Transcorp Hotels Nigeria Plc has recorded double digit growth in full year profit, thanks to the capitalization of borrowing costs.
For the year ended December 2016, the Hotel and hospitality giant’s net come was N4.09 billion as against N3.49 billion as at December 2015.
“This is in spite of the reduction in the number of rooms and escalating cost of operation,” the company said in a statement released to BusinessDay.
The growth in profit was due to the capitalizations of borrowing costs that helped wipe out all of interest expense of N4.26 billion in the period under review hence resulting in the profit after tax.
The company used the proceeds of a N10 billion 7 year fixed rate bonds to upgrade and refurbish Transcorp Hilton Abuja as well as the construction of multipurpose banquet.
International Accounting Standard (IAS) 23 allows a firm to capitalize borrowing costs on qualifying capital expenditure, in so far as such renovations will add value to the asset or building and if it also results in the reduction of revenue. Transcorp Hotels has compiled with its entire loan covenant and there are threats of financial risks or strain on the balance sheet.
As at December 2016, the ratio of net debt to Earnings before Interest Taxation Depreciation and Amortization (EBITDA) was 3.0 times from 1.22 times as at December 2015. Minimum historical Debt Service Coverage Ratio (DSCR) stood at 2.0 times and Secured indebtedness was 39 percent.
The owner of Transcorp Hilton Abuja recorded a 9.59 percent growth in sales in December 2016 as against N15.31 billion the previous year. The company attributed the upswing at the top lines to certain key events including visits by very high profile guests, many foreign heads of governments and representative of various consulates.
“A number of Annual General Meetings (AGMs) were held by several bluechip companies, and we also recorded visits by the CEOs of world football governing body (FIFA) and many Fortune 500 CEOs and their equivalents,” said the company in the statement.
“Revenue also improved due to aggressive business development through market segmentation and competitive rates for rooms, food and beverage and corporate events,” added the company.
While security challenges remains a stumbling block to most hotels and hospitality firms operating in Africa’s largest economy, Transcorp Hotels remains the safest Hotel for lodgers.
The company’s managing director/CEO, Valentine Ozeigbo, said in a recent interview that the Hotel is lucky to be located at the centre of Nigeria, the Federal Capital Territory. He said location is very paramount when it comes to hospitality.
“Number two is that we also have a unique property in terms of what we have; it is a very special design—the lobby is second to none and you hardly find such anywhere globally and the facilities are incredible,” said Ozigbo.
“We are one of the few hotels that can boast of 30 presidential suites, 20 ambassadorial suites and many more royal and business suites,” said Ozigbo.
Despite Transcorp’s giant stride and its ability to surmount the headwinds, analysts say decrepit infrastructure, the currency foreign exchange scarcity and an economic downturn are impediments to the growth of hotel and hospitality business.
Nigeria has been grappling with lower oil price and a severe scarcity of foreign currency that undermined economic growth.
Since 2015, the number of business conferences have reduced as investors lost confidence in the economy after the central bank introduced capital controls.
Hotels were affected by the lethargy as number of lodgings and bookings reduced since a lot of companies have cut down on travelling and accommodation expenses for staff and top executives.
To further exacerbate the already anaemic position of companies operating in the hotel and hospitality sector is huge overheads incurred on the purchase of diesel oil to power plant at head offices and branches as electricity from the grid remains unstable.
The Hospitality/Tourism Industry in Nigeria contributed about 4.8 percent to Nigeria’s Gross Domestic Product in 2016, according to the Africa’s number one hotel booking online portal, Jumia Travel in its 2017 report and outlook for Nigeria.
Nigeria’s economy contracted by 2.20 percent in the third quarter of the year. Inflation for the month of January accelerated to 18.70 percent, the highest in 15 months.
The rising cost of operation fuelled by lack of electricity and bad roads showed face in Transcorp Hotels’ numbers. Cost of sales increased by 15.34 percent to N3.88 billion while operating expenses rose by 22.61 percent to N7.32 billion as at December 2015.
Transcorp Hotels however recorded very strong margins amid an unpredictable macroeconomic environment.
BITDA margins, a measure of profitability and efficiency increased to 34.68 percent in December 2016 from 33.28 percent as at December 2015. Net margins rose to 26.71 percent in December 2016 as against 2015.
Transcorp has utilized the resources of owners in generating higher profit as return on equity (ROE) moved to 7.69 percent in December 2016 as against 6.69 percent as at December 2015. Return on assets (ROA) jumped to 4.50 percent in the period under review as against 3.80 percent as at December 2015.
The Nigerian hotel and hospitality giant has a total asset of N90.76 billion while total share holders’ fund stood at N53.19 billion. Its share price closed at N4.98 on the floor of the exchange, valuing the company at N37.85 billion.
“We are one of the few hotels that can boast of 30 presidential suites, 20 ambassadorial suites and many more royal and business suites. We have over 20 meters rooms and up to nine food and beverage outlets. So, the facility is expansive and massive,” said Ozigbo.
BALA AUGIE
