Feasibilty Study for Holiday Inn (6)

Feasibility Study for Holiday Inn6

Marketing Management for the Service Industry (MK301)

Information Systems 2 (IS301)

Managerial Accounting (AC301)

Lecturer: Mr. Evangelos Vantzos

Word Count: 3526

Date:16/05/2011

Group Members:

Denis Sulimkin (3B)

Francesca Pat-Ekeji (PG B)

Alina Raab (3B)

Rehan Mustafa (3B)

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Executive Summary:

The aim of this feasibility study is to determine which improvements can be made to

reinforce the position of HolidayInn6 hotel in the market. In order to detect the enhancements

the was a critical analysis carried out for financial and marketing areas of hotel’s activities

along with the analysis of competitors and current market position. The analysis conducted

has shown the HolidayInn6 has a better overall performance in such aspects as market share,

occupancy, daily rate and condition of facilities.

In addition to it there was an evaluation of past financial data executed in order to define and

forecast the budgeting and timelines for application of additional facilities. The impact of

sound marketing strategy on the performance of the hotel can be seen in year 1, and the

management is expecting the same result in relation to the projected extensions of facilities.

The addition of a conference center together with an extension of 100 rooms is forecasted to

sustain high profitability of operations, while an upgrade of car parking and introduction of

business center will add value to services and positively affect hotel’s reputation. In addition,

numerous evaluations of the project have been executed and in accordance to them the

project was proven as feasible.

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Contents 1: Introduction:........................................................................................................................................ 6

2: Market Analysis: ................................................................................................................................. 7

2.1: Current Facilities’ Analysis: ........................................................................................................ 7

2.2: Analysis of Existing Clients and Existing Business: ................................................................... 7

3. Site, Area and Hotel Website Evaluation ............................................................................................ 8

3.1 Location, Space and Area ............................................................................................................. 8

3.2 Hotel Website ................................................................................................................................ 8

3.2.1Design Principles ........................................................................................................................ 8

3.2.2 Structure and Content ................................................................................................................ 9

3.2.3 Colour Scheme ........................................................................................................................... 9

4. Supply, Demand and Competitive Considerations ........................................................................... 10

4.1 Past Occupancy Trends ............................................................................................................... 10

4.2 Hotels Currently Serving the Local Market ................................................................................ 10

4.3 Competitive Information of the Key Competitors ...................................................................... 10

4.4 Supply and Demand Analysis ..................................................................................................... 10

5: Marketing Strategy ........................................................................................................................... 11

5.1: Desired Clients and Market Potential ........................................................................................ 11

5.2: Sales and Sales Actions ............................................................................................................. 11

5.3: Advertisement and Promotional Tactics .................................................................................... 12

6. Proposed Extension of Facilities and Services ................................................................................. 13

6.1 General Concept and Changes needed ........................................................................................ 13

6.2 Proposed Future Extension ......................................................................................................... 13

7. Financial Assessment, Projections & Viability ................................................................................. 14

7.1 Trend Analysis ............................................................................................................................ 14

7.2 Ratio Analysis ............................................................................................................................. 14

7.3 Capital Investment Required & Financing .................................................................................. 15

7.4 Operations and Capital Budgeting .............................................................................................. 16

7.5 Cost - Benefit Analysis ............................................................................................................... 16

7.6 Evaluation of projections ............................................................................................................ 17

8 Sensitivity Analysis ........................................................................................................................... 18

9. Conclusion & Recommendations...................................................................................................... 19

10 References: ....................................................................................................................................... 20

11 Appendices ....................................................................................................................................... 21

11.1 Appendix: General Information of Holiday Inn6 ...................................................................... 21

11.1.1 Appendix: Nice –Space, Location and Area ..................................................................... 21

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11.1.2 Appendix Nice, Ambiance and Scenery ............................................................................ 22

11.1.3 Appendix: Hotel Location .................................................................................................. 23

11.1.4 Appendix Economical Background of the Hotel ............................................................... 24

11.1.5 Appendix: Hotel Facilities ................................................................................................. 25

11.1.6 Appendix: Current facilities’ condition ............................................................................. 26

11.1.7 Appendix: In Room Entertainment and Complimentary Items ......................................... 27

11.1.8 Appendix: Comments from Monthly Indicator Report Year 1 to Year 2 .......................... 28

11.1.9 Appendix: Guest Comments: Week 82 to week 149 ......................................................... 29

11.2 Website Layout ......................................................................................................................... 30

11.2.1 Appendix: Homepage ........................................................................................................ 30

11.2.2 Appendix: Reservation ....................................................................................................... 31

11.2.3 Appendix: Photo Gallery ................................................................................................... 32

11.2.4 Appendix: Rooms .............................................................................................................. 33

11.2.5 Appendix: Contact Us ........................................................................................................ 34

11.2.6 Appendix: Privacy Policy .................................................................................................. 35

11.3 Marketing Analysis ................................................................................................................... 36

11.3.1 Appendix: Advertising Media and their Effectiveness ...................................................... 36

11.3.2 Appendix: Management decisions Year-1 ......................................................................... 37



11.3.5 Appendix: Weekend VS. Weekday: Year 3 ....................................................................... 43

11.3.6 Appendix: Market Segments .............................................................................................. 45

11.3.7 Appendix: Average Room Rate vs. Room Occupancy for Year 3 ..................................... 46

11.3.8 Appendix Competitors ....................................................................................................... 47

11.3.9 Appendix: Competitor Status Report December Year 3 .................................................... 48

11.3.10 Appendix: Local Diary Events ......................................................................................... 49

11.4 Performance Indicator from Year1 to Year3 ............................................................................ 50

11.4.1 Appendix: HOTS Scorecard Year 1 ................................................................................... 50



11.4.4 Appendix: F&B Departmental Income Statement- Year 1 ................................................ 53



11.4.7 Appendix: Indicator Average Year 1 ................................................................................. 56



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11.5 Proposed Extension of Facilities & Service .............................................................................. 59

11.5.1 Proposed Alternatives A & B ............................................................................................. 59

11.5.2 Appendix: Pre-Opening Expenses ..................................................................................... 60

11.6 Analysis of Past Financial Statements ...................................................................................... 62

11.6.1 Appendix: Comparative Horizontal Analysis – Income Statement Year 0 to Year 4 ........ 62

11.6.2 Appendix: Comparative Horizontal Trend Analysis – Income Statement Year 0 to Year 4

...................................................................................................................................................... 63

11.6.3 Appendix: Comparative Horizontal Analysis – Balance Sheet Year 0 to Year 4 .............. 64

11.6.4 Appendix: Comparative Horizontal Trend Analysis – Balance Sheet Year 0 to Year 4 ... 65

11.6.5 Appendix: Comparative Horizontal Analysis – Cash Flow Year 0 to Year 4 ................... 66

11.6.6 Appendix: Comparative Horizontal Analysis – Cash Flow Year 0 to Year 4 ................... 67

11.6.7 Appendix: Trend analysis – Total Revenue ....................................................................... 68

11.6.8 Appendix: Trend Analysis – Income after taxes ................................................................ 69

11.6.9 Appendix: Trend Analysis – Average daily rate ................................................................ 70

11.6.10 Appendix: Trend analysis – RevPAR .............................................................................. 71

11.6.11 Appendix: Trend analysis – Market index image ............................................................ 72

11.6.12 Appendix: Trend analysis – Cash at bank ........................................................................ 73

11.6.13 Appendix: Current Ratio .................................................................................................. 74

11.6.14 Appendix: Debt-Equity Ratio .......................................................................................... 75

11.6.15 Appendix: Profit Margin Ratio ........................................................................................ 76

11.6.16 Appendix: Gross Operating Profit ................................................................................... 77

11.6.17 Appendix: ROCE ............................................................................................................. 78

11.6.18 Appendix: Occupancy ...................................................................................................... 79

11.6.19 Appendix: Rooms Market Share ...................................................................................... 80

11.6.20 Appendix: Gearing Ratio ................................................................................................. 81

11.7 Capital Investments & Financing .................................................................................................. 82

11.7.1 Appendix: Capital Investment & Financing ...................................................................... 82

11.7.2 Appendix: Outstanding loan at the End of Year 3 ............................................................. 83

11.7.3Appendix: Loan Financing –Bank ...................................................................................... 84

11.7.4 Appendix: Loan Financing – Investors .............................................................................. 85

11.7.5 Appendix: Depreciation – Conference Center ................................................................... 86

11.7.6 Appendix: Depreciation – Business Center ....................................................................... 87

11.7.7 Appendix: Depreciation – Parking ..................................................................................... 88

11.8 Appendix Pro-Forma Statements .............................................................................................. 89

11.8.1 Appendices Financial Targets and estimations for Years 4-8. ........................................... 89

11.8.2 Appendix: Forecasted Revenues ........................................................................................ 90

11.8.3 Appendix: Pro-Forma Summary Income Statement .......................................................... 92

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11.8.4 Appendix: Forecasted Tendency Departmental Income Statement: Rooms ...................... 93

11.8.5 Appendix: Pro Forma Departmental Income Statement Rooms ........................................ 94

11.8.6. Appendix: Forecasted Tendency Departmental Income Statement: Food & Beverage .... 95

11.8.7. Appendix: Pro-Forma Income Statement F&B ................................................................. 96

11.8.8 Appendix: Forecasted Tendency Departmental Income Statement Other ......................... 97

11.8.10. Appendix: Pro Forma Departmental Income Statement other ........................................ 98

11.8.11 Appendix: Forecasted Tendency Departmental Income Statement Central Administration

...................................................................................................................................................... 99

11.8.12 Appendix: Pro Forma Departmental Income Statement Central Administration .......... 100

11.8.13 Appendix: Staff and Training - Department Income Statement Conference Center ..... 101

11.8.14 Appendix: Pro Forma departmental Income Statement Conference Center .................. 102

11.8.15 Appendix: Pro Forma Summary Income Statement: Conference .................................. 103

11.8.15 Appendix Pro-Forma Cash Flow: New Facilities .......................................................... 104

11.9 Cost Beneficial Analysis ......................................................................................................... 105

11.9.1 Appendix: Payback Period ................................................................................................... 105

11.9.2 Appendix: Net Present Value ............................................................................................... 106

11.9.3 Appendix: Internal Rate of Return .................................................................................. 107

11.10 Sensitivity Analysis .............................................................................................................. 108

11. 10.1 Appendix: Sensitivity Analysis: Rooms Year 8 ............................................................ 108

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1: Introduction:

The aim and objective of the following feasibility assessment is to provide information of the

Holiday Inn Hotel and its strategy in marketing and financial development. The overview of

the Hotels current situation as well as the changes it has gone through in the past will ease the

evaluation of its viability and justify the addition of extra facilities to Holiday Inn Hotel. With

the facilities mentioned in the following study Holiday Inn wishes to add further value to the

hotel and thereby strengthening their stance in the corporate market segment.

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2: Market Analysis:

2.1: Current Facilities’ Analysis:

Holiday Inn6 is a full service hotel, with its services including restaurant, bar and 24 hours

front desk services along with 250 guest rooms, which can accommodate doubles, families

and singles (Appendix 11.3.9). All these facilities have been continuously renovated to upto

date condition. The management tried to keep these facilities in the excellent level, which can

be seen by decisions taken in years1 to 3 (Appendices 11.3.2-11.3.4). The rooms have air-

conditioning systems, private luxury bathrooms, and offer a wide range of complimentary

items and in-room entertainment services (Appendix 11.1.7 & 11.3.9) along with high-quality

amenities to guarantee that rooms produce admirable impression and fulfil diversified

guests’ needs and expectations (Appendix 11.1.8). In addition to these services and facilities,

to attract more guests and widen the range of attractions at the hotel, Holiday Inn6 has a

swimming pool and offers parking facility, which is capable of accommodating 120 cars

(Appendix 11.1.5).

2.2: Analysis of Existing Clients and Existing Business:

HolidayInn6’s management decided to divide its market to effectively target all the segments

so that the marketing plan would be implemented efficiently (Kotler et al., 2010).

HolidayInn6 determined corporate clients as its major market segment and for the past three

years has created an image of a mainly business hotel. Due to seasonality factor, HolidayInn6

implements certain changes in the marketing strategy in the 2nd

quarter of each year, when the

majority of clients belong to leisure segment. This restrategizing does not affect the ability of

the hotel to attract corporate clientele; it shows that management can successfully project

sound tactics of adaptation to the leisure segment as well as responding to peaks and dips in

seaonality. As HolidayInn6’s quality index is the highest among competitors in year 3 with

an index of 42.29 (Appendix 11.4.3), it affects average occupancy which, by the end of year

3, was 70.30% (Appendix 11.3.6). It can be seen from rooms analysis that corporate sector

was the major consumer of the rooms sold during weekdays with 72% occupancy (Appendix

11.3.5.1) and leisure sector is dominating in rooms sold during weekend with 48% occupancy

(Appendix 11.3.5).

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3. Site, Area and Hotel Website Evaluation

3.1 Location, Space and Area

HolidayInn6 hotel is located in Nice, a port city located in the South of France at the Côte

d’Azure, the French part of the Mediterranean Sea (Appendix 11.1.1). It has a population of

145,000 residents and with its sheltered location it is one of the warmest cities in France even

during winter months. The hotel’s location has a view on the “Promenade des Anglais”, the

main coastal road which also leads directly to the closest airport, only 7 km away (Appendix

11.1.1). When the hotel was built in the 1950s, coastal trips as well as off-season breaks grew

in attractiveness to leisure and business travelers. At this time, due to the growing interest,

other hotels also entered the market (Appendix 11.1.3 – 11.1.4). Nice has convenient

transportation with its airport being one of the biggest air transportation hubs in Europe and a

high-speed rail service operating to and from Paris. (nicefrance.ca, 2011).

3.2 Hotel Website

The divisions below will provide a thorough clarification of the decisions involved in

creating the hotel’s website. Three major areas will be looked at, in order to elucidate the

purpose and meaning behind the design that was chosen for HolidayInn6.

3.2.1Design Principles

Following the statements of Williams and Tollett (2006) there are four principles that are the

fundamental features of every piece of design: alignment, repetition, contrast and proximity.

They make the difference between a website that will hurt or bore the eyes and one that looks

fresh, well-ordered and professional. The alignment of a website can be left, right or centered.

The key to a well-structured website is to choose one alignment and keep it throughout the all

pages (Williams and Tollett, 2006). Repetition refers to a visual piece or element being

repeated on every page of the website, e.g. the hotel logo or the color schemes. This creates a

relation between each page and binds them together to form a whole, organized and over

viewable website (Bennett, 2005).

Gary et al. (2009) argues that the contrast is of importance for a website to catch the viewers’

attention by implementing a color choice and text styles that are clear and set themselves off

from the background clearly. The proximity on a website denotes that two items or sections

that are put close to each other are supposed to belong together. With these four basic

principles in mind, HolidayInn6 has designed the website’s layout and content. The repetition

has been implemented by keeping the same background and alignment of text and pictures as

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well as the link bar on every page. The proximity has been kept by keeping the picture close

to its relevant text and having the main information in a separate box right next to the link

bar. The alignment of information on the website is left sided and through the use of light and

dark colors, the pictures and text formats give a strong contrast to attract the viewer’s

attention.

3.2.2 Structure and Content

As Williams and Tollett (2006) wrote, it is important to consider the web audience, in other

words, the targeted clients when planning and building a website. To gain the customers

attention and make our hotel as attractive as it can be through online marketing, HolidayInn6

has created a website structure that is simultaneously elegant and modern as well as easy to

use and organized.

To ease understanding of the website, the pages have been made available in the three most

commonly spoken languages of the EU: English, French and German. (ECM, 2010)

(Appendix 11.2.1 – 11.2.6) The left side holds the main body with vivid colored pictures

and/or text. To the right of the main body, the navigation bar is easy to use and over

viewable, consisting of the main links such as rooms, restaurant, events and reservation along

with extra features such as a photo gallery.(Appendix 11.2.1 – 11.2.6)

The contact details and career link located at the bottom of the navigation bar gives the

viewer the chance to get in touch with the staff of our hotel for any inquiries or to view

available positions in our hotel as we strive to give rising hoteliers the chance to improve

their experiences as part of our team.

3.2.3 Colour Scheme

As Davis (2008) said, color is essential to having a good design as it can raise the mood, gain

quick attention or be used to recognize a product. The choice of colors on our pages were

dependent on the meaning and mood that is conveyed by them. For our main color, the

background which was the same on every page, we decided to use brown tones because the

color represents simplicity, friendliness and dependability, which are feelings we would like

our customers to connect with our hotel. The color also radiates warmth and is neutral.

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4. Supply, Demand and Competitive Considerations

4.1 Past Occupancy Trends

By looking at the past occupancy trends of HolidayInn6, an increase in overall occupancy

percentage can be seen as it rose from 50.99% in Year1 to 70.30% in Year3 (Appendix 11.4.1

– 11.4.3). This growth can be related to the simultaneous increase in market share from

9.73% after Year1 up to 13.06% after Year3 as well as the decrease in the daily rate from $

103.51 in Year1 to $ 101.07 in Year3. Though in Year2 the hotel had a slight increase in its

daily rate to $ 104.26, the overall occupancy for the same year had an increase of 8.75% to

59.74% (Appendix 11.4.1 – 11.4.3).

4.2 Hotels Currently Serving the Local Market

There are six hotels located in the same area and competing with HolidayInn6 (Appendix

11.3.8). Nevertheless, HolidayInn6 is ranked highest on an overall review of performances

after Year3. Its strongest competitor, Sol Melia, has stayed behind with 1.42% of market

share in Year3 compared to HolidayInn6 (Appendix 11.4.3). The amenities accessible in the

hotel are similar for all competitors yet the competition has not been able to present strongly

on the market which can be seen in the ranking where HolidayInn6 remained on first place in

years 1 and 3, with a minor downfall to second rank in Year2 (Appendix 11.4.1 – 11.4.3).

4.3 Competitive Information of the Key Competitors

Regarding the RevPAR (Revenue per Available Room) the two strongest competitors to

HolidayInn6 are SolMelia closely followed by Radisson. SolMelia is laid only $ 4.15 lower

from HolidayInn6s RevPAR of $71.06 while team 2 is $ 8.81 lower, at the end of Year3

(Appendix 11.4.3). HolidayInn6 also has the highest percentage when it comes to Staff and

Guest satisfaction at the end of Year3. The hotel is leading with 80% staff and 75% guest

satisfaction, followed by SolMelia with 70% guest satisfaction and Radisson with a very

close 79% in staff satisfaction (Appendix 11.4.3).

4.4 Supply and Demand Analysis

The high demand by HolidayInn's target market is shown through the constant increase in

overall occupancy from year 1 to 3 (Appendix 11.4.1 - 11.4.3). It can be expected that the

demand will increase further throughout the upcoming years as the hotel will gain more

market presence and add extra facilities .

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5: Marketing Strategy

5.1: Desired Clients and Market Potential

It can been seen in last three years that Holiday Inn6 has positioned itself as a corporate hotel

because there is always a higher occupancy in weekday rooms (93.5%) than weekend rooms

(39.4%) in Year3(Appendix 11.6.18). In respect to future marketing plans and to maximize

Holiday Inn6’s profitability, management will strategize to broaden its target market and will

include leisure sector to sell its weekend rooms and raise its room occupancy during weekend

(Pickton & Broderick, 2005). In upcoming years, according to projections, it is clear that

there will be an increase in corporate guests. The increase will provide a chance of huge

financial growth. Other than business sector, management will target weddings and social

events during weekends to utilize conference rooms to get full benefits out of them. In

addition to Rooms Department, restaurant at property has gained popularity and became one

of the most frequented dining venues (Appendix 11.1.8).

5.2: Sales and Sales Actions

Throughout the three years, with the help of on-going refurbishments, Holiday Inn6 has

determined to focus on pricing policy, restaurant and bar and implementation of extra

facilities such as concierge, in-room utilities and complementary items to maximize its profits

by increasing sales. Even though the hotel is ranked first in guest satisfaction survey, its

average room rate is not the highest compared to the rest of the competitors at the end of

Year3 (Appendix 11.4.2-11.4.4). This is the reason why Holiday Inn6’s average occupancy

is the highest among all competitors.

As described by Trehan & Trehan (2007), sales and sales actions are apprehensive with

selection of best substitute among the diverse available substitutes. Due to better quality of

menu products different suppliers were tried out during the three years (Appendix 11.3.2-

11.3.4). Finally one type of menu and the best supplier were selected in Year2 to maintain

services and give best services and quality with consistency. With all the enhancements done

during the period the price of the menu was increased by only $6.50. Likewise liquor prices

were changed to Level2 and Level3. The best pricing level was level 2, so that is why during

all the period liquor prices were kept at Level2 (Appendix 11.3.2-11.3.4). This increase in

prices in food and beverages did not affect negatively the F&B sales. Au contraire,

departmental contribution towards total net income increased from 39.9% in Year1 to 43.9%

Year3 in Food & Beverage Departmental Income Statements (Appendix 11.4.4-11.4.6), along

with receiving appraisals in Year2 and Year3 (Appendix 11.1.8-11.1.9).

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5.3: Advertisement and Promotional Tactics

It is crucial to make major decisions before implementing the actual advertising plan: set the

objectives, the message to be delivered, budgets, and the adverting campaign’s evaluation

(Kotler et al., 2003). Throughout the three years Holiday Inn6’s management has reinforced

its competitiveness as a business hotel to draw more attention of the targeted segments, which

was done through adapting marketing tactics and tolls. The amount spent on advertising was

calculated according to the situation, period of the year and requirements (Appendix 11.3.10

& 11.3.2-11.3.4, Kotler et al., 2010). The media of advertising were selected judging by

efficiency and effectiveness to the targeted segment of the market (Appendix 11.3.1).

Together with tactics previously mentioned, direct mail, telemarketing and website have been

applied to successfully attain corporate sector’s guests. The success of Holiday Inn6’s

advertising and promotion can be seen from the enhancement in public awareness index from

Year1 to Year3 which increased gradually from 36.4% to 46.8% (Appendix 11.4.7-11.4.9).

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6. Proposed Extension of Facilities and Services

6.1 General Concept and Changes needed

Analyzing the overall performance for the last 3 years, the management has agreed on the

fact that HolidayInn6 has achieved its projected targets and has enough potential to progress

and expand in the market. In the conditions of growing competition HolidayInn6 has faced a

need in extending its facilities to conform to the targeted market segment- corporate clients.

Therefore there were two projects analyzed on the presence of such criteria as suitability,

profitability, stability and sustainability.

6.2 Proposed Future Extension

The accepted project provides space for sustainable growth in overall activity and is

considered to be the most effective and suitable area for investment. The project implies the

construction of a conference centre and an extension of 100 rooms. Moreover, the project

presumes an addition of a business centre and an upgrade of the car parking. The augmenting

need of corporate segment in conferencing facilities is the reason for construction of the

conference centre. An extension of rooms is necessary for accommodating the increased flow

of corporate clients for the future years, whereas business centre and parking area will add

benefits to business customers, room sales along with adding value to HolidayInn6’s services.

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7. Financial Assessment, Projections & Viability

7.1 Trend Analysis

Looking at the trend analysis conducted on the financial statements of HolidayInn6, the

progression since the change of management is apparent (Appendices 11.6.1. – 11.6.6.).

Despite the decreases in year 2 that can be attributed to major capital expenditures,

HolidayInn6 was able to regain a healthy cash figure in the following year.

7.2 Ratio Analysis

In order to more clearly illustrate the financial position of HolidayInn6, several ratios have

been carried out (Appendices 11.6.7. – 11.6.20.) and they include:

Liquidity:

- Current Ratio

Solvency:

- Debt-Equity Ratio

Profitability:

- Profit Margin Ratio

- Gross Operating Profit Ratio

- ROCE

Activity:

- Occupancy Percentage

- Rooms Market Share

Gearing Ratio.

From the ration analysis, it can be seen that the performance of HolidayInn6 is on the incline

with only the Current Ratio & Debt-Equity ratio, showing slight decreases in year 2 due to

the capital expenditure (Appendices 11.6.13 – 11.6.14). Both ratios show improvements in

year 3 however. The decrease in the profit margin ratio can be attributed to more

refurbishments carried out during year 3, as well as an increases in total other direct costs,

fixed costs and business tax(Appendices 11.6.1 – 11.6.6.). These increases however, do not

15

impact the financial stability of the hotel as they only account for a 1% decrease in the ROCE

(Appendix .11.6.17).

7.3 Capital Investment Required & Financing

The goal of the HolidayInn6’s management is to establish the hotel as the top hotel for

weekday business travellers and it is in accordance with this goal that most strategic

management decisions have been carried out over the past 3 years.

It is for this reason that HolidayInn6 has decided to choose the proposed project A, which

combines the additions of a conference room, extra rooms, a business centre and a parking

area. It is our belief that these additions will be invaluable to our target market and will

translate into higher profit margins for our hotel.

In order to carry out these infrastructural expansions, the management requires an investment

of $1,300,000 (Appendix 11.7.1), $800,000 of which will be financed through a bank loan

and $500,000 to be invested by shareholders. HolidayInn6 is prepared to offer shareholders

an annual rate of 6%, which is 4.75% higher than the current French bank rate of 1.25%

(Trade economics, 2011) with a loan repayment period of 36 months. Stemming from this,

HolidayInn6 will make the following capital payments:

- Investors: $ 22,653.06/ monthly ( Appendix 11.7.4)

- Bank: $ 15,210.97/ monthly (Appendix 11.7.3)

- Outstanding Loan: $ 8298.92/ monthly (Appendix 11.7.2)

The annual depreciation charge for each of the new facilities has calculated as follows:

- Conference Centre: $19,000 (3.8%) / annually (Appendix 11.7.5.)

- Parking Area: $2,750 (3.33%) / annually ( Appendix 11.7.7)

- 100 Guest Rooms: $70,875 (2.25%) / annually (2.25% of Rooms Construction

Cost)

The rooms are depreciated using the French property depreciation rate of 2.25% for property

being depreciated over a period longer than 6 years (Deloitte, 2010)

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7.4 Operations and Capital Budgeting

The pro-forma financial statements were forecasted using the naïve method in conjunction

with the growth trends experienced from year 0 to year 4 in order to apply a level of

credibility to the calculations. A pertinent growth trend used in the forecasting is the

occupancy percentage as it directly affects the revenues to be expected and the costs that will

be incurred in the (estimated) revenue generation (Burton & Bragg, 2001).

In regards to the operational budget, it can be seen that the estimates reflect a continuous

growth pattern (Appendix 11.8.2.) with the room occupancy projected to increase from

60.23% in year 4 to 90.23% in year 8; the F&B revenue projected to increase by 50% from

year 4 to year 8(Appendix 11.8.2) and the average (weekday and weekend) conference

centre utilization projected to increase over the 4 years, from a revenue of $904,800.00 (year

4) to $2,036,320.00 (Year 8) (Appendix 11.8.2.)

7.5 Cost - Benefit Analysis

In order to appraise the viability of the proposed extension project, methods of investment

appraisal have been carried out:

- Payback Period ( Appendix 11.9.1)

- Net Present Value ( Appendix 11.9.2)

- Internal Rate of Return ( Appendix 11.9.3)

The payback period of 2.07 years is shorter than the forecast of 3 years(Appendix 11.9.1,

Appendix 11.7.4); however it is important for the concept of prudence in accounting to

allow for a safety level, which is provided by the forecast of 3 years. The NPV and the IRR,

which according to (Schmidgall 2006) is a better of the value of an investment project as

they consider the time value of money and the cash flows to be generated by the project;

both back up the result of the Payback Period i.e. they support the decision to invest in the

project. The NPV is greater than zero and the IRR greater than the interest rate given to

investors.

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7.6 Evaluation of projections

According to the evaluations carried out, the management believes that the project will

contribute substantially to overall profitability of HolidayInn6. It is a vital step to be taken for

hotel’s progression towards domination on the corporate market segment.

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8 Sensitivity Analysis

As a safety measure, HolidayInn6 has carried out an analysis, the purpose of which was to

define how sensitive are the operations if the hotel fails to meet its occupancy objectives

(Appendix 11.10). Taking Year 8 Rooms Departmental Income Statement (Appendix

11.10.1) the management has found out that decreases in occupancy do not affect negatively

the net income, thus approving the business to be capable of withstanding drastic decreases in

activity.

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9. Conclusion & Recommendations

In order for HolidayInn6 to capitalise on the popularity of conferences in the area of both in

and out of season (Appendix 11.1.4) and expand further into its target market of corporate

clientele it is essential for the hotel to be revitalised to match the facilities provided by the

competitors such as The Palace Hotel, The Park Hotel & The Mariner who all operate on

much the same scale as HolidayInn6 in terms of number of rooms, but who unlike

HolidayInn6 have the added value of providing their customers with conference facilities and

business services. (Hots Background Document, p.8)

As can be seen from the past financial statements to the pro-forma statements and investment

appraisal calculations (Appendix 11.6.1 – 11.8.15), HolidayInn6 is a hotel that shows not

only potential but has translated and can continue to translate this potential into increased

earnings and an continuously progressive occupancy percentage.

Accordingly, the management therefore recommends to the shareholders to invest into the

proposed expansion project.

20

10 References:

Bennett, J. G. 2005. Design Fundamentals for New Media. Florida: Thomson

Cengage Learning.

Burton, J. E. & Bragg, M. S. (2001) Accounting and Fincancefor your

SmallBusiness. 2nd ed. John Wiley & Sons Inc.

Davis G., 2008. The Designer's Toolkit - 1000 Colors: Thousands of Color

Combinations. San Francisco: Chronicle Books.

Deloitte. (2010). International Tax and Business Guide: France. Deloitte.

European Commission Multilingualism. (2010). EU Languages and Language

Policies.[online] Available at: <http://ec.europa.eu/education/languages/languages-of-

europe/index_en.htm> [Accessed 05 March 2011]

Kolter, P; Bown, J.T; and Makens, J. C. (2003), Marketing for Hospitality and

Tourism, 3rd

Ed., New Jersey: Pearson Prentice Hall.

Gary, B. et al., 2009.Web Designs: Introductory Concepts and Techniques. USA:

Cengage Learning.

Kotler, P; Bowen, J. T; and Makens, J. C. (2010), Marketing for Hospitality and

Tourism, 5th

Ed., New Jersey: Pearson Prentice Hall.

Pickton, D. and Broderick, A., (2005), Integrated marketing communications, 2nd

Ed.,

England: Prentice Hall.

Schmidgall, R. S., (2006), Hospitality Industry Managerial Accounting,6th

ed.

Michigan: American Hotel & Lodging Educational Institute

Trading Economics (2011) TRADING ECONOMICS: FRANCE INTEREST RATE

[online]. Available at: <http://www.tradingeconomics.com/france/interest-rate>

[Accessed 2 May 2011]

Trehan, M., & Trehan, R. (2007). Advertising and Sales Management. New Delhi: V.

K Enterprises.

Williams, R; and Tollett, J. 2006. The Non-Designer’s Web Book, 3rd

Ed., Berkley:

Peachpit Press.

http://www.tradingeconomics.com/france/interest-rate

21

11 Appendices

11.1 Appendix: General Information of Holiday Inn6

11.1.1 Appendix: Nice –Space, Location and Area

Source: Google Maps (2011) Nice, France [Online] Available through: <

http://maps.google.ch> [Accessed on: 20 April 2011]

Source: Google Maps (2011) Holiday Inn, nice, France [Online] Available through:

<http://maps.google.ch> [Accessed on: 20 April 2011]

http://maps.google.ch/

http://maps.google.ch/

22

11.1.2 Appendix Nice, Ambiance and Scenery

1st Picture: Panoramic

view of Coastal line and

the city of Nice, France.

Source: Self Captured

(July, 2010)

2nd

Picture: A beautiful

view of beach on a sunny

day in Nice, France$

Source: Deviant Art (2011)

Available at:

http://browse.deviantart.com/?q=nice, beach france&order=9&offset=24#/d1dt541 [Accessed

on: 20 April 2011]

3rd

Picture: View of the Beach from Holiday Inn

Resort, Nice, France.

Source: Self Captured.

23

11.1.3 Appendix: Hotel Location

Source: HOTS Background Information, Spring 2011 pp.4

24

11.1.4 Appendix Economical Background of the Hotel

Hotel Economic Background

1970's – Tourism Growth

In the 1970's, increased affluence and the desire for regional and national travel produced a boom for

this seaside town as it developed into a popular destination for coastal vacations and off-season

breaks. This influx encouraged the establishment of annual tourism and recreational events, which, in

turn attracted increased levels of tourism. Many hotels entered the market during this period offering

traditional facilities in well-constructed buildings and conveniently situated for both the sea and the

town.

1980's – Small Industry Growth

The town grew to a city of 200,000 residents and in the 1980's the city economy began to diversify

into service and soft industry, which generated a small market for commercial room nights. The

combination of regional tourist events and commercial growth prompted one of the established hotels

to build an excellent conference centre. With a diversified economy, a seafront location, and good

hotel facilities, the city seemed to be in a strong position.

1990's – Decline

Unexpectedly, in the late 1980's the tourism market in the city began to soften as tourists looked for

new venues and new types of tourist experiences. There was also public criticism of the city's hotel

facilities, which had not kept up with the times. By 1995, only 50% of the previous levels of tourism

remained and this was largely due to the annual tourist events which had become very well

established. No longer a boomtown, and short on tax funds to maintain its infrastructure, the town was

also losing its appeal for small industry relocation as well.

2000's – Revitalisation Plan

In the late 1990's, many companies were looking to relocate to areas that offered lower commercial

costs, lower taxes, and a higher quality of life. The local authority decided to offer an exceptionally

favorable economic relocation package to small and medium size firms. This plan has been very

successful and many companies have relocated or have committed to relocate. The council has

planned to use tax income from these commercial developments to re-establish the seafront facilities

to meet the highest expectations of modern tourists.

Up to this point, there has not been a great deal of interest from the major hotel companies, but many

smaller hotel developer/operators have been attracted to the town looking for low cost property. They

have been to purchase older hotel properties at a cheap price, demolish them, and replace them with

modern facilities. However, while the town council has been keen to support redevelopment, they

have insisted on one condition - the old hotels must be refurbished, not replaced.


25

11.1.5 Appendix: Hotel Facilities


26

11.1.6 Appendix: Current facilities’ condition

CURRENT CONDITION OF FACILITIES: (rated on a scale of 1, very poor, to 100%,

Excellent)

Facility Rating (%)

Rooms 65.5

Bar 98.4

Restaurant 80.5

Front Desk 79.9

Source: HOTS Market Research: Business Advice by 3rd

Year December.

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

Rooms Bar Resturant Front Desk

Facility Rating

27

11.1.7 Appendix: In Room Entertainment and Complimentary Items

Source: HOTS User Guide pp.25

28

11.1.8 Appendix: Comments from Monthly Indicator Report Year 1 to Year 2

Most Recent Customer Comments

You never see the same member of

staff twice

There is always a friendly face

No one seems to be in charge There are always plenty of staff

around to serve you

Everywhere is clean and in a good

state of repair

The hotel has a good image

I will always go back I have been occasionally

Excellent food - well done

Source: Monthly Indicator Report December Year2


You never see the same member of

staff twice

There is always a friendly face

I never see my manager There are always plenty of staff

around to serve you

Everywhere is clean and in a good

state of repair

You often hear folk talk of it

They provide value for money I hear it is the most successful hotel in

the area

Not many people go there The best restaurant in town

Source: Monthly Indicator Report June Year 3


You never see the same member of staff

twice

There is always a friendly

face

No one seems to be in charge The service is excellent

A very comfortable hotel - a home from

home

You often hear folk talk of it

I will always go back I prefer to go somewhere else

Excellent food - well done

Source: Monthly Indicator Report December Year 3

29

11.1.9 Appendix: Guest Comments: Week 82 to week 149

Week Comments

149 The hotel has a great reputation

144 It's good value all year round

137 It's so quiet there, it’s embarrassing

120 Not many people go there

113 They provide value for money

105 The hotel has been refurbished to a high standard

101 I am proud to be a member of this team

96 There is no ownership - nobody wants to know

94 Everywhere is clean and in a good state of repair

92 hear it is the most successful hotel in the area

89 It's so quiet there, it’s embarrassing

82 You often hear folk talk of it

Source: HOTS Simulation

30

11.2 Website Layout

11.2.1 Appendix: Homepage

31

11.2.2 Appendix: Reservation

32

11.2.3 Appendix: Photo Gallery

33

11.2.4 Appendix: Rooms

34

11.2.5 Appendix: Contact Us

35

11.2.6 Appendix: Privacy Policy

36

11.3 Marketing Analysis

11.3.1 Appendix: Advertising Media and their Effectiveness

Source: Self created

Weekday

Room

Weekend

Room

Meal Beverage Conference Tours Weddings

Etc.

Local

Newspaper

10.00 10.00 50.00 50.00 10.00 10.00 40.00

Local Radio 20.00 15.00 50.00 50.00 20.00 10.00 40.00

Sunday

Newspaper

35.00 25.00 10.00 5.00 30.00 15.00 15.00

Business Press 50.00 50.00 10.00 5.00 40.00 15.00 20.00

Posters, and

Point of Sale

10.00 15.00 30.00 35.00 10.00 5.00 10.00

Direct Mail 30.00 30.00 20.00 20.00 35.00 35.00 30.00

Direct Sales

Force

20.00 20.00 40.00 25.00 40.00 35.00 35.00

Telemarketing

& Web

40.00 40.00 20.00 10.00 40.00 20.00 25.00

Local Visitor

Guide

20.00 30.00 40.00 50.00 5.00 5.00 5.00

PR Agency 55.00 55.00 55.00 35.00 45.00 30.00 25.00

37

11.3.2 Appendix: Management decisions Year-1

January Price

General Decisions:

Advertising:

Training:8$-10$

Restaurant= Level 2

20 Bedrooms= Level 2

Supplier= Choice 2

Menu= Type 2

Weekend= 2500$

Weekday=3000$

Meals= 24.50 $

Liquor Price= Level 2

February Price

General Decisions:

Advertising:

Bar = Level 2

In Room Entertainment= Level 3

Room Service

Training: 8$-10$

Tours=2000$

Weekday=8000$

Weekend=3000$

Local visitor Guide=200$

Corp Wd=120$

Corp We=110$

Leis Wd=100$

Leis We= 95$

If occupancy would be $less than

60% occupancy, quote price 95%

normal

March Price

General Decisions:

Advertising:

Front desk= Level 2

10 rooms= Level 2

Training= 10$-14$

Staff Changing:

Hotel Services decreased by4 to 18

Front Office increased by2 to 12

No Change

Liquor= Level 3

Meals=25.00$

Tours=70$

April Price

General Decisions:

Advertising:

Pay level of Hotel Services, F&B,

and Front Desk increased to level 2

Training= 10$-15$

Meals=1000$

Corp Wd=111.50$

Corp We=97.00$

Leis Wd=97.00$

Leis We= 100.50$

Liquor= Level 2

May Price

General Decisions:

Advertising:

No change

Meals=1500$

No change

June Price

General Decisions:

Advertising:

Concierge

Hotel services Staff increased by 3

to 21

No Change

Leis Wd=116.50$

Meals=27$

38

July Price

General Decisions:

Advertising:

Complimentary Items=Level 3

Weekday=19,800$

Weekend=14,750$

Liquor= 2000$

Corp Wd= 100.50$

Leis Wd= 115.50$

Leis We= 110.50$

Tours= 80$

August Price

General Decisions:

Advertising:

Training: 11$-15$

Staff Changing:

Department Head increased by 1 to

7

F&B staff increased by 8 to 25

Hotel Services staff increased by 4

to 25

No Change

No Change

September Price

General Decisions:

Advertising:

25 rooms= Level 2

Training= 12$-16$

Supplier= Choice 3

Menu= Type 3

Meals= 5000$

Hotel Marketing Consortium /

Website

No Change

October Price

General Decisions:

Advertising:

Training= 15$-19$

10 Rooms= Level 2

No Change

Corp Wd=97.50$

Corp We=97.50$

Tours=70$

November Price

General Decisions:

Advertising:

Training 13$-18$

Staff Changing:

F&B decreased by 5 to 20

Front Office decreased by 2 to 10

Hotel Services decreased by 3 to

22

No Change

Corp Wd= 111.50$

Leis Wd= 116.50$

Leis We= 97$

Tours= 70$

December Price

General Decisions:

Advertising:

Training decreased to 0$

Weekday =14,800$

Weekend=14,800$

No Change

Source: Self Created

39


January Price

General Decisions:

Advertising:

Supplier= Choice 2

Menu= Type 2

No Change

No Change

February Price

General Decisions:

Advertising:

Front Office Staff increased by 2 to

12

Weekday=3300$

Weekend=2000$

Liquor=1500$

If occupancy would be less than

45 % - price 90%

If occupancy would be less than

50% - price 95%

March Price

General Decisions:

Advertising:

No Change

Meal=1500$

No Change

April Price

General Decisions:

Advertising:

No Change

No Change

No Change

May Price

General Decisions:

Advertising:

No change

Weekday=9900$

Weekend=4500$

Meals=3300$

Corp Wd=118$

If occupancy would be less than 45

% - price 100% If occupancy would be less than

50 % - price 100%

June Price

General Decisions:

Advertising:

No Change

Meals=900$

Corp Wd= 110.00$

Corp We= 105.00$

Leis Wd= 100.00$

40

July Price

General Decisions:

Advertising:

40 Rooms= Level 3

Training= 10 $

Guest Comfort= Level 4

Weekday=9,900$

Weekend=9,900$

Liquor=1,600$

No Change

August Price

General Decisions:

Advertising:

40 Rooms = Level 2

Staff Changing:

Hotel Services decreased by 2 to

20

Department heads decreased by 1

to 6

No Change

No Change

September Price

General Decisions:

Advertising:

40 Rooms= level 3

Staff Pay= Level 3

Liquor=1600$

No Change

October Price

General Decisions:

Advertising

40 Rooms= Level 3

Restaurant= Level 3

Front Desk= Level 3

No Change

If occupancy would be below 55%

- Price 95 %

If occupancy would be below 60%

- Price 97 %

If occupancy would be above 70%

- Price 105 %

November Price

General Decisions:

Advertising:

40 Rooms = Level 2

Training 18$-20$

Meals= 1600$

No Change

December Price

General Decisions:

Advertising:

40 Rooms= Level 3

Bar= Level 3

Training= 28$ - 30$

Changing in Staff:

Department Head increased by 1 to

7

No Change

No Change


41


January Price

General Decisions:

Advertising:

Training=18$ to 20$

No Change

No Change

February Price

General Decisions:

Advertising:

No Change

No Change

No Change

March Price

General Decisions:

Advertising:

40 Rooms= Level 2

Training= 8$-10$

No Change

Corp Wd=102.50$

Corp We=99.00$

Leis Wd=115.0$

Leis We= 112.50$

Tours= 65$

April Price

General Decisions:

Advertising:

20 Rooms= Level 2

Tour=1600$

Local Visitor’s Guide=250$

Tours=70$

May Price

General Decisions:

Advertising:

Training=10$-20$

No Change

No Change

June Price

General Decisions:

Advertising:

Restaurant=Level 3

Front Desk= Level 3

Liquor=1600$

No Change

42

July Price

General Decisions:

Advertising:

25 Room= Level 2

No Change

No Change

August Price

General Decisions:

Advertising:

20 Rooms = Level 2

Training=8$-10$

Weekday=8,800$

Weekend=8,800$

Meals=27.50$

September Price

General Decisions:

Advertising:

20 Rooms= level 2

No Change

No Change

October Price

General Decisions:

Advertising

20 Rooms= Level 2

Paid off 100,000 $ of the

loan

No Change

No Change

November Price

General Decisions:

Advertising:

No Changes

No Changes

No Change

December Price

General Decisions:

Advertising:

20 Rooms= Level 2

Bar= Level 3

Paid off 120,905 $ of the

loan

Meals=2,000$

No Change


43

11.3.5 Appendix: Weekend VS. Weekday: Year 3

11.3.5.1 Appendix: Weekday Rooms analysis

Source: self Created

72%

21%

7%

Weekday

Corporate

Leisure

Tours

Weekday Rooms Analysis

Year 3

Dec

Nov

Oct

Sep

Aug

Jul

Jun

May

Apr

Mar

Feb

Jan

Total Weekday 2966 5053 4077 4006 5133 4183 4107 5128 3994 3758 4973 2744

Corporate 1854 4628 2923 1680 1716 2230 3040 4206 2870 3162 4898 2565

Leisure 844 317 856 1714 2542 1416 776 663 830 446 55 134

Tours 268 108 298 612 875 537 291 259 294 150 20 45

Corporate 63% 92% 72% 42% 33% 53% 74% 82% 72% 84% 98% 93%

Leisure 28% 6% 21% 43% 50% 34% 19% 13% 21% 12% 1% 5%

Tours 9% 2% 7% 15% 17% 13% 7% 5% 7% 4% 0% 2%

Average 72% Corporate 21% Leisure 7% Tours

44

11.3.5.2 Appendix: Weekend Rooms Analysis


32%

48%

20%

Weekend

Corporate

Leisure

Tours

Weekend Rooms Analysis

Total weekend 1218 900 1414 2441 3365 2144 1324 1312 1324 856 558 413

Corporate 188 495 313 165 159 232 312 441 282 330 486 239

Leisure 743 288 780 1620 2269 1337 700 596 728 367 52 127

Tours 287 117 321 656 937 575 312 275 314 159 20 47

Corporate 15% 55% 22% 7% 5% 11% 24% 34% 21% 39% 87% 58%

Leisure 61% 32% 55% 66% 67% 62% 53% 45% 55% 43% 9% 31%

Tours 24% 13% 23% 27% 28% 27% 24% 21% 24% 19% 4% 11%


45

11.3.6 Appendix: Market Segments


62%

28%

10%

Market Segments

Corporate

Leisure

Tours

Market Segments

Year3

Dec

Nov

Oct

Sep

Aug

Jul

Jun

May

Apr

Mar

Feb

Jan

Total Guests 4184 5953 5491 6447 8498 6327 5431 6440 5318 4614 5531 3157

Corporate 2042 5123 3236 1845 1875 2462 3352 4647 3152 3492 5384 2804

Leisure 1587 605 1636 3334 4811 2753 1476 1259 1558 813 107 261

Tours 555 225 619 1268 1812 1112 603 534 608 309 40 92

Corporate 49% 86% 59% 29% 22% 39% 62% 72% 59% 76% 97% 89%

Leisure 38% 10% 30% 52% 57% 44% 27% 20% 29% 18% 2% 8%

Tours 13% 4% 11% 20% 21% 18% 11% 8% 11% 7% 1% 3%


46

11.3.7 Appendix: Average Room Rate vs. Room Occupancy for Year 3

Source: Self Created; HOTS Monthly Indicator Jan-Dec Year 3

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

Average Room Rate

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Room Occupancy

47

11.3.8 Appendix Competitors

1. Holiday Inn 6

2. Möve n Pick 7

3. Radisson 8

4. Sol Melia 9

5. Westin 10

6. Palace Hotel

7. The Park Hotel

8. The Mainer

48

11.3.9 Appendix: Competitor Status Report December Year 3

COMPETITOR STATUS REPORT

Information for the last week of December Year 3

Teams 1 2 3 4 5

Refurbishment

Rooms Good Excellent Good Average Poor

Bar Excellent Excellent Excellent Excellent Excellent

Restaurant Excellent Excellent Excellent Good Excellent

Front Desk Excellent Excellent Excellent Excellent Excellent

Extra Services & Facility Status

Concierge

Room/Lounge Service

In-Room Entertainment Level 4 Level 4 Level 4 Level 4 Level 3

Complimentary Items Level 4 Level 4 Level 4 Level 4 Level 3

Room Mini-Bar

Internet Access

Quick Check In/Out

Business Services

Extra Car Parking

Hotel Shop

Health Club

Conference Facility

Second Bar

Room Extension

Restaurant Extension

Teams 1 2 3 4 5

Source: HOTS Competitor status Report December Year 3

49

11.3.10 Appendix: Local Diary Events

Source: HOTS Background Information pp.10

50

11.4 Performance Indicator from Year1 to Year3

11.4.1 Appendix: HOTS Scorecard Year 1

HOTS SCORECARD

COMPARISON OF TEAM RESULTS End of Year 1

KEY INDICATORS

TEAM1 TEAM2 TEAM3 TEAM4 TEAM5

Average Rank Average Rank Average Rank Average Rank Average Rank

OPERATIONS:

REVPAR $ 52.78 1 30.01 4 34.58 3 46.65 2 26.79 5

Gross Operating Profit (IBFC %) 26.31 2 19.96 4 22.60 3 29.92 1 8.22 5

Rooms Market Share % 9.73 1 5.94 4 9.03 2 8.79 3 5.41 5

OWNER:

ROCE % - Pretax profit/Capital Employed 15.15 1 0.99 4 2.81 3 15.13 1 -6.66 5

GUEST:

Guest Satisfaction Survey (%) 60 1 49 4 53 3 58 2 47 5

STAFF:

Staff Satisfaction survey (%) 59 2 58 3 55 4 66 1 46 5

OVERALL RANKING 1 4 3 2 5

PERFORMANCE AT A GLANCE TEAM1 TEAM2 TEAM3 TEAM4 TEAM5

FINANCES:

Total Revenue ($) 8,225,652 4,527,804 4,650,075 7,252,722 4,047,461

Room Revenue ($) 4,789,432 2,729,101 3,143,133 4,223,041 2,431,174

Income Before Fixed Costs, IBFC ($) 2,163,876 903,845 1,050,848 2,170,305 332,697

Income Before Fixed Costs (IBFC %) 26.3 20.0 22.6 29.9 8.2

Fixed Property & Equipment ($) 7,466,375 7,466,375 7,466,375 7,497,615 7,466,375

Working Capital ($) 1,376,646 493,602 597,527 1,403,127 -54,709

EBITDA (earnings before interest, taxes &

depn)($)

1,753,583 493,552 640,555 1,760,012 -77,596

Profit before Taxes ($) 1,340,002 78,510 226,974 1,346,301 -493,354

Owners' Equity ($) 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000

Income Tax Rate (%) 30 30 30 30 30

Income after Taxes ($) 938,001 54,957 158,882 1,027,969 -493,354

OPERATIONS:

Average Daily rate ($) 103.51 94.24 95.04 101.36 97.28

Occupancy % 50.99 31.84 36.39 46.02 27.54

Public Awareness 36.45 23.93 34.63 31.57 25.46

Market Image Index 25.76 14.60 19.30 23.96 12.92

Hotel Quality Index 21.83 15.46 14.75 23.04 14.17

Annual Staff Turnover (%) 68.6 69.2 77.5 61.2 98.9

Rooms Available 90,744 90,942 90,884 90,527 90,734

Number of Rooms Sold 46,272 28,959 33,070 41,663 24,992

Source: HOTS Scorecard Year1

51


HOTS SCORECARD


KEY INDICATORS TEAM1 TEAM2 TEAM3 TEAM4 TEAM5


OPERATIONS:

REVPAR $ 62.29 2 46.61 3 44.93 4 66.15 1 34.43 5

Gross Operating Profit (IBFC

%)

36.71 2 20.84 4 28.60 3 39.41 1 20.84 4


OWNER:

ROCE % - Pretax profit/Capital

Employed 24.83 2 8.37 4 12.42 3 28.89 1 4.62 5

GUEST:

Guest Satisfaction Survey (%) 66 1 62 3 63 3 66 2 58 5

STAFF:



PERFORMANCE AT A GLANCE



FINANCES:

Total Revenue ($) 9,632,866 7,256,269 6,630,267 10,224,374 5,591,976

Room Revenue ($) 5,475,100 4,213,544 4,069,802 5,952,822 3,133,500

Income Before Fixed Costs, IBFC ($) 3,536,466 1,512,339 1,895,957 4,029,405 1,165,134

Income Before Fixed Costs (IBFC %) 36.7 20.8 28.6 39.4 20.8


Working Capital ($) -1,227,208 1,195,606 1,621,640 3,080,575 622,145

EBITDA (earnings before interest, taxes & depn)($) 3,119,972 1,095,845 1,479,463 3,612,911 748,640

Profit before Taxes ($) 2,644,340 703,702 1,086,901 3,206,657 356,959

Owners' Equity ($) 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000

Income Tax Rate (%) 30 30 30 30 30

Income after Taxes ($) 1,851,038 492,591 823,629 2,244,660 356,959

OPERATIONS:


Occupancy % 59.74 46.22 46.27 61.38 40.81





Rooms Available 87,901 90,402 90,576 89,986 91,000


52


HOTS SCORECARD


KEY INDICATORS



OPERATIONS:

REVPAR $ 71.06 1 62.25 3 52.36 4 66.91 2 29.81 5

Gross Operating Profit (IBFC %) 34.01 3 34.82 2 10.28 4 42.64 1 -1.98 5


OWNER:

ROCE % - Pretax profit/Capital Employed 23.83 3 27.71 1 0.58 4 27.22 2 -13.22 5

GUEST:

Guest Satisfaction Survey(%) 75 1 68 3 65 4 70 2 60 5

STAFF:



PERFORMANCE AT A GLANCE



FINANCES:

Total Revenue ($) 11,733,522 10,253,411 8,312,104 10,474,969 5,342,834

Room Revenue ($) 6,418,246 5,521,913 4,680,527 5,995,558 2,698,339

Income Before Fixed Costs, IBFC ($) 3,991,099 3,570,612 854,473 4,466,267 -105,824

Income Before Fixed Costs (IBFC %) 34.0 34.8 10.3 42.6 -2.0


Working Capital ($) 974,800 -391,060 527,569 3,143,998 26,845

EBITDA (earnings before interest, taxes & depn)($) 3,568,313 3,147,826 431,687 4,043,481 -528,610

Profit before Taxes ($) 2,961,185 2,779,857 50,021 3,560,997 -900,153

Owners' Equity ($) 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000

Income Tax Rate (%) 30 30 30 30 30

Income after Taxes ($) 1,341,006 2,043,785 35,015 2,602,881 -900,153

OPERATIONS:


Occupancy % 70.30 58.94 62.84 61.76 40.29





Rooms Available 90,327 88,701 89,383 89,600 90,509


53

11.4.4 Appendix: F&B Departmental Income Statement- Year 1

DEPARTMENTAL INCOME STATEMENT - Page 2 $

Team - HolidayInn6 Year 1

FOOD & BEVERAGE DEPARTMENT

Food Revenue

Restaurant 1,258,996 59.7%

Conferences 0 0.0%

Tours 348,690 16.5%

Wedding/Social 0 0.0%

Room Service 500,903 23.8%

Total Food Revenue 2,108,589 69.2%

Beverage Revenue

Bar 938,406 100.0%

Mini-bars 0 0.0%

Total Beverage Revenue 938,406 30.8%

Total Food & Beverage Revenue 3,046,995 100%

Cost of Sales

Food 798,416 37.9%

Beverage 402,485 42.9%

Total Cost of Sales 1,200,901 39.4%

Gross Profit

Food 1,310,173 62.1%

Beverages 535,921 57.1%

Total Gross Profit 1,846,094 60.6%

Payroll and Related Expenses

Food & Beverages 485,995 15.9%

Conference & Banqueting 0 0.0%

Total Payroll and Related Expenses 485,995 15.9%

Other Direct Costs

China & Glassware 36,660 1.2%

Laundry 95,867 3.1%

Training 12,843 0.4%

Total Direct Costs 145,370 4.8%

Departmental Contribution 1,214,729 39.9%

Source: HOTS F&B Departmental Income Statement Year 1

54





Food Revenue

Restaurant 1,609,065 64.3%

Conferences 0 0.0%

Tours 310,105 12.4%




Beverage Revenue

Bar 1,198,313 100.0%

Mini-bars 0 0.0%

Total Beverage Revenue 1,198,313 32.4%


Cost of Sales

Food 944,896 37.7%

Beverage 515,247 43.0%


Gross Profit

Food 1,559,203 62.3%

Beverages 683,066 57.0%






Other Direct Costs


Laundry 97,800 2.6%





55





Food Revenue

Restaurant 2,056,388 64.9%

Conferences 0 0.0%

Tours 407,122 12.9%




Beverage Revenue

Bar 1,589,545 100.0%

Mini-bars 0 0.0%

Total Beverage Revenue 1,589,545 33.4%


Cost of Sales

Food 1,201,033 37.9%

Beverage 683,477 43.0%


Gross Profit

Food 1,966,258 62.1%

Beverages 906,068 57.0%






Other Direct Costs


Laundry 110,725 2.3%





56

11.4.7 Appendix: Indicator Average Year 1

INDICATOR AVERAGES


Indicators (Averages for period shown)

Room Occupancy (%) 51.0

Average Room Rate $ 103.51

Guest Occupancy (%) 36.0

Annual Staff Turnover (%) 68.6

Average weekly training spend per staff member($) 11.2

Rooms Market Share (%) 9.7

Market Image Index 25.8

Public Awareness Index 36.4

External Meal Sales (%) 24.8

External Liquor Sales (%) 20.9

Monthly Rooms Revenue ($000's) 399.1

Monthly Food & Beverage Revenue ($000's) 253.9

Monthly Revenue ($000's) 685.5

Monthly Net Income ($000's) 111.7

Weekday Room Occupancy (%) 67.3

Weekend Room Occupancy (%) 29.3

Weekday Guest Occupancy (%) 43.2

Weekend Guest Occupancy (%) 26.4

Refurbishment (total for period shown)

Rooms 65@2

Bar 1@2

Restaurant 1@2

Front Desk 1@2

Source: HOTS Indicator Average Year 1

57


INDICATOR AVERAGES






















Rooms 40@2, 210@3

Bar 2@3

Restaurant 1@3

Front Desk 1@3


58


INDICATOR AVERAGES






















Rooms 170@2

Bar 1@3

Restaurant 1@3

Front Desk 1@3


59

11.5 Proposed Extension of Facilities & Service

11.5.1 Proposed Alternatives A & B

PROPOSED PROJECT A

Conference & Function Rooms, 100 Guest Room Extension, Business Services and Parking Area

Capital Investment Required

Capital Cost: Conference & Function Rooms $500000.00

Capital Cost: 100 Guest Rooms $3150000.00

Capital Cost: Business Services $57750.00

Capital Cost: Parking Area $82500.00

Interest on construction expenses $188098.73

Pre-opening expenses $325522.80

Initial working capital (10%) $97480.00

$4,401,351.53

PROPOSED PROJECT B

Conference & Function Rooms, Spa & Health Club and Parking Area

Capital Investment Required

Capital Cost: Conference & Function Rooms $500000.00

Capital Cost: Spa & Health Club $825000.00

Capital Cost: Parking Area $82500.00

Interest on construction expenses $188098.73

Pre-opening expenses $242176.40

Initial working capital (10%) $97480.00

$1,935,255.13


60

11.5.2 Appendix: Pre-Opening Expenses

PRE-OPENING EXPENSES FOR PROPOSED PROJECT A

Direct Impacts Add.

Staff

Salary

(Payroll 3)

Recruitment

Cost (10%)

Total

Staffing

Costs

Training Total

Training

Marketing Grand

Opening

Overall

Total

Conference & Function

Rooms

3 23660 2366 78078 447.2 1341.6 10000 10000 99419.6

100 Guest Rooms 3 23660 2366 78078 447.2 1341.6 10000 10000 99419.6

Business Services 1 23660 2366 26026 447.2 447.2 5000 5000 36473.2

Parking Area 0 0 0 0 0 0 5000 5000 10000

Indirect Impacts

Restaurant 1 23660 2366 26026 447.2 447.2 5000 0 31473.2

Department Heads 1 43900 4390 48290 447.2 447.2 0 0 48737.2

325522.80

PRE-OPENING EXPENSES FOR PROPOSED PROJECT B

Direct Impacts Add.

Staff

Salary

(Payroll 3)

Recruitment

Cost(10%)

Total

Staffing

Costs

Training Total

Training

Marketing Grand

Opening

Overall Total

Conference &

Function Rooms

3 23660 2366 78078 447.2 1341.6 10000 10000 99419.6

Spa & Health

Club

4 25220 2522 110968 447.2 1788.8 10000 10000 132756.8

Parking Area 0 0 0 0 0 0 5000 5000 10000

242176.40


61

INTEREST ON CONSTRUCTION EXPENSE

Monthly Payment Weekly Payment

Interest - Bank Loan $ 22,653.06 $ 5,115.21

Interest - Equity Financing $ 15,210.97 $ 3,434.74

Total Weekly Payment $ 8,549.94

Contraction Period 22 weeks

Construction Expense $ 188,098.73

Working Capital = Current Assets – Current Liabilities

Working Capital = $3,600,221 - $2,625,421

Working Capital = $974800

Initial Working Capital = $974,800*10%

Initial Working Capital = $974,80


62

11.6 Analysis of Past Financial Statements

11.6.1 Appendix: Comparative Horizontal Analysis – Income Statement Year 0 to Year 4

Comparative Horizontal Analysis – Income Statement Year 0 to Year 4

Year 0 Year 1 Year 2 Year 3

Sales

Room $1,991,890 $5,062,139 $5,796,253 $6,812,102

Food & Beverage $914,797 $3,046,995 $3,702,412 $4,756,836

Other $50,360 $116,518 $134,201 $164,584

$2,957,047 $8,225,652 $9,632,866 $11,733,522

Cost of Sales

Room - - - -

Food & Beverage $ 385,851 $1,200,901 $1,460,143 $1,884,510

Other $32,713 $75,713 $87,205 $106,950

$418,564 $1,276,614 $1,547,348 $1,991,460

Payroll & Related

Room $831,878 $850,093 $926,823 $998,882

Food & Beverage $411,162 $485,995 $555,549 $618,219

Other - - - -

$1,243,040 $1,336,088 $1,482,372 $1,617,101

Gross Profit Less Wages

Room $1,160,012 $4,212,046 $4,869,430 $5,813,220

Food $117,784 $1,360,099 $1,686,720 $2,254,107

Other $17,647 $40,805 $46,996 $57,634

$1,295,443 $5,612,950 $6,603,146 $8,124,961

Central Admin Payroll $ 429,214 $492,545 $526,151 $551,549

Total Other Direct Costs $609,790 $2,956,529 $2,540,529 $3,582,313

Income Before Fixed Charges $256,439 $2,163,876 $3,536,466 $3,991,099

Total Fixed Costs $906,249 $823,874 $892,126 $1,029,914

Trading Profit $649,810 $1,340,002 $2,644,340 $2,961,185

Other Income - - -

Income Before Taxes - $649,810 $1,340,002 $2,644,340 $2,961,185

Business Tax - $402,001 $793,302 $1,620,179

Income After Business Tax - $649,810 $938,001 $1,851,038 $1,341,006

Source: Self Created; HOTS Summery Income Statements Year 0, Year 1, Year 2, Year 3, Year 4

63

11.6.2 Appendix: Comparative Horizontal Trend Analysis – Income Statement Year 0 to Year 4

Comparative Horizontal Trend Analysis – Income Statement Year 0 to Year 4

% YEAR 0 TREND 0-1 TREND 0-2 TREND 0-3

Sales

Room 100% 254.14% 290.99% 341.99%

Food & Beverage 100% 333.08% 404.72% 519.99%

Other 100% 231.37% 266.48% 326.81%

100% 278.17% 325.76% 396.80%

Cost of Sales

Room - - - -

Food & Beverage 100% 311.23% 378.42% 488.40%

Other 100% 231.45% 266.58% 326.93%

100% 305.00% 369.68% 475.78%

Payroll & Related

Room 100% 102.19% 111.41% 120.08%

Food & Beverage 100% 118.20% 135.12% 150.36%

Other - - - -

100% 107.49% 119.25% 130.09%

Gross Profit Less Wages

Room 100% 363.10% 419.77% 501.13%

Food 100% 1154.74% 1432.05% 1913.76%

Other 100% 231.23% 266.31% 326.59%

100% 433.28% 509.72% 627.20%

Central Admin Payroll 100% 114.76% 122.58% 128.50%

Total Other Direct Costs 100% 484.84% 416.62% 587.47%

Income Before Fixed Charges 100% 843.82% 1379.07% 1556.35%

Total Fixed Costs 100% 90.91% 98.44% 113.65%

Trading Profit 100% 206.21% 406.94% 455.70%

Other Income - - - -

Income Before Taxes 100% 206.21% 406.94% 455.70%

Business Tax 0% 100.00% 197.34% 403.03%

Income After Business Tax 100% 144.35% 284.86% 206.37%

Source: Self Created, Appendix 11.6.1

64

11.6.3 Appendix: Comparative Horizontal Analysis – Balance Sheet Year 0 to Year 4

Comparative Horizontal Analysis – Balance Sheet Year 0 to Year 4

YEAR 0 YEAR 1 YEAR 2 YEAR 3

CURRENT ASSETS

Cash at Bank $-687,673 $2,364,493 $95,177 $3,185,228

Accounts Receivable $83,747 $299,250 $360,387 $354,693

Inventories $11,976 $46,263 $56,344 $60,300

TOTAL CURRENT ASSETS $-591,950 $2,710,006 $511,908 $3,600,221

PROPERTY & EQUIPMENT

Net Property & Equipment $7,846,829 $7,466,375 $11,876,287 $11,452,295

TOTAL ASSETS $7,254,879 $10,176,381 $12,388,195 $15,052,516

CURRENT LIABILITIES

Accounts Payable $163,145 $931,359 $945,814 $1,005,242

Business Tax Owed 0 $402,001 $793,302 $1,620,179

TOTAL CURRENT LIABILITIES $163,145 $1,333,360 $1,739,116 $2,625,421

LONG-TERM LIABILITIES

Long Term Debt $306,544 $405,020 $360,040 $98,916

OWNERS' EQUITY

Share Capital $7,500,000 $7,500,000 $7,500,000 $7,500,000

Retained Earnings $-714,810 $938,001 $2,789,039 $4,828,179

TOTAL OWNERS' EQUITY $6,785,190 $8,438,001 $10,289,039 $12,328,179

TOTAL LIABILITIES & OWNERS'

EQUITY

$7,254,879 $10,176,381 $12,388,195 $15,052,516

Source: Self Created; HOTS Balance Sheets Year 0, Year 1, Year 2, Year 3

65

11.6.4 Appendix: Comparative Horizontal Trend Analysis – Balance Sheet Year 0 to Year 4

Comparative Horizontal Analysis – Balance Sheet Year 0 to Year 4

YEAR 0 TREND YEAR

0-1

TREND YEAR

0-2

TREND YEAR

0-3

CURRENT ASSETS

Cash at Bank 100% 343.84% 13.84% 463.19%

Accounts Receivable 100% 357.33% 430.33% 423.53%

Inventories 100% 386.30% 470.47% 503.51%

TOTAL CURRENT ASSETS 100% 457.81% 86.48% 608.20%

PROPERTY & EQUIPMENT

Net Property & Equipment 100% 95.15% 159.06% 96.43%

TOTAL ASSETS 100% 140.27% 170.76% 207.48%

CURRENT LIABILITIES

Accounts Payable 100% 570.88% 579.74% 616.16%

Business Tax Owed 100.00% 197.34% 403.03%

TOTAL CURRENT

LIABILITIES

100% 817.29% 1065.99% 1609.26%

LONG-TERM LIABILITIES

Long Term Debt 100% 132.12% 117.45% 32.27%

OWNERS' EQUITY

Share Capital 100% 100.00% 100.00% 100.00%

Retained Earnings 100% 131.22% 390.18% 675.45%

TOTAL OWNERS' EQUITY 100% 124.36% 151.64% 181.69%

TOTAL LIABILITIES &

OWNERS' EQUITY

100% 140% 170.76% 207.48%


66

11.6.5 Appendix: Comparative Horizontal Analysis – Cash Flow Year 0 to Year 4

Comparative Horizontal Trend Analysis – Balance Sheet Year 0 to Year 4


Operating Receipts

Cash Sales $2,084,728 $5,840,223 $6,839,332 $8,330,785

Collection of Accounts Receivable $843,572 $2,086,179 $2,732,397 $3,402,254

Total Operating Receipts $2,928,300 $7926402 $9,571,729 $11,733,039

Operating Disbursements

Payroll and Related Expenses $1,687,454 $1,856,898 $2,043,038 $2,212,540

Food, Beverage & Other Inventories $508,067 $1,180,283 $1,544,431 $2,001,871

Operating Expenses $386,543 $1,827,781 $2,300,864 $2,577,193

Total Operating Disbursements $2,582,064 $4,864,962 $5,888,333 $6,791,604

Cash from Operations $346,236 $3,061,440 $3,683,396 $4,941,435

Fixed Charges

Interest $95,086 $29,956 $26,974 $21,532

Other Fixed Costs $485,367 $804,466 $620,187 $1,323,749

Total Fixed Charges $580,453 $834,422 $647,161 $1,345,281

Other Receipts

Proceeds from Outside Borrowing 0 0 0 0

Other Cash Receipts 0 0 0 0

Other Disbursements

Capital Expenditure 0 0 $4,858,570 $111,913

Debt Service (Principal) $253,456 $44,980 $44,980 $262,854

Tax and other payments 0 0 $402,001 0

Increase in Cash $-487,673 $2,182,038 $-2,269,316 $3,221,387

Cash Balance, Beginning of Period $-200,000 $182,455 $2,364,493 $-36,159

Cash Balance, End of Period $-687,673 $2,364,493 $95,177 $3,185,228

Loan at Start of Period $560,000 450,000 $405,020 $361,770

Proceeds from Outside Borrowing 0 0 0 0

Debt Service (Principal) $253,456 $44,980 $44,980 $262,854

Loan at End of Period $306,544 $405,020 $360,040 $98,916

Source: Self Created; HOTS Cash Flow Year 0, Year 1, Year 2, Year 3

67

11.6.6 Appendix: Comparative Horizontal Analysis – Cash Flow Year 0 to Year 4

Comparative Horizontal Analysis – Cash Flow Year 0 to Year 4

YEAR 0 TREND YEAR

0-1

TREND YEAR

0-2

TREND YEAR 0-

3

Operating Receipts

Cash Sales 100% 280.14% 328.07% 399.61%

Collection of Accounts Receivable 100% 247.30% 323.91% 403.32%

Total Operating Receipts 100% 270.68% 326.87% 400.68%

Operating Disbursements

Payroll and Related Expenses 100% 110.04% 121.07% 131.12%

Food, Beverage & Other

Inventories

100% 232.31% 303.98% 394.02%

Operating Expenses 100% 472.85% 595.24% 666.73%

Total Operating Disbursements 100% 188.41% 228.05% 263.03%

Cash from Operations 100% 884.21% 1063.84% 1427.19%

Fixed Charges

Interest 100% 31.50% 28.37% 22.64%

Other Fixed Costs 100% 165.74% 127.78% 272.73%

Total Fixed Charges 100% 143.75% 111.49% 231.76%

Other Receipts

Proceeds from Outside

Borrowing

- - - -

Other Cash Receipts - - - -

Other Disbursements

Capital Expenditure - - 100.00% 2.30%

Debt Service (Principal) 100% 17.75% 17.75% 103.71%

Tax and other payments - - 100.00% -

Increase in Cash 100% 347.44% -465.34% 560.56%

Cash Balance, Beginning of Period 100% 191.23% 1282.25% 81.92%

Cash Balance, End of Period 100% 443.84% 113.84% 563.19%

Loan at Start of Period 100% 80.36% 72.33% 64.60%

Proceeds from Outside Borrowing

Debt Service (Principal) 100% 17.75% 17.75% 103.71%

Loan at End of Period 100% 132.12% 117.45% 32.27%


68

11.6.7 Appendix: Trend analysis – Total Revenue

The results of the trend analysis show an increase in total revenue for the past 3 years. Due to a

consistent strategy of development the total revenue grew by 397% in Year 3 compared to Year 0.

Source: HOTS Monthly Indicators Y0, Y1, Y2 and Y3

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%


Total Revenue

Total Revenue

TREND ANALYSIS


TOTAL REVENUE 2,957,047.00 8,225,652.00 9,632,866.00 11,733,522.00

Trend 100% 278% 326% 397%

69

11.6.8 Appendix: Trend Analysis – Income after taxes

In Year 3 the Net Income decreased by 79%, as there was a massive refurbishment campaign

launched in the hotel: 165 rooms refurbished to Level 2, restaurant, bar and front desk were

refurbished to Level 3. This resulted in $ 953.700 total refurbishment expenses for Year 3. As

refurbishment is considered to be revenue expenditure, it affected the net income.

Source: HOTS Summary Income Statement Y0, Y1, Y2, and Y3

0%

50%

100%

150%

200%

250%

300%


Income After Taxes

Income After Tax

TREND ANALYSIS


INCOME AFTER TAX -649,810.00 938,001.00 1,851,038.00 1,341,006.00

Trend 100% 144% 285% 206%

70

11.6.9 Appendix: Trend Analysis – Average daily rate

TREND ANALYSIS


AVERAGE DAILY

RATE

99.15 103.51 104.26 101.07

Trend 100% 104% 105% 102%

During the period of 4 years the average daily rate did not undergo any drastic changes. The highest

peak was achieved in Year 2, when the management was implementing a new pricing policy. Due to

insignificant results of this change and increased promotion expenditures, HolidayInn6 has decided to

return to previous policy, which was more successful.


97%

98%

99%

100%

101%

102%

103%

104%

105%

106%


Average Daily Rate

Average Daily Rate

71

11.6.10 Appendix: Trend analysis – RevPAR

TREND

ANALYSIS


RevPAR 21.79 52.78 62.29 71.06

Trend 100% 242% 286% 326%

A gradual growth of RevPAR was achieved by a number of actions undertaken by HolidayInn6’s

management. The value was added to rooms through increased levels of guest comfort, refurbishment

and auxiliary services implemented in the hotel.


0%

50%

100%

150%

200%

250%

300%

350%


RevPAR

RevPar

72

11.6.11 Appendix: Trend analysis – Market index image

Due to immense advertising efforts the Market Image Index has increased significantly from 4.72 in

Year 0 to 59.55 in Year 3. According to guest comments the hotel has strengthened its position in the

market and became a popular place for both local clients and tourists.


0%

200%

400%

600%

800%

1000%

1200%

1400%


Market Image Index

Market Image Index

TREND ANALYSIS


MARKET IMAGE

INDEX

4.72 25.76 42.77 59.55

Trend 100% 546% 906% 1262%

73

11.6.12 Appendix: Trend analysis – Cash at bank

TREND ANALYSIS


CASH AT BANK -687,673.00 2,364,493.00 95,177.00 3,185,228.00

Trend 100% 344% 14% 463%

In Year 2 HolidayInn6 had 160 rooms, bar, restaurant and front desk refurbished to Level 3. The

cash balance was affected, as the total cost of Level 3 refurbishment resulted in $ 3.628.075 of capital

expenditure. There were Level 2 refurbishments carried out in Year 2, but these were revenue

expenditures and had no influence on cash balance.

Source: HOTS Cash Flow Y0, Y1, Y2 and Y3

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

500%


Cash at Bank

Cash at Bank

74

11.6.13 Appendix: Current Ratio

CURRENT RATIO


Current Assets -$591,960.00 $2,710,006.00 $511,908.00 $3,600,221.00

Current Liabilities $163,145.00 $1,333,360.00 $1,739,116.00 $2,625,421.00

Current Ratio -3.63 2.03 0.29 1.37

In Year 2 for each $ 1 of Current Liabilities HolidayInn6 had only $ 0.29 of Current Assets. Such a

decrease in CR was caused by extensive Level 3 refurbishment of the hotel, which influenced

negatively Cash at Bank and consequently the current assets.

Source: HOTS Balance Sheet Y0, Y1, Y2 and Y3.

-4

-3

-2

-1

0

1

2

3


Current Ratio

Current Ratio

75

11.6.14 Appendix: Debt-Equity Ratio

Debt-Equity Ratios for all the years show that HolidayInn6 was not financing its activities

aggressively through debt. In the last 3 years the Debt-Equity Ratio was fluctuating between 0.20 and

0.22. These fluctuations were caused by refurbishment in Year 2, which increased total assets, and

hence influenced directly both total liabilities and owners’ equity.

Source: HOTS Balance Sheet Y0, Y1, Y2 and Y3

0%

5%

10%

15%

20%

25%


Debt-Equity Ratio

Debt-Equity Ratio

DEBT-EQUITY RATIO


Total Liabilities $469,689.00 $1,738,380.00 $2,099,156.00 $2,724,337.00

Total Owner's Equity $6,785,190.00 $8,438,001.00 $10,289,039.00 $12,328,179.00

Debt-Equity Ratio 0.07 0.21 0.20 0.22

76

11.6.15 Appendix: Profit Margin Ratio

PROFIT MARGIN

RATIO


Net Income -$649,810.00 $938,001.00 $1,851,038.00 $1,341,006.00

Total Revenue $2,957,047.00 $8,225,652.00 $9,632,866.00 $11,733,522.00

Profit Margin Ratio -21.97% 11.40% 19.22% 11.43%

In Year 3 the profit margin has declined by 7.79% compared to Year 2. This happened because of an

increase in total other direct costs: from $ 2'540'529 in Year 2 to $ 3'582'313 in Year 3. The increase

of $ 1.041.784 or 141% had its reason in refurbishment expenditures, which influenced the net

income negatively in Year 3.

Source: HOTS Summary Income Statement Y0, Y1, Y2 and Y3.

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%


Profit Margin Ratio

Profit Margin Ratio

77

11.6.16 Appendix: Gross Operating Profit

GROSS OPERATING

PROFIT


Gross Operating Profit $256,439.00 $2,163,876.00 $3,536,466.00 $3,991,099.00

Total Revenue $2,957,047.00 $8,225,652.00 $9,632,866.00 $11,733,522.00

Gross Operating Profit

Ratio

8.67% 26.31% 36.71% 34.01%

A slight decrease of 2.7% in GOP ratio in Year 3 corresponds to a decrease in prices for rooms from $

104.26 in Year 2 to $ 101.07 in Year3, without decreasing the costs per room. The GOP ratio was also

decreased due to an increase in total other direct costs, which was discussed previously.

Source: HOTS Summary Income Statement Y0, Y1, Y2 and Y3

0.00%

10.00%

20.00%

30.00%

40.00%


Gross Operating Profit Ratio

Gross Operating Profit Ratio

78

11.6.17 Appendix: ROCE


ROCE -9.20% 15.15% 24.83% 23.83%

Through the last 3 years HolidayInn6’s ROCE has been growing gradually, the highest ROCE

achieved was 24.83% in Year 2, and it decreased by 1% in Year 3. In general, the hotel shows good

trends of financial growth and stability.(change-sounds stupid)(Some say that an acceptable ROCE

has to be slightly higher than the rank loan rate. Ours is many times higher.)

Source: HOTS Summary Income Statement Y0, Y1, Y2 and Y3

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%


ROCE

ROCE

79

11.6.18 Appendix: Occupancy

OCCUPANCY


Weekday Room Occupancy N/A 67.3 77.8 93.5

Weekend Room Occupancy N/A 29.3 35.7 39.4

Occupancy 22.00% 51.00% 59.70% 70.30%

In Year 3 HolidayInn6 has achieved an Occupancy Percentage of 70.30%, thus achieving a final

number targeted for the end of Year 3.

Source: HOTS Background Information, Monthly indicator Y0; HOTS Scorecard Y1, Y2 and Y3;

HOTS Indicator Averages Y1, Y2 and Y3.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Year 0 Year 1 Year 2 Year 3

Occupancy Percentage

Weekday Rooms Weekend Rooms Occupancy

80

11.6.19 Appendix: Rooms Market Share


Rooms Market Share 4.72% 9.73% 11.05% 13.06%

In Year 3 room market share has augmented by 2.01% over Year 2 due to an increase of the

occupancy percentage of weekday rooms by 15.7%. Thus HolidaInn6 had 93.5% weekday room

occupancy, which constituted 234 rooms.

Source: HOTS Monthly Indicator Reports Y0, Y1, Y2 and Y3.

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%


Rooms Market Share

Rooms Market Share

81

11.6.20 Appendix: Gearing Ratio


Long-Term

Liabilities

$306,544.00 $405,020.00 $360,040.00 $98,916.00

Shared Capital

+ Reserves +

Long-Term

Liabilities

$6,785,190.00 $8,438,001.00 $10,289,039.00 $12,328,179.00

Gearing Ratio 4.52% 4.80% 3.50% 0.80%

In Year 3 HolidayInn6 has managed to pay its long-term liabilities back to creditors. Thus the gearing

ratio in Year 3 has reached 0.80%, which means that HolidayInn6 is not vulnerable to sales downturns

that may happen.

Source: HOTS Balance Sheet Y0, Y1, Y2 and Y3.

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%


Gearing Ratio

Gearing Ratio

82

11.7 Capital Investments & Financing

11.7.1 Appendix: Capital Investment & Financing

PROPOSED PROJECT A

Conference & Function Rooms, 100 Guest Room Extension, Business Services and Parking

Area

Capital Investment

Required

Own Capital Equity Investors Debt-Bank

Capital Cost: Conference &

Function Rooms $500,000.00 $500,000.00

Capital Cost: 100 Guest Rooms $3,150,000.00 $1,850,000.00 $500,000.00 $800,000.00

Capital Cost: Business Services $57,750.00 $57,750.00

Capital Cost: Parking Area $82,500.00 $82,500.00

Interest on construction

expenses $188,098.73 $188,098.73

Pre-opening expenses $325,522.80 $325,522.80

Initial working capital (10%) $97,480.00 $97,480.00

$4,401,351.53 $3,101,351.53 $500,000.00 $800,000.00

100% 70.46% 11.36% 18.18%

Source: Self Created, HOTS User Guide

83

11.7.2 Appendix: Outstanding loan at the End of Year 3

Loan amount $98,916.00

Term 12

Rate 0.0125

Payment $8,298.92

Date Month Interest Capital Payment Interest Capital Capital

rate outstanding

begin

outstanding

end

January Year 4 1 1.25% $98,916.00 $8,298.92 $103.04 $8,195.88 $90,720.12

February Year 4 2 1.25% $90,720.12 $8,298.92 $94.50 $8,204.42 $82,515.70

March Year 4 3 1.25% $82,515.70 $8,298.92 $85.95 $8,212.96 $74,302.74

April Year 4 4 1.25% $74,302.74 $8,298.92 $77.40 $8,221.52 $66,081.22

May Year 4 5 1.25% $66,081.22 $8,298.92 $68.83 $8,230.08 $57,851.13

June Year 4 6 1.25% $57,851.13 $8,298.92 $60.26 $8,238.66 $49,612.48

July Year 4 7 1.25% $49,612.48 $8,298.92 $51.68 $8,247.24 $41,365.24

August Year 4 8 1.25% $41,365.24 $8,298.92 $43.09 $8,255.83 $33,109.41

September Year 4 9 1.25% $33,109.41 $8,298.92 $34.49 $8,264.43 $24,844.98

October Year 4 10 1.25% $24,844.98 $8,298.92 $25.88 $8,273.04 $16,571.94

November Year 4 11 1.25% $16,571.94 $8,298.92 $17.26 $8,281.66 $8,290.28

December Year 4 12 1.25% $8,290.28 $8,298.92 $8.64 $8,290.28 $0.00

Source: Self Created, HOTS Balance Sheet Year 3

84

11.7.3Appendix: Loan Financing –Bank

PROPOSED PROJECT A

Conference & Function Rooms, 100 Guest Room

Extension, Business Services and Parking Area

Amortization Table - Bank

Loan amount $ 800,000.00

Term 36

Rate 1.25%

Payment $ 22,653.06


rate Outstanding

begin

outstanding

end

January Year 4 1 1.25% $800,000.00 $22,653.06 $833.33 $21,819.73 $778,180.27

February Year 4 2 1.25% $778,180.27 $22,653.06 $810.60 $21,842.46 $756,337.81

March Year 4 3 1.25% $756,337.81 $22,653.06 $787.85 $21,865.21 $734,472.60

April Year 4 4 1.25% $734,472.60 $22,653.06 $765.08 $21,887.99 $712,584.61

May Year 4 5 1.25% $712,584.61 $22,653.06 $742.28 $21,910.79 $690,673.82

June Year 4 6 1.25% $690,673.82 $22,653.06 $719.45 $21,933.61 $668,740.21

July Year 4 7 1.25% $668,740.21 $22,653.06 $696.60 $21,956.46 $646,783.75

August Year 4 8 1.25% $646,783.75 $22,653.06 $673.73 $21,979.33 $624,804.42

September Year 4 9 1.25% $624,804.42 $22,653.06 $650.84 $22,002.23 $602,802.19

October Year 4 10 1.25% $602,802.19 $22,653.06 $627.92 $22,025.14 $580,777.05

November Year 4 11 1.25% $580,777.05 $22,653.06 $604.98 $22,048.09 $558,728.96

December Year 4 12 1.25% $558,728.96 $22,653.06 $582.01 $22,071.05 $536,657.91

January Year 5 13 1.25% $536,657.91 $22,653.06 $559.02 $22,094.05 $514,563.86

February Year 5 14 1.25% $514,563.86 $22,653.06 $536.00 $22,117.06 $492,446.80

March Year 5 15 1.25% $492,446.80 $22,653.06 $512.97 $22,140.10 $470,306.71

April Year 5 16 1.25% $470,306.71 $22,653.06 $489.90 $22,163.16 $448,143.54

May Year 5 17 1.25% $448,143.54 $22,653.06 $466.82 $22,186.25 $425,957.30

June Year 5 18 1.25% $425,957.30 $22,653.06 $443.71 $22,209.36 $403,747.94

July Year 5 19 1.25% $403,747.94 $22,653.06 $420.57 $22,232.49 $381,515.45

August Year 5 20 1.25% $381,515.45 $22,653.06 $397.41 $22,255.65 $359,259.79

September Year 5 21 1.25% $359,259.79 $22,653.06 $374.23 $22,278.83 $336,980.96

October Year 5 22 1.25% $336,980.96 $22,653.06 $351.02 $22,302.04 $314,678.92

November Year 5 23 1.25% $314,678.92 $22,653.06 $327.79 $22,325.27 $292,353.64

December Year 5 24 1.25% $292,353.64 $22,653.06 $304.54 $22,348.53 $270,005.12

January Year 6 25 1.25% $270,005.12 $22,653.06 $281.26 $22,371.81 $247,633.31

February Year 6 26 1.25% $247,633.31 $22,653.06 $257.95 $22,395.11 $225,238.19

March Year 6 27 1.25% $225,238.19 $22,653.06 $234.62 $22,418.44 $202,819.75

April Year 6 28 1.25% $202,819.75 $22,653.06 $211.27 $22,441.79 $180,377.96

May Year 6 29 1.25% $180,377.96 $22,653.06 $187.89 $22,465.17 $157,912.79

June Year 6 30 1.25% $157,912.79 $22,653.06 $164.49 $22,488.57 $135,424.22

July Year 6 31 1.25% $135,424.22 $22,653.06 $141.07 $22,512.00 $112,912.22

August Year 6 32 1.25% $112,912.22 $22,653.06 $117.62 $22,535.45 $90,376.78

September Year 6 33 1.25% $90,376.78 $22,653.06 $94.14 $22,558.92 $67,817.85

October Year 6 34 1.25% $67,817.85 $22,653.06 $70.64 $22,582.42 $45,235.43

November Year 6 35 1.25% $45,235.43 $22,653.06 $47.12 $22,605.94 $22,629.49

December Year 6 36 1.25% $22,629.49 $22,653.06 $23.57 $22,629.49 $0.00


85

11.7.4 Appendix: Loan Financing – Investors


Rate outstanding

begin

outstanding

end

January Year 4 1 6.00% $500,000.00 $15,210.97 $2,500.00 $12,710.97 $487,289.03

February Year 4 2 6.00% $487,289.03 $15,210.97 $2,436.45 $12,774.52 $474,514.51

March Year 4 3 6.00% $474,514.51 $15,210.97 $2,372.57 $12,838.40 $461,676.11

April Year 4 4 6.00% $461,676.11 $15,210.97 $2,308.38 $12,902.59 $448,773.52

May Year 4 5 6.00% $448,773.52 $15,210.97 $2,243.87 $12,967.10 $435,806.42

June Year 4 6 6.00% $435,806.42 $15,210.97 $2,179.03 $13,031.94 $422,774.49

July Year 4 7 6.00% $422,774.49 $15,210.97 $2,113.87 $13,097.10 $409,677.39

August Year 4 8 6.00% $409,677.39 $15,210.97 $2,048.39 $13,162.58 $396,514.81

September Year 4 9 6.00% $396,514.81 $15,210.97 $1,982.57 $13,228.39 $383,286.41

October Year 4 10 6.00% $383,286.41 $15,210.97 $1,916.43 $13,294.54 $369,991.88

November Year 4 11 6.00% $369,991.88 $15,210.97 $1,849.96 $13,361.01 $356,630.87

December Year 4 12 6.00% $356,630.87 $15,210.97 $1,783.15 $13,427.81 $343,203.05

January Year 5 13 6.00% $343,203.05 $15,210.97 $1,716.02 $13,494.95 $329,708.10

February Year 5 14 6.00% $329,708.10 $15,210.97 $1,648.54 $13,562.43 $316,145.67

March Year 5 15 6.00% $316,145.67 $15,210.97 $1,580.73 $13,630.24 $302,515.43

April Year 5 16 6.00% $302,515.43 $15,210.97 $1,512.58 $13,698.39 $288,817.04

May Year 5 17 6.00% $288,817.04 $15,210.97 $1,444.09 $13,766.88 $275,050.16

June Year 5 18 6.00% $275,050.16 $15,210.97 $1,375.25 $13,835.72 $261,214.44

July Year 5 19 6.00% $261,214.44 $15,210.97 $1,306.07 $13,904.90 $247,309.54

August Year 5 20 6.00% $247,309.54 $15,210.97 $1,236.55 $13,974.42 $233,335.12

September Year 5 21 6.00% $233,335.12 $15,210.97 $1,166.68 $14,044.29 $219,290.83

October Year 5 22 6.00% $219,290.83 $15,210.97 $1,096.45 $14,114.51 $205,176.31

November Year 5 23 6.00% $205,176.31 $15,210.97 $1,025.88 $14,185.09 $190,991.22

December Year 5 24 6.00% $190,991.22 $15,210.97 $954.96 $14,256.01 $176,735.21

January Year 6 25 6.00% $176,735.21 $15,210.97 $883.68 $14,327.29 $162,407.92

February Year 6 26 6.00% $162,407.92 $15,210.97 $812.04 $14,398.93 $148,008.99

March Year 6 27 6.00% $148,008.99 $15,210.97 $740.04 $14,470.92 $133,538.07

April Year 6 28 6.00% $133,538.07 $15,210.97 $667.69 $14,543.28 $118,994.79

May Year 6 29 6.00% $118,994.79 $15,210.97 $594.97 $14,615.99 $104,378.79

June Year 6 30 6.00% $104,378.79 $15,210.97 $521.89 $14,689.07 $89,689.72

July Year 6 31 6.00% $89,689.72 $15,210.97 $448.45 $14,762.52 $74,927.20

August Year 6 32 6.00% $74,927.20 $15,210.97 $374.64 $14,836.33 $60,090.87

September Year 6 33 6.00% $60,090.87 $15,210.97 $300.45 $14,910.51 $45,180.35

October Year 6 34 6.00% $45,180.35 $15,210.97 $225.90 $14,985.07 $30,195.28

November Year 6 35 6.00% $30,195.28 $15,210.97 $150.98 $15,059.99 $15,135.29

December Year 6 36 6.00% $15,135.29 $15,210.97 $75.68 $15,135.29 $0.00


PROPOSED PROJECT A

Conference & Function Rooms, 100 Guest Room Extension, Business Services

and Parking Area Amortization Table – Invester

Loan amount $ 500,000.00

Term 36

Rate 6.00%

Payment $15210.97

86

11.7.5 Appendix: Depreciation – Conference Center

Depreciation Straight-Line

Conference

Centre

Useful Life: 25 Salvage Value: 25000

Book value at

beginning of year

Depreciation

Expense

Accumulated

Depreciation

Book value at end

of year Year

1 $500,000 $19,000 $19,000 $481,000

2 $481,000 $19,000 $38,000 $462,000

3 $462,000 $19,000 $57,000 $443,000

4 $443,000 $19,000 $76,000 $424,000

5 $424,000 $19,000 $95,000 $405,000

6 $405,000 $19,000 $114,000 $386,000

7 $386,000 $19,000 $133,000 $367,000

8 $367,000 $19,000 $152,000 $348,000

9 $348,000 $19,000 $17,100 $329,000

10 $329,000 $19,000 $190,000 $310,000

11 $310,000 $19,000 $209,000 $291,000

12 $291,000 $19,000 $228,000 $272,000

13 $272,000 $19,000 $247,000 $253,000

14 $253,000 $19,000 $266,000 $234,000

15 $234,000 $19,000 $285,000 $215,000

16 $215,000 $19,000 $304,000 $196,000

17 $196,000 $19,000 $323,000 $177,000

18 $177,000 $19,000 $342,000 $158,000

19 $158,000 $19.000 $361,000 $139,000

20 $139,000 $19.000 $380,000 $120,000

21 $120,000 $$19000 $399,000 $101,000

22 $101,000 $19,000 $418,000 $82,000

23 $82,000 $19,000 $437,000 $63,000

24 $63,000 $19,000 $456,000 $44,000

25 $44,000 $19,000 $475,000 $25,000


87

11.7.6 Appendix: Depreciation – Business Center


Business Services

Useful Life: 10 Salvage Value: -

Book value at

beginning of year

Depreciation

Expense

Accumulated

Depreciation

Book value

at end of

year Year

1 $57,750 $5,775 $5,775 $51,975

2 $51,975 $5,775 $11,550 $46,200

3 $46,200 $5,775 $17,325 $40,425

4 $40,425 $5,775 $23,100 $34,650

5 $34,650 $5,775 $28,875 $28,875

6 $28,875 $5,775 $34,650 $23,100

7 $23,100 $5,775 $40,425 $17,325

8 $17,325 $5,775 $46,200 $11,550

9 $11,550 $5,775 $51,975 $5,775

10 5,775 $5,775 $57,750 $0


88

11.7.7 Appendix: Depreciation – Parking


Parking Area

Useful Life: 30 Salvage Value: -

Book value at

beginning of year

Depreciation

Expense

Accumulated

Depreciation

Book value at end of

year Year

1 $82,500 $2,750 $2,750 $79,750

2 $79,750 $2,750 $5,500 $77,000

3 $77,000 $2,750 $8,250 $74,250

4 $74,250 $2,750 $11,000 $71,500

5 $71,500 $2,750 $13,750 $68,750

6 $68,750 $2,750 $16,500 $66,000

7 $66,000 $2,750 $19,250 $63,250

8 $63,250 $2,750 $22,000 $60,500

9 $60,500 $2,750 $24,750 $57,750

10 $57,750 $2,750 $27,500 $55,000

11 $55,000 $2,750 $30,250 $52,250

12 $52,250 $2,750 $33,000 $49,500

13 $49,500 $2,750 $35,750 $46,750

14 $46,750 $2,750 $38,500 $44,000

15 $44,000 $2,750 $41,250 $41,250

16 $41,250 $2,750 $44,000 $38,500

17 $38,500 $2,750 $46,750 $35,750

18 $35,750 $2,750 $49,500 $33,000

19 $33,000 $2,750 $52,250 $30,250

20 $30,250 $2,750 $55,000 $27,500

21 $27,500 $2,750 $57,750 $24,750

22 $24,750 $2,750 $60,500 $22,000

23 $22,000 $2,750 $63,250 $19,250

24 $19,250 $2,750 $66,000 $16,500

25 $16,500 $2,750 $68,750 $13,750

26 $13,750 $2,750 $71,500 $11,000

27 $11,000 $2,750 $74,250 $8,250

28 $8,250 $2,750 $77,000 $5,500

29 $5,500 $2,750 $79,750 $2,750

30 $2,750 $2,750 $82,500 $0


89

11.8 Appendix Pro-Forma Statements

11.8.1 Appendices Financial Targets and estimations for Years 4-8.

General Information:

Business Tax is 33, 33% (French Tax Office 2011)

The Rooms supply will increase from 250 to 350. The occupancy will

decrease from 70.30% to 50.23% respectively.

The construction period is 22 weeks.

Forecasts

- Due to the construction period the opening of the conference center does not match

the high corporate season. Hence the management expects the increase in occupancy

to be the following.

- To be able to balance the increase in expenses, HolidayInn6 will augment the prices

by $3 every year.

- Based on the tendency, F&B sales are forecasted to increase as follows.

- Other revenue is projected to increase accordingly.

90

11.8.2 Appendix: Forecasted Revenues

91

Assumed that with an increase by 100 rooms the average occupancy will decrease

from 70.30% in Year 3 down to 50.23%.

Assumed that average occupancy increases by a projected percentage respectively of

the year. Revenue increases by a projected percentage each year.

Assumed that average occupancy increases by a projected percentage respectively of

the year. Revenue increases by a projected.

The management assumes that the prices will increase by $ 2.5 each year.

Assumed that weekday and weekend yearly conference room’s occupancy will

increase by 5% and 3% respectively.

Source: Self Created, HOTS Background Year 0, 1, 2, 3, Appendix 11.8.2

92

11.8.3 Appendix: Pro-Forma Summary Income Statement

In year 4 business tax in France is applied which is 33.3% of total Income.

http://www.worldwide-tax.com [Accessed on: 12th May 2011].

Source: Self-Created; HOTS Summary income statement Year 3, Appendix all departments' pro-forma.

93

11.8.4 Appendix: Forecasted Tendency Departmental Income Statement: Rooms

Weekday's Percentage of Total Room Revenue decrease as Conference Revenue

Increases

Weekend's Percentage of Total Room Revenue decrease as Wedding/ Social

Increases

Tours are going to continuously contribute 2% to total rooms revenue

Guest Comfort is evaluated to minimize to 10%

Laundry is evaluated to maximize at 3%

Source: Self Created; HOTS Summary Income Statement Year 0, Year 1, Year 2, Year 3, & Appendix

11.8.2

94

11.8.5 Appendix: Pro Forma Departmental Income Statement Rooms

Year 4:

1 Front office / Uniformed Staff was hired

3rd

year payroll of Front office + (1*weekly salary of Front Office*number of weeks in a

year)

2 Housekeeping staff was hired

3rd

year payroll of housekeeping + (2*weekly salary of hotel Service*number of weeks in a

year)

Year 7:

1 Front office / Uniformed Staff was hired

6th

year payroll of Front office + (1*weekly salary of Front Office*number of weeks in a

year)

1 Housekeeping staff was hired

6th

year payroll of housekeeping + (1*weekly salary of hotel Service*number of weeks in a

year)

Source: Self-Created, Hots Departmental Income Statement Y3, Appendix 11.8.5.

95

11.8.6. Appendix: Forecasted Tendency Departmental Income Statement: Food & Beverage

Food cost of sales in Year 4 onwards is average of food cost of sales of Year 0 to Year 3

Beverage cost of sales in Year 4 onwards is average of beverage cost of sales of Year 0 to Year 3

China and Glassware cost has been increased to 1% total F&B revenue

Laundry cost has been increased to 3% total F&B revenue

Training cost has been increased to $20,000 from year 4 to year 8

96

11.8.7. Appendix: Pro-Forma Income Statement F&B

Year 4:

1 staff of Food & Beverage was hired

3rd

year payroll of Food and Beverage + (1*weekly salary of Food & Beverage*number of

weeks in a year).

Year 7:

1 staff of Food & Beverage was hired

3rd

year payroll of Food and Beverage + (1*weekly salary of Food & Beverage*number of

weeks in a year).

Source: Self-Created, HOTS Departmental Income Statement Food and Beverage Y3; See

Appendix 11.8.6

97

11.8.8 Appendix: Forecasted Tendency Departmental Income Statement Other

In year 4 other revenue has been increased to 2.50% of total room revenue.

In year 4 costs of sales has been increased to 65% of total telephone revenue.

Source: Self-created; HOTS Departmental Income Statement: Other Y0, Y1, Y2, and Y3;

Appendix 11.8.2

98

11.8.10. Appendix: Pro Forma Departmental Income Statement other

As Holiday Inn6 is not charging its guests for provided business room facilities, hotel

will not be generating revenues out of business but the payroll of business room

attended would be an expense to Other Department.

Payroll of Business Room Attendant would be calculated:

o Number of Staff*weekly pay of other *Number of Weeks in a Year

Source: Self-created; HOTS Departmental Income Statement Other Y3; Appendix 11.8.9

99

11.8.11 Appendix: Forecasted Tendency Departmental Income Statement Central

Administration

Total Revenues are calculated by adding total rooms revenue, total F&B revenue, and total

other revenue. Appendix 11.8.6, 11.8.8 & 11.8.10.

Marketing expenses will form 12% of total revenue from Year 4 onwards.

Miscellaneous expenses are supposed to increase in year 4 with the opening of new

projected facilities.

Because of purchase of uniforms, printing materials, Stationary, menus etc. From Year 5

Miscellaneous expenses will start decreasing.

Source: Self Created, HOTS Departmental Income Statement Central Administration Year 0 to

Year 3, see Appendix 11.8.2

100

11.8.12 Appendix: Pro Forma Departmental Income Statement Central Administration

Refurbishment investment is increased to $1,200,000 from Year 4 to year 8 because

Holiday Inn6 will have more facilities.

It is presumed that property tax will increase by 50% because of new facilities.

Insurance is in respect to all property and as Holiday Inn6 has extended its facilities,

insurance will increase by 50%.

Old Building’s depreciation is $585,596 per year, and will increase $98,400 of new

facilities.

Rooms' depreciation is calculated:

Cost of new rooms * 2.25%. 2.25% is French straight line depreciation if more than 6

years (Intl tax and business guide: France).

Bank charges in year 3 are $ 21,532, and interest is $ 34229.35, $ 21247.75, $

6101.24 for year 4, 5, 6 respectively.

Source: Self-created; HOTS Departmental Income Statement Central Administration Y3;

Appendix 11.8.11

101

11.8.13 Appendix: Staff and Training - Department Income Statement Conference Center

Source: Self-Created; Appendix 11.8.5 & 11.8.7

102

11.8.14 Appendix: Pro Forma departmental Income Statement Conference Center

Payroll and related expenses were calculated basing on staff needed (see pre-opening

expenses).

Laundry cost consists of 3% of total Conference revenue.

Training Costs are calculated through the usage of percentage of total staff.

Source: Self-created, Appendix 11.8.13 & 11.8.2

103

11.8.15 Appendix: Pro Forma Summary Income Statement: Conference

50% increase in property tax has occurred through conference center.

50% increase in insurance has occurred through conference center.

Depreciation is for the conference center only.

Bank Charges are assumed to be 50% of total bank charges.

Business tax is 33.33% of total conference revenue.

Source: Self created, Appendix 11.8.14.

104

11.8.15 Appendix Pro-Forma Cash Flow: New Facilities

Total net income consists of net income of new rooms (100 units) and conferences net

income.

The net new rooms income is calculated through multiplication of total rooms revenue by

0.2850 (100/350=28.5% contribution of rooms added to total revenue).

Source: Self created, Appendix 11.8.14.

105

11.9 Cost Beneficial Analysis

11.9.1 Appendix: Payback Period

Source: Self Created; Schmidgall (2006); Appendix 11.8.15

PAYBACK PERIOD Years 1 2 3 4 5

Cash Flow 1748141.68 2461466.20 2886250.67 3797419.02 4310434.52

Proposed project

cost

4401351.53

Outstanding balance 2653209.85 191743.65 0.07

The payback period is 2.07 years

106

11.9.2 Appendix: Net Present Value

NET PRESENT VALUE

Years Cash Flow Present Value Factor

(6%)

Present value of Cash Flow

0 $-4,401,351.53 1.0000 $-4,401,351.53

1 $1,748,141.68 0.9434 $1,649,190.26

2 $2,461,466.20 0.8900 $2,190,696.16

3 $2,886,250.67 0.8396 $2,423,351.72

4 $3,797,419.02 0.7921 $3,007,911.54

5 $4,310,434.52 0.7473 $3,221,007.42

Net Present Value $8,090,805.57

Source: Self Created; Schmidgall (2006); Appendix 11.8.15

107

11.9.3 Appendix: Internal Rate of Return

IRR

49.75%

Years Cash Flow Present Value

Factor (1)

Present value of Cash Flow (1)

0 $-4,401,351.53 1.0000 $-4,401,351.53

1 $1,748,141.68 0.6678 $1,167,373.41

2 $2,461,466.20 0.4459 $1,097,640.73

3 $2,886,250.67 0.2978 $859,475.60

4 $3,797,419.02 0.1989 $755,129.08

5 $4,310,434.52 0.1328 $572,383.22

$50,650.52

50.50%

Years Cash Flow Present Value

Factor (2)

Present value of Cash Flow

(2)

0 $-4,401,351.53 1.0000 $-4,401,351.53

1 $1,748,141.68 0.6645 $1,161,555.93

2 $2,461,466.20 0.4415 $1,086,728.05

3 $2,886,250.67 0.2934 $846,690.23

4 $3,797,419.02 0.1949 $740,188.82

5 $4,310,434.52 0.1295 $558,262.62

$-7,925.88

The IRR therefore lies somewhere between 49.75% and 50.50%.

Source: Self Created; Schmidgall (2006) Appendix11.8.15.

k= 0.06

cost= $-4,401,351.53

Annual Cash Flow

Year 4 $1,748,141.68

Year 5 $2,461,466

Year 6 $2,886,251

Year 7 $3,797,419

Year 8 $4,310,435

NPV= $8,090,805.57

IRR= 50.40%

108

11.10 Sensitivity Analysis

11. 10.1 Appendix: Sensitivity Analysis: Rooms Year 8

Year 8

65.23% 70.23% 80.23% 85.23% 90.23% 95.23%

Revenues

Weekday $4,743,794.56 $6,102,847.74 $6,703,526.63 $7,335,160.66 $5,638,086.00 $5,919,990.30

Weekend $1,010,972.61 $1,200,560.21 $1,208,832.67 $1,202,485.35 $1,180,064.60 $1,239,067.83

Conferences $933,205.49 $2,401,120.42 $2,857,240.86 $3,366,958.99 $3,933,548.65 $4,130,226.08

Tours $155,534.24 $200,093.37 $219,787.76 $240,497.07 $262,236.58 $275,348.41

Wedding/ Social $466,602.74 $700,326.79 $879,151.03 $1,082,236.82 $1,311,182.88 $1,376,742.02

Other $466,602.74 $600,280.11 $659,363.27 $721,491.21 $786,709.73 $826,045.22

Total Rooms Revenue $7,776,712.38 $11,205,228.64 $12,527,902.22 $13,948,830.10 $13,111,828.84 $13,767,419.86


Front Office/ Uniformed Staff $428,413.00 $428,413.00 $428,413.00 $428,413.00 $428,413.00 $428,413.00

Housekeeping $689,809.00 $689,809.00 $689,809.00 $689,809.00 $689,809.00 $689,809.00

Total Payroll and Related Expenses $1,118,222.00 $1,118,222.00 $1,118,222.00 $1,118,222.00 $1,118,222.00 $1,118,222.00

Other Direct Costs

Guest Comfort $777,671.24 $1,120,522.86 $1,252,790.22 $1,394,883.01 $1,311,182.88 $1,376,741.99

Laundry $233,301.37 $336,156.86 $375,837.07 $418,464.90 $393,354.87 $413,022.60

Training $35,000.00 $35,000.00 $35,000.00 $35,000.00 $35,000.00 $35,000.00

Total Direct Costs $1,045,972.61 $1,491,679.72 $1,663,627.29 $1,848,347.91 $1,739,537.75 $1,824,764.58

Department Contribution $5,612,517.77 $8,595,326.92 $9,746,052.93 $10,982,260.19 $10,254,069.09 $10,824,433.28

109

Documents

Feasibilty Study for Holiday Inn (6)