The last 10 years has been anything but rosy for the much hyped Transcorp Nigeria plc, which has experienced a rather chequered existence thus far. In this report, Bukola Afolabi takes a look at the fortunes of the emerging business conglomerate vis-à-vis its strengths, potentials and weakness.
JUDGING by the kind of media razzmatazz that attended the establishment of Transcorp Nigeria plc in 2004, it was only normal that many Nigerians who were keen on investment opportunities of the nature being advertised by Transcorp fell for it. For good measure too, the company had and still has government’s backing and tried to build on the goodwill. But the rest as they say is history.
The making of Transcorp
Incorporated on November 16, 2004 and quoted on the Nigerian Stock Exchange, Transcorp has a shareholder base of about 300,000 investors, the largest of which is Heirs Holdings Limited, a pan-African proprietary investment company.
One of the things going for Transcorp is the myth built around its fortunes. Some market watchers hold the view and very strongly too that Transcorp shares offer investors disciplined and targeted exposure to three fastest growing non-cyclical sectors of the economy namely: agro-allied, oil and gas and hospitality sub-sector.
Besides, Transcorp enjoys a credible reputation with lending institutions. Prior to approaching its bankers with new proposals for investment, the Group performed its independent rigorous analysis to ascertain the investment’s cash flow potential , ability to pay down debt, competitive equity return on a standalone basis.
Each new investment must meet the Group’s internal criteria of debt repayment capacity from internally generated funds and retained profits before presentation to the banks.
The Group’s exposure to a single sector, hospitality is due to its exit from the telecoms sector and temporary delay in the takeoff of its upstream investment.
Rising investment portfolio
Since the company began operations in 2005, Transcorp has made investments in three sectors: hospitality, energy and telecoms. Specifically, in the hospitality sector, Transcorp has invested in the Transcorp Hilton Abuja (October 2005) and the Transcorp Metropolitan Hotel Calabar (June 2010).
However, in its quest to further raise its stake in Transcorp Hotels Plc, the board and management of the hotel group held a “Facts behind the Offer” presentation at The Nigerian Stock Exchange in Lagos, of its Initial Public Offering of 800,000,000 ordinary shares of 50 kobo each at N10 per share. The offer which commenced on the 25th of September is expected to close on October 17, 2014.
Transcorp Hotels Plc, which is the hospitality subsidiary of Transnational Corporation of Nigeria Plc (Transcorp), hopes to create maximum and sustainable value for stakeholders, as well as to build Africa’s choice hospitality assets underpinned by excellence, entrepreneurship and execution.
Transcorp Hotels will focus on Nigerian expansion in the short to the mid-term and thereafter develop a strong African footprint in high population and competitive cities. Over the next five years, the company will take a phased approach in developing high-end hotels and apartments in prime locations, including Ikoyi, Port Harcourt and Abuja.
In addition to the new developments, the Transcorp Hotels has also commenced the facelift of the Transcorp Hilton Hotel, Abuja with a view to consolidating its position as the premier hotel destination in Nigeria. This will involve the modernisation of the hotels core facilities for which the Company plans to spend approximately US$57.5 million (N9.2 billion) over the next three years. The funding for this will be sourced from the Company’s internal operating cash flows.
As a part of the company’s growth strategy, Transcorp Hotels is undergoing an Initial Public Offering to raise fresh funds from the capital market to support the development of two hotels in ikoyi, Lagos and Port Harcourt, Rivers state. The offering will be followed by a listing of the entire shares of the company on the Nigerian Stock Exchange.
Speaking at the event, Mr. Valentine Ozigbo, Managing Director/CEO Transcorp Hotels Plc observed that: “The Nigerian hospitality industry is fast becoming more competitive with the presence of international brands in recent years. We have a strong brand and success story in Nigeria as well as good long term relationships with established suppliers in Nigeria. These, coupled with our partnership with the Hilton Worldwide for management of our facilities, opens up a large opportunity for our proposed developments in the high density areas of Nigeria to attract a considerable portion of business travel and tourist traffic which should translate to adequate guest patronage.”
Also speaking at the event, Emmanuel Nnorom, the President/ CEO of Transnational Corporation of Nigeria Plc said the Group was its achievement, been the first initial public offering of one of its subsidiary businesses in Nigeria, a development, he stressed, “Illustrates our continued drive to create value to our shareholders, by unlocking the value of the existing assets in our subsidiary and growing exponentially.”
Besides, in energy sector, the company invested OPL 281 during the Department of Petroleum Resources (DPR) 2006 oil bid round, while in the telecoms sector, Transcorp won the bid to acquire 51% of NITEL, the telecoms company in July 2006.
In 2007, the DPR revoked the Group’s license for OPL 281, in spite of its payment of an 80% signature bonus. Transcorp has held high-level meetings with government officials to recover the block. These demarches are receiving consideration and the Group is hopeful that the issue will receive a resolution in its favour.
After its successful acquisition of NITEL, Transcorp encountered significant challenges in implementing its turnaround and investment program at the telecoms company.
In 2009, the Group reached an amicable settlement with the Federal Government to transfer NITEL back to national ownership.
As at the fourth quarter of 2010, only the hospitality assets are generating income for the Group.
Other high profile investment under the Group include but not limitedto the following: Teragro Commodities Limited, operator of Teragro Benfruit Plant – Nigeria’s first-of-its-kind juice concentrate plant; Transcorp Ughelli Power Limited which acquired Ughelli Power Plc, owner of the 972MW Ughelli Power Plant and Transcorp Energy Limited, operator of OPL 281.
Resurgence at Transcorp
Commenting on the achievement and outlook of Transcorp, Tony Elumelu, the company’s chairman expressed happiness that those investors who bought the shares at inception, before the price fell to a ridiculous 51 kobo each, have recovered significantly by remaining shareholders of the company that have become and are poised to become even much more prosperous group.
Transcorp, recently added power generation to its portfolio of strategic business interests, presented to shareholders its impressive audited accounts for the year ended 31 December 2013.
Prepared in accordance with International Financial Reporting Standards (IFRS), the 2013 audited financial results reported gross earnings for the group at N25.2 billion, representing a 60% increase over the N15.8 billion recorded in the corresponding period in 2012. The Group’s Profits before tax rose by 129% from N3.9 billion in 2012 to N9.0 billion in 2013.
At the meeting, its shareholders unanimously approved the 2013 audited financial statements as well as the proposed N1.93bn dividend on the basis of 5 kobo per share. The shareholders were visibly excited about this fulfilment of Transcorp’s promise, made at its previous AGM.
One shareholder commented, “Indeed this is a first in the history of Transcorp and we are confident this is an indication of an even brighter future ahead for Transcorp and the shareholders.”
During the meeting, the Chairman of Transcorp, Tony O. Elumelu, stated that “the past year for Transcorp has been exceptional; we launched new businesses and projects and expanded existing ones. The results of our efforts have become visible and are rightly being acknowledged by our stakeholders, including the investing public. Looking ahead, we expect the company to continue on this growth trajectory and the board has set a target of profit before tax of N30bn for management for 2014, which we believe is very achievable.”
In pursuit of this target, Transcorp has positioned Ughelli Power Plc, its most recent acquisition, as a leader in the Nigerian power space.
Elumelu continued, “When we took over the power plant, its generating capacity stood at 160 MW. Today, we are proud to announce that capacity at Ughelli has more than doubled to 400MW. Our target is to reach 700MW by the end of this financial year. We want to be recognised as a company that has contributed to Nigeria achieving one of its most critical developmental needs.”
The President and Group Chief Executive Officer of Transcorp, Mr. Obinna Ufudo, thanked the company’s shareholders for their continued support and commitment as always, noting, “Last year, we began phase 2 of our transformation plans to expand our business lines. This financial year, we will push the frontiers of our three operating areas – energy, hospitality and agriculture – for greater financial results. We will begin construction of Transcorp Hilton Ikoyi Lagos in April, and we envisage completion within the next 36 months. In addition, we plan to repair 3 more turbines (5 turbines have been fixed so far) at the Ughelli power plant to hit our group 2014 revenue target of N65billion. These should give us improved financial performance positioning us to pay larger dividends next years.
Building the power base
Transcorp’s 2013 results included early gains from the acquisition of the Ughelli Power Plant in 2013. Transcorp, through its subsidiary, Transcorp Ugheli Power Limited (TUPL), had in 2013 acquired Ughelli Power Plant for $300 million from the Federal Government of Nigeria. With installed capacity of 972 megawatts, current generating capacity of 360 megawatts and potential output of 1070 megawatts, the Ugheli power plant thickened the basket of the conglomerate’s businesses in strategic sectors including Transcorp Hilton Hotel, Abuja; Transcorp Hotels, Calabar; Teragro Commodities Limited and Transcorp Energy Limited, operator of OPL 281.
Power, upstream oil, hospitality and agriculture; the combination of businesses and sectors makes for a robust outlook, given the synergies in these fastest growing and dominant sectors of the Nigerian economy.
Often cited in relation to the boom in the telecommunications sector, most analysts perceive the power firms as cash cows that would not only generate power but significant returns for investors. The monopolistic nature of the system and centrality of the success of the privatization to government’s transformation agenda confer enormous advantages on the power companies.
Transcorp Ughelli Power Ltd (TUPL) early this year signed a capacity-expansion agreement with General Electric to expand the Ughelli power plant by 1000 megawatts over the next three to five years. Transcorp and GE also signed a separate agreement to rehabilitate the damaged GT 15 turbine at the Ughelli plant, which will add 115 megawatts to the plant’s output. Currently, the Transcorp Ughelli power plant generates 360 megawatts, up from 160 megawatts on November 1, 2013 when Transcorp took ownership of the plant. With the additional 115 megawatts, as well as other rehabilitation works planned at the plant, the company projects that output at Ughelli will increase to 700 megawatts by December 2014. The Ughelli power plant is Nigeria’s largest gas-fired electricity generation asset.
Both Transcorp and GE believed the partnership would drive new momentum in the power industry. Chairman, Transnational Corporation of Nigeria (Transcorp), Mr. Tony Elumelu and Global Chairman, General Electric, Jeffrey Immelt, who signed the agreements were enthusiastic about the potential of the conglomerate. Elumelu noted that GE would bring its proven global leadership in power technology development to bear on the Ughelli plant expansion project.
“With this, we’ve taken a bold step in fulfilling our promise to Transcorp’s stakeholders and the people of Nigeria. In a very short period of time, we have achieved significant impact – power production has more than doubled, and with this agreement, we will see increased output before the end of this year. We are confident that this partnership with GE will further accelerate the achievement of our goals in the power sector,” Elumelu said.
The Ughelli power plant agreement came on the back similar deal by the conglomerate with Hilton Worldwide to build a new premier hotel in the up-market suburb of Ikoyi, Lagos. The proposed Transcorp Hilton Lagos, a full service, 350-room hotel on Glover Road, Ikoyi, will be the Hilton Group’s second hotel in Nigeria by Transcorp, following the award-winning Transcorp Hilton Hotel Abuja, which is one of the leaders in Hilton’s global network. The new hotel will be jointly owned by Transnational Hotels and Tourism Services Ltd, the hospitality subsidiary of Transcorp and Heirs Holdings.
Elumelu outlined that the Ikoyi development, along with the extensive refurbishment and upgrade of the group’s existing hotels in Calabar and Abuja, demonstrated the group’s commitment to driving growth in real estate and hospitality, a strategic sector for Nigeria’s economic development.
According to him, the new Transcorp Hilton Lagos will not only present an additional world-class venue for the increasing numbers of investors, businessmen and tourists to Nigeria, but is creating much-needed jobs for citizens, enabling their social and economic development.
Managing Director, Transnational Hotels and Tourism Services Limited, Valentine Ozigbo said the Transcorp Hilton Lagos will grant the many Hilton Honors customers their desire to see a world-class establishment under their preferred brand in the Lagos. He said the hotel will boast of full conference facilities, meeting rooms, gym and spa, and a swimming pool in an iconic design that will certainly add verve to the Lagos landscape.
Besides, Transcorp has recently undertaken several strategic initiatives to enable stable growth. Last year, it raised N12.91 billion through a rights issue of 12.91 billion ordinary shares of 50 kobo each at N1 per share. The net proceeds of the rights issue estimated at N12.52 billion was scheduled mainly to refinance the loan taken to acquire the Ugheli power plant. About 79 per cent of the net proceeds amounting to N9.84 billion would be used to refinance Ugheli Power.
The conglomerate would use N1.63 billion, 13 per cent of net proceeds, for exploration and development of its oil block, Oil Prospecting Licence (OPL) 281. It had revised the terms of partnership in the OPL 281 to fully take responsibility for the operation of the block in its bid to become a leading Nigerian indigenous oil and gas upstream company with production. The balance of N1.05 billion, representing 8.0 per cent of net proceeds, would be used to develop new hotels Port Harcourt and Lagos; in order to boost the conglomerate’s hospitality business in the South-South and South-West of Nigeria.
The many successes recorded by Transcorp notwithstanding, the jury is out these strings of successes are not a smokescreen after all.
In the view of analysts, perhaps, one of the greatest albatross of Transcorp is instability of its management. In the last count, the Group has had at least six different CEOs, most of who lost their jobs on account of alleged infractions and malfeasant.
The high turnover of its management staff, analysts further argued, is a big minus for Transcorp, a development, many believe is not good for the company aiming to become a behemoth.
