Nigeria’s diversified investment conglomerate, Transnational Corporation of Nigeria (NGN1.9/share) has reported weak sets of financials for 2015. The areas that saw significant losses and stagnation were its investments in power and hospitality industries. The postponed naira devaluation, difficulties in improving power utilisation rates and stagnating hospitality flows were some of the difficulties the company faced in the period.
According to a statement from the organisation, “Transcorp is consistently delivering on expectations to increase the installed capacity of its main power asset, with Ughelli Power capacity reaching 634MW in 2015. However, we believe the government is not following suit – capacity revenue is still linked to power plant utilisation (as opposed to available capacity, as was promised when reforms were announced), while the postponement of naira devaluation caps tariff growth.”
The company is hoping to drive up its earnings in the power sector with the January-February 2016 tariff increase of 54 percent. “We expect an additional NGN8.5 billion of revenue on the back of this move. At the same time, risks remain – gas supply disturbances are still common, while the ability of the regulator to swiftly pass on any future naira devaluation remains in doubt,” said Transcorp.
Refurbishment at the Hilton Abuja Hotel were said to be well on track and additional projects in Ikoyi, Lagos Island also close to the ground-breaking phase. However, a major concern is the inability of the hotel to pass on any naira devaluation in its tariffs. Factors like higher competition have contributed to deterioration in room rates – as much as 9 percent decline in 2015.
The average daily rate for the Abuja hotel fell to NGN58, 000 in 2015 from NGN63, 000 in 2014, with revenue declining despite the rise in occupancy rates. Hotel business was in 2015 was affected by low occupancy in first quarter of the year owing to the elections. However, government activity boosted occupancy rates in the fourth quarter, smoothing the year-on-year results. Over all the occupancy rates in the Abuja hotel increased from 60 percent in 2014 to 62 percent in 2015.
“This business faces further headwinds in that the Hilton Abuja significantly on government orders, competition is getting stronger an expanding the hospitality business requires steady access to financing – which is limited by the general economic situation and substantial debt burdens at Transcorp, given the FX revaluation of its dollar-denominated debt,” said Transcorp.
It is expected that the average daily rate at the hotel will rise by 5 percent annually in 2016 and 2017, followed by a 15 percent increase in 2018 and rising at par with inflation thereafter. In view of increased competition, occupancy rates are believed to decline in Abuja to 55 percent in 2016 and to 50 percent in 2018. For planned new hotels in Ikoyi (due in 2018) and Port Harcourt (due in 2019), it is estimated that occupancy rates will rise from 30 percent in 2018 to 45 percent in 2019 and 60 percent in 2020.
Overall Transcorp Corporation expects its revenue to improve in 2016, rising by 19.9 percent to NGN48.9 billion. The increase will be driven by revenue in energy investment, which will rise by 20 percent year-on-year to NGN21.5 billion as a result of the tariff hike along with increased send-out owing to pick-up in installed capacity.
“We expect capacity revenue to increase by 11 percent YoY to NGN13.5 billion, stemming from lower growth in the capacity tariff than in the energy tariff. Room revenue is likely to fall by 5 percent, on our estimates, owing to lower occupancy rates being only partially offset by higher average daily rates. We expect food and beverage revenue to grow by 2 percent in 2016,” said Transcorp.
