Business Plan - Boutique Hotel
It is a written report about Boutique Hotel. Critically thinking and creativity were required to pursuade the intended reader to spend money on our project.
2010 - 2012 The China Empress Hotel Chan Lok Yee, Kate Lam Ho See, Sharon Lo Lai Ngai, Bettie Lo Wai Yin, Audrey [BUSINESS PLAN] Table of Contents 1. Company Summary ----------------------------------------------2 2. SWOT analysis ----------------------------------------------------2-5 3. New planning for the Hotel ------------------------------------5-11 3.1 Descriptions of New Production or Service 3.2 Evidence Supporting the New Developments 4. Strategy -------------------------------------------------------------11-17 4.1 Internal renovation and decoration 4.2 Food and Beverage reform 4.3 Personalized and all-round guest services 4.4 Internal administrative review 5 Estimated duration for the project --------------------------17-20 5.1 Internal renovation and decoration 5.2 Food and beverage reform 5.3 Service improvement 6 Market Analysis � Hotel Industry ----------------------------20-24 6.1 Demand on hotel 6.2 Supply on hotel 6.3 Direct competition in boutique hotel 6.4 Indirect Competitors 7 Market Analysis � Catering Industry ------------------------25 7.1 Direct Competitor 7.2 Indirect Competitors 8 Marketing Strategy -----------------------------------------------26-27 9 Financial Forecast ------------------------------------------------27-30 9.1 Cost of reforming project 9.2 Revenue 9.3 Net Profit and Payback Period Future Development of the China Empress -------------------30-32 Appendix ----------------------------------------------------------------33-37 1 1. Company Summary The China Empress Hotel is a four-star hotel located in Granville Road in Tsim Sha Tsui. It specializes in providing Cantonese cuisine. It is also famous for the Chinese-style environment in the hotel. The main customer for the hotel is tourists who are relatively wealthy from mainland China and the rest of the world. It has attracted 65% of guests from Mainland China and the rest from a wide range of countries like Japan, UK, USA, Germany and France. In the hotel, there are several departments including Human Resources, Food and Beverage, Retail Outlet Management, Public Relations, Accounts and Administration, and Accommodation Management. The hotel has a history of 30 years in Hong Kong. Although it is owned by a multi-national hotel and resort company, it has a strong local identity in Hong Kong as one of the branches. The financial status of the hotel has been passed through break-even to be profitable as the price of the rooms is relatively low when compared with other four-star hotels. 2. SWOT analysis In order to improve the all-roundness of the hotel, a research was conducted through observations, review of statistics, questionnaire surveys and interviews with both the staff, guests and several departments including the Guest Relations Department (GRD), the Food and Beverage Department (FBD), the Human Resources Department (HRD), and the Public Relations Department (PRD). 2.1. Strength The hotel is themed in traditional Chinese style which is an attraction to tourists especially those from mainland China. It is located in the heart of city, Tsim Sha Tsui, where shopping malls are located near the hotel. This could attract more tourists around the world. Both the Cantonese-cuisine restaurant and the coffee shop have been famous for a long time, which could keep a considerable attraction to the tourists. According to GRD, the room occupancy of the hotel has been consistently over 80% in past ten years. This figure is higher than the average hotel room occupancy in Hong Kong, which is about 75%. 2 In FBD, the efficiency of table reservation services and the standard of beverages provided are appreciated by the guests. The quality of food and beverages provided in the three outlets, the Starlight Coffee Shop, the Golden Dragon, and the Royal Grill Room are also generally satisfactory. Among the three, both the Starlight Coffee Shop and the Golden Dragon received more positive feedback from the guests. In HRD, both junior-level and senior-level staff are satisfied with the salary given by the hotel. With the satisfaction in salary, both levels of staff would prefer staying for the hotel to work. They are also given opportunities for interesting work. They can be energetic when doing interesting jobs each time and be kept away from working in a boring situation. It would not show a dull image to the customers. 2.2. Weakness According to the research, the guests are least satisfied with the efficiency of check-in services among services provided by GRD. As these services are almost the first few services that the tourists would encounter when entering the hotel, the image of the hotel might be affected due to the dissatisfactory performance in these areas. In FBD, the Royal Grill Room has the least satisfaction from the guests among the three outlets. The nature of the outlets in the hotel is also commented to be out-dated according to the guests, which might keep customers away as the combinations of food and the design of the menu and uniform have been used for years without any changes. Although the hotel specializes in Cantonese cuisine, the outlook of both the menu and the uniform of the staff might reduce the attractiveness of the Cantonese cuisine. The relatively low qualifications in HRD staff also attribute to the weakness in the hotel. Nearly half of the staff is Form 5 graduate. They might lack in the relevant knowledge in these areas as they might join the hotel immediately after their graduation. Working conditions of both-level staff in HRD are also poor, especially the hygiene of rooms and the pantry for the staff. The ventilation system of some rooms has been broken for several months. All these worsen the working conditions of the staff, which leads to a decrease in sense of belonging to the hotel and the motivation during work. The junior-level staff is generally less satisfied with job aspects than the senior-level staff. Their relatively low job satisfaction might result in the difficulty in retaining them. 3 The low proficiency of Putonghua of staff in PRD is another weakness for the hotel. Since there are about 65% of the customers are the tourists coming from China, the low proficiency in using Putonghua to communicate would be a disadvantage for the hotel. The number of tourists coming to the hotel would thus be decreased due to the inability of the staff to communicate with them. 2.3. Opportunity The hotel could be developed as a boutique hotel as it is a new idea in Hong Kong. Within the district, there are only three boutique hotels with different theme from the hotel. The hotel could still be able to enjoy the great market share in this industry. In addition to the existing shopping malls in this district, several new shopping malls are also opened. iSQUARE is a massive shopping and entertainment complex. It aims at offering an unprecedented shopping experience through its unique design and retail concept, and innovative use of high technology and multimedia. K11 is the first Art Mall in the world, which is developed by New World Development Company Limited and the Urban Renewal Authority. This shopping mall is going to be highly recommended to tourists as it is supported by governmental department. Woodhouse provides an underground shopping experience in Japanese style for tourists. All these new shopping malls provide different shopping experience to tourists in different styles. This could attract more tourists coming to this area, which in turn, is also the opportunity for us as the possibility for them to live in the hotel could be increased. As staff in GRD has relatively low qualifications, some training sessions could be provided to them. They could be able to learn more on relevant areas in hotel industry and improve their services. Regular evaluations and appreciation could also be given to the staff. It is hoped to help boosting the reputation of the hotel as they often have direct contact with tourists and customers. They could give a positive image to tourists and customers with improved services. Chinese style should be put more focus on both the hotel and the restaurants by upgrading them. As the Chinese-style hotel and restaurant are giving an impression of being old-fashioned, the hotel and the restaurant should be renovated. The dishes in the Chinese-style restaurant could be rearranged in the menu so as to give freshness to the tourists with a traditional Chinese cuisine. When they are improved, it could help the hotel to be in a specific and leading 4 position in hotels themed in Chinese style. This could lead to the increase in both sales and revenue as it could serve as another attraction to tourists. In order to give a trendy style to the tourists, the uniform of both the hotel and the restaurant could be redesigned to be trendy as well as keeping traditional Chinese style. Since the sector of Chinese tourists coming to the hotel has maintained, there is an opportunity to explore other sources of customers. As the conditions to obtain visit visa to Hong Kong has been loosen in countries like Russia and India, more Russian and Indian tourists would visit Hong Kong. A Chinese style hotel could be attractive as it is a new culture for them. 2.4. Threat Since the location of the hotel is in the heart of city, the level of air pollution and noise pollution would be inevitably higher. This might pose a threat to the hotel. Traffic congestion might also happen more often because of the location. All these might pose a threat to the hotel. There are restaurants located around the hotel. These restaurants provide different cuisine like Japanese food, Italian food, or American food, for people to choose from. Some of them have been graded as 4-star or 5-star restaurants in Michelin Guide. This could be a threat to the restaurant in the hotel. 3. New planning for the Hotel In order to improve all-roundness of the hotel, several measures will be applied. The hotel would be turned to a boutique hotel, with decoration in Chinese style. New themes will be introduced in each floor in the hotel. Since boutique hotel is a new idea that not many similar hotels located in Hong Kong, it will be an attraction to teenage tourists. Part of the hotel will be served as a service apartment during non-peak seasons to ensure the income of the hotel. The Cantonese cuisine in the hotel would be kept as it has been a famous attraction for a long time. Accompanying with the introduction of fusion cuisine, the Royal Grill Room will be divided into two parts. One will be combined for enlargement of the Golden Dragon. Another part will be served as a bar to co-operate with the restaurant. For internal staff improvement, extra in-job trainings will be provided to enhance their language proficiency. Guidelines will be given to the staff. Regular evaluation and appreciation will also be given to the staff so as to motivate them to work for 5 the hotel. 3.1. Descriptions of New Production or Service 3.1.1. Transformation to a Boutique Hotel The China Empress Hotel will be transformed into a boutique hotel (also known as gourmet hotel) by large-scaled renovation and re-decoration. The definitions of Boutique Hotels are summarized as follow (Figure I): Figure I. Summary of Boutique Hotel Though there is not a definite description of boutique hotels, the China Empress will be equipped with these features: a. an intimate, stylish appearance b. providing advanced technical amenities c. generally located in urban or city centres d. individual in design e. emphasizing on personal service f. including a good quality restaurant as an integral feature The new hotel will be unique in its theme echoing with `China Empress' � a historic Chinese character with a modern twist- and featuring an intimate, stylish appearance with technological amenities, for instance, Wi-fi available everywhere 6 in the hotel. Themed rooms will also be provided. It will be appropriate for business, honeymoon, or vacation. The target market is the 25-55 age range, most within the middle to upper income level. Being a small, luxury type hotel, the China Empress Hotel will be a great place for business meetings, conferences, weddings and banquets while offering an excellent base for touring the city with reasonable price. Staff will be train to provide service which is discreet but immediate; helpful without pestering and always pleasant, never patronizing to our clientele. Time will be taken to source materials, furnishings, fabrics and accessories of the finest quality, ensuring that guests are always experiencing comfort and style. 3.1.2. Fusion Food provided in Golden Dragon In order to include a good quality restaurant as an integral feature, Golden Dragon and the Royal Grill Room will be combined to provide Fusion Cuisine � a feast integrating Cantonese and Western essences. Fusion cuisine is general term for the combination of various forms of cookery, and the concept can take several forms. Featuring original Cantonese dishes using varieties of ingredients from Western cuisines and combining them, a wide variety of new and innovative dishes will be served. The Bar and wine cellar in the Royal Grill Room will be kept and provide signature cocktail drinks using Chinese wine such as traditional rice wines. Top bartenders will be hired to create drinks for the Bar. The Bar area will cooperate with the new restaurant by serving drinks to the guests and also run by itself Happy Hour and Late Night Party will be held in the Bar. 7 3.2. Evidence Supporting the New Developments 3.2.1. The Boutique Hotel The growth of the boutique hotel sector internationally is widely reported. The traditional chain hotels, such as Rezidor SAS and Intercontinental, are now testing the market with the creation of their own boutique brands. Hilton have opened their version of a boutique hotel in London, and it is reported that Starwood are looking for a site in London for their "W" brand. Key boutique hotel groups already operating in the UK are currently implementing growth strategies. The sister groups of Hotel du Vin and Malmaison plan to open another ten hotels in the UK by 2010, while newly created ABode Hotels plan to establish hotels in key towns and cities throughout the UK over the next few years. All of these show that Boutique Hotels are a blooming and sustainable business. The boutique hotels in the US have significantly outperformed other luxury hotels on all dimensions except supply over the five years to end-2000 (See Table 1). Most importantly, on yield (what the industry calls RevPAR1) the boutique hotel index climbed from 233 in 1995 to 281 in 2000, whilst the yield index for other luxury-priced hotels grew only from 181 to 185. Over the same period, boutique hotels' dollar share rose more than 18 per cent in relation to all luxury-priced hotels. Table 1. Boutique hotels vs. total US and all other luxury hotels Average annual change in performance ratios 1995-2000 1 RevPAR is revenue per available room; Rooms Revenue is the revenue generated by rooms sales; Rooms Available is the number of rooms available for sale in the time period 8 According to the recent researches on the hotel industry by Victorino et al (2005), de Klumbis and Munsters (2005), consumers are growing tired of the standardization and commoditization of the large, personality-free hotels. `This systematic standardisation of the hospitality product provoked a counter-movement inspired by consumers searching for hotels with unique or sophisticated and innovative characteristics, called boutique, design or lifestyle hotels.' (de Klumbis and Munsters 2005). Forsgren and Franchetti (2004) commented that the purposes of is: "to differentiate from competitors by placing themselves in a market niche through their image, lifestyle, design and style." In Aggett's research (2007), she has investigated the top five important components of hotel product. The pilot and main study questionnaires of her research were completed by 44 respondents in total (17 pilot respondents and 27 main study respondents). Concurrent themes here include the individuality and differentiated qualities of boutique accommodation, the high levels of service, the personalised attention to guests and the location of these hotels. Participants were asked to select, from a list, those attributes that influenced their purchase decision. The majority of respondents stated they were influenced by the locations of these hotels (65.9 per cent of respondents) and their quality (56.8 per cent of respondents). Those factors that are said to distinguish boutique hotels from other forms of accommodation, such as design, uniqueness, personalised service, and the homely feel, appear to have some significance in the purchase decision. Situated in Tsim Sha Tsui, the heart of the city, China Empress has enjoyed the advantage in convenient traffic. Quality, design and uniqueness can be achieved through the transformation into boutique hotel which put emphasis on its artistic style and differentiate itself from the mainstream hotels. The quality of service can be improved through the in-job training and better internal communication. 9 3.2.2 Fusion Food Five-star Cantonese cuisines in Hong Kong have been modified to provide traditional dishes with a modern twist. Cuisine Cuisine at the Mira has been creating dishes with elements of other cuisines: Roasted Cod Fish with Yuzu; Foie Gras Dumpling. Hoi King Hin in the Intercontinental Grad Standford has also provided fusion cuisine to their guests: Steamed Alaskan Crab with Egg White, Soup with Truffles and Whelk. Lung King Heen, a three-star Michelin restaurant, in the Four Seasons Hotel has provided contemporary Cantonese cuisine, such as Truffle Dumpling King and Fried Chicken with Truffles. 10 Fusion Food is now a popular trend in Hong Kong. Since The China Empress Hotel has the best chefs in both Cantonese & Western Cuisine to create gourmet dishes. 4. Strategy In this project, the four main areas for reform cover the renovation of the hotel, food and beverage outlets, guest services and internal administration. Different areas require different resources, support, partnership and time period. 4.1. Internal renovation and decoration 4.1.1 Theme Our hotel is well-known for traditional Chinese styled theme and we would like to maintain it in addition to modern elements as the theme of the boutique hotel. The idea of the entire internal decoration is to provide a relaxing place with a twist between traditional and modern Chinese arts. a. Public area Here includes the area of lobby, aisles, banquet and conference rooms and open living areas. The idea of the entire design is modern architectural style merging with some traditional Chinese elements in the furniture, accessories, ceiling and wall. Moreover, the area will also be decorated with traditional Chinese sculptures, paintings and other d�cor. b. Food and Beverage Outlets All the three outlets, including the new restaurant, bar and coffee shop, will be in modern design with a twist of traditional Chinese elements, such as Chinese-styled pattern and containers. The new fusion-cuisine restaurant will be combined of the areas of the Golden Dragon with half of the Royal Grill Room's area. In the new restaurant, we will separate out 8 private dining rooms themed with different dynasties or eras. All the tableware served in the fusion-cuisine restaurant is in Chinese style. c. Rooms Among the 18 storeys, each storey has its own theme, ranging from music, 11 chess, calligraphy, paintings, sculpture, handcraft, modern art and natural scenery etc. In each storey, the decoration in every room is unique and divided into two main streams, either traditional Chinese style or modern Chinese style. 4.1.2 Seeking partnership In the whole renovation project, we need to establish partnership with the interior designer and furniture and d�cor suppliers. a. Inviting experienced designer as creative director Internal renovation is the critical part in the entire reforming project. In order to manage this renovation systematically, we would like to invite an experienced interior designer as the creative director. He will be in-charge of the overall design project and responsible for the design of the public area as well as restaurants. As for the potential candidate, we have selected a renowned Hong Kong designer, Horace Pan, who gains much reputation in China in the recent years. He has participated in various award-winning commercial developments in Asia Pacific area, such as the Chinese Arts and Crafts rebranding project which designed the newest store by re-visiting the potential Chinese elements in a contemporary way. Moreover, he has handled many projects for the restaurants and clubs. All his experiences make him a very suitable candidate for the position of creative director in our reforming project. b. Organizing interior design campaign In order to have a diversified idea for the rooms' design, we would like to recruit some innovative and suitable design from other potential designers, especially the students. Among the 300 rooms, about two-thirds are designed by the designers' team of the creative director, including his crew and some appointed potential designers. As for the remaining one-thirds, we will organize a design campaign to invite some local designers to participate. The campaign will be open for all designers in Hong Kong. Invitations will be sent to the design school and promoted through the interior design association in Hong Kong. This campaign can provide opportunity in boosting local design and strengthen our local identity. c. Purchasing d�cor and furniture Firstly, we will maintain our partnerships with the current suppliers, which 12 are China Art Group Limited, Today Furnishing Development and Wenzhou Highway Trade Furniture Co. Ltd. Since the renovation would involve the bathroom, we would like to develop a partnership with Wenzhou Times Co. Ltd which provides products of wood cabinet with basin countertop from the Mainland China. Secondly, if necessary in the design, we would seek for other suppliers offering similar level of prices as our current partner. 4.2 Food and Beverage reform 4.2.1 Establishing the fusion-cuisine restaurant Both of our current Chinese restaurant, the Golden Dragon, and Western restaurant, the Royal Grill Room, have good reputations in the industry, especially for the Golden Dragon. In order to re-brand and revitalize the traditional image of our restaurant, we will combine their virtues and reform into a new restaurant serving Cantonese � British fusion cuisine. Making capital of the reputation of the Golden Dragon, Cantonese cuisine is the mainstream in our dishes with a British style of cookery and ingredients commonly used in British food. Since our chefs of both restaurants are excellent and experienced, we will invite them to retain as the chefs for the fusion cuisine restaurant. We hope they can make use of their expertise to innovate new forms of cookery, dishes and menu. We would provide them as much assistance as we can, such as learning and training, in the reforming process. 4.2.2 Expanding the bar In the reform, the bar will be responsible for providing all the drinks served in the fusion-cuisine restaurant, room service and itself. This can guarantee for a better management on the quality of drinks. To improve the variety and quality of drinks, we will hire a top-branded bar-tender in the house. He will be responsible for innovation of signature cocktail drinks mixed with Chinese wine and training for other bar-tenders. In order to cater for the demands from the restaurant, hotel guests and customers from outside, the bar will be expand in area and manpower. We plan to remodel half of the area of the current Royal Grill Room into the new bar. With a larger area, we estimate it can serve about 50 customers. Moreover, we will hire 3-4 bar-tenders to meet the increasing demands. 13 4.2.3 Designing a new room service menu Revealed by the resent questionnaire, our current food and beverage room service menu is not appealing enough and less diversified. In this reform, we will re-design the room service menu by the new restaurant, coffee shop and bar. In addition, we will consult the designers to make the menu appealing and eye-catchy in the room. 4.3 Personalized and all-round guest services 4.3.1 Setting up guideline In the recent review on the performance of different departments, there is a room for improvement in the efficiency and quality of guest services for our staff in front office. Since boutique hotel aims at providing customers with personalized, care-free and efficient services, it is a right time to review and reform the quality of service in our hotel. In order to clarify the standard of the service requested by the hotel and enable every staff to clearly understand, we plan to set up some guidelines for the staff to follow. At first, the objective for our services will be discussed and finalized by the staff from top managerial level and middle managerial level. Later, the middle managerial personnel of the front-line departments, such as Guest Relations Department, Food and Beverage Department and Public Relations Department, will devise its internal policy and guideline to achieve the objective. The draft ideas from each department have to be discussed and approved by the top managerial staff. If necessary, we will consult some professions with relevant experiences. To revise our service quality and resources support, regular evaluations will be conducted in each department. As for the departments in front-line, a daily meeting will be held to brief and report the latest situation of the hotel to the staff before working. These measures aim to enhance our service quality. To appreciate the outstanding staff in front-office, quarter-bonus will be awarded in each front-line department. 4.3.2 Encouraging further training for staff a. Language proficiency The sources of customers in our hotel cover from the Mainland China to 14 Western Europe. To attain a good quality of service, both language proficiency in English and Putonghua should be satisfactory. But as revealed by the recent report, the service provided by the guest relations staff is rather unsatisfied owing to the limitation in language ability, especially English. As for the Public Relations Department, the general proficiency in spoken Putonghua is low. Therefore, we suggest the Human Resources Department to arrange some compulsory English and Putonghua courses for the front-office staff. Unlike the general training in the outside institutions, the courses will be practical to the scenario the staff will encounter in workplace. The course outline will be highly relevant to our hotel. b. Customer service and public relations As mentioned, boutique hotel provide a personalized and care-free services to the guest which requires slightly different from the general hotel. In order to assist the staff in fulfilling the guideline and provide qualified service, some tailor-made customer service trainings will be provided to staff in Guest Relations Department and waiters in the restaurants and staff in food and beverage room service. The trainings are designed according to the guideline. Similar to the Public Relations Department, some public relations trainings are provided to the staff in front-office. As for the managerial staff, some management courses are provided to strengthen their management skills. According to the situation and need, Human Resources Department can invite some experienced professions to design the course and provide training to us. c. Subsidy for continuing training outside the hotel Apart from the direct training, in order to encourage our staff to attain a higher level of knowledge, we plan to offer subsidy to support their further learning outside. The course they taken should be related to their work natures. As for the criteria and procedures of approval, Human Resources Department will set up afterwards. 4.3.3 Improving the check-in service From the latest questionnaire done by the guests, their satisfaction on the efficiency of check-in services is low. After investigation, the problem is due to the long loading time and many procedures involved in the check-in system. The database system currently used is the rather old version. To lessen the problem and enhance the check-in service, we suggest purchasing a new software and license which allows us to build up and keep the record of every guest and call out the history in the next visit. This feature enables us to arrange the room and 15 service according to his preference. 4.3.4 Revitalizing staff's image Staff is part of the hotel. While our hotel is reformed, we will revitalize the image of our staff as well. The uniform of our staff will be re-designed to build up an image of lively and trendy which suit the concept of our boutique hotel. 4.4 Internal administrative review 4.4.1 Recruiting new staff Reflecting from the comments from the staff, they are generally unsatisfied with the working condition. They have a long working hours and heavy work-load. We realize poor working condition would discourage the staff's performance and lower their motivation. After revising the current situation, we find it is necessary to recruit more manpower, especially for room cleaning services and food and beverage room service. These two types of staff are highly required in providing personalized service after the reform. Moreover, catering for the reform, more manpower is required in the Public Relations Department which will be responsible for a series of promotion strategies. 4.4.2 Reviewing on employee's qualification To maintain the competiveness of our hotel, we should guarantee their competence. Apart from upgrading our staff's ability, we can raise the qualification requirement of the new employee which can reach our standard in different department. Among the three departments which are Human Resources Department, Guest Relations Department and Accounts and Administration Department, the education requirement for Human Resources Department and Guest Relations Department is relatively low. Being responsible for arranging training and education, the education requirement of employee of Human Resources Department is advised to rise to Bachelor's degree. As for the Guest Relations Department, the education requirement of positions dealing with guests' enquiries is suggested to reach Higher Diploma or above since the post demands on satisfied language ability. 4.4.3 Reviewing on management hierarchy In recent years, our hotel has been experiencing a difficulty in retaining the junior-level staff. Their responses on unsatisfied benefits, insufficient training opportunities, lacking opportunities for promotion and limited participation in 16 decision making reflect a potential problem embedded in our current management hierarchy. In the current hierarchy, only the middle-managerial level is found between the highest top managerial level and general staff with group supervisors. Usually, the managerial level staff, who is responsible for decision-making, are the senior-level staff. Although they are experienced in management and operation, it will be a loss if their knowledge and experiences cannot pass to the junior-level staff. Moreover, junior-level staff may have their innovative ideas. For the sake of the hotel, it is beneficial to establish a platform and opportunity for the interaction between experiences from the senior and innovations from the junior. Hence, we advise to add a low managerial level to our existent hierarchy. The low managerial level personnel are mainly promoted from the junior-level staff so as to let them involve in the management and operation of the hotel. This level of management ensures that the decisions and plans taken by the other two upper managerial levels are carried out and are responsible for the short-term decisions. This low managerial level can act as the communication channel between the general staff and the middle managerial level. 5. Estimated duration for the project If the project can start in August, we estimate the whole project will finish by the mid-January in 2012. The whole project will be progressed separately in 3 sections. 5.1 Internal renovation and decoration After recruiting the creative director and him team, the design project will start. While the designers will be working on the designs, our staff from the Public Relations Department will start preparing the interior design campaign. We estimate the campaign will be organized in January, 2011. Once the campaign ends, the designs for all 300 rooms will be finalized in April, 2011. After that, the renovation of the rooms will start by stages. Until September, 2011, 4 storeys will be closed for renovation per 2 months. Our hotel can maintain in running business during the peak season. During September to December, 2011, the entire hotel will be closed for renovation in public areas as well as the remaining rooms. 17 Time Schedule for Internal Renovation and Decoration Recruiting designers MM/YY 08/10 09/10 10/10 11/10 12/10 01/11 02/11 03/11 04/11 05/11 06/11 07/11 08/11 09/11 10/11 11/11 12/11 01/12 finalized *15/F-16/F *13/F-14/F *11/F-12/F *9/F-10/F 7/F-8/F; 5/F-6/F 3/F-4/F 17/F-18/F preparation preparation preparation Organizing the interior design campaign Designing the rooms Renovation of the rooms Designing the public areas Renovation of the public areas 5.2 Food and beverage reform As for expanding the bar, we will recruit for the famous bar-tender as the chief and the other bar-tenders. After that, until the opening of the new bar, they will focus on designing the signature drinks and training for all bar-tenders. As for the new fusion-cuisine restaurant, the chefs from the Golden Dragon and the Royal Grill Room will be invited in discussing and innovating some new dishes and menu. They will have a year time for designing. After that, the training for the other chefs will start and be responsible by them. 18 Time Schedule for Food and Beverage reform Recruiting bar-tender MM/YY 08/10 09/10 10/10 11/10 12/10 01/11 02/11 03/11 04/11 05/11 06/11 07/11 08/11 09/11 10/11 11/11 12/11 01/12 Designing new drinks and training Designing new dishes and menu Training for the chefs in the fusion-cuisine restaurant 5.3 Service improvement Before designing any guideline, trainings and courses, it is crucial to decide on the objectives of our services. With the main goal settled, the Human Resources Department will start designing the trainings and courses for the front-line staff. The training will be provided to the staff during the closure of the hotel. As for the database system for check-in services, we estimate to purchase the new software and license in July, 2011. After a month of time to familiarize with the new system, the information from the existed database will then be input to the new one and some training will be provided to the staff responsible for check-in services. 19 Time Schedule for Service Improvement Setting up guidelines MM/YY 08/10 09/10 10/10 11/10 12/10 01/11 02/11 03/11 04/11 05/11 06/11 07/11 08/11 09/11 10/11 11/11 12/11 01/12 designing designing designing designing designing designing designing designing designing designing training training training training training Providing trainings and courses Improving database system for check-in Re-designing the staff's uniform 6. Market Analysis � Hotel Industry 6.1. Demand on hotel Tourism is one of the most important industries in Hong Kong. Associating with tourism is hotel industry which highly depends on development of tourism. The fact of facing a financial crisis in 2009, total number of visitors had declined and hotel industry was affected. According to the 2009 review report from Hong Kong Hotels Association, total number of visitors to Hong Kong during the first half year of 2009 dropped 3.4 percent to 13,696,779 from 14,185,504 last year, highlighted by a 13.6 percent decline in international visitors, but offset by a 4.6 percent increase in visitors from China. Mainland market was the only market 20 showing an increase in visitor arrivals in Hong Kong in 2009. Thanks for China's travel and tourism policies such as public holiday policies and loose visa control, the number of Chinese visitors to Hong Kong is expected to increase to 48 millions in the coming years. Relaxation of Chinese visas to Hong Kong for bona fide Shenzhen residents came into effect on 1 May 2009 and this had a positive implication for Hong Kong. While genuine visitors to Hong Kong from Shenzhen will now find it more convenient to access the territory on an all year round basis, others will find it just as convenient to travel to Hong Kong to do their trades and engage in more permanent work related assignments. Good prospects remain as more Mainland Chinese continue to travel overseas on a more frequently basis and China is continuous to be a large potential market for hotel industry. South-east Asia, Russia and Middle-east countries are viewed as other potential markets for Hong Kong hotel industry. Stable economic development in South-east Asia such as India encourages travelling activities. The relaxation of visas to Hong Kong in Russia and other Middle-east countries leads to a rapid increase in visitors' arrival in Hong Kong. In 2009, Hong Kong Tourism Board had recorded a rise in visitors in India, Russia and Mid-east countries to 25.6%, 29.7% and 25.1% respectively. It is expected that the above countries remain a blooming market in future. Supplementary programs are implemented in Hong Kong for tourism development such the new Cruise Terminal at Kai Tak and expansion of theme parks. They are believed to be additional attractiveness in Hong Kong and contribute a boost to number of tourists. With increasing signs of a gradual improvement in the world economy, especially in Asia, and the belief of leading economists around the world that the worst of the economic downturn is likely to be over. Business confidence has also gradually returned. This helps to increase business travel as companies need to resume meetings again, and budgets are becoming more relaxed. An opportunity is given to hotel industry to expand room sales by grasping these business men supports. There is renewed optimism that 2010 will be a more stable year. 6.2. Supply on hotel In 2009, there were 158 hotels offering 57,588 rooms in Hong Kong. 26 hotels with 14,732 rooms were in High Tariff A, 53 hotels with 20,817 rooms in High Tariff B, 70 hotels with 16,742 rooms in Medium Tariff and 9 hotels with 5,297 21 rooms in the Unclassified category, which are mostly Medium Tariff accommodation providers. Until the end of 2009, 7 new hotels providing more than 2200 rooms were opened. The HKTB Hotel Supply Situation Report shows that there will be 175 hotels with 60,297 rooms by the end of 2009 and 197 hotels with 63,923 rooms by the end of 2010. Thereafter, their projection is 215 hotels with 67,425 rooms by the end of 2011 and 221 hotels with 68,910 rooms by the end of 2012. The annual compounded growth rate of hotel supply is 6% p.a. over the 4 year period. The annual growth rate of 6% in new hotel inventory over the next 4 years will be very challenging. Additionally, a sharp rise in the number of serviced apartments and other forms of residences add to the total supply of visitor accommodation in Hong Kong. A reform on China Empress as a boutique hotel is essential in order to maintain its competitiveness in hotel industry and to cater for the increasing demand visitor accommodation. 6.3. Direct competition in boutique hotel In Tsim Sha Tsui, there are three boutique hotel found. The three director competitors include The Luxe Manor, Acesite Knutsford Hotel and The Minden Hotel. A comparison is made in five categories in terms of style, price, cuisine, provision of facilities and grade. Details are listed as follow. Hotel Category Style The Luxe Manor European Acesite Knutsford Hotel Urban & simple The Minden Hotel Urban & simple with artistic decoration 900 No specific Broadband Internet access, mini-bar China Empress Hotel Mix with Chinese traditional and modern elements with different theme in storeys 1500 Chinese Fusion Wireless, WiFi, Security Key Card System, Bar Price ($) Cuisine Facilities 2400 Italian Lounge, Shuttle Bus, Car Rental, Desktop Workstations 1000 Irish & Japanese Electronic key system 22 Grade 5-star 3-star 3-star 4-star 6.3.1. Competitive Strengths Although we find three direct competitors in Tsim Sha Tsui, our competitive strengths on style, price, cuisine and facilities allow us to share a big slice in boutique hotel market. Improvement on guest related services and language proficiency will definitely be another advantage for China Empress Hotel. a. Style Four boutique hotels have its own style in interior decoration. The Luxe Manor is having a European classic style, mixing with western decor and post-modern features. Acesite Knutsford Hotel applies a theme of being simple and modern which fit with Hong Kong dynamic urban life. The Minden Hotel is adopting a mix of urban & simple style in its decoration with additional artistic element. As for China Empress Hotel, Chinese elements will be penetrated into the hotel through decoration, lighting or the use of furniture. To enhance uniqueness, different storeys will be designed in different themes. We believe the rich Chinese culture and long history of Chinese civilization associated with it is appealing to foreigners particularly the increasing number of Middle-east, south-east Asia and Russian tourists. Yet, the Chinese style matches with the name of our hotel which is easier to build our image. b. Price and Facilities We compare standard double room price with other three boutique hotel. The price rate we suggested to set after reform locates at middle level. It is expensive than those of 3-star boutique by about 50%. However, facilities and service that China Empress Hotel provided are much advanced and in higher quality. Referring to the table, facilities that China Empress Hotel offered have covered all those in Acesite Knutsford Hotel and The Minden Hotel and some facilities are even similar to those in The Luxe Manor. Giving relatively high quality in service and living environment with adequate facilities, price rate of $1500 for standard double room is reasonable. c. Cuisine Four boutique hotels offer different cuisines. Competition in term of food and beverage may be less direct. Restaurant in our hotel is the only one serving Chinese Fusion dishes in boutique hotel. The reputation built by original Chinese restaurant, Golden Dragon will be an advantage. Innovative dishes and regular 23 revised menu will maintain our competitiveness in cuisine category. Moreover, Chinese fusion cuisine can further consolidate the image that we want to emphasize, creating a complete and consistent planning in this reform. d. Services We are committed to provide personalized services to our customers. We consider every customer's need. Training will be provided to employees to equip themselves dealing with global customers. Service quality standard will be strictly executed to provide a memorable experience of living in our hotel for customers. We aim at having high level satisfaction on our services. The greatest enjoyment with reasonable price is our selling point. 6.3.2. Competitive Weaknesses Grading is our primary weakness. Due to limitation in location it is difficult for us to make expansion on hardware in order to upgrade to 5-star. However, a 5-star grading is not the only criteria for building sales. Special design, flawless food quality and fine service make us superior even having a grade of 4-star. Our revenues are derived from our success in reforming, our efforts put in serving and customers appreciation. The hotel development will not be restricted by grading. 6.4. Indirect Competitors All hotels ranking 4-star or above in Tsim Sha Tsui are our indirect competitors. Tsim Sha Tsui is famous tourist attraction site in Hong Kong. Hotel density is high in this district. According to Hong Kong Tourism Board Hotel Supply Situation Report 2009, there are in total 40 hotels in Tsim Sha Tsui while 14 of them are 5-star hotels and another 14 are 4-star hotels (figures including The Luxe Manor and China Empress Hotel). Average rate for standard room in 5-stars and 4-stars are about $2200 and $1600 respectively. We enjoy absolute advantage on price. Generally, more facilities are provided in 5-star hotels. Both tangible amenities and intangible amenities increase their value and are reflected in price. Expect Peninsula Hotel, The Mira Hong Kong and Hullett House Hotel, others find no significant features in their room. Our unique Chinese theme is another prominent characteristic. 24 7. Market Analysis � Catering Industry Catering industry always face an intense competition. Situating in a metropolitan with mixed culture, multi-national dishes are found. In Tsim Sha Tsui, there are about 200 restaurants (consumption per person is $150 or above) serving different menus. Japanese, Chinese and European restaurants are the three dominant types in Tsim Sha Tsui. 7.1. Direct Competitor Only one restaurant in Tsim Sha Tsui is promoted to be a Chinese Fusion restaurant. It is Cuisine Cuisine at The Mira. It combines traditional and contemporary Cantonese cuisine. Different from its combination, a mix of Chinese and western cuisine is prepared by our newly reformed Chinese Fusion restaurant. The original high class Canton is reborn with a twist in our reinterpreted menu. The joint cooking elements in the new restaurant have presented an innovative and dynamic nature of our hotel. Remarkable d�cor and experienced chefs will definitely offer a fine dining experience with delicacies to customers. We undergo strict selection process for ingredients and we have a unified food quality standard. In term of food quality, we remain highly competiveness. Since the market in Chinese fusion restaurant is not saturated, there is a room for us to develop our restaurant. Cuisine Cuisine at The Mira is enjoying a high reputation from its award-winning chefs which it is a big challenge for us. The ability of our chefs is unquestionable. They are experienced and contribute on building up of well-known Cantonese cuisine in original Golden Dragon. It needs time to introduce the new Chinese fusion restaurant to public. Market strategy and future development will include considerable actions on promoting the restaurant. 7.2. Indirect Competitors There are 200 restaurants which their average consumption per person is $150 or above are our indirect competitors. Most of them emphasize on classic cuisine with original cooking methods and traditional menu. Their strengths may weaken in these days because more customers call for creativity. Our restaurant is set for responding demand in these customers. 25 8. Marketing Strategy Boutique hotel is a new accommodation type in Hong Kong. More efforts should be put at the beginning year to promote China Empress Hotel after reformation and strengthen our competitive ability in hotel industry. Five main promotion strategies are planned at the step. 8.1. Webpage updating The internet is a kind of cheap but effective promotion channel. Webpage represents our hotel image and promote hotel to rest of the world. Therefore, it must be attractive and multi-functional. Only two languages, traditional Chinese and English are available on the original webpage. It is not user-friendly for other language speakers. Additional language version of Japanese and simplified Chinese will be provided. Besides, the layout of our webpage is old fashion. The color used is boring and not chic at all. Obvious Chinese features will be added in the Web to make more appealing. Audio elements and animation are absence in the original webpage and we are planned to reconstruct it. 8.2. Advertisements We will advertize China Empress Hotel on local and travel magazine in story-line approach. Such approach is more interesting and will receive response within a short period of time. Many successful story-line advertisements are found in Hong Kong such as One2Three, Rejoice. We will invite famous model to participate in advertisement. They are fashion icons in society and influential but at the same time cost incurred is not as high as singers and artists. 8.3. Food Tasting Menu Food tasting menu is available at the first three months in the afternoon from 3 to 5pm. It strategy aims at rising popularity in public immediately after reformation and allowing people to experience fine dining in our restaurant. We are going to provide 3 to 5 set menu with various combinations for people. There are 50 quotas every day. Each time before introducing a wave of new dishes, we will also organize food tasting activity. Duration may last for three days. Food tasting menu is beneficial not only on marketing our hotel, but most important is that it is a way to collect feedback from target customers. It is an opportunity to understand customers' wants in order to improve and revise both food quality and service. 26 8.4. Discount Offer 10% discount will be offered to individuals who make reservation two months before accommodation. This promotion will last for a year. We will also offer a discount up to 20 % to group booking of 30 members. At the beginning year, a buy one gets one scheme on standard drinks and desserts is launched. For people who celebrate their birthday in our hotel, we will free one of the dishes they ordered and serve with a bottle of champing. For those who organize events or conferences in our hotel will have a special discount offer depending on the scale of such event. 8.5. Invitation Invitation cards will be sent to event marketing and commercial companies to invite them to organize events and conferences in hotel. The invitation card acts as a coupon which guarantees a provision of 20 % off. Since our hotel emphasize on artistic construction, we are going to strengthen this image by inviting local art centers and artistic to hold their exhibitions in hotel. We believe it is a way to publicize our hotel as a cultured and stylish place. Food tasting invitation will be made to aristocrats who perform as a leading role in catering industry such Choy Lam and William Mark. Positive comment and recommendation made are efficient in boosting restaurant's ranking. 9. Financial Forecast 9.1. Cost of reforming project The total cost incurred in reforming project is estimated to be $245,300,000. Interior re-decoration of rooms spends about $150,000,000 with maximum cost of $500,000 per rooms. Cost of interior re-decoration occupies more than 60% of the total cost. Other significant expenses in project are re-decoration cost for lobby and restaurant and salaries for creative director team. They are estimated to be $70,000,000 and $2,000,000 respectively. More resources should be devoted in re-decoration of lobby as it strongly affects customers' first impression towards our hotel. Revenue from Chinese fusion restaurant is another main source of income. There will be a high potential return from restaurant due to upscale Chinese cuisine and comfortable and exquisite dining environment. We will budget an amount of $ 2 million for hiring creative director and his team to be responsible for overall design in the project. This amount is essential in order to make reformation successfully since design in this project playing a key role. We need a design team which can co-operate efficiently to engage in this project. It is 27 noted that there is a cost of $800,000 put in local interior design competition. It is an award provided to winning designers whose designs is accepted by our hotel. It is a measure to collect inspired ideas from a pool of talent designers in Hong Kong at the same it can promote the hotel. Other cost related to reforming project is listed in Budget 1 in appendix. 9.2. Revenue There are five types of rooms available in Chine Express Hotel. Rate for each room type is adjusted after reformation. Details are as follow, Room type Standard Double Room Standard Twin Room Deluxe Double Room Deluxe Twin Room Suite 1500 2100 2800 1800 2500 3500 70 55 5 Rate Before ($) 1100 1800 Rate After($) 1500 2000 No. of rooms 110 60 Room rates before reformation are set lower than the average rates in Hong Kong hotel industry which is about $1200 for basic standard room. The low room rates are one of the reason hinder hotel from higher return in room sales. After reformation, room rates will be adjusted to a level similar to average 4-star hotel which is about $1600. Suggestion on room rates is referring to normal day. During peak season or special vocations such as golden week or Christmas, rates will be increased by 30% to 50% depending on demand. Assuming that the room occupancy rate remains unchanged as 80% a year, the total room sales are calculated to be $165,100,000. Budget 2 in appendix demonstrates a detailed breakdown of each room sales item. About 60% of total revenue is derived from room sales. Chinese fusion restaurant and newly established Bar will generate a large proportion of remaining revenue. Total income earned from food and beverages are estimated as $91,250,000. Details are shown in Budget 2. This is a conservative estimation of total income of $276,100,000 per year. 28 Due to consistent growth of mainland visitors and recovery of economic downturn, room occupancy rate is expected to increase by 5% in all room types expect suite at the end of third year after reformation. Our restaurant will build up its reputation within three years through provide delicacies with reasonable price. Fine dining experience in restaurant will also attract people who seek for quality. Revenue in restaurant will be increased by 10% in second year and 12% in third year. Promotion of food tasting and invitation started to be effected and there will be a sharp increase of 50% in revenue from organizing events by the end of third year. Details are shown in following table, China Empress Hotel Budgeted income statement for the year ended 31st march, 2012,2013 and 2014 2012 Revenue from room sales Standard Double Room Standard Twin Room Deluxe Double Room Deluxe Twin Room Suite Total Revenue from room sales Revenue from restaurant Revenue from bar Other revenue Total revenue $ (`000) 48,000 35,000 37,000 40,000 5,100 165,100 73,000 18,250 20,000 276,350 2013 $ (`000) 48,000 35,000 37,000 40,000 5,100 165,100 80,300 19,000 22,000 286,400 2014 $ (`000) 51,150 37,200 39,060 42,625 5,100 175,135 81,760 21,000 30,000 307,895 9.3. Net Profit and Payback Period Net profit for the first year will be $35,272,000. Based on the previous expenses proportion, salaries is the largest expenses which is about 25% of the total income. About $5,000,000 will be spent on marketing. There is a considerable amount for reserve including reserve for training and bonus. They are rewards improvement and outstanding performance. They are provided as incentive to motivate employees to work. Net profit is forecasted increase steadily to 39,613,000 in 2013 and will further increase 26% to $50,253,000 in 2013. Budgeted profit and loss account is presented in Budget 3. 29 Having a conservative estimation without any increase in income, the payback period is calculated to be 6.9 years. However, given that marketing strategy is successful and tourism is prosperous, net profit will increase and payback period can be less than 6 years. Return on each $100 invested is about $14. The higher the net profit, the higher the return on capital invested. Formulas are listed in Budget 4. 10. Future Development of the China Empress 10.1. Boutique Hotel 10.1.1. Service Apartment In short term, parts of the hotel will be turned into service apartment. Monthly accommodation rental package will be provided. The target market will be people who go on business trip, have a long journey in Hong Kong and locals who are looking for temporary room due to renovation at home. This can sustain the hotel business during non-peak periods. The number of rooms for rent and prices of the rental package will be evaluated and regulated every month. 10.1.2. Partnership with Travel Agencies and Airlines Focus would also be put in developing partnership with travel agencies and airlines. In order to attract more customers and increase the hotel's competitiveness, travel packages will be provided and promoted in their websites and agencies. 10.1.3. Membership in Hong Kong Hotels Association and Quality Tourism Services (QTS) Visitor Accommodation Scheme The hotel would also upgrade and improve itself to become a member in Hong Kong Hotels Association and Quality Tourism Services (QTS) Visitor Accommodation Scheme. Member will be recommended and promoted in the association's and Scheme's websites as a quality-ensured hotel. It can greatly increase the reputation of China Empress. 10.1.4. Membership in Relais & Ch�teaux Relais & Ch�teaux is a global group of individually owned and operated luxury hotels and restaurants. The organization is famous for its extremely strict 30 admission standards. Hotels that are eager to join it must show their special features distinguishing them from chain hotels. It would be a privilege for China Empress Hotel to join it as the first boutique hotel being able to meet the high standard in Asia. 10.1.5. Development of Sister Hotels Once the hotel business is growing, the company should consider expanding its empire into others parts of Hong Kong, such as Hong Kong Island (Central, Causeway Bay, Wan Chai) and New Territories (Tsuen Wan) and also Asian countries (Thailand, Korea, Japan, Taiwan) 10.2. The Restaurant The new Cantonese fusion restaurant should be upgraded to be the Banquet Hall for Wedding - Wedding celebrations and ceremonies would be held in the enlarged and renovated restaurant. The new restaurant will be suitable for all sorts of weddings celebrations, especially Chinese style banquets where families and friends will be having dinner together. The creative gourmet fusion dishes will also be an attraction to the Hong Kong couples who are looking for innovative and impressive Cantonese cuisine. Apart from wedding celebrations and banquets, Golden Dragon would also be a great place for parties, social functions (arts exhibition), launch parties for magazines and annual dinner for companies. Chefs will be encouraged to join all kinds of culinary competitions to gain publicity of the restaurants and also provide a valuable chance for them to improve their culinary skills. The competitions the chefs will be participating in include: Best of the Best Culinary Awards organized by the Hong Kong Tourism Board and Chinese Cuisine in the Hong Kong International Culinary Classic (HKICC) organized by the Hong Kong Chefs Association. The restaurant's ultimate goal will be become one of the Michelin-rated restaurants which are honor of high-quality restaurants. According to www.michelinguide.com, Tthe MICHELIN Guide uses a system of symbols to identify the best hotels and restaurants within each comfort and price category. For restaurants, Michelin stars are based on five criteria: The quality of the products The mastery of flavor and cooking 31 The "personality" of the cuisine The value for the money The consistency between visits Michelin stars are awarded to restaurants offering the finest cooking, regardless of cuisine style. Stars represent only what is on the plate. They do not take into consideration interior decoration, service quality or table settings. 32 Appendix 1 Budget 1 China Empress Hotel Budget for the year ended 31st March,2010 $ (`000) Cost of Reforming project Interior re-decoration of rooms Re-decoration of lobby and restaurants Re-decoration of Bar Salaries for creative director & team Award in design competition Updating for Webpage and data bank system Implementation of wireless and WiFi Redevelopment of light and electricity system Sundry and administrative expenses Total Cost of Reforming project 150,000 70,000 20,000 2,000 800 700 300 1,000 500 245,300 33 Appendix 2 Budget 2 China Empress Hotel Budgeted income statement for the year ended 31st March, 2012 $ (`000) Revenues Standard Double Room #1 Standard Twin Room #2 Deluxe Double Room #3 Deluxe Twin Room #4 Suite #5 Total revenue from room sales Revenue from restaurant #6 Revenue from Bar #7 Other revenues Total income 48,000 35,000 37,000 40,000 5,100 165,100 73,000 18,250 20,000 276,100 $ (`000) #1 $1,500 x 110 x (365 x 80%) = $48,000,000 (correct to nearest million dollars) #2 $2,000 x 60 x (365 x 80%) = $35,000,000 (correct to nearest million dollars) #3 $1,800 x 70 x (365 x 80%) = $37,000,000 (correct to nearest million dollars) #4 $2,500 x 55 x (365 x 80%) = $40,000,000 (correct to nearest million dollars) #5 $3,500 x 5 x (365 x 80%) = $5,100,000 (correct to nearest million dollars) #6 $200,000 x 365 = $73,000,000 #7 $50,000 x 365 = $ 18,250,000 34 Appendix 3 Budget 3.1 Proportion of expenses on total income Cost of bar 3% Net profit 22% Others 6% Salaries 25% Marketing Expenses 2% Depraciation & amortization 3% Management fees 4% Water 5% Administrative expenses 8% Electricity & lighting 5% Cost of restaurant 10% Rent & rates 7% Marketing Expenses Salaries Electricity & lighting Cost of restaurant Water Rent & rates Administrative expenses Management fees Depraciation & amortization Net profit Cost of bar Others 35 Budget 3.2 China Empress Hotel Budgeted Trading and Profit and Loss Account for the year ended 31st March,2012,2013,2014 2012 $ (`000) Total income Less: Cost of restaurants Cost of bar Gross profit Less: Expenses Salaries Marketing expenses Electricity & lighting Water Repair and maintenance Rent and rate Depreciation and amortization Insurance Bank charges Audit & accounting Management fees Administrative expenses Sundry expenses Profit before tax Less: profit tax (15%) Profit after tax Less: Reserves Training Reserve for next year Annual Bonus Net Profit 500 15,000 4,500 35,272 500 15,000 4,500 39,613 500 15,000 4,500 50,253 69,025 5,522 13,805 13,805 2,761 19,327 8,283 5,522 3,000 500 11,044 22,088 500 65,025 9,753 5,272 71,600 5,278 14,320 14,320 2,864 19,327 8,592 5,278 3,000 500 11,456 22,000 500 70,133 10,520 59,613 76,973 5,000 14,500 14,500 2,880 19,327 8,283 6,157 3,000 500 11,500 22,100 500 82,650 12,397 70,253 276,100 27,610 8,283 240,207 2013 $ (`000) 286,400 28,640 8,592 249,168 2014 $ (`000) 307,895 307,90 9,235 267,870 36 Appendix 4 Budget 4 1. Formula of Payback period Cost of reforming project = $245,300,000 Net Profit = $35,272,000 Payback period = $245,300,000/35,272,000 = 6.9 years 2. Formula of return on capital invested 35,272,000 245,300,000 = 14.3% X 100% 37