Forest Castle Hotel<\/p>\n
PM008 Case Study Summer 2014<\/p>\n
Forest Castle Page Number 1
PM008 Case Study Summer 2014 (April Cohort)
Forest Castle Hotel
Forest Castle Hotel is a 4\/5 star hotel based in the Highlands of Scotland. It is on a major trunk road (A9) and is
accessible by road and mainline rail. There are excellent connections by public transport from Edinburgh,
Glasgow and Inverness airports. All three airports are equidistant from the hotel and the railway line carries
trains to London and other parts of the UK.
The hotel has had a long history. It was built as a hotel in 1901 and it boasts large gardens and has many
facilities in its grounds, including a golf course, tennis courts and long nature trails. There are 150 rooms varying
from large suites, to family rooms, feature rooms, double and twin rooms and single rooms. The Hotel can
accommodate 400 guests in total, but the effective max imum number is 300 (average two per room) . Children
and other guests sharing a main room or suite are generally free, but pay for meals as taken. The hotel also
boasts both an outdoor and indoor swimming pool with a therapeutic bath and sauna, a gym and a spa treatment
facility. The restaurant serves haute cuisine (high quality food), and seats 100 people for a single sitting. The
average price of dinners is \u00a330 per person. Around 20% of residents take dinner in the hotel on inclusive terms,
and there is a steady passing trade. The business of the restaurant generally tracks the occupancy rates. The
average price for functions is also \u00a330 per head.
Over its long history, the hotel has served as a military hospital, a school and as a hotel. The effect of the
various changes in use has been that the maintenance of the building (which is stone built in the main) has often
been neglected because of the large costs involved. The history of the hotel has featured intermittent restoration
succeeded by years of d ecay.
The current owners of the hotel are based in Ireland and they purchased it some six years ago from a large hotel
group. They have invested substantial amounts in bringing the premises up to a high standard. They are now
considering investing a furt her \u00a35,000,000 (five million pounds) in a functions suite to seat 300 plus, which will be
an addition to the existing 150 seating capacity room. If they make this investment they would hope to expand
the number of conferences held in the Forest Castle and to hold larger events at regular intervals. The owners
are confident that they will be able to double the gross income from functions by making this addition, based on
the 2 012\/13 level of activity.
The peak times for bookings are the Spring and Summer quarters when rack room rates (double including
breakfast) can rise to \u00a3200 per night. In the Autumn and Winter quarters they offer packages at \u00a3150 per night
per room including breakfast and dinner. (Room only rates are \u00a320 cheaper in both seasons.) The av erage
occupancy rates for the hotel, based on a 300 guest maximum and on a seven day week, is generally as<\/p>\n<\/p>\n
follows: \u2013 { In order to provide clarification, the seasons are Winter (January to March), Spring (April to June), Summer (July
to September) and Autumn (October to December )}.
Season Occupancy Average
Number of
Rooms Let
No of
Room
Nights
Income from
Rooms (appx)
\u00a3\u2019s
Income from
Functions
\u00a3\u2019s
Restaurant
occupancy (exc.
Inclusive terms)
100 guests = 100%
Income from
Restaurant<\/p>\n
\u00a3\u2019s
Winter 50% 75 6,750 809,500 45,000 10% 29,000
Spring 65% 98 8,775 1,186,500 75,000 25% 72,000
Summer 90% 135 12,150 2,126,500 55,000 50% 137,000
Autumn 55% 83 7,425 877,500 75,000 40% 112,000
Maximum 100% 150 13,500 2,700,000
35,100 5,000,000 250,000 350,000<\/p>\n
PM008 Case Study Summer 2014<\/p>\n
Forest Castle Page Number 2<\/p>\n
There has been at least one function, \u2013 dinner or wedding etc., with around 120 \u2013 150 guests each week, and
sometimes two each week, in the Spring and Autumn seasons. Each season has 13 weeks. Larger functions
with around 250 \u2013 300 guests could nor mally be expected to be held throughout the year, probably at the rate of 4
per month.
The Income from the various activities over the last few years has been as follows: \u2013
20 0 9 20 1 0 20 1 1 20 1 2 2013
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Overnight
guests
3.50 m 4. 0 0m 4. 50 m 4.75 m 5 .00 m
Functions 0.40 0.45 0.50 0. 50 0. 50
Restaurant Bar
etc
0.40 0. 35 0. 30 0. 35 0. 35<\/p>\n
Total Income 4. 30 m 4. 8 0m 5. 3 0 m 5.60m 5 .85m<\/p>\n
Costs are largely fixed, although there are variable costs with regard to the seasonal differences and the restaurant &
housekeeping.
The variable costs, as a percentage of relevant turnover are:-
Food and drink : \u2013 average around 50% of restaurant turnover, 30% of function turnover and 10% of room turnover
Seasonal staffing:- average around 20% of non Room income
Seasonal staffing re Rooms :- average around 20% of room income in quarters where occupancy is over 60%
Other variable costs include:
Laundry costs \u2013 15% of room income and 10% of restaurant and function income<\/p>\n
Fixe d Costs , which have increased at an average of 5% per annum, over the last few years can be summarised
as:-
Staffing: \u2013 50 permanent staff at an average annual cost of \u00a330 ,000 each
Heat & Light: \u2013 Current annual cost is \u00a3150,000
Maintenance and replacement: \u2013 Currently \u00a3400,000 per annum
Communications:- Currently \u00a3100,000
Marketing: \u2013 currently 2.5% of turnover
Other Costs (excluding interest, tax) are usually about \u00a3250,000 per annum
Taxation of 18% of profits after loan interest of 5% on the outstanding loan of \u00a35,625,000 is payable. The loan is
repayable by annual instalments of \u00a3375,000.
A Proforma Balance Sheet as at 31\/12\/2013 is attached, together with proforma Statements of Income
and Expenditure for the last five years.
PM008 Case Study Summer 2014<\/p>\n
Forest Castle Page Number 3
However, there is opposi tion to the investment from some of the management, who believe that in the current
state of business and the current economic recession, it would be unwise to make this investment, and also from
those who think the money would be better spent on a champio nship golf course.
You are required to prepare a report discussing the merits of the proposed investment and any
alternatives , especially bearing in mind the effect of any slowdown in trade, and make a recommendation to
the owners.
You should consider the following matters: \u2013
The investment will be made in Euros, thus exposing the owners to a risk in the exchange rate changing and
the hotel in repaying the loan, over twenty years at the same interest rate as existing loans.
Although a substantial sum has been spent in renovating the premises, there is a suggestion that the hotel
should upgrade the golf course to championship level. This would generate more high value residents and
possibly more day visitors should a major golf event be played there. Limited resources would not permit
both the functions suite and the golf course to be developed. The golf course, if redeveloped at a cost
of \u00a35,000,000, would be able to attract green fees (players) of the order of \u00a3100 per player per round (4
players in each game per round ). Du ring the Spring, Summer and Autumn seasons, it is estimated that in
excess of 250 games could be played each week. It is not yet clear what additional costs may be involved,
but it is likely that additional staff to maintain the golf course and also additi onal administrative staff would be
needed, as well as equipment and consumables required for maintaining the golf course. This cost will
increase in future years. Of course, the golfers would increase the income in the restaurant and possibly
increase the room occupancy in the busy periods. \u2013 perhaps allowing a rate increase.
In your analysis you should consider the future income trends and the related costs and cash flows.
You should use suitable capital investment analysis techniques and Foreign Exchange management
techniques, as well as demonstrating a sound underlying understanding of the various economic factors and
their influences in the current economic climate.
Your analysis and recommendations should include any estimates or assumptions that you m ay use, clearly
stated. Any academic references or data sources should be contextually referenced.<\/p>\n
Mmlovatju l y2014<\/p>\n
PM008 Case Study Summer 2014<\/p>\n
Forest Castle Page Number 4<\/p>\n
Appendices
Forest Castle Hotel
Proforma \u2013 Statements of
Income<\/p>\n<\/p>\n
\n
200 9 2010 2011 201 2 201 3<\/p>\n
\u00a3 \u00a3 \u00a3 \u00a3 \u00a3
Income<\/p>\n
Rooms etc 3,500,000 4,000,000 4,500,000 4,750,000 5,000,000<\/p>\n
Functions 400,000 450,000 500,000 500,000 500,000<\/p>\n
Restaurant etc 400,000 350,000 300,000 350,000 350,000<\/p>\n
Total 4,300,000 4,800,000 5,300,000 5,600,000 5,850,000<\/p>\n
Variable Costs<\/p>\n
Food & Drink 670,000 710,000 750,000 800,000 825,000<\/p>\n
Staffing 160,000 160,000 160,000 170,000 170,000<\/p>\n
Staffing(Rooms) 435,960 498,240 560,520 591,660 622,800<\/p>\n
Laundry 605,000 680,000 755,000 797,500 835,000<\/p>\n
1,870,960 2,048,240 2,225,520 2,359,160 2,452,800<\/p>\n
Gross Profit Margin 2,429,040 2,751,760 3,074,480 3,240,840 3,397,200<\/p>\n
Direct Costs<\/p>\n
Staffing 1,234,054 1,295,756 1,360,544 1,428,571 1,500,000<\/p>\n
Heat & Light 123,405 129,576 136,054 142,857 150,000<\/p>\n
Maintenance 329,081 345,535 362,812 380,952 400,000<\/p>\n
Communications 82,270 86,384 90,703 95,238 100,000<\/p>\n
Marketing 107,500 120,000 132,500 140,000 146,250<\/p>\n
Other costs 250,000 250,000 250,000 250,000 250,000<\/p>\n
Costs<\/p>\n
2,126,310 2,227,251 2,332,613 2,437,619 2,546,250<\/p>\n
Profit pre tax and interest 302,730 524,509 741,867 803,221 850,950<\/p>\n
7.0% 10.9% 14.0% 14.3% 14.5%
Interest 5% *7500000 375,000 356,250 337,500 318,750 300,000
PBIT<\/p>\n
\u2013 72,270 168,259 404,367 484,471 550,950
Taxation 18 percent \u2013 14,000 30,000 72,000 87,000 99,000<\/p>\n
Dividends 1% 50,000 50,000 50,000 50,000 50,000<\/p>\n
Retained Earnings \u2013 108,270 88,259 282,367 347,471 401,950 1,011,776
Loan Repayments 375,000 375,000 375,000 375,000 375,000 1,875,000
PM008 Case Study Summer 2014<\/p>\n
Forest Castle Page Number 5<\/p>\n
ProForma Balance Sheet as at 2013<\/p>\n
Fixed Assets \u00a3 \u00a3<\/p>\n
Property 17,000,000<\/p>\n
Fittings etc 4,500,000<\/p>\n
21,500,000<\/p>\n
Current Assets<\/p>\n
Inventories 315,000<\/p>\n
Debtors 120,000<\/p>\n
Cash at Bank 100,000<\/p>\n
535,000<\/p>\n
Current Liabilities<\/p>\n
Trade Creditors 200,000<\/p>\n
Accruals 50,000<\/p>\n
Dividends due 50,000<\/p>\n
Taxation 99,000<\/p>\n
Bank Overdraft<\/p>\n
399,000<\/p>\n
Net Current Assets 136,000<\/p>\n
Long term Loans 5,625,000<\/p>\n
(5% per annum 20 years) \u2013 5,625,000<\/p>\n
Net Assets<\/p>\n
16,011,000<\/p>\n
Represented by:-<\/p>\n
Share Capital 5,000,000<\/p>\n
Revaluation reserve 10,000,000<\/p>\n
Retained Earnings 1,011,000<\/p>\n
16,011,000<\/p>\n<\/p>\n
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Forest Castle Hotel PM008 Case Study Summer 2014 Forest Castle Page Number 1 PM008 Case Study Summer 2014 (April Cohort) Forest Castle Hotel Forest Castle Hotel is a 4\/5 star hotel based in the Highlands of Scotland. It is on Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-147957","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/147957","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=147957"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/147957\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=147957"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=147957"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=147957"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}