This report looks at the annual report and accounts for Macdonald Hotels.
Registration Number 200114751
Hospitality Management Accounting Coursework
Submission Date: Monday 31st March 2003
Lecturer: Mr. Erwin Losekoot
Page 3 Executive Summary
Page 4 History and Background of Macdonald Hotels
Page 5 Company Information
Page 6 Company Directors
Page 7 Profit and Loss Statement
Page 8 Balance Sheet
Page 9 Analysis of Report
Page 12 Summary of Macdonald Hotels
Page 14 Bibliography
This report looks at the looks at the annual report and accounts for Macdonald Hotels.
The report is split into sections to discuss the background and history of the company and its current trading and operating data. The report then goes on to look at the profit and loss account and the balance sheet and then looks at the analysis of how the companies strategic objectives have influenced the success of the company comparing the years 2001 and 2002.
From the annual reports and from media coverage in publications such as the Caterer, it can be identified that the Joint Venture of Hotels development, has clearly influenced the profits of the company allowing these to be integrated into the company and increasing the brand image of the hotel group. However the company has faced difficult trading markets and from the report it can be identified that the Hotels Groups successes are dependant upon certain locations.
Background & history
Since its inception in 1990, Macdonald Hotels has grown rapidly from two hotels in Aberdeenshire to become one of the UK’s largest hotel groups, incorporating managed, owned and joint-venture properties.
The company was established 10 years ago with 2 hotels, which were both free hold properties, and in the first set of results showed a profit of GBP 450,000. Securing the companies’ first management contract from a significant Plc, Barratt Construction, who has recorded a profit in excess of GBP 110 million, developed the company further. Barratt had 9 holiday resorts, which were losing a substantial amount of money. Barratts main business was not hospitality and leisure so Macdonald Hotels took over operational management with view to buying a 50% stake in Barratt Construction.
Macdonald Hotels accepted a small initial management fee to secure 50% of Barratt Construction at a high discount once the business was turned around. This opportunity led Macdonald Hotels into other management contracts with 5 of the national clearing banks.
In addition in 2001, Macdonald Hotels formed a 50:50 joint venture with the Bank of Scotland to purchase Heritage Hotels at a cost of £235 million. The addition of 46 Heritage properties significantly strengthened Macdonald Hotels position in the UK market, strengthening the groups presence in the south of England and also ensuring a UK-wide presence.
With the acquisition of Heritage Hotels and Barratt International Resorts in April 2001 the company now receives additional revenue from timeshare sales, lodge rentals and various leisure packages.
Macdonald Hotels is now the UK’s 8th largest hotel and leisure group, operating over 100 hotels and resorts through the UK and Spain. Macdonald Hotels has over 7000 bedrooms and a combined turnover in excess of £250 million, employing approximately 6000 staff.
Turnover £139.7m £108.1m
Pre-tax Profit £16.1m £13.8m
Total of 104 Hotels, including
44 Joint Venture Hotels
28 Owned Hotels
22 Managed Hotels
10 Leisure Resorts (six in the UK & four in Spain)
“We remain focussed on our key strategic objective which is to build a high quality portfolio of provincial and city centre hotels in the UK, together with an international resorts business.”
This is a preview of the whole essay
Source: Interim results 2002
In Scotland there are 13 mainly four- and five-star Macdonald Hotels, three CountryTown Hotels (the economy brand) and four timeshare resorts. The group has hotels throughout the UK.(21)
The company aims to be different and welcomes difference and character in its people and hotels. Facilities are designed to attract a wide clientele.
A comprehensive training programme includes the company's own Commitment to Excellence in-house initiative, designed to help staff feel confident, valued and respected. The programme came about from research into employees' and guests' experiences. Topics covered include: branding the customer experience; how to handle situations and challenges; and how to create a whole-team approach. There is also a management-training programme available.
Donald Macdonald (55)
A founding director of the company, with responsibilities to its overall development and expansion. He has over 30 years experience in the hotel industry including 13 years as a managing director and 9 years as a main board director of a major hospitality industry plc.
Chairman: Frank O’Callaghan (63)
Appointed as Chairman in 1990 when the group made its first acquisition.
Deputy Chief Executive: Gerry Smith (51)
A founding director of the company, promoted to deputy chief executive in May 2001. Previously Operations Director of Macdonald Hotels Plc and prior to that operations director in a major hospitality industry plc. Has over 30 years experience in the hotel industry and has specific responsibility for hotel operations and other related development projects within the business.
Finance Director: Scott Christie (37)
Appointed in January 2000, with responsibilities for finance, IT and purchasing and the Resorts business. A chartered accountant, has held a number of senior financial and operations positions.
Macdonald Hotels Plc
Tel: 01506 815265
Analysis of company accounts
Group profit and Loss Account
Macdonald hotels have continued to increase in turnover and profits now for the 12th consecutive year, despite a slump in revenues in London Hotels. The profit and Loss Account shows that Macdonald Hotels recorded a 29% increase in turnover to £139.7m, compared with £108.1m for the same period in 2001. There was also a pre- tax profit, which increased by 17% to 16.1m against £13.8m the previous year. The increases were also boosted because of the integration of the Heritage Hotels from Compass of last year. Excluding the joint venture hotels, which comprise of 42 Heritage Hotels, group turnover increased by 13% to £91.4m, compared with £80.8m in 2001. The result of Macdonald Hotels joint-venture acquisition of 46 former Heritage Hotels resulted in overall turnover increased by 77% to £66.7m. This is also reflected in profit on ordinary activities before tax, which on break down shows a significant increase on gain on sale of tangible assets from 185 in 2001 to 560 in 2002. Operating profit also increased by 15.6% from £16m in 2001 to £18.5m in 2002. However high interest costs from the Heritage deal held back the pre-tax profit figure. Excluding interest charges, profits before tax were up by 58% to £12.6m
The profit and loss account for Macdonald Hotels clearly shows a significant increase in the group and share of joint ventures turnover for 2002 compared to 2001. Turnover for 2002 has increased since 2001, with share of joint ventures contributing to more compared with 2001, due to the company interest put into joint venture hotels. However it is still the companies owned hotels that contribute the most, but the underlying strategy of Macdonald Hotels is evident through the increase in turnover from resorts and joint ventures, in which turnover figures have increased, therefore increasing costs because of the investment that Macdonald Hotels are putting into its hotels, resorts and joint ventures.
For example the Hotel Groups key strategic objective is focused upon ensuring that “ …a high quality portfolio of provincial and city centre hotels in the UK, together with an international resorts business.”
(Macdonald Hotels Annual Reports Page 3) An example of this strategy was to acquire the 49 bedroom Parkside Hotel in Milton Keynes into the Joint Venture portfolio for £3.5m in June of this year, an estimated £2.2 million refurbishment and extension is planned for next year.
Macdonald Hotels has now begun disposing of assets that do not fit in with their company strategy. Four Hotels in the Joint Venture Portfolio were sold individually during the year for a total sale of £9.1m, which generated a gain to the group of £1.6m. One hotel from the owned portfolio was also sold for £2.5m in April 2002. Parallel to this Macdonald Hotels is continuing to invest in the owned portfolio of hotels and resorts with a £13m development programme underway. The company has also announced a £65m development programme for the joint venture portfolio. This is reflected in the cost of sales, which are significantly higher because of the improvements and investment.
Macdonald Hotels is still undergoing major changes within the company. This was initiated principally by the acquisition and integration of the joint venture hotels into the business. However it is not just internal actions that affect the profitability of the company external influences such difficult market conditions, especially in the south east because of falling occupancies and tough short term competitive pricing pressure.
Group and Company Balance Sheet
The balance sheet reflects once again the acquisitions and investment Macdonald Hotels has integrated into the company within the past year. As a group tangible fixed assets have increased from £156,890m in 2001 to £161,276m in 2002. This being then broken down for 2001/2002 as free hold properties, properties in progress and vehicles, fittings & equipment. The majority increase can be identified in the projects that are in progress rather than free hold properties. Added additions accounted for £6,899m from projects in progress compared with freehold properties showing £1,508m. Once again because of the acquisition and investment development projects in progress have doubled compared to 2001. Depreciation of assets is also accounted for to ensure that their estimated value is accounted for along with their estimated economic lives. For example, land not depreciated, freehold properties 50 years, furniture fittings 4-10 years.
Although market conditions have been difficult, due varying factors such as competitive price strategies and in 2001 the foot and mouth outbreak, Macdonald Hotels has secured a 31% growth in earnings before tax to £27.6m in the year. These results have been achieved through a combination of organic growth, the first full year benefit of the contribution from Joint Venture Hotels and the companies ability to achieve profit on the disposal of non-core hotel assets, which were only acquired 18 months ago. The acquisition of the joint venture hotels has generated substantial earnings. Profits before tax of £0.1m was supplemented by profits generated in Macdonald Hotels from management contracts of £2.4m. Investments of Macdonald Hotels has been relatively consistent in the years 2001/2002, which reflects the Hotel Groups on going investment and development plans.
Net assets have increased by 8% to £94.3m in 2002 compared to £87m in 2001. Examples of gains on sales made by Macdonald Hotels include, the wholly owned Park Horse Hotel in Bolton, which was sold in April 2002 generating net sale proceeds of £2.5m and a profit on sale of £0.2m. Joint Venture gains included 50% share of the following, The Metropole Hotel in Padstow (£1.3m) The Perveril of the Peak Hotel in Dovedale (£0.1m). It is clear the Macdonald Hotels company strategy is central to every development and investment the company makes resulting in continuous financial increase from sales and for example the hotels joint venture portfolio of hotels.
Summary of Macdonald Hotels
- £65m launch of hotel development programme.
- Joint Venture Hotels & Resorts being re-branded under ‘Macdonald’ name, which has been strengthened by a series of initiatives to strengthen brand quality and standards
- Signs of recovery from areas that were in decline EG M25 area.
- Dividends per share up 12% recognising positive performance and confidence in the future strategic direction of the business.
- Consecutive year of positive earnings
Hotel Trading conditions during the year appear from research and from the company accounts to be dependant on location. Hotels outside the M25 recorded a 5 increase in revenue per available room to £45.85. However this has been identified as although being an increase, not being enough because of the disappointing results earlier in the year. Revenue Per available room at Macdonald London Hotels fell by 12% during the 2002 period to £59.99. However, revenue per available room across the Macdonald Group increased by 1% to £48.05 supporting the opinion that Macdonald Hotels are dependant on location, which may explain why some hotels in less popular and fashionable regions are being sold.
Macdonald Hotels continuous to make strategic progress in relation to its aims and objectives, even though there have been difficult trading conditions experienced in 2001/2002. The Hotel Group has shown successes with the integration of the Joint Venture Hotels, which was acquired in 2001. Some locations have been affected more so than others, for example the Lake District during the foot and mouth epidemic experienced a dramatic loss of business as did the Midlands, which experienced a dramatic reduction in U.S visitors because of September 11th.
Trading in some areas has been difficult, which can be identified in the reports as some hotels, especially the three star ones were sold off as part of the joint venture portfolio. For example several key areas around the M25 had seen occupancies down by 7% to 59.4% and rates down 13% to £89.27. However the report shows that the company’s wholly owned hotels increased by 5%, with a 3% increase in room yields to £40.98 and a 5% increase in total revenues per room to £93.44.
Recent Media coverage of Macdonald Hotels in the Caterer 24 February 2003 warns of lower than expected profits in the next six months. However the on going development and acquisition of joint venture properties has to be taken in to consideration. Results show an encouraging start with revenue per available room increasing by 2% in the four months since 3 October 2002 compared with the same period a last year. However it has been identified that trading has since declined, with profits therefore lower than the company would have forecasted. However Macdonald Hotels has always maintained that the “company has always traded well through difficult times.”
It is clear that the company strategy of Macdonald Hotels, which is to build a portfolio of high quality hotels and resorts is central to every development and investment, to ensure that it fits in and can be integrated into the group. The group believe that they still need to further develop the brand. The company believe that their product today is as good as full service as Marriott or Hilton. However the Hotel Group is not fully known yet. Macdonald hotels believe that because at the moment they are small and agile the company enables them to be more flexible to changing needs, unlike maybe Marriott who have a formula and a format that they don’t move from.
Report and Accounts 12 months to 3 October 2002 Macdonald Hotels Plc
. (accessed 25/02/2003)
Coltman & Jagels (2001)Hospitality Management Accounting) 7th (ed) John Wiley & Sons Publishers.