Investment Analysis (BEAM032J) coursework

Question 1 – Segment reporting data 

Indicative length: between 600 and 800 words
Hikma Pharmaceuticals plc is a British multinational pharmaceutical company which develops,
manufactures and markets a broad range of branded and non-branded generic medicines. You
are asked to comment on the firm’s business model and assess its risks and opportunities. The
business model assessment should be based on the segment information in the company’s two
most recent annual reports. The reports can be found using these links:
https://www.hikma.com/investors/2019-annual-report/
https://www.hikma.com/media/2575/hikma_ar2018_full-ar.pdf
The most recent results (Half year for 2020) https://www.hikma.com/media/2827/combined2020-interim-press-release-vfinal.pdf
The financial press and library resources indicated below.
Part A: With reference to segment data in 2019, you are asked to describe the company’s
business model. What are the main sources of revenue in terms of product category and
geographic area? Who are the customers for each of the main product categories?
[8 marks]
Part B: Use the segment data between 2017 and the first half year of 2020 to estimate growth
in revenues, gross profit and operating profit margins and assess the success of the company’s
business model. This discussion should not only describe growth in revenues, gross and
operating profit margins of the company’s main sources of revenues but it should also draw
upon information in the annual report, articles in the financial press and resources in the library.
To this end, answer the following questions with reference to growth rates and margins:
 What are the external influences that have favoured or constrained the ability of the
company to generate and grow its revenues so far? What is their effect on the relevant
segment and the company’s overall growth in revenues and level of gross and
operating profit margins?
[15 marks]
 How has the company been coping with both favourable and constraining external
influences? What is the impact of these actions and strategies on the relevant segment
and the company’s overall growth in revenues and level of gross and operating profit
margins? How sustainable (i.e., likely to be repeated) are the company’s growth in
revenues and margins in 2020?
[11 marks]

Tips for Part A:
Refer to the revenues figures stated in Note 4 in the annual reports for 2019 stating “sales by
segment and geographical market”. State each revenue category as a percentage of total
revenues to identify the main sources of revenue. Refer to the annual report for more context
on the main sources of revenue and customers.
Tips for Part B:
Estimate growth in revenues per “segment and geographical market”, gross and operating
profit margins for the years 2017 to 2019 and the half year of 2020 per segment based on data
in the 2018, 2019 annual report as well as the 2020 interim press release.
Run a search for the company (keyword: Hikma) on Financial Times and Investors’ Chronicle
(use Google for this) between the beginning of 2018 and today to acquire an overview of any
significant developments and/or analysts opinions.
Complement this research by means of the information in the annual report (e.g., the key
industry trends outlined by the company, the financial and business review). Supplement your
research on the external influences that are specific to this company by running relevant
searches in the University’s resources (Statista, Marketline). Bear in mind that Statista most
likely collects data from primary sources. When referring to these data, please access and/or
use the primary source (e.g. IQVIA, EvaluatePharma).

Question 2 – PPE [Total marks 33]
Obtain the annual report of Next PLC for the year ending 1/2020 using this link:
https://www.nextplc.co.uk/investors/reports-and-presentations/2019-20.
The following questions refer to Note 9 – Use the Total column, unless otherwise stated.
1. How much PPE did Next acquire during the year? [3 marks]
2. How much depreciation expense did Next record during the year? [3 marks]
3. Assume that next received £2.5m for PPE sold during the year; how much gain or loss
on the disposal did Next record? [3 marks]
4. Did Next impair its PPE during the year? If yes, by how much? [3 marks]
5. Using the average cost of PPE, estimate the average depreciation rate for Plant and
Equipment? Using this figure, assess the average useful life of Plant and Equipment.
[6 marks]
6. You suspect that Next uses too low depreciation rates. Therefore, you want see what
is the effect of increasing the annual depreciation expense for both 2019 and 2020 by
10%. Specifically, recalculate the following after making the necessary adjustment
(ignore tax implications):
a. Profit for the year ending 1/2020, assuming that as a result of the higher
depreciation expense there is no need to record impairment loss in either year;
[3 marks]
b. Cash from operations in the year ending 1/2020; [3 marks]
c. Total assets on 1/2020; [3 marks]and
d. Equity on 1/2020. [3 marks]

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