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AYN505
AU
Queensland University of Technology
This report presents the financial analysis of an organization which is listed on the AIM (Alternative Investment Market) in LSE. The selected company for the purpose of analysis is ‘Midwich Group PLC’. The analysis includes various types of ratios such as efficiency, profitability, liquidity and the profitability. The focus of this report is to develop financial strategies for the chosen entity so that it could become a FTSE 100 company and dominate the computer and peripherals industry in the United Kingdom. In order to develop strategies, the ratios of the last five years is calculated and compared to one of the greatest competitor of Midwich Group Plc, namely, Tech Data Corporation. Lastly, the report covers non-financial aspects of the business such as corporate governance and its impact on the reputation of the firm. Overall, the report reflects the financial performance of Midwich group plc over the last 5 years of business operation.
Midwich Group PLC is located in DISS, United Kingdom. The company operates in a Computer and Office equipment wholesaler’s industry. The group comprises of around 33 companies. The group deals in computers, peripherals, software and technology products. It specializes in AV distribution which comprise of technical AV solutions, consumer electronics, professional Audio and public address, IP networks, document scanner, lighting and commercial TV amongst others, to the trade market. The group carries out its operation in UK & Ireland, Asia Pacific, France, Spain, Holland, Australia, Belgium and New Zealand.
The group has been successful in establishing strong relationship with more than 500 vendors (MIDW Annual Report, 2019) which includes organizations engaged in dealing of blue-chip products such as broadcast, professional audio, technical AV, unified and lighting communications. It was established in the year 1976 as a distributer of computers, printers and other components (Midwich Group Plc | History, 2021). The number of employees working for the Midwich group is 830, operating in 19 offices with Andrew Herbert as the non-executive chairman of the group (MIDW, 2021). The Midwich Group PLC is listed on the London stock exchange with the ticker MIDW.
The growth strategy of the group can be categorized as organic as well as inorganic. However, the group primarily focuses on achieving organic growth which is supplemented by the acquisitions of businesses operating in new product or geographical markets. Skilled workforce along with the nature of its business as value adding distributor gives a competitive advantage to the group over its competitors.
The shareholders of Midwich Group PLC having interests in the company of more than 3 percent are shown below:
| Name | Equities | Percentage (%) |
| Midwich Group PLC Directors & Related Parties | 19,318,256 | 21.80%
|
| Standard Life Aberdeen PLC | 10,241,644 | 11.56% |
| Octopus Investments Nominees Limited | 8,924,028 | 10.07% |
| Granular Capital Ltd | 7,087,709 | 8.00% |
| Liontrust Investment Partners LLP | 4,530,147 | 5.11% |
| Schroder Investment Management | 3,989,941 | 4.50% |
| Janus Henderson Group PLC | 2,982,006 | 3.37% |
| Independent Investment Trust | 2,750,000 | 3.10% |
The directors and other related parties hold majority of the group equities (21.80%) followed by the Standard Life Aberdeen Plc having an interest of 11.56%. The share percentage which are not in public hands stood at 44.50% (MIDW | Major Shareholders, 2021).
The chairman’s statement reveals that 2020 was an unprecedented year for the group, however, he was delighted with the growth of 3.7% in total revenues of the Group. It is identified from the statement that the group was able to recover from the impact of covid-19 pandemic during the second half of the year. The new brands which are acquired by the group during the year 2020 include Poly, Barco ClickShare, Huddly and DTEN. Also, the company was able to launch a hardware as a service (HaaS) (Annual Report 2020). The Statement of Group Managing Director, Stephen Fenby, reveals that the Group have remained profitable, resilient, and continued to achieve the long-term strategy of the firm. The Finance Director, Stephen Lamb, identifies and reveals that strong cash position enables the group to recover from pandemic in a better way.
The Micwich Group Plc face tough competition from several wholesaler and office equipment providers. The main competitors of the company include Tech Data Corporation, ASI, Almo Corporation and Intcomex. The chosen competitor for the purpose of comparison is Tech Data Corporation. Both the companies operate internationally in a wholesale sector of Computer and Office Equipment and other technological devices. The tech data is a global leading Information Technology distributor. The company provides wide range of support service to market the products of global companies such as HP, Cisco, Apple and Microsoft. It has over 125,000 customers. Midwich Group Plc operates its business over several countries and Tech Data is supposed to be the greatest competitor as it is the world leader in the IT distribution Market. Tech Data corporation operates under distribution, electronics, technology, computer hardware and software sector. The headquarter of the company is situated in Florida, United situated. It was established in the year 1974.
Swot analysis reveals major aspects of business and helps the management to identify the areas which helps the entity in earning higher profit while determining the areas in which the entity is facing trouble and greater attention is required. The key strengths of the company include proven buy and build capabilities, strong growth strategy, greater emphasis on AV markets, value-add relationships with major customers and vendors, high value-add distribution with specialisms, leading competitive position, experienced management team along with industry expertise (MIDW | Strategy and Key Strengths 2021).
The weaknesses of the group include less investment in Research and Development, high attrition rate in work force, days inventory is high in comparison with the competitors. In addition, the company was not able to tackle the problem presented by the new entrants and has lost small market share in niche market. In order to mitigate such challenges, Midwich Group Plc has to build internal feedback mechanism from sales team.
The major opportunities available for the Group comprises of opening of new markets, increase in consumer spending after the period of economic recession arising due to Covid-19. The new taxation policy may prove advantages for existing business like Midwich Group Plc which would result in increased profitability. The use of new technology enables the entity to practice differentiated pricing strategy while entering new markets. Through online channels, the company is in a position to attract new The threats for Midwich Group Plc include the following:
The profitability ratios indicate the ability of the Group to generate profits from its normal business operations (Nalurita 2017). Therefore, in order to determine the profitability performance of the group, the focus is on the return on investment from assets or inventory. These information’s are most important for the investors to take their investment decision. The profitability ratios of Midwich Group Plc is analyzed for the period of last 5 years, using net margin, gross profit margin, return on equity and return on assets.
The gross profit margin of the group is almost stable during the last five years of operation. However, the gross margin off Tech Data Corporation has increased over the past 5 years. While comparing the gross margin ratios for both the company, it is found that Midwich Group Plc has performed better than Tech Data Corporation. the profitability of the Group has declined significantly in the year 2020. It may be due to the negative impact of covid-19 on the business. However, the revenue of the company has increased over the last years. The return on assets, return on equity and net margin are negative in the year 2020 which is due to the loss incurred by the business. The ROA of company has reduced from 5.73% in 2016 to -1.11% in 2020. However, till 2019, the company experiences growth in ROA.
These ratios are used to understand the ability of the Group to utilize its assets and manage their current liabilities effectively (Nufus, et al. 2020). The efficiency ratios used for this purpose are Inventory turnover ratio, asset turnover ratios, and receivables turnover ratios.The inventory turnover of Midwich Group Plc is lower than that of Tech data Corporation which indicates that the competitor has outperformed the Group in terms of inventory management. The Assets turnover ratio indicates that the Group has been able to utilize its assets more efficiently than the Tech data Corporation.
These ratios reflect the ability of the company to meet its current liabilities from the available short-term assets of the company (Madushanka and Jathurika 2018). The ratios used for the purpose of identifying the liquidity position are current ratio, cash ratio and the acid-test ratios. The liquidity position of the company has improved over the last 5 years of operation. The current ratio has increased from 1.24 in 2016 to 1.44 in 2020. The quick ratio or acid test ratio represents the ability of the company to meet its current liabilities from the quickest assets owned by the company. All the liquidity ratios suggest that the company has outperformed its competitor.
Gearing ratios are used to measure the financial leverage of the Group by analyzing the interest-bearing liabilities presented in the capital structure (Myskova and Hajek 2017). The gearing ratios used for the said purpose are long-term debt to equity, interest coverage and long-term debt to assets. The long-term debt to equity ratio was 10.57% in 2016 which increases to 46.52% in 2020. This shows that the company has relied on non-current liabilities for funding its operation during the last five years of business operations. The interest coverage ratio keeps on fluctuating over the years. Overall, the analysis revealed that the company is dependent on external source of finance for acquiring assets and carrying out its day-to-day operations.
The standards required for AIM-listed entities include good corporate governance. The Board of directors of Midwich Group Plc meets physically eight times a year. In addition, the Board also conducts remote meeting at other times as required. The Midwich Group Plc has adopted the most updated QCA (Quoted Companies Alliance) corporate governance code for the Midwich Plc (MIDW | Corporate Governance 2021). QCA is an outcome-oriented approach which is tailored for small and medium size quoted companies in the United Kingdom. The AIM does not require compliance of UK Corporate Governance Code. However, most of the entities look forward to comply with the code as much as practicable.
The evidence of corporate governance compliance is the separation of Non-executive Chairman (Andrew Herbert) and the Group Managing Director (Stephen Fenby). The Group Managing director acts as the Chief executive officer of the Group (Annual Report, 2020). The Board of Directors of the Group is led by the Chairman, who ensures that the body operates in the best interest of the shareholders. The chairman statements on corporate governance revealed that the entity has followed QCA. Both the Non-executive chairman and the CEO has a well-defined separate responsibility. The board comprises of three independent non-executive directors which includes the chairman. The Profile of Company secretary is held by the executive director. The company has responded to the most recent regulatory and government initiatives. The board comprises of three different committee, namely, nomination, audit and remuneration committee. The Nomination committee comprises of Andrew Herbert (chairman), Mike Ashley, Stephen Fenby and Hilary Wright. The Audit committee comprises of Andrew Herbert (Chairman), Mike Ashley and Hilary Wright. The remuneration committee comprises of Mike Ashley (Chairman), Andrew Herbert and Hilary Wright (Annual report, 2020).
The Midwich Group Plc should focus on reducing the cost of operation as it is evident form our analysis that the company was able to maintain stability in gross margin. However, it failed to improve the net profitability of the business. The Group shall utilize its strong liquidity position to acquire new businesses which not only add value to the business but also help the Group to expand in future. The group focuses on organic as well as inorganic growth. The industry trend reveals that the demand in AV sector is higher than the overall GDP of the economy. Thus, the entity must focus on expanding the business operations by attracting customers by entering into new markets. The short-term strategy for improving the financial position and recover from the impact of Covid-19 include planning for short-term development, new vendor acquisition, launching of ‘as a service’ model and continue to focus on working capital of the business.
Madushanka, K.H.I. and Jathurika, M., 2018. The impact of liquidity ratios on profitability. International Research Journal of Advanced Engineering and Science, 3(4), pp.157-161.
Midwich Group plc - Annual Report 2020. Available at: https://midwichgroupplc.com/investors/document-library/ (Accessed: 31 May 2021).
Midwich Group plc - Corporate Governance (2021). Available at: https://www.midwichgroupplc.com/investors/corporate-governance/ (Accessed: 31 May 2021).
Midwich Group plc - History (2021). Available at: https://midwichgroupplc.com/about-us/history/ (Accessed: 30 May 2021).
Midwich Group plc - Major Shareholders (2021). Available at: https://midwichgroupplc.com/investors/major-shareholders/ (Accessed: 30 May 2021).
Midwich Group plc - Strategy and Key Strengths (2021). Available at: https://midwichgroupplc.com/about-us/strategy-and-key-strengths/ (Accessed: 31 May 2021).
Myšková, R. and Hájek, P., 2017. Comprehensive assessment of firm financial performance using financial ratios and linguistic analysis of annual reports. Journal of International Studies, volume 10, issue: 4.
Nalurita, F., 2017. The effect of profitability ratio, solvability ratio, market ratio on stock return. Business and Entrepreneurial Review, 15(1), pp.73-94.
Nufus, K., Supratikta, H.A.D.I., Muchtar, A.W.A.L.U.D.D.I.N. and Sunarsi, D., 2020. Analysis of Financial Performance: Case Study of PT. X Employee Cooperative. Utopía Y Praxis Latinoamericana, 25, pp.429-444.
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