Management Level Real Preseen Analysis – May 2020

Alpaca
Overview
Your role
• You are a Financial Manager working at Alpaca’s Head Office.
• Your primary responsibilities are associated with management accounting.
• You report to the Senior Financial Manager who in turn reports directly to the Finance Director.
Country (Maylandia)
• Currency of Maylandia is the M$.
• Maylandia is a developed country that has a high standard of living. It has a thriving economy.
• Companies are required to prepare financial statements in accordance with IFRS.
The hotel industry in Maylandia
• In Maylandia a star rating is used. The price of a hotel room will vary depending on these ratings
• Review sites are part of social media. Visitadvisor is Maylandia’s most popular site dealing with the
hotel industry.
• The Maylandian Tourist Board (MTB) is responsible for marketing Maylandia as a tourist destination.
MTB awards ratings to hotels based on an annual round of hotel inspections.
• The Maylandian Health and Safety Administration (MHSA) protects the wellbeing of hotel staff and
guests. Law requires regular checks on a number of areas including heating and ventilation systems,
portable electric equipment and fire safety equipment. Up to date inspection certificates must be
displayed in each hotel. The MHSA also conducts unannounced inspections of kitchens and dining
rooms.
Company
• Alpaca Hotel Group.
• Alpaca is a quoted company that owns and operates 50 luxury hotels in the country of Maylandia.
• Alpaca’s head office is located in Mayburgh, Maylandia’s capital city.
• Founded in the 1930 by the Scrivens family, the first hotel opened was the Mayburgh Principal.
• The company has grown steadily through acquisitions and constructing new hotels.
• Alpaca operates in the luxury end of the hotel market, it owns 10% of the luxury hotel rooms available
in Maylandia.
• All hotels display the Alpaca brand throughout, each hotel also has its own unique character.
• All of Alpaca hotels have bars and restaurants that are open to both residents and non-residents.
• Alpaca has 50 hotels which are organised into three divisions:

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 Hotels Rooms

Alpaca City 12 2,400 Located in city centres. Used by business travellers and
Central tourists enjoying city breaks. Offer facilities such as
(“Central”) meeting rooms incorporating video conferencing. Also
offer leisure facilities.

Alpaca Southern 20 4,400 Located in tourist resorts overlooking sandy beaches.

Resorts (“South”) Mainly for leisure, used by guests on a two week vacation.
Have several bars and restaurants and offer extensive
leisure facilities, including outdoor swimming pools, beauty
therapies and so on.

Alpaca Northern 18 Located in the mountainous region in Maylandia’s North,

Slopes (“North”) offer scope for adventure holidays such as skiing in winter
and hiking in summer. Often converted castles or former
mansions. Hotels used as bases for guests. Little need for
leisure facilities because guests are keen to spend time
outdoors. Restaurants offer high quality dining
experiences.

Total 50

• Mission statement – To provide authentic hospitality by making a difference to guests and the
environment in which they live
• Aims – to increase market share until it is the largest luxury hotel operator in Maylandia.
• Objectives:
o To increase occupancy rates and deliver high guest satisfaction
o To acquire at least one new hotel every three years, delivering excellent value for money in
the process.
• Values:
o Integrity – promote honesty and respect
o Attention to detail – hotel only as good as service it provides
o Excellence – employees trained to the highest standard
o Teamwork – work together to exceed expectations

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Management structure
Alpaca has a divisional structure, with a director for each of the three divisions.

The Finance Director and Marketing Director are responsible for the overall strategic management of
their respective areas for Alpaca as a whole. Divisional directors are responsible for the strategic
oversight of operations across their respective divisions. Each divisional director is supported by a
divisional management team that is responsible for:

Operations Quality, compliance, procurement, local advertising, monitoring occupancy

levels and rooms rates.

Finance Divisional budgets, performance reports on individual hotels, review of room

rates and predicted occupancy.

Human resources Compliance with group HR policies and Maylandia employment legislation.
Establishing wage rates and agreeing staffing levels.

The divisions are investment centres for reporting purposes and each hotel is viewed as a profit centre.
Bookings
Most guest bookings are made through three channels:
o Alpaca website – book directly, make payment electronically, confirmation email immediately to
guest.
o Travel agents – Alpaca pays commission of 10% to 20% to travel agents who arrange hotel
accommodation on behalf of their clients who are Alpaca’s guests. 60% of bookings for Alpaca
South hotels are made through an agent called Maylandia Travel.
o Online comparison sites – Alpaca pays 15% commission on room bookings received through
these sites. Useful for filling empty rooms by offering last minute deals.
Pricing and billing
• Alpaca has a centralised IT system that is located at Head Office. The IT system includes a software
package called APAS, which uses an algorithm to set rates for each hotel in real time. The system
takes account of rates offered by online competitors, the number of unsold rooms available, the time
of year.

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Business model
Alpaca’s business model is built around:
o Defining value – Alpaca aims to meet the developing needs of guests for hospitality services
associated with leisure and business travel.
o Creating value – Alpaca creates value through the creation of a calming and attractive
environment at each of its hotels.
o Delivering value – Alpaca delivers value by creating an identity that is familiar to guests,
even if they are staying at a particular hotel for the first time.
o Capturing residual value – Alpaca effectively uses its resources to deliver and capture value.
Alpaca is a major employer, providing careers in the hospitality industry while also creating
jobs for unskilled staff.
• Internal reporting – monthly management accounts are prepared by the central finance function and
distributed to each hotel manager at the end of the month. Individual hotel reports are consolidated
on a divisional bases by the divisional management teams and discussed by the board.
• Budgeting process – Each regional CEO prepares a draft budget for each hotel within their
geographical area. They consult with hotel managers to determine budgeted costs. Budgeted
revenue is estimated form information gathered on the online booking system, previous trends and
knowledge of future events e.g. the 2021 Year of Culture.

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Summary budget for 2020

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Alpaca Central management accounts for March 2020

Newspaper articles:
Maylandia Daily News – Celebrity fitness expert Jonjo Dwyre has agreed to become Portent Hotels
Executive trainer.
Maylandia Business Daily – Hospitality industry celebrates economic recovery. The recent period of
economic stability has encouraged business to take a more optimistic view as there is evidence that
corporate expense accounts are less restricted than they were in the recent past.
Maylandia Daily News –Joes’s Pies in Maylandia’s South Coast is due to close next month. All-
inclusive deals at hotels have resulted in many catering establishments in Southtown closing or having
reduced staff.
Maylandia Business Daily – Accommodation to become scarce in run up to Year of Culture
Visitor webpage reviews for Alpaca Mayburgh Principal Hotel

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Key financials
Alpaca

FINANCIAL STATEMENTS
Year Year
ended 31 ended 31
December December
2019 2018
Change in revenue -1.0%
Change in cost of sales 0.0%
Change in admin expenses 3.9%
Change in distribution costs 17.6%
Other operating expenses 35.5%
Change in finance costs -6.3%
Change in profit for the year -37.0%
Gross margin 39.5% 40.1%
Operating margin 11.2% 15.5%
Net margin 6.8% 10.7%
Return on capital employed 2.9% 4.1%
Non-current asset turnover 0.3 0.2
Current ratio 1.1 0.7
Quick ratio 1.1 0.6
Inventory days 4 2
Trade receivables days 34 28
Trade payables days 133 126
Working capital cycle (days) -95 -95
Gearing (Debt/(Debt + Equity)) 20.6% 20.9%
Interest cover 3.7 4.9

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I CAN Statements
In the section that follows the I CAN statements most relevant to the Alpaca pre-seen case have been
presented below. To illustrate the relevance of each I CAN statement to the pre-seen a series related
questions have been set for you to attempt.

A: Evaluate opportunities to add value

I can select appropriate capital investment appraisal techniques and apply them in order to support
capital investment decisions, including product/service development, digital transformation projects and
acquisitions.
• If you are given an NPV to critically evaluate, what are some of the key issues you should
be looking for?
• What are the real options attached to an investment decision and how could these be
applied to Alpaca?

I can identify and use relevant digital data sources to assist in capital investment decisions.
• If data is collected from business intelligence systems we must ensure it is relevant to the
capital investment decision. What is the definition of a relevant cost used for capital
investment decisions?

I can explain which pricing strategies are appropriate.

• Explain the different pricing strategies that could be used by Alpaca.

I can select and implement suitable business models that will create value for stakeholders, including
business models in the context of digital ecosystems.
• How does Alpaca’s business model create value for stakeholders?

I can analyse the impact of disruptive and digital operating business models in the context of digital
ecosystems.
• How has technology disrupted the hotel industry?

I can explain the relevance of weighted average cost of capital.

• Under what circumstances can Alpaca use its current WACC as an appropriate discount
factor in project appraisal?

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B: Implement senior management decisions
I can apply appropriate project management tools and techniques to effectively manage projects at the
appropriate stage in the project life cycle.
• State the stages in the project life cycle according to Gido and Clements (1999) and give
TWO examples of actions that Alpaca could undertake which might be managed as
projects.

I can identify the key project personnel, explain their responsibilities and set appropriate performance
measures.
• Which member of the board at Alpaca would be the most likely to serve as the project
sponsor when providing finances to support corporate projects and briefly explain why?

I can select and apply suitable tools and techniques for managing risk and uncertainty in capital projects.

• What techniques could Alpaca use to deal with risk and uncertainty in decision making?

I can select suitable financing sources and explain the characteristics of the different types of funding.
• Discuss the sources of finance available to Alpaca should it want to make a significant
investment.

I can recognise the characteristics of high performing teams.

Although all teams are important and have a role to play in the success of an organisation, which
one team is likely to be the most critical in delivering Alpaca’s underlying business model?

C: Manage performance and costs to aid value creation

I can advise on the measurement, analysis and reporting on the performance of responsibility centres.
• Can you suggest one performance measure for each quadrant of the balanced scorecard
for Alpaca?

I can analyse the processes needed to ensure employee engagement, empowerment and alignment to
enhance individual and team performance.
• Briefly describe the terms employee engagement, empowerment and alignment.

I can compare leadership styles and identify the most appropriate style to use.
• The work of the Ashridge Management College distinguished four leadership styles which
could be viewed as representing a continuum of styles. List the four styles.

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I can use appropriate cost management and cost transformation techniques to manage costs and
improve profitability.
• How could Alpaca use activity-based management (ABM) to improve efficiency?

I can identify and apply appropriate quality management techniques to enhance value.
• Explain TQM and list the four costs of quality

I can identify and apply value management techniques to enhance value.

• What are the primary tasks in the value chain and how could these be applied to Alpaca?

I can apply the techniques that quantify and present risk to stakeholders.
• Identify the major risks faced by Alpaca.

D: Measure performance
I can use the financial statements to assess and report on financial performance and position,
interpreting and reporting on a wide range of ratios.
• Assess Alpaca’s performance for the year ended December 2019 compared to the year
ended December 2018.
• Comment on Alpaca’s budget for the year ended 31 December 2020 compared to Alpaca’s
actual performance for the year ended December 2019.
• Comment on the Alpaca Central management accounts for March 2020.

I can support managers by recommending actions to improve financial performance and position and
assessing how suggestions impact on the wider organisational ecosystem.
• Recommend actions to improve Alpaca's gross profit margin.

I can select appropriate accounting treatments and explain their implications for users of the financial
statements.
• What are the three criteria for making a provision?
• What exchange rate should be used when translating foreign transactions and balances
and where should the exchange rates be posted to?

E: Manage internal and external stakeholders

I can explain the financial reporting implications of additions to the group
• What would be the effect on Alpaca's consolidated statement of financial position of
acquiring a new subsidiary?

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I can explain the behavioural and transfer pricing issues associated with internal trading.
• What are the key objectives of transfer pricing?

I can explain the implications of Integrated Reporting for the reporting entity and its stakeholders.
• What are the six capitals? Briefly describe how might they apply to Alpaca.

I can advise on the communication process.

• Which methods of communication are most relevant to Alpaca’s divisional HR teams
when communicating with hotel employees?

I can advise on the negotiation process.

• Provide TWO examples of areas that Alpaca is likely to have to negotiate?

I can advise on conflict management.

• State four strategies for managing conflict.

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