ABU- DHABI NATIONAL HOTELS Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

ABU- DHABI NATIONAL HOTELS Case Study Solution

Introduction

Abu Dhabi National Hotels is a renowned and one of the leading companies in the hospitality industry. The company has been listed on the Abu Dhabi Securities Exchange. Abu Dhabi National Hotels is partly owned by the government of Abu Dhabi. The company has been operating for thirty years, across all major emirates of United Arab Emirates. Abu Dhabi National Hotels had started the business with three hotels but after successful operations it had grown to own several fiver star international standard hotel along with a partnership with Sheraton, Sofitel and Le Meridian. Abu Dhabi National Hotels has been providing services that range from hotels, catering, facilities management, transportation and tour operations.

The company has a strong business where it had strong earnings and profit figures. In the year 2008 total revenues amounted to AED 180 million, which is increased figure as compared to the AED 144 million in 2007. While as the year 2008 started the company experience declined in its revenues and profits. The company bears revenue decline of 5.7% and profit decline of 29%. In 2011 the company, with its new opened hotel named Park Hyatt Abu Dhabi & villas, achieve growth in its revenues but the profit continue its declining position. In 2012 the company’s profit declines further and amounted to AED 199 million. The questions started to rise on the operating and financial efficiency of the company.

Problem statement

The financial performance of the company has been declining. The profits have been continuously following a declining path. Investors have started to lose confidence in the company, and they are questioning the future profitability of the company. Their shaken confidence has affected the share prices of the Abu Dhabi National Hotels which resulted in a decline in the share prices. The company has to take look into the situation and analyze what is being wrong in the business and identify the factors that are affecting the performance of the business. The Abu Dhabi National Hotels has to plan and improve its identified deficiencies to improve its operating results.

Analysis

Business Segments

Abu Dhabi National Hotels has been providing services in different business segments. The details of which are mentioned below:

Hotel Business segment

The company owns different national and international hotels. It has different luxury villas as well in its hotels along with the luxury guest rooms. The company has adopted the expansion strategy in this business segment and has planned to launch new hotel in the coming year. This business segment contributes for 37 percent to the company’s revenue. The company has limited its capital expenditure in this segment. The net profit as discussed earlier has been in declining state for this hotel business.

Retail Business segment

Although the retail business is not a core for the Abu Dhabi National Hotels and is a smaller business segment, but this segment is a highly profitable for the company. It offers various branded products through the retail outlets across the Middle East. Its contribution to the net profit is about 35 percent for the company, while contribution to the revenues is only 8 percent.

Catering Business segment

This business segment is a joint venture with the Compass Group, an international company. This business segment has the highest revenues, with 41 percent contribution to total revenues and 45 percent of the total company’s profit. However this business segment is a candidate for the issue of declining profits.

Transportation Business segment

This business segment has been started in 1988, providing transportation services to the corporate, leisure and ordinary travelers. This segment has a contribution to the revenues and profits of the company with 13 percent and 8 percent respectively. This segment has also contributing to the deteriorating financial conditions of the company.

Holding segment

This segment is the sole business segment that has been incurring losses consecutively. The loss for the year has increased to AED 76 million.

Concluded Analysis

Overall by analyzing the all business segments along with their provided financial information it is evident that the most effecting business segment is the HOLDING SEGMENT which has been effecting negatively to the profit of the company. This segment has contributed about AED 76 million losses in the profit of the company. The holding segment has second highest capital expenditure with AED 2750870 in Total assets, while the total liabilities are the highest for this segment.

It is suggested that the company must terminate this business segment; this will have great effect on the financial performance of the company. Firstly the losses that are being contributed by this segment will be eliminated as well as there will be excess fund by selling off the assets and disposing off the liabilities of this business segment. Besides this, holding segment has been incurring high general and admin expenses as well as high finance cost. Looking at the consolidated statements it is evident that the entire finance cost is from this segment that is affecting the profits. Thus Abu Dhabi National Hotels should have to terminate this business segment...................

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