Topic 8 Period 35 onwards

Wow that’s late thought I can start the research early. Thank you Obuwankenobi

@obuwankenobi -sorry I missed your query. You are right that intercompany loans are really ‘noise’ so just restate the figures against the comment “with intercompany loans eliminated” against them.

Regarding your query: “do I have to perform comparisons against a different company (such as Premier Inn/Whitbread), or could I benchmark Travelodge against industry sector averages for those three years?” You could use industry averages if these are available and, as you no doubt have realised this may get round the problem if you cannot hive off Costa from the Whitbread figures. However you could still bring in Premier inn for some comparisons e.g. occupancy rates, average spend per room etc if these KPIs are available for both companies, so you may then have the best of both worlds -so to speak.

And yes, mention the limitations of your approach.

Hello @trephena,

For the current May submission, i had choose Hilton and Marriot for hotel industry topic 8, but for the moment, annual report for year end 2017 is not available yet, so instead of using annual report for year end 2015,2016,2017, can i use annual report for year end 2014,2015,2016?

Hello @loveo

I am in a similar situation with Travelodge, and I am using 2014, 2015, and 2016. As far as I know, we are now in a period of time where if 2017 results are published, we do not have to use them but may do so if we wish.

Personally I would not (at least for a full analysis) and if anything maybe make a small reference to them if they give an indication of an outcome from a specific event from the period under review.

O.

Hello @trephena

I was wondering if you be so kind as to offer a little more guidance to me?

I am at the stage where I have done some KPI analysis, PEST, Porter’s 5 and a SWOT, along with an environment timeline to give myself a fairly broad view of the company and what was going on in the wider economy over the period. So now I am thinking of how I bring that together, draw some conclusions from it, and present it to the reader in a logical and ordered fashion.

That’s where I feel a little stuck!

For example, I’ve been putting the SWOT together as I’ve been reading about the company in chronological order. I can identify weaknesses and opportunities (say) early on in 2014, and by the end of 2016 the company has turned those weaknesses into strengths and exploited those opportunities! Obviously that’s great for the company, but it feels like it’s hard for me to add value to it. In fact it could almost look like I skipped to the end and saw what they did, then go back to the start and say “They should do this…”.

So I’m cautious of my RAP turning into a story of what the company did without offering any further insight. Therefore I have what I guess is writer’s block on how to get started.

Would you say the following is a good approach?

1. A short narrative of major events leading up to the period under review to give a little context to where the company is, and what it itself wants to achieve (taken from the BOD report).

2. A PEST/Porter’s 5/SWOT analyses at the beginning of the period to look into more detail regarding the company and its environment.

3. A narrative of the actions the company took in pursuit of their declared strategy over the three years, and the reactions they had to any external events, and link these to the KPIs (in an appendix).

4. A comparison of this performance (the KPIs) to those of a comparator.

5. An updated PEST/Porter’s 5/SWOT analyses at the end of the period to summarise the new position/environment of the company.

6. A conclusion, where I offer an opinion on how well or badly the company really did vs. their comparator, how well they achieved the aims they set out in their strategy, and offer ideas on how they can continue?

How does that sound?

Thank you,

O.

@trephena

Many thanks for your comprehensive response. I don’t know where you find the time to answer so many questions – but I’m eternally grateful for it!

I did indeed neglect to mention ratio analysis separately, however I was considering them; in my mind I had lumped them in with KPIs in general.

That is one thing I’ve been keen to try and do as I think of how I can organise all the data. After reading your RAP Guide Part 1 I’ve taken on board your assertion that the business and financial results are inter-related. In fact I’m trying to even not separate them in my RAP; for instance, I want to try and put them alongside each other in the results rather than separate analyses.

For example, as I look at Revenue growth I’d also like to show RevPAR at the same time. Revenue growth is great, but is it being achieved just because there are more rooms or is it because they’re filling the rooms more efficiently? My aim is to use the financial ratios as a base, bring in a KPI if it is relevant, then move onto other ratios and repeat (grouped as, say, profitability, gearing etc.).

As I continue I’m finding other points that I would appreciate clarity on, if you’ll indulge me?

1. I can find some comparative figures for Premier Inn (such as revenue) as it is listed separately in Whitbread’s accounts. However I can’t find a figure for gross profit as they lump that in with their restaurants (although Costa is separate). However I will then be able to find other comparative figures, such as RevPAR, occupancy etc. So my question is: does it matter if I don’t have a comparative figure for some Travelodge results (gross profit, EBITDA, ROCE and gearing spring to mind), and can I just use comparators where I can find them? And then just state the lack of availability of data is a limitation?

2. As an extension to question 1, I have other bits of industry data (no-Premier Inn) that I can bring in at selected points where it is available. Surely that’s fine to do to try and add a bit more of a complete picture?

3. Whitbread’s accounts run to the end of February each year and Travelodge is as per the calendar year. Therefore to compare (say) Travelodge 2014 with Premier Inn, Whitbread’s 2015 results would be a closer approximation (having March – December 2014 within them). So my question is, can I match Travelodge’s 2014, 2015 and 2016 with Whitbread’s 2015, 2016 and 2017, noting the 3 month difference. Or do I have to pro-rata Whitbread’s accounts?

I hope all that makes sense; I’m about a third of the way through a delicious Rioja….

Thanks again,

O.

Hi,

I’m starting my topic 8 RAP on Nestle(main reason being that it’s the major player in the food industry and operates at a huge scale)

However Nestle publishes it’s group statements in CHF and most competitors have a different currency. I do realize that this can be controlled by using the ratios but other than that is there anything I should be looking out for due to different currencies?

Secondly Nestle is huge the scale of the business cannot really be compared to any other competitor say Unilever, in addition to that Nestle is a purely food manufacturing business but Unilever also deals with cleaning agents and personal care products. how do I address this issue?

Also in the section where we have to mention the limitation to information available can some one please tell me what would the limitation be in terms of international listed companies that have so much published around them?

Thanks

Hi @ LearningLuminarium ,trephena and the OT mentors,

I am very close to summarizing my financial analysis but I need some help on my Ratios. I have calculated and thoroughly analysed the following ratios for Airbus :

1 – Sales Ratio ( analysed the sales/orders/deliveries )
2 – For Profitability : Operating Profit Margin Ratio
3 – For Liquidity : Current Ratio
4 – Debt-to-Equity Ratio
5 – Dividend Payout Ratio

I know there are more common ratios that I am not calculating such as :

P/E Ratio, Return on Equity , ROE , ROCE .

Please can you guide me if my ratio are sufficient ? Am i missing something ? Will they object that I didnt cover something. please can you help on this.

Thanks so much

Hello @trephena , did you enjoy your trip to Japan? I’ve never been myself, but it’s on my list of places to visit. Did you get to see the cherry blossoms blooming?

You would always be welcome to drop by for some Rioja, although it might be a little bit of a trip; I’m based in Cheshire.

Thank you for the further advice you have given. I took it upon myself to query OBU directly regarding the assumptions I was having to make with Whitbread and they were very helpful. It seems that they are quite relaxed provided you fully explain what you are doing and your justifications.

I’ve made some good progress I feel and I’m currently getting stuck into Part 3. I’ve completed PEST and done most of SWOT – although I’m a little unsure of how much detail with the latter as most of the opportunities and threats were identified in PEST if not discussed as such. I don’t want to end up repeating myself.

What seems clear to me so far is that, whereas initially I was concerned about using up to 7,500 words, now I’m concerned I’m going to struggle to fit everything in to that word count! I’m just going to plod on, see where it ends up, and then go back and cut words where I can.

Hi trephena,

Thanks so much for the reply. I appreciate it.

I aim to explain lesser ratios in more depth to explain the significance of each. This also brings me to another similar second-thought, though I know it may not have been strictly specified in numbers. But if I just mention 2 Strengths.. would that sound less ? I know there can be many many more but I just explained 2 , in depth. Please, i would like to know your opinion on this please.

Thank you very much for the tips and guidance always .

Hey @trephena

Well, if I manage to graduate I’ll be sure to look out for you there! At the moment it feels like I keep coming up against constant bumps that are hindering my writing. I’ll definitely get on with your SWOT suggestions, thanks.

This evening I’ve been trying to wrestle with the capital structure of Travelodge and I feel like I’m being a complete idiot!

So at the very top you have a company based in Luxembourg called Anchor Holdings SCA (AH). I believe these are the original lenders who took a debt/equity swap in 2012 when Travelodge was struggling.

AH own the parent company of the Travelodge group, which is Thame & London Ltd (T&L), who produce group consolidated accounts. The company that basically does all the work in the group is Travelodge Hotels Ltd (THL), and between THL and T&L are a series of holding companies. They all seem to just lend money to each other which as I alluded to a few weeks ago I believe is just background noise.

So I’ve mainly been interested in the parent, T&L and the company that does all the work, THL; furthermore, all this so far is really moot for most of the ratios until you come to debt.

When I look at THL, the subsidiary running the hotels, it has a healthy balance sheet with shareholder’s funds of £774.6m in 2014 (a mix of called up share capital at £300m, revaluation reserve and profit & loss account). It lists the leases as fixed assets. Within debtors there is £592.8m owed from other group companies, and within liabilities, there is £111.9m owed to other group companies. There is no debt to speak of.

Then, I go up to T&L, the ultimate parent. Its balance sheet shows a deficit of £78.1m for 2014, which is almost entirely accumulated losses. First off, the share capital is £1 (one million shares at £0.000001)! Up at this level you can see all the secured bank debt £394.3m and unsecured loan of £127.0m from AH in Luxembourg to fund the modernisation programme. But I can’t see any investment in the holding companies under assets. Up here I seem to have all the debt and no equity.

So I feel a bit stumped as I come to look at gearing. I don’t feel I can use THL here for this ratio as it looks like the company is being financed by debt held elsewhere in the group. But at the same time I can’t see how that has worked though to the consolidated balance sheet as I can see the (bank/investor) debt there but not the assets.

I feel like I’m missing something painfully obvious! I guess if the debtor/creditor loan balances in THL can’t be found up at T&L, it means that these loans in and amongst the holding companies cancel out on consolidation which proves it’s just background noise? So the whole show is completely financed by bank debt? Have I answered my own question? But where is the investment in subsidiary companies asset?

Arrrgh! Help! What am I missing?!

@obuwankenobi – right put 20 June in your diary then!

Regarding your conundrum over debt and gearing: from what I recall about consolidated accounts (the topic I hated most and feared in exams!) all intercompany balances should cancel each other out on consolidation as you have recognised (though individual companies financial statements would normally show the amounts they owe or are owed to each other).

No matter. Don’t allow yourself to get bogged down in the nitty-gritty. If you can’t do a debt to equity ratio explain why and move on. Discussing profitability well, bringing in industry specific KPIs and showing strong links between the strategic factors from the models and performance will stand you in good stead. So focus on doing what you can do well rather than fretting about what you can’t!

What are you missing ? Chill time!