Appendix 7

Scoring Rubric assignment Unit 3 Financial

Analysis

Group number: I2ENVB

Module period: 2
Academic year: 2
Student name

Student number

Editor of

Nikita Marsman

180467

Step 1, 4&5, 9 and 10

Shanna van Heerde

133760

Step 2, 3, 6&7, 8 and

11

Elements

Scoring Rubrics
Overall weight (70%)

Individual weight Score 1-10

(30%)

Step 1: overview

1/12

25%

Step 2: description last

two years

1/12

25%

Step 3: highlights
directors review

1/12

25%

Step 4 & 5: Income

statement

2/12

50%

Step 6 & 7: Balance sheet 2/12

50%

Step 8: cash flow

statement

2/12

50%

Step 9: business drivers

1/12

25%

Step 10: future projection

1/12

25%

Step 11: summary

1/12

25%

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Financial analysis Orient-Express Hotels

Shanna van Heerde

Nikita Marsman

Operations Environment
Module 2
I2ENVB
13-12-2013

Stenden University of Applied Sciences

International Hospitality management
Leeuwarden, the Netherlands

Submitted in Partial Fulfillment for the Requirements of the degree Programme

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Bachelor of Business Administration

December 2013

Plagiarism form declaration:

1.

This work is composed by me / by us.

2.
This work has not been accepted in any previous application for a degree or
diploma, by me
by us or anyone else.
3.

The work of which this is a record is done wholly by me / by us.

4.
All verbatim extracts have been distinguished by quotation marks and the
sources of my
information have been specifically acknowledged.

Date: 12-12-2013

Signature(s)
Shanna van Heerde

Shanna van Heerde & Nikita Marsman

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Nikita Marsman

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Table of content

Introduction

Preface

Step 1: Overall view

5

Step 2: Quick review

5

Step 3: Director's review and highlights

6

Step 4&5: Reviewing the profit and loss accounts

6

Step 6&7: Probing the balance sheet for financial health

7

Step 8: Review of cash flow statement

8

Step 9: Key business drivers

9

Step 10: Future prospects

10

Step 11: Summarize and conclude

10

Reference list
11

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Introduction
This is assignment is the financial analysis of the Orient Express Hotels Ltd. This
Financial Analysis is made by Shanna van Heerde and Nikita Marsman to determine
whether the company is doing well and what can be improved. In this Financial
Analysis the 11 steps of Grundy are use. Through this 11 steps, we can clearly explain
if the company I healthy. For this Financial Analysis, we made use of the balance sheet,
the income statement, the cash flow statement and the annual report of 2012 of the
Orient Express Hotels Ltd. After looking at all these resources, we made the horizontal
analysis, the vertical analyses and the trend analysis where appropriate. The ratios are
calculated and determine the health of the company. The different steps are divided
over two students. Step 1, 4&5, 9 and 10 are made by Nikita Marsman and Step 2, 3,
6&7, 8,11 are made by Shanna van Heerde.

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Preface

The financial analysis of the Orient Express Hotels is made by two second year
students of the International Hospitality Management School at Stenden University of
applied sciences in Leeuwarden at December 2013. This Financial analysis shows the
position of the Orient Express Hotel at the moment. Is het Hotel group in financial
healthy and where are improvement points needed.
This Financial Analysis is based upon the 11 steps of Grundy. For this steps the balance
sheet, the income statement, the cash flow statement and the annual report of 2012
of the Orient Express Hotels Ltd where used.

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Step 1: Overall view

While looking at the Income Statement, the revenue of 2012 of the Orient Express
Hotels is increased with 10% compared with 2008. The revenue increased from
494,676 in 2008 to 545,418 in 2012. The revenue of 2012 is decreased with 2%
compared with 2011. On the other hand, also the Total expenses are decreased with
5%, from 529,560 in 2011 to 505,047 in 2012.
The decrease of the Total expenses is mainly caused due the fact that the impairment
of goodwill is decreased with 83%. Also the impairment of real estate assets, goodwill,
other intangible assets & property and plant and equipment decreased from 8,153 in
2011 to 3,837 in 2012. Looking at the balance sheet and the income statement, the
Orient Express Hotels is stable. The revenue is decreasing as well as the costs and
liabilities are. The Orient Express Hotels had the fast few years a net loss. The losses
are shown in the table below.

Net losses

2012

2011

2010

-7.06

-87.77

-62.76

Table: Net losses attributable to Orient Express Hotels Ltd.

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Step 2: Quick review

The first thing that the income statement shows is that the revenue decreased with a
small percentage of -1.7 from 2011 to 2012. Even though the revenue is lower in
2012, the total (operating) expenses in 2012 have also decreased with a relatively
percentage of -4.6. Secondly the income statement shows that the earnings from
unconsolidated subsidiaries and earnings before income taxes is 9,246 Euro while in
2011 it was a loss of 3,101 Euro. This big change is because the net interest expanse,
foreign currency an net finance costs all decreased with more then 25%.
2012 2011

201
2

2011

Revenues

5454
18

5547
-1.70% 100. 100.%
45
9327
%

Total (operating)
expenses

5050
47

5295
60

99

0.20%

8.10
%

8.%

Loss/Earnings
before/from*

9246 -3101 1234

7
398,2.
%

1.7, -0,6.%
%

Discontinued
operations

3729

0,7.
%

7249
6876
2
105,5.
3
%

12,4.
%

Table 2: Highlights from the income statement from Orient-Express Hotels Ltd.

The Orient-Express Hotels still has a net loss of 7,061 Euro but in comparison with
2011 where the net loss was 87,771 they increased their earnings with 80,710 Euro
which is a percentage of 92%. The most increasing earnings are from discontinued
operations. In 2011 this was a loss of 68,763 Euro and in 2012 it became a earning of
3.729 Euro. This is a increase 105,4% (72,492 Euro). Looking at the two years of the
income statement, the Orient-Express Hotels made progress in reducing their costs
and in increasing their earnings before income taxes and from unconsolidated
companies.

Step 3: Director's review and highlights

Orient-Express Hotels worked in 2012 with progress towards portfolio optimization to
strengthening their core. Despite difficulties of external factors in certain regions
especially the 8% decrease of the exchange rate in 2012. The operating results were
solid and certain regions and properties show growth. The total revenue and EBITDA
decreased from 2011 to 2012, however they would be in line when excluding
Copacaba Palace because it was partly closed in 2012.
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Five properties were sold in the year of 2012, this generated capital was used to
investment in refurnishing hotel rooms, building renovation and expansion. At property
level certain hotels had a growth in RevPAR and occupancy. When looking at 2012 in
comparison with 2010 the combined RevPAR of these hotels double, this shows the
benefit of the three years of investments and operational improvements. This is what
the company will continue with.
Another focus in 2012 was improving the sales and marketing channels to expand the
business. A new website and the use of social media was introduced to upgrade
bookings and reach out to new audience. In 2013 there will be some changes in
property level resources and organizational structures. The new hirings will bring
knowledge and experience to the table. These changes to the leadership team and
global organizational structure will create the base to move towards the goals.
In the companies coming years optimization of the portfolio will continue. Also two
large scale renovation projects at Hotel Europe and Charleston Palace will be
embarking. As well as strengthening the balance sheet as the refined organizational
structure. All these factors give the company a base for long term growth.

Step 4&5: Reviewing the Profit and Loss Account

2011

2012

Net income

-7061

-87771

Total revenue

545418

554745

Average total assets

1911448

1911448

Earnings before interest and taxes

41885

41729

Interest expenses

29795

40234

Total liabilities

953704

978344

Amount of outstanding shares

181

181

Table 3: Assets and liabilities from the balance sheet from Orient-Express Hotels Ltd.

The income statement shows that the revenue in 2012 decreased with 2% compared
with 2011, from 554,745 in 2011 to 545,418 in 2012. Looking at the more detailed
income statement, it shows that the decrease in revenue is caused by the owned
hotels in Europe and Rest of World. The more detailed income statement shows that
the revenue of the owned hotels of North America is increasing with 5%.
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In 2011 95% of the revenue is the total expenses this is decreasing with 5% in 2012.
93% of the revenue is the total expenses in 2012.
The operating efficiency ratio is in 2012 is almost the same as in 2011. There is a
small increase from 7.5% in 2011 to 7.8% in 2012, which is positive. There is an
increase in the profit margin, which is also positive. The profit margin is increasing
from -16% in 2011 to -1% in 2012. Also the Return on assets is increasing from -5% in
2011 to 0% in 2012. This is because of the fact the net income is increased. The
interest payment is decreased from 4% in 2011 to 3% in 2012. The earnings per share
increased from -484.92 in 2011 to -39.01 in 2012. The stakeholders earn more
money, due to the increasing of the Net Income.

Step 6 & 7: Pointing the balance sheet for financial health

The most outstanding asset on the balance sheet is the assets of discontinued
operations held for sale.
In 2012 several hotels were sold during the year. This is shown on the assets of
discontinued operations held for sale. In 2011 this was 135.515 dollar and in 2012 only
22.078 dollar, this is a decrease of 84% so 113.312 dollar. This is also a result for the
increase in cash. Cash and cash equivalents have not increased that much but still
with 3278 dollar which is 3.64%. But restricted cash has increased with almost 60%, a
part of the cash from the sold hotels has been put into other hotels. Besides the
liabilities of discontinued operations held for sale has also decreased with 69%, from
7018 dollar in 2011 to 2174 in 2012.
Current
ratio

Acid
ratio

Accounts Average Workin

receivabl collecti
g
es
on
capital
turnover period

Working
capital
turnover
ratio

Solvenc Debt to
y ratio
equity
ratio

201
1

1.58

1.4

12.4

29.4

132396

4.2

1.97

1.03

201
2

1.13

0.9

14.9

24.5

28692

19

1.98

1.02

Table 4: Liquidity and solvency ratios statement from Orient-Express Hotels Ltd.

The current ratio is 1.13 which indicates that the company is able to pay back its short
term liabilities, the assets exceed the current liabilities. But it decreased in comparison
with 2011 with 0.45, this is because the current liabilities decreased less fast then the
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current assets. The company should be careful because a ratio below one can
indicates that the company is not able to pay their dept. On the other hand when
looking at the acid ratio it already concludes that the company is not able to cover its
immediate liabilities because in 2012 this is 0.9.
Also the working capital has decreased so there is less money to pay of debts. But
even though the working capital has decreased it is still a positive number and the
working capital ratio shows an increase of 14.8 in 2011 till 2012. This tells that the
company is yearly more efficient in using the working capital to generate sales. The
average collection ratio has increased from 12.4 in 2011 to 14.9 in 2012. So in 2012 it
took longer to turn the companies receivables into cash, and therefore have less cash
to pay of expenses. The solvency ratios show that this company has a low risk. The
dept to equity ratio in 2011 was 1.03, this is already quit low and means that the
company finances its assets just a little bit more on dept. In 2012 it even decreases
with a ratio of 1.02 in 2012. This is also shown in the long term dept to equity ratio
which also decreased with 0.1 from 2011 till 2012.
The Du Pont schedule shows that in 2012 there still is not a positive return on equity
namely 0.75%, this is logical because the company does not make a profit. Besides

Net profit margin

Asset turnover
Return on assets
Equity multiplier
Return on equity

2011
2012 in comparison with 2011 the return on equity was
-15,82% -1,29% -9.23% so the company has increased there return
0,29
0,29
-4,55% -0,37% with 8.48%. This is the same for the return on
2,03
2
assets only the increase is a little lower. In 2011 it
-9,23% -0,75%
was -4.55% and in 2012 it was -0.37% this is a

increase of 4.18%.

Table 5: Ratios from the Du Pont schedule from Orient-Express Hotels Ltd.

So the company has become more efficient using its assets to generate earning but it
isn't enough yet to gain earnings. This is among a result because of the decreasing
shareholders equity. Like the solvency ratios shows the equity ratio the risk for a
shareholder. Also here the multiplier decreased which means the risk in the company
also decreased. The profit margin has increased with more then 14%, even though the
company doesn't have a positive profit margin if it keeps increasing like the last year
they will have a positive profit margin the next year. It is common that if the profit
margin increases the asset turnover decreases, but in this case the assets turnover did
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not change from 2011 till 2012, this is because of the pricing strategy.

Step 8: review of cash flow statement

The total cash of the company has increased 3,6% with 3278 dollar. The cash from
operating activities is positive because it has increased 8,2% with 3457 dollar. The
investing activities has decreased with 74,6% , the company had a cash outflow of
68948 dollar in 2011 and in 2012 it increased with 61% to 112808 dollar. Moreover the
cash inflow was also higher in 2012 then in 2011, the cash inflow increased with 16%
from 55749 dollar to 89751 dollar. The financial activities have increased 79% from
2011 to 2012 with 32378 70873 dollar. The cash inflow of the financial activities have
decreased with 16% from 125212 dollar to 105011 dollar. Furthermore decreased the
cash outflow with 42% from 215059 to 123985.
2011 2012

Inflow
2011

Outflow
2011

Inflow
2012

Outflow
2012

Operation
activities

42154 4561 3458

2

8.2%

113025

227230

96406

53953

Investing
activities

13208 2305 9849

7

74.60
%

55740

68948

89751

112808

Financial
activities

7087 78.9%
89847 1897
3
4

125212

215059

105011

123985

Total

90104 9338 3278 3.60%

2

293977

511237

291168

290746

Table 6: Operation, investing and financial activities from the cash flow statement from Orient-Express Hotels Ltd.

The total cash inflow of operation activities does exceed the total inflow of investing
activities with 57285 dollar in 2011 and with 6655 in 2012. The cash outflow from
operation activities was higher in 2011 then the cash outflow from investing activities
with 158282 dollar. In 2012 it looks the other way around the cash outflow from
investing activities is higher with 58855 then the operation activities. With the cash
from operation activities the investing activities can be paid as well in 2011 as in
2012.
The cash inflow from financial activities is in 2011 and 2012 higher then the cash from
operation activities. In 2011 the difference between operational activities and financial
activities was 12187 dollar, in 2012 the difference was 8605 dollar. In the cash outflow
there is a bigger difference shown over the years. In 2011 the cash outflow from
operation activities was higher then the cash outflow from financial activities, the
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difference was 12171. In 2012 the opposite is shown the cash outflow from operating
activities is way lower then the cash outflow from financial activities, it is a big
difference from 70032 dollar.
In 2011 the cash from operation activities isn't enough to pay the financial activities,
there is 47693 dollar cash short. In 2012 the cash from operation activities is enough
to pay for the financial activities, this because the cash in financial activities has
increased. This is also a reason way the total cash has increased from 2011 till 2012.
Overall in decreased the cash inflow in 2012 with a small percentage in comparison
with 2011. The cash outflow also decreased from 2011 to 2012 but with a much higher
percentage.

Step 9: Key Business Drivers

Orient Express Hotel LTD has different business
drivers. The key business drivers are the hotels. In
2012, 82% of the revenue is made by hotels. The
hotels in Europe are making the most revenue in
relation to the total revenue, 37% of the total revenue
is made in Europe in 2012. This is decreased with 5% in relation to 2011. Furthermore,
in 2012 3% of the revenue is made by restaurants. The revenue of restaurants in 2012
decreased with 1% in relation to 2011. The last business driver is the Tourist trains and
cruises. This business drivers makes 14% of the total revenue in 2012. This is
decreased with 1% in relation to 2011.
To conclude, the hotels are the key business drivers of the Orient Express Hotels LTD,
also the Tourist trains and cruises are important for the total revenue. The restaurant
is not an important key business driver of the Orient Express Hotels LTD because of
the low percentage.

Step 10: Future Prospects

The financial overview of the Orient Express Hotels shows that the company is making
losses. The hotel group made the most losses from 2009 till 2011. These losses are
caused by the fact that OEH provided loans, guarantees and other credit

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accommodation to joint ventures. In these years there where a lot of setbacks and the
company had to adept new strategies to strengthen the balance sheet. OEH
incorporates credit valuation adjustments to reflect the non-performance risk of the
OEH and its respective counterparty in the fair value measurements. In 2012, the OEH
sold some fixed assets and discontinued operations. This money the OEH used to
invest in the assets. Most of the strategies of the OEH will have effect on long term.
This is the reason why the OEH is making losses in the last years. Because of the
strategies, the OEH is on the right track and the losses will be less in the upcoming
years. The OEH will strengthen their core business and global presence. The OEH is
making use of a rate swap tactic. This is a strong point of the OEH, but they should
also focus on the pay back of their short term debts. OEH makes use of derivative
financial instruments with the intention to manage its risk to future movements in
interest rates. The Interest Rate Swaps of the OEH decreased from 148,332 in 2011
to 142,094 in 2012. The Orient Express Hotels has some good strategies to improve
the financial health of the company.

Step 11: Summarize and Conclude

Orient-Express Hotels focuses on the long term by strengthening their balance sheet
and reinvest in their properties. The total revenue of orient-express hotels decreased
with a small 2 % this isn't a positive sign but on the other hand total expenses have
also decreased with 5%. The most outstanding asset from the balance sheet is the
operation held for sale which decreased 84%, this is because the company has sold
five properties in 2012. The ratios show that the company is using its working capital
better to generate sales but do not have great ratios on returning their short term
debt. The cash flow statement tells that the company manged their cash better in
2012 then in 2011. In 2012 the company is able to pay for the innovation and financial
activities with the operation activities. The biggest business driver are the hotel rooms
with 82%, then the tourist trains and cruises with 14% and at last the restaurants with
4%. Since the company is based on the long term the investments will higher the
revenue over long term. The orient-express hotels have some good strategies to
improve their financial health.

Reference list
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Chibili M. N. 2010, Basic management Accounting for the Hospitality Industry,

Groningen: Noordhoff Uitgevers.
Grundy, T., Johnson G., Scholes, K. 1998, Exploring strategic Financial management,
Prentice Hall Europe, Londen
Zions business resource center, How to analyze your business using financial ratios,
business builder 6
https://www.zionsbank.com/pdfs/biz_resources_book-6.pdf

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