Financial Analysis Assignment: Analyses Of Performance & Operations of Clinigen Group

Question

Task:
This financial analysis assignment requires students to produce an individual report analysing the performance and operations of a company listed on the Alternative Investment Market (AIM) of the London Stock Exchange within a selected sector.

Required:
You have been asked to write a report to the board of directors of a company as part of the interview process for your first appointment as a Finance Director of a company listed on AIM (which is the Alternative Investment Market for small companies) within the London Stock Exchange (LSE). The board of directors have asked you to write a report about your vision and strategic financial goals for the company.

Answer

Company Overview
The analysis presented in the financial analysis assignment is based on Clinigen Group. Clinigen Group is a company belonging to the healthcare sector. The company is listed on London Stock Exchange. The company has employed over 1000 employees, having offices across the globe. The company has collaborated with over 25000 health professionals that provide immediate assistance to the organization whenever required. The functioning of the company is to direct the healthcare professional to a patient who is in need anywhere in the world. The company’s operation is based on an online platform that allows every individual to seek medicines. The platform provides a facility for healthcare professionals to register themselves and view the full product list. Thus, the company facilitates products as well as services to pharmacists and healthcare specialists.

The company’s last financial statement was published on21 June 2021. At that time, the gross margin of the company was 37.8%. The operating margin of the company was 11.48%. The net profit margin of the company was 7.58%. The return on investment of the company was 4.34%. According to EBITDA, the company has 26% services and 74% products. The adjusted net revenue of the company has continued to increase by 7% which is driven by an increase in volume and profit mix in the domain of service (Appendix 1).

Equity Holdings
The board of the company has an excellent vision of growth and has incorporated good communication, along with strategies and governance to rise with shareholders. Clinigen Group has various shareholders. The total number of issued shares is 133,366,726 of 0.1 pence each. Among all the shares 0.4% is not in the hands of the public. 614,807 shares are allocated to The Clinigen Group Employee Benefit Trust. In the table below, the shareholders of the group are given which is up to the date of 31st January 2022.

Every company gives some dividend as a gesture of sharing profits on shares with their shareholders. The Clinigen group has continued to provide dividends over the last five years (Ozieranski et al. 2021).

Each of the shares is like an investment for shareholders, so they expect some earnings from those shares. In 2021, the earnings per share of the company declined by 14% in comparison to the preceding financial year (Osadchy et al. 2018).

The company has tried to maintain the dividend for every year to share the profits but at the same time, the average market performance of the company is not that appreciable, as in a previous financial year, there were better earning.

Competitors
Clinigen Group has many competitors, working with a more vital workforce and better revenues. The biggest competitor is LEO Pharma. LEO Pharma is a Denmark-based company having more than 5,500 employees working under it with annual revenue of approx $1 billion. Other competitors names include Sobi, Ipsen Pharma, Amneal, PCI Pharma Services, and many more.

Financial Ratio Analysis
The year 2020 has been completely impacted and affected by Covid-19. Though this led to a decrease in EBIDTA in comparison to the previous year. Despite that, the business has continued to face the challenges and generate an excellent amount of cash. Apart from that, there is a significant amount of increase in net debt, but there is a possibility of pay down can be prioritized (Liu & Zhu 2021).

The total revenue of the company is £523.6 M, which was £466.7 M in 2020, £456.9 M in 2019, and £381.2 M in 2019. The gross profit of the company is £197.9 M, which was £205.1 M in 2020, £182.3 M in 2019, and £140.1 M in 2018. The operating income of the company is £60.1 M, which was £34.2 M in 2020, £20.2 M in 2019, and £40.4 M in 2018. The net income of the company is £30.3 M, which was £13.7 M in 2020, £5.2 M in 2019, and £27.4 M in 2018.

Current Ratio
The measurement of the current ratio is done to determine the company’s ability to pay their short-term liability, that is probably within a year. The current ratio of the company is 1.75, whereas for the industry is 6.03. The company’s current ratio showcases its capability to fulfil its obligations pretty easily.

Quick Ratio
The measurement of the quick ratio is done to determine the organization’s capacity to pay off its short – term obligations without selling inventory. In other terms, it is said to be the liquidity position of the company. The Clinigen Group’s quick ratio is 1.42

Profitability Ratios
The objective of this ratio is to showcase the capability of the organization to generate profit on a particular parameter. The company has incurred an excellent gross margin in the previous financial year while net profit margin and operating margin is sufficiently above the surface. The return on investment of the company is 3.34%, which actually depicts the strength and focus of the company (RNS Reach 2018).

Valuation Ratio
The valuation ratio is the indicator of the relationship among the market value of the company’s equity with earnings or some other financial metric.

Per Share Data

The basic and diluted EPS of the company is 0.3 and 0.29 respectively which is higher than industrial standards, that is 0.01 and 0.01 respectively.

Management Effectiveness
The important financial indicator of the effectiveness of management is given below. The rate of return on investment and assets is an indication of a company’s performance.

The net income of company per employee is £ 40,229.90 which is pretty good in comparison with the revenue per employee that is £ 530,496.40.

Financial Strength
The financial strength of the company is given in the table below. The notion of debt is to comprehend the liabilities of the company. It is often compared with the present value of equity of its shareholders. All the related ratios are associated with debt such as the current ratio and quick ratio to evaluate the company’s ability to pay back its liabilities (Skocdopole 2021).

Dividend
The concept of dividend is to share the profit of an organization to all their shareholders. The organization shares a specific percentage of the profit to make sure its shareholders are getting benefitted from the venture. If the company doesn’t declare a dividend, then its profit is re-invested.

The dividend yield of the company is 0.83% which is equal to the industrial yield that is 0.83. Apart from that, the dividend growth rate is 10.76%, which is also equal to the industrial rate.

Corporate Governance
An example of good corporate governance compliance is the structure defined well and enforced so that everyone meets the benefits. It ensures that the enterprise practice and follows the ethical standards, formal laws, and best practices during its operation. Clinigen Group has assured to grow into the market without hampering its robust work structure. Pursuing bad corporate governance would portray a negative image of the company, which would affect its financial stability.

Compliance
Since the company shares are traded on AIM, it ensures to follow the AIM rules for its functioning. The company currently follows the Code and AIM rules to ensure that the government standards meet their best. The corporate culture of the company encompasses the values of teamwork and excellence. The company has set a motto of "Right Medicine, Right Patient, Right Time," prioritizing the patients.

Each member of the company board has a joint vision for long-term success and has equal responsibility for the stewardship. The board is responsible for the company's shareholders and stakeholders with the primary objective of increasing the assets' value and long-term viability. The Executive Directors and Executive Management Team manage the daily management of the business. The board matters have a specific schedule where Board Committees, Executive Directors, Executive Management Team, and Senior Management Team have a continuous look over the proceeding function. Subjects categorized under remit are reserved for review at a specific time annually (Rapp & Amdur 2022).

Environmental Analysis

SWOT Analysis
Strength
The primary strength of the company is the widespread network of healthcare professionals. Clinigen Group already has over 25,000, healthcare professionals providing immediate assistance to the customers. The company has eliminated the in-between factors that limit the reach of the customers from getting professional support. Moreover, the company's platform provides access throughout the globe and allows the patient to select the required specialist in the field. Also, the company lets pharmacists, pathologies, and other product sellers connect with it. It permits service providers to connect directly with the individuals for medical facilities and services.

Weakness
The company has developed in various sectors, though it lags in a few. The company lacks in proper technology structure. The customers are not yet able to connect easily with the professionals. The company's internal structure still has gaps in its capabilities or service areas. Service providers like pharmacists, pathologies, and others find it challenging to connect with the company at the initials. Also, the company has not yet segregated the service lines. These issues are limiting the company from getting higher profits and are restraining its growth.

Opportunities
The growth and expansion of digital marketing and online services have been the greatest opportunity for the company. Globalization has increased the access of the internet to the people, where they can avail themselves of any services just by simple clicks. It has separated the professionals from the customers. The company can act as a promotor for their business, increasing their connections and bringing more clients to their doorstep. There is a lack of higher competition in the market, allowing the company to increase its dominance and acquire more users.

Threats
The market is experiencing heavy changes, allowing many lower segment companies to grow more in the market and enhance their functioning. At such an early stage, any company with an elegant and innovative idea can become a threat to the company. The competition in the market is new, which creates a higher chance for new and potential companies to enter into the segment. Also, changing regulations within the governing bodies can impact the ongoing functioning of the company, affecting the profit made (Mitchell et al. 2020).

Key Issues and Challenges
Since Clinigen Group follows both the Code and AIM rules, it is difficult for the company to UK Corporate Governance Code, as it encompasses the best practices for UK governance. The higher growth of competition in the market is limiting the performance and revenue of the company. Moreover, the increased demand in pandemic became challenging to meet as the number of employees and professionals reduced drastically. The change in the rules of the order has affected the overall performance and functioning of the company.

Proposed Financial Strategies
The company needs to reduce its debt in the upcoming years. Decreasing the debt will increase the growth rate allowing the company to invest more into the necessary sectors. Reduced debt will increase the company's performance in the London Stock Exchange, which will increase the current and quick ratio profit with improved financial investments. Also, the company needs to enhance its return on investment. With better return on the products and services, the company would make a higher profit than usual, allowing the company to grow speedily in the market. Moreover, the company needs to enhance its asset turnover, which will elevate its dominance in the market.

References
RNS Reach, 2018. Investegate |Clinigen Group plc Announcements | Clinigen Group plc: Clinigen and Jazz Pharma initiate MA programme, RNS Number : 0522I, viewed 18 February 2022, https://www.investegate.co.uk/clinigen-group-plc/rns/clinigen-and-jazz-pharma-initiate-ma-programme/201803190700070522I/

Ozieranski, P., Pitter, J.G., Rickard, E., Mulinari, S. & Csanadi, M., 2021. A ‘patient–industry complex’? Investigating the financial dependency of UK patient organisations on drug company funding. Sociology of Health & Illness, vol.44, no.1, pp.188-210, https://doi.org/10.1111/1467-9566.13409.

Liu, C. & Zhu, C., 2021, January. The Empirical Analysis of Financial Factors Affecting the Profitability of Listed Companies in Medical Instrument Industry. Financial analysis assignment In International Conference on Decision Science & Management, vol.1391, pp.687-694. Springer, Singapore. https://link.springer.com/chapter/10.1007/978-981-16-2502-2_73

Skocdopole, P., 2021. Financial Analysis as a Basis for Creation of the Financial Plan of the Selected Business Entity–Case Study. In SHS Web of Conferences, vol.92, no.03027, pp.1-10 EDP Sciences. https://www.shs-conferences.org/articles/shsconf/pdf/2021/03/shsconf_glob20_03027.pdf

Rapp, C.T. & Amdur, R.J., 2022. Potential financial implications of substituting cognitive medicine for technical radiation oncology billing services. Practical Radiation Oncology, vol-12, no.1, pp.7-10. https://doi.org/10.1016/j.prro.2021.08.013

Osadchy, E.A., Akhmetshin, E.M., Amirova, E.F., Bochkareva, T.N., Gazizyanova, Y. & Yumashev, A.V., 2018. Financial statements of a company as an information base for decision-making in a transforming economy. European Research Studies Journal, vol.21, no.2, pp.339-350, https://www.um.edu.mt/library/oar/bitstream/123456789/33582/1/Financial_Statements_
of_a_Company_as_an_Information_Base_2018.pdf

Mitchell, M.S., Orstad, S.L., Biswas, A., Oh, P.I., Jay, M., Pakosh, M.T. & Faulkner, G., 2020. Financial incentives for physical activity in adults: systematic review and meta-analysis. British journal of sports medicine, vol.54, no.21, pp.1259-1268. http://dx.doi.org/10.1136/bjsports-2019-100633

Appendices
Appendix 1: Financial Performance

Appendix 2: Cashflow Performance