The Queen Elizabeth II Conference Centre's Financial Performance - Essay Example

The Queen Elizabeth II Conference Centre Inserts His Her Inserts Inserts Table of Contents Introduction 3 Analysis of QEII Cash Flow Position 3 Reasons for Retaining Cash 3 Profit and Loss Account 4 Variance Analysis 5 Sponsorship of QEIICC 7 Conclusion 7 Reference 8 Appendix 9 Introduction The Queen Elizabeth II conference Centre was opened by Her Majesty the Queen in 1986 (QEIICC, 2012). The Centre is situated in the City of Westminster, near the Parliament of UK and hosts receptions and conferences for over 2500 delegates. At the end of 2013, the centre’s cash flow position improved by £1.2 million. This was due to both internal and external conditions that favoured the centre. This paper reviews the annual report and accounts regarding the financial performance of the QE11 for the year ended 31 March 2013. Part A. QE11 cash flow position The financial year ending 31 March 2013 saw the cash flow position of QEII Improve by almost £1.2 million. This improvement can be attributed to improved strategies that helped the centre maximise in potential. The first main reason for the improvement in cash flow was the presence of the Olympic and Paralympic Games in London between July and August 2012 (QEIICC, 2013).During this period, the centre operated as the Olympic House for Italy. This booking acted as a very strong boost for a positive cash flow. Another reason for the improvement of the cash flow was a change in strategy where the centre decreased its dependency on government bookings and concentrated on hosting both local and international professional associations and corporations. During the 2013 financial year, the centre received 326 meetings and events with government bookings accounting for only 18% of these bookings translating to only 5% of the revenue received the whole year (QEIICC, 2013). The final reason for this improvement in cash flow is an extensive and effective marketing campaign instituted. The marketing campaign targeted both the local and international markets and it was maximised through the sale and subsidiary services and opportunities. Retaining Cash During the financial year ending 31 March 2013, the QE11 planned to achieve a minimum divided payment to the local government and to the Department of Communities equal to 6% of the total capital employed. This step was taken to ensure that the centre retains cash. Stutely (2007) notes that in some situations Chief Financial Officers may choose to retain cash rather than paying out dividends to shareholders for a variety of reasons. In the case of the QE11 several reasons may precipitate the retention of cash. Atrill and McLaney (2011) argue that retaining surplus cash is important as it provides more flexibility in an uncertain market. The government’s decision to severely cut down the number of government bookings has resulted in creating a volatile situation for the centre. The 2012 financial year received a boost from the Olympic Games however once that ended the centre is faced with a market in which they cannot depend on government bookings. By retaining cash, the QEII can respond to this downturn as the need arises. The second reason for retaining cash is that it can be used to facilitate investments (Atkinson & Kaplan, 2007). The cash retained can be used to finance any major investment the business might need. The QEII has to respond better to changes in the hospitality market if it hopes to retain its success. Investments in technology and new marketing strategies are important for the centre if it hopes to attract local and international professional organizations and corporations. Part B. Profit and Loss Account From the details provided, the profit and loss for the 2012/13 and 2011/12 financial years is given below.   2013 (£000) 2012 (£000)       Gross Income     Income from Conference activities £10,325.00 £9,914.00 Other Rental Income £321.00 £248.00 Income from Operating Activities £10,646.00 £10,162.00 Expenses     Wages and Salaries £1,554.00 £1,637.00 Social Security Costs £128.00 £163.00 Pension £282.00 £284.00 Increase in holiday pay accrual   £9.00 Temporary Agency Staff -£1.00 £11.00 Total Staff Costs £1,963.00 £2,104.00 Maintenance and cleaning £884.00 £1,322.00 Sub-contracted services £903.00 £915.00 Utilities £547.00 £498.00 Rates £477.00 £472.00 Equipment hire £349.00 £415.00 Advertising and Marketing £163.00 £126.00 Travel and Subsistence £43.00 £36.00 Auditors Remuneration £38.00 £35.00 Entertaining £7.00 £7.00 Self-insurance losses £26.00 £2.00 Other Costs £932.00 £978.00 Non-cash items     Depreciation £805.00 £796.00 Amortisation £5.00 £5.00 Provision for doubtful debts £20.00 £16.00 Total £5,199.00 £5,623.00 Total Expenses £7,162.00 £7,727.00 Net Income     Net Income Before Taxes £3,484.00 £2,435.00 Interest Receivables £26.00 £19.00 Net Income after Interest £3,510.00 £2,454.00 Payment to Exchequer (Taxes) £2,250.00 £1,200.00 Total net Income after Taxes £1,260.00 £1,254.00 Variance Analysis From the corporate plan 2011/2012 – 2015/16, the three revenue items that are most relevant are room hire, interface and other conference activities. Room hire is very relevant as it determines the bulk of all income received by the centre. It is also a very important item since changes in consumer volumes and behaviour affects the total revenue received by the centre. In 2012, room hire went up due to the Olympic Games as well as marketing strategies that were geared to both local and international corporations. The other important item is other conference activities. After the financial recession, clients have been a little cautious with the money thus not all conferences are overnight requiring room hire. The QEII should then concentrate on improving other conference activities. Finally, interface is an important item as it was budgeted to increase by a margin of 21%. Interface was budgeted to have a much bigger growth than all other revenue items. When considering the cost profile, we note that there was a marked decrease in all cost items for the 2012/13 financial year. The items that are most relevant are maintenance and cleaning, advertising and Marketing, and equipment hire. During the periods under consideration, the cost for maintenance and cleaning decreased by 49.55%. This is due to better human resource management as well as time management strategies. If the company can better equip and manage its workers and its fixed assets, it can reduce the amount of money and time used for cleaning and fixing various equipment and assets within the centre. The second item of interest is advertisement and marketing cost. According to Shone and Parry (2010) in event management, exposure and the flow of information is of the utmost importance. For a company or hotel to be known, it has to spend money for advertisement and brand management. The QEII has engaged in a marketing strategy to capture a broader client base since the government reduced bookings and meetings carried out in the centre. Finally, equipment hire is an important cost as it determines the amount of money the centre loses to hire equipment that it lacks. The cost of equipment hire decreased by 19% between the 2011/12 -2012/13 financial years. If a company loses too much money on hiring equipment, it should undertake investment in those items that are vital and necessary to reduce the long term costs. There was a 4.55% increase in revenue during this period. This was mainly attributed to the increase in room hire due to the London Olympic Games in 2012. Better marketing strategies instituted in 2012 also account for this increase in revenue as a shift from reliance on government bookings to corporate bookings was instituted. There was a 0.48 increase on net profit during this period. The increase in profit was mainly due to an increase in revenue accompanied by strategies that resulted in an 8% decrease in expenses. The change in net profit was low due to an increase in taxes paid to the exchequer. This can be attributed to low government subsidies that occur in government bookings. The QEII face an unstable future that is characterized by low spending as people recover from the recession and low government bookings as per the government directives to reduce conferences. The two most significant positive factors are innovations in information technology and better economic environment. Innovations in IT make it easier for marketing and advertising and allow clients to book from the internet (Adams, 2006). Economic recovery on the other hand has allowed companies to carry out more conferences thus giving QEII to capture a bigger share of the market. The two significant negative factors include the government directive to reduce its spending on conferences and consumer spending habits post-recession. The directive by the government to reduce spending poses the risk of low revenue from room hire. Government conferences offered a surety that the centre will offer services and gain revenue from the government each year. This directive thus reduces a given percentage of revenue from room hire. Consumers over the past few years are more cautious in using their money and thus do not opt to engage in conferencing activities that last overnight. This may pose a problem for the centre in the future. Part C. Sponsorship The QEII is facing an uncertain future and can benefit from sponsorship. Sponsorship offers some advantages and disadvantages for the centre in the long run. The first advantage is that the company will always have clients at a given time. Sponsorships from organizations and corporations (private or government), will ensure that the centre receives a certain fixed amount of revenue each year (O’Toole, 2011). The second advantage is that sponsorship offers a means for marketing and advertising. The presence of notable corporations and organizations in the centre will improve the status of the centre such allowing its notoriety to improve in the hospitality industry. The main disadvantage of sponsorship is that it reduces the flexibility of the centre to handle other clients. In situations where the sponsor has already booked, the centre cannot cancel that booking despite receiving a better offer from other organizations. Sponsorship also allows the sponsor companies to dictate matters in the centre. If the organizations spend a lot of money in the centre, they may begin asking for changes in the centre that may be against the strategic plan of the centre. Conclusion The economic condition is recovering from the 2011/2012 economic recession. As such, the QEIICC is facing a hostile economic environment and is therefore forced to institute some changes to ensure it meets its bottom line. In 2012, the government instituted a reduction on the number of conferences and events carried out per year. Since most of the government conferences were held in QEIICC the centre is thus facing a challenge due to the loss of this fixed revenue. In response to this, the centre began a strategic marketing and advertising campaign to attract local and international organizations and corporations. This saw an improvement in the total revenue in the 2012/13 financial year as well as a reduction of expenses. The strategy applied by the centre seems to be working and all projected earnings look favourable. References Adams, D. 2006. Management Accounting for the Hospitality, Tourism and Leisure Industries: A Strategic Approach. 2nd Edition. UK: Thomson Learning Atkinson, A. and Kaplan, R. 2007. Management Accounting. 5th Edition. Harlow: Pearson Education Atrill, P. and McLaney, E. 2011. Accounting and Finance for Non-Specialists. 7th Edition. Harlow: Prentice Hall OToole, W. 2011. Events Feasibility and Development: From Strategy to Operations. Kidlington, Oxford: Butterworth-Heinemann Shone, A. and Parry, B. 2010. Successful event management: A practical handbook. 3rd ed. Andover: Cengage Learning EMEA Stutely, R. 2007. The Definitive Guide to Business Finance. 2nd Edition Revised. Harlow: Prentice Hall The Queen Elizabeth II Conference Centre (QEIICC), 2012. Corporate Plan 2011/12 – 2015/16. Available at: http://www.qeiicc.co.uk [Accessed 20 March 2014] The Queen Elizabeth II Conference Centre (QEIICC), 2013. Annual Report and Accounts 2012- 2013. London: The Stationery Office Appendix: Variance between 2013 and 2012 Accounts   2013 (£000) 2012 (£000) Variance         Gross Income       Income from Conference activities £10,325.00 £9,914.00 3.98% Other Rental Income £321.00 £248.00 22.74% Income from Operating Activities £10,646.00 £10,162.00 4.55% Expenses       Wages and Salaries £1,554.00 £1,637.00 -5.34% Social Security Costs £128.00 £163.00 -27.34% Pension £282.00 £284.00 -0.71% Increase in holiday pay accrual   £9.00   Temporary Agency Staff -£1.00 £11.00 1200.00% Total Staff Costs £1,963.00 £2,104.00 -7.18% Maintenance and cleaning £884.00 £1,322.00 -49.55% Sub-contracted services £903.00 £915.00 -1.33% Utilities £547.00 £498.00 8.96% Rates £477.00 £472.00 1.05% Equipment hire £349.00 £415.00 -18.91% Advertising and Marketing £163.00 £126.00 22.70% Travel and Subsistence £43.00 £36.00 16.28% Auditors Remuneration £38.00 £35.00 7.89% Entertaining £7.00 £7.00 0.00% Self-insurance losses £26.00 £2.00 92.31% Other Costs £932.00 £978.00 -4.94% Non-cash items       Depreciation £805.00 £796.00 1.12% Amortisation £5.00 £5.00 0.00% Provision for doubtful debts £20.00 £16.00 20.00% Total £5,199.00 £5,623.00 -8.16% Total Expenses £7,162.00 £7,727.00 -7.89% Net Income       Net Income Before Taxes £3,484.00 £2,435.00 30.11% Interest Receivables £26.00 £19.00 26.92% Net Income after Interest £3,510.00 £2,454.00 30.09% Payment to Exchequer (Taxes) £2,250.00 £1,200.00 46.67% Total net Income after Taxes £1,260.00 £1,254.00 0.48% Where: Variance = Read More