Ekocorp Plc: Not a bad year

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Introduction

The 2016 financial year was not exactly a bad year for Ekocorp Plc. While the healthcare company recorded lower turnover and lower profits, these lower levels did not downright degenerate into losses, the way it did for many Nigerian companies.

The company was able to weather Nigeria’s uncertainties in 2016 better than a lot of other companies did, although the recession did have a down turning effect on the company’s profit. While it recorded a profit, such profit was significantly lower than that of 2015, and this had a regressional impact on both profitability ratios and dividend payment to shareholders.

We however expect that the company should be able to have a better performance in 2017.

 

Core operations

For its 2016 financial year, Ekocorp did not record a growth in all of its parameters. While some experienced a growth, some didn’t. First, the company’s ability to earn income during the course of the year slackened, and its gross earnings declined by 1.4 per cent to N1.352 billion from N1.371 billion in the prior year. This 1.4 per cent decline rate is as compared to a lower growth rate of 5.2 per cent in 2015.

After deducting operating expenses, administrative expenses and finance costs from the gross profit, Ekocorp was left with a pre-tax profit of N96 million, and this was another of the levels in which the conglomerate recorded a decline. The N96 million pre tax profit represents a decline of 45.5 per cent over the N176 million pre-tax profit recorded in the erstwhile year, and is as compared to a pre-tax profit decline rate of 5.6 per cent in the preceding year.

After-tax profit also declined over the preceding year’s level by a whopping 46.3 per cent, closing at N79 million, as compared with N147 million in 2015.

Meanwhile, total assets grew over the preceding year’s while the levels of liabilities and equity grew over the prior year’s. Total assets grew by 4.4 per cent to N3.82 billion while equity and liabilities grew by 4.6 per cent and 4.1 per cent respectively to close at N1.81 billion and N2.01 billion.

Earnings per share (EPS), was however at 15.96 kobo predictably lower than that of the prior year. This EPS was down by 45.9 per cent over the 29.48 kobo recorded before. The company did not declare a dividend.

 

Profitability ratios

Because the company recorded a lower turnover and a lower profit for the 2016 review year, its profitability ratios took a downward dip. It recorded a profit margin of 7.1 per cent during the course of the year, as compared to 12.8 per cent in the prior year. This means that every N100 worth of turnover made a profit of N7.10, as compared to N12.80 in the prior year.

As per return on assets (ROA), the company also did not perform in 2016 as well as it did in 2015. ROA for the year was 2.5 per cent, down from 4.8 per cent in the prior year. Meanwhile, return on equity (ROE) was 4.4 per cent in 2016, down from 8.5 per cent in 2015. Both ratios were lower than what most other companies recorded for 2016.

In terms of staff matters, the company performed better for the year ended December 31 2016 than it did in the prior year. On the average, each employee contributed N4.32 million to the company’s pre-tax profit, up from N3.92 million in the prior year.

 

 

Other ratios

Ekocorp recorded just a slight lift in its level of capital adequacy in 2016 when compared with the prior year, and its result underperformed industry standards for the period under review.  At 55.0 percent, just slight higher than the 54.4 per cent result recorded in the prior year, the company’s result is however high enough to suggest that its financial strength in the future is still unshakeable.

A common feature of the manufacturing industry for the 2016 financial year is that most companies had high current ratios, having the ability to meet short term liabilities with short term assets. Ekocorp followed the rule with a current ratio of 2.3 times, same as it was in the erstwhile year.

Having a debt to equity ratio of 1.11 indicates that the company is using N1.11 of liabilities in addition to each N1.00 of stockholders equity. In other words, the company is using a total capital of N2.11 for every N1.00 of equity capital, about the same as the N2.12 used in 2015.

 

Sustainable growth

During the review year, the company recorded an after tax profit of N79 million, and chose to retain none of it, dedicating nothing to dividend for 2016.  Thus, retention ratio as one time, same as it was in 2015. With a profit margin of 7.1 per cent, a retention ratio of 1.0 times, an asset turnover of 0.35 times and an asset to equity ratio of 2.11, the company had a sustainable rate of 5.3 per cent. This means that using only the resources it generated, the company a 5.3 inherent capacity for growth during the course of the year. It however did not grow at all, recording an actual growth rate of negative 1.4 per cent. This was a departure from the prior year when the company had a higher sustainable growth rate as compared to an actual growth rate, rather than a decline.

 

Unique strategies

Ekocorp Plc was established in 1978 as a Joint Medical Practice reflecting the style of teaching hospitals, by the founding joint chief medical directors – A.C. Eneli, S.F. Kuku and A.A.A. Obiora whose surnames provide the Hospital with its name (‘E’ for Eneli, ‘K’ for Kuku and ‘O’ for Obiora – EKO Hospital).

With its Head Office in Ikeja and branches in Surulere and Ikoyi areas of Lagos, the EKO Hospital has experienced the kind of phenomenal growth that has earned it the position of Nigeria’s foremost private Hospital. The company is engaged in the business of health care delivery and is affiliated to the Obafemi Awolowo College of Health Sciences as well as Olabisi Onabanjo University to enhance research and improve services.

 

Conclusion

We forecast that the 2017 financial year might be a slightly more profitable one for Ekocorp Plc than the 2016 financial year was, especially if it is able to control operational costs.

*Source: Ekocorp’s 2016 financial report

*The Nigerian Stock Exchange

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