Cost Pressure Plagues Returns

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