for the shareholders given the critical sector it operates.
The persistent cost pressure showed in the Group’s cost of sales (COS) which rose by 65 percent to N9.05 billion in the review period from N5.51 billion in 2021. Signs that the COS was going to be hugely impacted showed earlier in the year up to Q3 when it hit N6.27 billion from N3.77 billion in the preceding half year, a rise of 67 percent.
The 2022 COS rose 374 percent (from N1.91 billion in Q1 to FY N9.05 billion). It was 411 percent in 2021`(from N1.08 billion in Q1 to FY N5.51 billion). Operating cost rose from N11.1 billion in 2021 to N14.63 billion in 2022, or 32 percent; while finance costs rose marginally by 1.8 percent to N4.14 billion from N4.07 billion in the equivalent year.
Major revenue fonts are the Rooms and Food and Beverages from which cash flow was profuse. Calabar tops the list, suggesting that the Group taps from the growing hospitality industry of the Cross River capital popularly called ‘Canaan City’.
Revenue from Rooms grew significantly from N13.76 billion in 2021 to N19.67 billion in 2022, representing 43 percent. Food and Beverages followed the same trend. It yielded N10.22 billion revenue as against N6.46 billion in the previous year – an increase of 59 percent. However, the improvement was equally impacted by inflation as energy cost also skyrocketed.
Data gleaned from the 2022 FY results revealed that the COS of the cash cow’s: Rooms, and Food and Beverages segments, mirrored the inflationary trend. The Group must have adjusted its tariffs to reflect prevailing economic realities, the gains were however impacted by the rampaging inflation rate which moderated from 13.8 percent in January to 21.3 percent in December.
On the other hand, the COS on Rooms equally rose significantly: N3.40 billion from N1.83 billion in 2021 representing 86 percent increase, while Food and Beverages recorded a 47 percent increase in COS to N5.10 billion from N3.49 billion in 2021. The overall Operating Expenses of the Group rose by 32 percent hitting N14.63 billion from N11.10 billion of the previous year.
Another area of concern was energy. The Group recorded significant energy cost during the review period. Energy cost rose from N1.67 billion in 2021 to N2.33 billion in 2022, an increase of 40 percent. Employee cost rose to N2.19 billion from N1.67 billion or 32 percent, an indication of the Group’s handsome reward policy. This mirrored the high energy cost that took toll on businesses as diesel prices soared 182.6 percent to N820 per litre fromN290 per litre across the country.
Similarly, the rise in the food and beverages supply chain stemmed from the impact of severe flood and massive oil theft that put Nigeria on the spotlight of economic devastation in 2022. Agriculture, manufacturing and oil suffered the impact and contributed to the poor Gross Domestic Product (GDP) for 2022, The National Bureau of Statistics (NBS) in its 2022 fourth quarter report said the overall GDP annual growth rate dropped to 3.10 percent from 3.40 percent in 2021 as critical sectors suffered a decline.
Businessman and Chairman, Heirs Holdings, Mr Tony Elumelu, in March 2022 bemoaned the fact that Nigeria was losing over 95 per cent of its oil production to thieves.
Elumelu, who narrated the ordeal of some of his colleagues at work on his official Twitter handle, urged the citizens to be “vocal” about the way they are governed and hold their leaders more accountable.
“How can we be losing over 95 per cent of oil production to thieves? Look at the Bonny Terminal that should be receiving over 200,000bpd quantity of crude oil daily, instead it receives less than 3,000 barrels, leading the operator, Shell, to declare force majeure.
“Why are we paying taxes if our security agencies can’t stop this? It is clear that the reason Nigeria is unable to meet its OPEC production quota is not because of low investment but because of theft, pure and simple,” Elumelu lamented.
Analysts and industry experts believe that the hostile environment posed a huge challenge for Transcorp known for its top-flying performance as rising costs persisted in critical areas – energy, supply chain, finance and human capital.
“Inflation puts the Group under pressure, making it difficult to explore the available opportunities for better growth and to deliver enhanced dividends to the stakeholders,” said Mike Akhimien, a finance expert.
An oil and gas operator, Sly Aboderin, said the expansion capacity of the Group was impeded by cost pressure. It may appear ‘small’ from the outside because the figures are in the middle and upper double units, the effects are considerable.
“Transcorp’s FY results showed the Group is cruising comfortably in key performance ratios. However, cost pressure cannot be ignored, especially for a firm in the flying mood. This may take some time to normalise because Transcorp is still growing,” Aboderin said in a telephone chat.
Notwithstanding the scenario, the Group believes it has delivered exceptional performance amid unyielding economic headwinds.
Commenting on FY 2022, the Managing Director/CEO of Transcorp Hotels Plc, Dupe Olusola, noted that Transcorp Hotels recorded another year of exceptional revenue growth amidst the uncertainty in the macro-economic conditions.
“This impressive achievement is the highest revenue generated since the inception of the Hotel and has set the Group above pre-COVID performance levels.
“The full-fledged return of the International Business Travel segment and the bolstering leisure segment contributed immensely to this performance.
”We continuously strive to achieve a dynamic mix of business types closely managing our hotel occupancy and guest experience.
“Our excellent financial performance in 2022, despite adverse economic conditions, is the direct result of our concerted efforts and commitment to deliver excellent value to our stakeholders and customers,” Olusola added.
The Group declared a dividend of 13 kobo per share for 2022.
A major impact the Group’s report may not have spotlighted is the huge indirect job opportunities it created through the relevant supply chains. The NBS Q4 2022 report showed Service as a key contributor to Nigeria’s GDP while agriculture, manufacturing and oil sectors slide.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
