Transcorp joins the high-speed earnings track

Transnational Corporation of Nigeria [Transcorp] has moved out of the slow lane on earnings performance and has joined the high growth track. The company’s operating results in 2013 show that it has taken both revenue and profit figures to new highs.

The summary of the performance in 2013 is that a new earnings trend seems to have begun for Transcorp. Many years of stagnating revenue appear to be over for the conglomerate and a high rise in profit has remedied the deep plunge in the preceding year.

The company’s revenue had been stagnant at about N13 billion in the preceding four years. In 2013, the first significant growth in turnover in years happened for the company, taking revenue to a new peak at N18.62 billion. Against a decline of 4.7% in turnover in 2012, Transcorp achieved a growth of 42.1% in 2013.

Revenue growth accelerated in the final quarter from N11.78 billion at the end of the third quarter to close the year slightly ahead of forecast. The main operating weakness of the company has been inability to grow revenue. In place of that weakness, the company found a new strength in 2013.

Nevertheless, Transcorp remains a watch candidate for the current year to see if this is indeed a breakout into a new phase of growth or just a one-off revenue windfall. It is yet to show a definite track record of earnings performance. A stable and sustaining growth in earnings is expected from the company for it to re-establish itself in the equities market.

The company achieved an exceptional growth of 170% in net profit to N6.96 billion in 2013. This is a new high in the company’s profit performance, beating the previous peak of N5.86 billion it posted in 2011. The strong growth has compensated for the fall of 57% in net profit in 2012.

Like revenue, after tax profit growth also accelerated in the last quarter from N3.58 billion at the end of the third quarter. A profit advance of 170% from a revenue improvement of 42.1% points out that something has happened to the company’s cost structure.

Two major cost lines of the company moderated in 2013 and freed a lot of incomes into the bottom line. These are cost of sales and administrative expenses.

Cost of sales, which claimed an increased share of turnover in 2012, changed direction in 2013. It grew at a significantly slower pace than turnover at 28% compared to 42.1%. That permitted gross profit to grow ahead of revenue at 47.2%, improving gross profit margin from 73.7% in 2012 to 76.4% in 2013.

Administrative expenses were the major factor in the profit drop in 2012, as they claimed an increased proportion of revenue in the year. The position was also reversed in 2013 when administrative cost increased by 22.5% and therefore moderated relative to revenue. Its share of revenue dropped from 56.8% in 2012 to 48.9% in 2013.

The proportion of administrative expenses to sales revenue had maintained an increasing trend from 32.8% in 2010. The change in trend has enabled the company to create a structure for profit making that needs to be sustained and further enhanced.

Cost saving from the two major expenditure lines plus another windfall in other operating income, enabled the company to lift operating profit by more than 172% to N10.25 billion. Other operating income, which advanced by 327% to N1.52 billion in 2012, jumped again by over 235% to N5.09 billion in 2013.

The only pressure from cost on earnings in 2013 came from interest expenses, which rose far ahead of interest income. With a drop of over 48% in debt and equity securities in the year, interest income failed to match the high growth in interest cost. Interest income grew by 26% to N1.31 billion compared to an upsurge of 194.4% in interest cost to N2.53 billion. The company’s position therefore changed from a net interest income situation of N184 million in 2012 to a net interest cost figure of N1.22 billion in 2013.

The increase in interest expenses resulted from the company’s increased dependence on borrowings needed to balance its cash flow deficit. Long-term borrowings have multiplied by 264.4% to N39.45 billion at the end of 2013. Short-term borrowings declined only slightly at N3.66 billion over the review period.

The increased borrowing is in spite of a rights issue last year, which gave the company more than N12.36 billion in new money. The rights issue proceeds turned out to be an insignificant number in a situation of a negative net cash flow from operating activities at N2.53 billion and a large negative net cash flow from investing activities of almost N32 billion.

A good part of the increase in turnover the company recorded in 2013 happened on credit. Trade and other receivables soared by about 221% to N8.45 billion. At the same time, trade and other payables declined by 4.8% to N6.28 billion while inventories more than doubled at 102.4% to N1.43 billion.

Profit attributable to the majority owners of the company amounted to N4.03 billion in 2013, a rise of 256.3% over the preceding year’s figure. This yielded earnings per share of 10 kobo on the company’s outstanding shares of 38,721 million. It had earned 4.0 kobo per share in 2012.

It has proposed a dividend of 5.0 kobo per share in spite of its cash flow difficulties at the moment. This brings to an end the company’s long running dividend holiday. Its register of shareholders will close between 10-14th March and payment is scheduled for 1st April 2014.

 

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