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Tuesday, June 6, 2023

Transcorp Optimises Existing Resources and Delivers Returns to Shareholders

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Transnational Corporation Plc or Transcorp, the largest conglomerate in Africa’s most populous nation has done well even amid a challenging environment.

In short, the company with interest in hospitality, Oil and Gas, and Power is the last conglomerate standing as peer rivals have capitulated to a harsh and unpredictable macroeconomic environment.

Nigeria’s inflation stood at 20.8 percent in September 2022. The highest rate since September 2005 (a new 17- year high).

The local currency Naira continues to depreciate against international major currencies in both the official and parallel markets, causing menacing pains to households and manufacturers.

Nigeria’s foreign exchange reserves declined by 5.5 percent to $38.3 billion in September compared to $40.5bn in December 2021, according to data from the Central Bank of Nigeria (CBN).

Interest expenses for firms have surged, which squeezes profit, no thanks to the aggressive monetary stance of the government who is all out to hold back red-hot inflation. The monetary policy rate was increased by 150bps from 14.0% to 15.5% in September 2022.

Consumer purchasing power remains subdued as over 50 percent of a population of 200 million live below the benchmark $1.98 a day as the country has been crowned the poverty capital of the world.

Nigeria as a nation is ranked 131 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings.

Despite the challenging environment, Transnational Corporation Plc or Transcorp Group has continued to fully optimize its existing assets while it ensures that it consistently delivers value and high returns to its stakeholders.

For instance, Transcorp Group’s net income spiked by 41.43 percent to N19.03 billion in September 2o22 from N13.46 billion as at September 2021.

The company is able to make profit from core operations as operating profit was up 14.53 percent to N31.52 billion in September 2022 from N27.52 billion as at September 2021.

While a large number of firms are grappling with higher production cost exacerbated by sky-high prices of diesel as the war between Russia and Ukraine balloons inflation across the globe, the management and board of directors of

Transcorp Group has been able to tame costs that helped bolster profit margin.

Cost of sales or input costs increased by 7.18 percent, which is lower than the 20.80 percent inflation figure for the month of September.

An upward movement in profit margin means there has been an improvement in efficiency and the pricing policies of the company are yielding fruit.

Net profit margin increased to 19.77 percent in the period under review from 15.72 percent the previous year. Gross profit margin moved to 48.52 percent in 2022 from 46 percent the previous year.

The conglomerate’s business units are contributing to Group earnings.

Total revenue was up 12.45 percent to N96.24 billion in the period under review from N85.58 billion the previous year.

Drilling down the numbers shows revenue from rooms spiked by 53.03 percent to N14.11 billion as at September 2022 from N9.22 billion as at September 2021.

Lower debt-equity ratio signals stronger balance sheet

Investors of Transcorp Group should not have butterflies in their stomachs because the firm is not exposed to financial risk and it has enough earnings or financial strength to pay interest on money borrowed.

There is lower risk of debt default as the debt to equity ratio reduced to 63.95 percent in the period under review from 72.49 percent the previous year, according to MoneyCentral calculations.

A lower debt-equity ratio puts the company in a position to easily source for funds because there is no threat of going concerns, and it also gets positive credit ratings from global and local investment houses.

Of course, the conglomerate can effortlessly pay interest on outstanding debt as its operating income covers interest expense 3.28 times, according to MoneyCentral calculations.

What’s more, even amid rising borrowing costs brought on by the central bank’s aggressive tightening stance, finance costs reduced by 14.96 percent to N9.60 billion as at September 2022.

Transcorp Power installed capacity accounts for 15.5% of total installed capacity in Nigeria

Transcorp Power Limited (TPL)’s combined installed capacity of 1,938MW accounts for 15.5% of the total installed capacity in Nigeria which is about 12,522MW, according to data from the Nigerian Electricity Regulatory Commission.

This means the subsidiary of Transcorp Nigeria Plc  is pivotal to electricity generation in a country where epileptic and unstable power supply from the grid is significantly responsible for deteriorating or ailing economy.

Nigeria’s power generation peaked at 5,043.4MW on 1st September 2022, a significant improvement from the peak of 4,664.1MW recorded on Wednesday, 31st August 2022.

However, that is abysmally poor for a country with a population of 200 million, and the figure is disheartening when compared with South Africa’s  total domestic electricity generation capacity is 58,095 megawatts (MW).

To underpin Nigeria’s generation capacity, TPL successfully increased its available capacity from an average of 470MW in January 2022 to an average of 638MW as at September 2022.

In addition, in order to improve efficiency and secure reliable and steady gas supply, TPL signed firm gas contract agreements with the following: NPDC/NDW; Chevron; and Seplat.

Also, TCN installed and energized a new 150MWA 330/132/33KV interbus transformer at Delta IV Transmission substation Ughelli, Delta State. Thereby improving TPL’s evacuation capacity.

“Given the recent increase in available capacity, steady gas supply and improved evacuation capacity, TPL is looking to exceed its average generating capacity in the coming years,” said the company.

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