Transcorp: Coming out of the Woods

18 Jul 2012

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Tony  Elumelu

Goddy Egene

When former President Olusegun Obasanjo called some leading Nigerian business men to form a company that is similar to South Korean Chaebols, he meant well for the Nigerian economy.

Apparently seeing the vast business opportunities in the Nigerian economy and other parts of Africa, Obasanjo foresaw a situation where those opportunities could elude Nigerian firms due to limited financial resources.
He, therefore, called on some successful businessmen to establish a mega company that would respond to market opportunities that required huge capital outlay.

Obasanjo then contacted the former Director-General of the Nigerian Stock Exchange (NSE) Ndi Okereke-Onyiuke. In 2004 Okereke-onyiuke therefore led some influential business people, who have been successfully running their various business organisations to float Transnational Corporation of Nigeria (Transcorp). But between 2004 and now, Transcorp has gone through its ups and downs before finally finding its current bearing.

Initial Business Strategy, Challenges
Following its successful entry into the Nigerian economy, the founders and management of Transcorp unfolded a business development strategy that included investment in the oil and gas sector, telecommunications, agriculture and the hotel and hospitality sectors of the economy.

In order to begin with a strong foundation, the company made some milestone acquisitions including Nigerian Telecommunications Limited (NITEL), Nicon Hilton, Abuja and oil concession – Oil Prospecting Lease 281.

Most of these acquisitions were made on borrowed funds. However, the firm embarked on a major capital raising exercise with an initial public offering of N60 billion.

Despite the massive and unprecedented promotion, the IPO fetched the company only N22 billion, a development analysts attributed to the wrong pricing of the offer and low investor confidence in company that had no track record and had not yet turned in profit in its first year of operation.

The undersubscribed IPO marked the beginning of the challenges for Transcorp as it struggled for funds to pay the debt used in buying NITEL, among other acquisitions. The only viable asset of the company then, Transcorp Hilton Hotel, constituted a serious financial drain as a result of the pressure to repay the debts.

Turning Point
However, shareholders in 2010 met and gave the board and management the authority to refocus the operations of the company. This led to Transcorp’s exit from the NITEL deal. But the real turning point that has helped to boost the fortunes of the company was the investment by Heirs Holding Limited.

Heirs Holdings, owned by former Group Managing Director of United Bank for Africa Plc, Mr. Tony Elumelu, acquired a significant stake in Transcorp last year to become the single largest investor in the company. As at December 31, 2011, Heirs Holding controlled a 22.2 per cent equity stake in the company.

Heirs Holdings, which has interests in the financial services, real estate and resources sectors, explained shortly after the acquisition that the investment in Transcorp was in pursuant of its strategy of creating value and catalysing the economic growth of Africa through its long term investment approach. According to the new investor, Transcorp’s shareholders would benefit from its track record of value-creation.

Subsequently, the shareholders of Transcorp appointed Elumelu as chairman to take over from Okereke-Onyiuke. This was followed by the appointment of a new chief executive officer, Mr. Obinna Ufudo and the strengthening of the executive management and non-executive team of the company.

New Vision and Strategy
With a vision to create sustainable value for its shareholders in its chosen markets, Transcorp is now a diversified conglomerate with strategic investments and core interests in the hospitality, agribusiness and energy sectors.

The company has three major subsidiaries that are driving its business strategy. They are Transnational Hotels and Tourism Limited (hospitality), Teragro Commodities Limited (agribusiness) and Transcorp Energy Limited, which will handle its energy businesses.

Transcorp’s business model is built on equity investments in assets with high recovery margins and quick-term-to-profit horizons that allow the group to exert strategic influence commensurate with its ownership.

From Transcorp Hilton Hotel, Abuja, which used to be its flagship investment, Transcorp has added Transcorp Metropolitan Hotel, Calabar and Benfruit Processing Plant in Benue State to its assets.

To give its investment in the hospitality sector fillip, Hilton Worldwide recently disclosed its plans to further deepen its partnership with Transcorp to develop eight new luxury hotel facilities across Nigerian cities within seven years.

The Benfruit processing plant, which is the first of its kind in juice concentrate production, was inaugurated by President Goodluck Jonathan on March 9, 2012.

In the energy sector, Transcorp has renegotiated an agreement with a joint venture partners to develop OPL 281 following the reward of the oil block to the company by the Federal government last year. Also, Transcorp has entered a partnership agreement with Symbion Power, a United States-based energy company.

The partnership agreement has put Transcorp in a vantage position to bid for and acquire controlling stakes in one or more power generation and distribution companies being privatised by the Federal Government.

The management of Transcorp has also restructured it corporate centre to fully utilise the technical and commercial expertise of its core staff in its head office by providing targeted share services to the subsidiaries. Also, in order to fortify its business the board of the company renewed its focus on corporate governance last December by holding a retreat.

During the retreat, Transcorp engaged regulators in the capital market including the Securities and Exchange Commission (SEC), Nigerian Stock Exchange (NSE) and some other key stakeholders. The aim was to develop a framework for achieving the highest level of corporate governance.

Financial Performance
Having waited for many seven years without dividends, shareholders of Transcorp should be hopeful of the earning returns on their investment at the end of 2012. The company has recovered from a loss of N8.88 billion loss in 2007 to end 2011 with a profit after tax of N1.257 billion. Specifically, the loss was reduced to N6.535 billion in 2008, N731 million in 2009 before it made its first profit of N3.207 billion in 2010.

Its turnover has also witnessed a steady growth over the years. Rising from N11 billion in 2008 to N112.995 billion in 2009, N12.995 billion in 2010 and N14 billion in 2011. The company’s net assets stood at N26.622 billion in 2011, compared with N26.638 billion in 2010, N22.947 billion in 2009 and N25.369 billion in 2008.

Future Prospects
Transcorp has bright prospects going by its first quarter (Q1) results ended March 31, 2012. The company reported a 62 per cent growth in profit after tax in Q1. Profit before tax rose from N399 million in Q1 of 2011 to N610 million in 2012, an increase of 52.9 per cent, while profit after tax rose by 62 per cent from N319 million to N518 million.

Analysts said if the trend is maintained throughout the remaining three quarters, Transcorp, would end the financial year with a net profit above N2 billion, compared with N1.257 billion in 2010.

Ufudo was very excited about the Q1 performance and also hopeful that this would be improved upon going forward, said: “We are excited by this early and positive indication that our turnaround and transformation initiatives are already taking root and yielding results.”

The CEO has promised that shareholders of the company would receive dividends at the end of the current financial year. “Transcorp is undergoing a transformation, driven principally on two fronts. We have fully embraced and enthroned the highest level of global best practices and governance standards in our operations and businesses.

“Our major priorities now are creating value for our stakeholders as well as making profits for our shareholders, and we believe very strongly that the foundation that we are laying, and our hard work, will lead to dividends being paid by the end of this financial year,” Ufudo said.

Tags: Business, Featured, Nigeria, Tony Elumelu, Transcorp

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