Banyan Tree Analysis free essay sample

Banyan Tree Holdings manages and develops resorts, hotels and spas. They have been listed on the Singapore Stock Exchange since 2006. Banyan began in 1994 with a single resort in Phuket and currently manages and has ownership interests in over 20 resorts and hotels, 60 spas, 70 retail galleries, and 3 golf courses. Refer to Appendix A for an overview of Banyan Tree’s global presence. The company is best known for its Banyan Tree and Angsana brands. In this paper, we consider the operations of the Banyan Tree Group. Here on, Banyan Tree Group will be referred to as â€Å"Banyan Tree†. Banyan Tree ends its fiscal year on 31st December each year. Financial Analysis Principal Activities Banyan Tree’s revenue is generated from three core business segments: Hotel Investments, Property Sales and Fee-based. Hotel Investments Banyan Tree main Hotel Investments were in Thailand, Maldives, China and Morocco. Investments in Thailand suffered a 24% dip in revenue due to reasons such as political instability and economic downturn in the Eurozone. On the same note, Morocco suffered a 29% dip in revenue per available room (RevPAR). On the other hand, investments in China and Maldives showed increases due to increasing demand from affluent travellers in China and successful marketing in Maldives. Property Sales Hotel Residences1 has earned $S12 million, a 50% drop from last financial year. Sales of Laguna property2 has earned $S17. 9 million, a 12% dropped from last financial year. Development project/site sales3 has earned $S36. 4 million. In 2011, Banyan Tree made a change in stance for their revenue recognition method, from the â€Å"percentage of completion† method as construction progresses, to the â€Å"completion† method. Hence, the overall property sales revenue was S$66. 3 million, up 49% from last year’s S$44. 4 million. For development project/site sales, there has been a general increase in interest in the closing months of the year, and we are hopeful of a stronger high season than in recent years. For Laguna property sales, the peaceful mid-year elections in Thailand led to an increase in sales activity, which offset the impact of the global economic downturn. Therefore, there was a 2% increase in sales in year 2011. Fee-based The Fee-based segment4 comprises Hotel/Fund/Club Management, Spa/Gallery Operations, Design Fees Others. With the exception of club management, all fee-based units registered year on year increased in revenue, resulting in overall revenue growth of 14%. But there was a lower club membership rate of 33%. This was due to the ongoing global economic uncertainty as well as political unrest in Thailand, which adversely affected investor confidence, particularly in higher-priced hotel residences. Analysis of Financial Ratios Current Ratio Banyan Tree possesses adequate resources to address an immediate crisis. Banyan Tree is able to comfortably payoff its current liabilities with its current assets. This is reflected by an increasing current ratio of 1. 25 since the 2008 economic crisis to 1. 76 in 2011. Competitors such as Stamford land had a current ratio of 1. 72 in 2011, Based on this comparison, Banyan Tree remains competitive. Debt Ratio Banyan Tree’s debt ratio for 2008 was 0. 62. However, this number has been gradually decreased to 0. 603 in 2011 indicating that less of the company’s assets are financed by debt. Competitors in the industry, such as Stamford Land Pte Ltd displayed debt ratios of 0. 538 in 2011, indicating an area where Banyan Tree can improve on. Taking into account Banyan Tree’s strong current ratio, a majority of Banyan Tree’s debt is long term. RevPAR RevPAR (Revenue per Available Room) measures a hotel’s profitability. By multiplying a hotel’s room-rate with the hotel’s occupancy rate, RevPAR measures profitability based on the number of available rooms. RevPAR improved from $179 in 2010 to $181 in 2011. Compared to competitors such as Pan Pacific which had a RevPAR of $135. 23 in 2011, Banyan Tree maintains a competitive grounding in the hospitality market. Earnings per Share Earnings per share (EPS) is a measure of a company’s profitability and investor confidence. Banyan Tree’s EPS was exceptionally high in 2007 due to the recording of an exceptional item gain of $44. 5 million due to litigation. The EPS later fell drastically in 2008 due to the absence of this item. In 2010, its EPS was also high due to the sale of Dusit Laguna Phuket which resulted in an accounting gain of $67. 4 million. However, this led to a fall in EPS again in 2011. EBITDA EBITDA fell steadily from 2007 to 2009, but saw a significant leap in the year 2010. However, most recently, Banyan Tree saw a plunge in earnings to a significant low of 49.4 million in 2011 this is possibly due to a change in accounting policy5. With a 14. 65% EBIDTA margin in 2011, compared to Stamford Land’s EBIDTA margin of 17. 95%, Banyan Tree has limited cash flow which can hinder its progress. The Problems Poor Performance in Thailand Though this poor performance has been excused by attributing the fall in revenue to the sale of Dusit Laguna Phuket and Laguna Beach Resort in 2010 and 2011, it can be attributed more to the political crisis and flooding in Thailand, which severely affected travel to the region as well as investment in the country. Travel to Thailand has since increased however, with the number of foreign tourists in Thailand rising from 15 to 19 million from 2010 to 2011. Hotel occupancy rates for Thailand rose from 50-57% in the same period, as opposed to Banyan Tree’s average occupancy rate decreasing from 52-51%. This might indicate Banyan Tree losing its competitive edge in Thailand or changing tourism trends in the country that it has not followed. Decrease Revenue in Hotel Investments Hotel investment revenue decreased by 20% from $205. 1 million in 2008 to $163. 7 million in 2011. The stronger performance by the hotels in China and the Maldives were offset by weaker numbers from Thailand, since more than half of Banyan Tree’s some 1,608 resorts and hotels are located in Thailand despite divestment efforts in recent years. In both 2008 and 2011, about 45% of Banyan Tree’s total revenue came from their hotel investment segment, which has consistently dropped some since 2008. While the property sales and fee-based segments have been growing in recent years, their growth is insufficient to offset the drop in hotel investment revenue. This problem is furthered by the fact that around 50% of Banyan Tree’s liabilities, and more than 60% of its assets are based in the hotel investment segment. Poor Market Performance Banyan Tree has consistently underperformed the STI since 2008, with its share price dropping around 60% since then. There are three main reasons for this are its decreasing EBITDA, its fluctuating EPS, and erosion of investor confidence given the geopolitical instability in Thailand. With most of its resources and revenue still over-reliant on Thailand, as well as Banyan Tree’s poor performance in the country, investor confidence has been poor in recent years. Future Plans Expanding to Emerging Economies China registered an S$2. 0 million increase in revenue from the year before, partly because of increased MICE activity (Appendix B). In addition, Banyan Tree’s properties in China saw a 55% increase in room revenue in 2011 (Appendix C) Tourist arrivals in china have grown from 26. 126million in 2010 to 27. 1120 million in 20116, an overall growth of foreign tourist arrivals by 3.8% with a slowly but surely recovering global economy and China’s stimulus packages starting to take effect, we should capitalize on China being a steadily growing travel hub and capture a larger market share catering to both travel for business and leisure. Apart from China, Banyan tree should look to expand into North East Asia. In South Korea, tourists’ arrivals have been steadily increasing from 6,890,841 visitors in 2008 to 9,794,796 in 2011. Once again, expanding into North East Asia would make Banyan Tree more profitable due to increased demand of hotel and luxury services. A more profitable Banyan tree will raise share price and increase investor confidence. Earnings per share will improve and as a result, more people will be willing to invest in Banyan tree resulting in greater equity financed working assets and a more financially stable company. Divesting Resources Revenue from Thailand fell 24% to S$33. 3 million, due to the sale of Dusit Laguna Phuket and Laguna Beach Resort in October 2010 and May 2011 respectively. Banyan Tree also suffered from floods occurring in Thailand, resulting in poorer tourist arrivals. Thailand’s poor performance in 2011 has resulted in weaker profits for Banyan Tree. Given the high concentration of hotels and spas in Thailand, Banyan Tree should look to divest some of its resources and re-allocate them into more profitable areas such as China and North East Asia. Fee based Segment Banyan Tree’s fee-based segment makes up 30. 2% of Banyan Tree’s group revenue and has grown by 14% from 2010 to 2011. In light of a weakening Hotel Investment sector, possessing a strong fee-based sector can result in longer term, more sustainable growth. Areas of focus in the fee based segment include expansion into emerging economies as well as deeper focus on Banyan Tree’s spa sector. Given there are only 65 existing spas under Banyan Tree, the spa sector is definitely a plausible area for expansion which can continue drawing revenue from local customers in the event of a drop in the number of tourists. We identify these as potential sources of revenue and believe that Banyan Tree can stand to profit from this. Hotel Management Program Education is an important area of investment. Investment in education almost always pays off. Banyan tree has been in the hotel business since 1994 and knows the ropes of the business. Banyan tree has a ‘Banyan Tree Management Academy’ (BTMA) which roughly covers the first two points discussed below. We are proposing a more prominent distinction between the two wings. We are proposing Banyan Tree to start a Hotel Management Institute with the following three wings: Re-education of existing employees This section involves, as the name suggests, re-education of the already existing employees to the latest trends. It would be made mandatory for every employee to take part in this program once every five years. This would keep the employees up-to-date with all the latest happenings in the field of hotel management. Education of future employees The students under this wing would have to sign a bond stating that they will work with banyan tree for a minimum of ten years after they complete their course and will not be allowed to ever work with any company involved in similar sectors of business as banyan tree. These students will be scholarship students. They will be taught with special focus on banyan tree and in great detail about the banyan tree structure and their way of working. In short, these are the future runners of banyan tree. This measure will help banyan tree create an image that none of its workers are untouchable and will help them easily replace employees. General Education This wing will be the main revenue generation of banyan tree hotel management institute. Students in this wing will be taught in a much general manner about the hotel industry and its structure. These students will not be given scholarships. After their education these students can work wherever they work. There will be a huge number of courses offered to the students under this category as this will be the main part of the institute. It will prepare students who want to assume any role in the hospitality business in the near future. Banyan tree already has a partnership with Cornell through BTMA and should look to use that partnership to help its hotel management institute grow initially.