New Telegraph

Ikeja Hotel: COVID-19, competition stifle earnings

Increasing cost of operations, stiff competition and effect of COVID-19 have impacted negatively on the profit margin of Ikeja Hotel Plc, writes CHRIS UGWU

 

Despite the hospitality industry being perceived as booming in Nigeria with quality and classifications, the industry has also continued to grapple with a mixture of positive and negative effects.

 

The industry faces many challenges, including instability in power supply, security challenges, negative global publicity and other militating issues facing the growth of tourism in Nigeria.

 

There is no doubt that the security challenges in almost all parts of the country with the attendance consequences of loss of lives and properties, COVID-19 scare, domestic constraints such as depletion of fiscal buffers, dwindling foreign reserves, erratic supply of public electricity and poor infrastructures, among others, have remained a thorn in the flesh of business operating environment.

 

While some companies are able to successfully weather the storm, notwithstanding the difficulty posed by these challenges, others were not. Ikeja Hotels Plc is one of those companies in the hospitality market that has remained under cost pressures on many fronts as the hotel struggles with high financial leverage and tight top-line.

 

While the turnover witnessed low growth and the company held tightly to operating expenses, finance expenses have also continued to weaken the bottom-line as it have remained susceptible to the challenges facing the hospitality industry in Nigeria. Market sentiments for the shares of the company have also remained low and the least among the firms listed on the hotel and lodging segment of the hospitality sub-sector of the economy. Stockbrokers attributed negative position in the share price to low investor confidence as the hospitability industry suffered greatly from the effect of COVID–19. When the closing bell rang on Friday, the company’s share price stood at N1.30 per share.

 

Company profile

 

 

Ikeja Hotel Plc was incorporated as Properties Development Limited (PDL) on November 18, 1972 with a view to providing word-class hotel and catering services to meet the needs of an ever-increasing number of local and international business and leisure travelers entering the city of Lagos.

 

The company’s name was later changed to Ikeja Hotel Limited in  October 1980. It became a public company in 1983 and assumed its present name on February 5, 1991.

 

The principal business of Ikeja Hotel Plc is the provision of services in the hospitality industry, including the development of other tourist facilities.

 

It has continually expanded its participation in Nigeria’s hospitality industry through the development and acquisition of hotel and tourist facilities. Today, Ikeja Hotel boasts of direct or indirect ownership and control of three of Nigeria’s leading five-star hotels, namely, Sheraton Lagos Hotel, Sheraton Abuja Hotel, and Federal Palace Hotel & Casino.

 

Financials

 

Ikeja Hotel Plc finished the financial year 2020 with a drop in its earnings for the period ended December 31, 2020. This is according to the unaudited group accounts forwarded by the firm to the Nigerian Exchange Limited (NGX).

 

The hospitality firm recorded a 59.5 per cent revenue decline of N5.06 billion for 2020 compared to N12.5 billion recorded in 2019. It recorded a loss of N412.6 million as gross profit in 2020 as against a profit of N3.57 billion recorded in 2019. Ikeja Hotel recorded an operating loss of N6.50 billion for 2020, compared to an operating profit of N1.89 billion in 2019.

 

Similarly, the hospitality firm recorded a loss after tax of N6.72 billion in 2020, compared to a profit of N834 million in 2019 from continuing operations. More checks in the financial statement showed that the group recorded less revenue for rooms booked for the year.

 

The results showed that the firm recorded N705 million for 2020, against N1.33 billion recorded in 2019. In its financial statement, Ikeja Hotel revealed that it lost 60 per cent of its revenue to the pandemic.

 

The statement read: “Tourism/ hospitality industry where our business belongs suffered greatly from the effect of COVID– 19. In fact, the industry is the worst hit by the pandemic. “Nigeria recorded the first case of COVID–19 in February 2020 and more cases were recorded from March which made the government take a drastic step by shutting down the country.

 

“International flights were suspended and movements were restricted. The shutdown brought the revenue generation for our business to almost zero. Despite zero activity in our hotel, we continued to run overhead to maintain the facility.”

 

It added: “The business lost about 60 per cent of revenue when compared with 2019 performance with occupancy falling to as low as three per cent during the period of lockdown.

 

“The hotel started gradual reopening based on certification received from Lagos State Ministry of Health late in June but full operation did not start until the end of August 2020.”

 

As at March 31, 2021, the group’s revenue dropped by 40.11 per cent to N1.724 billion from N2.879 billion in Q1’20. The group reported a loss after taxation of N294.886 million from N252.537 million profit in Q1’20.

 

Ikeja Hotel Plc, a hotel development and management company, has released its consolidated statement of financial position for the six months ended June 30, 2021, recording a loss after tax of N229.396 million as against a loss of N785.904 million reported in 2020.

 

Ikeja Hotel has direct or indirect ownership of Sheraton Lagos Hotel, Sheraton Abuja Hotel and Federal Palace Hotels & Casino. According to the unaudited group accounts forwarded by the firm to the Nigerian Exchange Limited (NGX), the hospitality firm recorded a loss before tax of N219.684 million from a loss of N777.055 million in 2020.

 

Revenue however grew by 29.39 per cent from N2.905 billion in 2020 to N3.759 billion in 2021, while cost of sales grew to N2.884 billion during the period under review from N2.728 billion in 2020, representing a growth of 5.72 per cent.

 

Operating challenges

 

Chief Anthony Idigbe, Chairman, Board of Directors, while addressing shareholders at the company’s 44th Annual General Meeting (AGM), said that it was undisputed that the COVID-19 impacted economies, while many business activities were disrupted globally.

 

He said: “A lot of businesses were unprepared for the effect of the pandemic and have ceased to exist, and some have had to restructure, merge or be taken over  by other companies to remain afloat. In Nigeria, the economy suffered and still suffers the crippling effect of the pandemic.

 

“Many industries, especially the hospitality industry, were brought to their knees, while frantic efforts continue to curtail the spread of the virus. Even as the world and Nigeria tried to recover; the nationwide #ENDSARS protests caused further disruption in the fourth quarter of the year.”

 

A report by the National Bureau of Statistics revealed that the country’s Gross Domestic Product (GDP) grew by 0.11 per cent (year on year basis) in the last quarter of 2020 representing the first growth compared to the last two quarters and reflecting the gradual return of local and international economic activities to normalcy.

 

“However, the growth rate in the fourth quarter of 2020 was lower than the rate recorded in the same quarter of the previous year by -2.44 per cent while the inflation rate increased by 15.75 per cent (year-on-year) in December 2020, the highest rate recorded in 3 years.

 

By year end, the GDP growth of 2020 was estimated at -1.92 per cent, a decline of -4.20 per cent compared with 2.27 per cent recorded in 2019. “The country’s slow economic growth impacted your company’s performance.

 

The hospitality industry was one of the hardest-hit sectors, with most hotels partially or fully closed as guest nights decreased and room revenue declined due to the pandemic,” he said.

 

Looking ahead

 

Idigbe noted that as earlier stated, the hospitality industry was one of the hardest-hit sectors, with most hotels fully closed for a good portion of the year.

“Sheraton Lagos Hotel experienced an unprecedented decline in occupancy due to the pandemic. To tackle the challenge, the company focused on reducing operating expenses and diversification of revenue streams.

 

“The hotel also implemented extensive hygiene and social distancing measures, for which it obtained a safety compliance certificate from the Lagos State Ministry of Health. The Board continues to work toward its vision of transforming the Nigerian hospitality industry.

 

“Nevertheless, we remain hopeful that with strict adherence to COVID-19 safety procedures and protocols and re-alignment of the company’s strategy. We will retain and increase our market share in the hospitality industry.

 

“With the entry of new players, the Ikeja hospitality market is increasingly competitive and it is imperative that your company expedites plans for the renovation of the property,” he said.

 

Last line

 

Though, high cost of operations have remarkably weighed down on the hospitality industry, it is important for the company to keep managing its cost base tightly to maintain growth and profitability.

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