Pressure from dropping revenue and rising costs ruled the operations of Transnational Corporation of Nigeria’s [Transcorp] in the third quarter. Management however partly succeeded in slowing down the rate of cost increases and consequently lowered the pace of profit drop.
Adverse pressure still persisted on both sides of cost and income in the third quarter ended in September 2020. The conglomerate closed the nine months of the year with profit measuring slightly over one-quarter of the corresponding figure in 2019.
Cost increases were led by a foreign exchange loss of N1.8 billion at the end of the third, N1.2 billion of which was incurred in the third quarter. Net finance expenses were relatively huge at close to N12 billion, which grew while revenue and operating profit dropped.
A major weakness in the third quarter came from the increased incursion of cost of sales on revenue. Against a 5 per cent decline in turnover quarter-on-quarter to 19.4 billion, the cost of sales grew by 5 per cent to N11.4 billion, resulting in a 17 per cent drop in gross profit over the period.
Two major developments helped the company to build operating profit within the third quarter. These are a drop of 33 per cent in administrative expenses quarter-on-quarter at the end of September and a 122 per cent jump in other income to nearly N748 million in the quarter.
The gain in operating profit within the third quarter was more than countered by increases in finance expenses and the foreign exchange loss of N1.2 billion. The two cost increases made a difference between a marginal increase in operating profit in the quarter and a drop of 53 per cent in pre-tax profit quarter-on-quarter to a little over N1 billion.
The year-on-year position for Transcorp at the end of the third quarter shows revenue maintaining a downward movement while input cost was marginally up. The resulting squeeze of gross profit was partly remedied by cutting administrative expenses and an upshot in other income.
Operating profit still dropped at the end of the review period, which was compounded by a huge net finance cost of N11.7 billion and a foreign exchange loss of over N1.8 billion. The two expense lines consumed 87 per cent of operating profit at the end of the third quarter against 58 per cent in the same period last year and 83 per cent at half-year.
The weight of huge borrowings continues to bear on the company’s income statement. Balance sheet debts remained huge at N102 billion at the end of September despite dropping from N114 billion at the end of 2019.
Transcorp closed the third quarter operations with a turnover of N54.4 billion, which is a drop of 6.7 per cent year-on-year, inching down from 7 per cent drop at half-year. The company lost nearly 27 per cent of turnover in 2019 to close the year at N76 billion and revenue is going down for the second year.
Most of the company’s revenue lines faced significant drops at the end of the third quarter. Only power generation and capacity charges recorded moderate improvements over the period under review. The energy business maintained its contribution to group turnover at 86 per cent.
At N31.6 billion, cost of sales increased marginally against the drop in turnover. That depressed gross profit, which went down by close to 16 per cent to N22.7 billion.
Management axed administrative cost in the third quarter – which increased the rate of decline from a marginal figure at half year to 15.4 per cent at the end of the third quarter. Added to that was a leap of 155 per cent in other income to stand at over N1.8 billion at the end of the third quarter.
Operating profit still dropped by 9 per cent to N15.5 billion at the end of the third quarter. This was strained further by a rise of 15 per cent in net finance cost to N11.7 billion as well as a shift from a foreign exchange gain of N442 million in the same period last year to a loss of N1.8 billion at the end of September 2020.
Transcorp closed the third quarter operations with an after-tax profit of N1.7 billion, down by 74 per cent year-on-year. For the owners of the company, net loss has risen further from N1.1 billion at the end of June to N1.4 billion compared to N2.5 billion profit in the same period last year.
The company lost 3.4 kobo per share at the end of the third quarter, down from earnings per share of over 6 kobo in the same period in 2019. It closed the 2019 operations with earnings per share of 4 kobo and paid a cash dividend of 1 kobo per share.
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