Poor corporate governance, inexperienced management, financial mismanagement, and deteriorating financial conditions bedeviling some firms, are responsible for slow foreign participation in the hospitality business.
Months after the unceremonious exit of InterContinental Hotel brand, termination of management agreement of Ibom Hotel and Golf Resort by Starwood Group, as well as, the termination of management and branding agreement by Marriott International on Renaissance Ikeja Hotel that was eventfully rebranded as Radisson Blu, foreign brands and investors are now tightening the conditions for their participation in the Nigerian hospitality market.
The development, which is expected to slow down investment in the sector and delay the actualization of the 61 hotels and 10,000 rooms in the hotel pipeline in Nigeria, is also as a result of the clampdown on hotels that have defaulted on repaying and serving of bank loans by the Asset Management Corporation of Nigeria (AMCON).
However, quoted firms like Transcorp Hotel Nigeria Plc, Ikeja, Hotel Plc, and Capital Hotel Plc, with solid balance sheets, an aggressive expansion plan, excellent liquidity position, profitability track record, an operating cash flow to finance future expansion and pay dividend, are positioned to attract foreign brand partners.
“It is easy to know which hotel company is doing well and which is not by checking their performances at the exchange. Among all the hotel companies that are listed on the Nigerian Stock Exchange, Transcorp Hotel Plc has performed exceptionally well,” said Ade Akande, an hotelier and member of Lagos Chamber of Commerce and Industry said.
“An investor will be willing to partner such companies in their expansion plan across the country because his/her investment is secured”, said Akande.
For instance, Transcorp Nigeria Plc, the owners of Transcorp Hilton Hotel Calabar and Abuja, recorded an 82.52 percent increase in half year profit to N1.38 billion, this compares with a 7.42 percent increase in the 2016 period, and a drop of 35.12 percent in the corresponding 2015 period.
The most capitalised hospitality firm is making more money per sale as evidenced in a higher profit margin.
Net profit margins increased to 17.25 percent in the period under review from 12.35 percent the previous year while gross profit margins rose to 73.62 percent in June 2018 from 56.25 percent the previous year. Capital Hotel Plc, owners of Sheraton Hotel Abuja, recorded a 22.95 percent increase in net income to N224.19 million in June 2018 as against N182.34 million the previous year.
Ikeja Hotel, saw net profit margin increase to 6.40 percent in June 2018 as against 4.98 percent the previous year. Experts say most potential investors and ambitious brands who do not want to be beaten twice, are insisting on doing business with indigenous partners whose parent companies are listed on the Nigerian Stock Exchange, who do not have loan defaulting history and uphold corporate governance in their business.
While the unregistered firms are struggling, their listed counterparts are embarking on an aggressive plan with a view to maximizing shareholders’ wealth.
For instance, by 2022, Transcorp Hotel plans to further upgrade its Transcorp Hilton Abuja and expand the conferencing facility within the Hotel. It will also commence the construction of 320 room Hilton branded hotel in Ikoyi and Construction of 250 room Hilton branded hotel in Port Harcourt.
Transcorp’s cash flow from operations of N4.50 billion as at June means it has the financial strength to execute its future expansion plans.
*Source: Businessday