Financial Performance of the Queen Elizabeth II Conference Centre - Case Study Example

 Running head: Financial Performance of the Queen Elizabeth II conference Centre (QEII). TABLE OF CONTENT Part A 2 Part B 4 This part discusses the issues that the QEII should consider if it has decided to seek sponsorship for their venue or events to as to be competitive in the increasingly competitive environment. Sponsorship is an investment in cash of kind in an event, team or person in order to secure sponsors access to the commercial potential associated with that event, team or the person as explained by West (2010). The presentation of these issues are in terms of the advantages and the disadvantages that come as a result of sponsorship to the organization. 6 The advantages QEII should consider when seeking sponsorship for its venue or event. 6 1. It position QEII as an innovator and a leader. Sponsorship will raise the profile of the organization and its personnel and host its clients and prospects in an inspirational environment. This is a better way to develop contacts and enhance the centers credibility with important people and organizations. Sponsorship through participating in the development of major events can contribute to the discussion of the centre’s issues and opportunities through debating on the issues, collaborating on the solutions and defining best practices which creates a better understanding of the centre hence giving it a better hedge to the stiff competitive environment by focusing on the centre’s communications and marketing objectives for the venue and the events. 6 12 Introduction This report is written based on the financial performance of the Queen Elizabeth II Conference Centre (QEII). The measure of the financial performance of a firm can be done based on three financial statements. These are the statement of the cash flow, statement of loss and profit account and the statement of the financial position. In this report, the statement of cash flow and the statement of comprehensive income of the financial year 2012 and 2013 of the Queen Elizabeth II Conference Centre have been used to give the report of its financial performance in the two financial years. The other part of the report is based on the factors that the QEII should consider when looking for sponsorship so that it remains competitive in the increasing competitive environment. The report is in three parts as discussed below. Part A This part of the report explains the reasons as to why there is an improvement of £1.2min QEII cash flow position and it further explains why it is important for the QEII to retain cash. The reasons for the improvement in the cash flow position are: First, the improvement in the cash flow position is due to the increase in the operating surplus. QEII generates it revenue from the sale of the house occupancy, conference activities such as meetings and conferences and from the interest rates from their investments in other companies. The increase in the operating surplus was due to the increased marketing activities. The good marketing that the QEII did both at home and abroad lead to the whole centre being booked for the Olympic period to host Casa Italia representing the Olympic committee of Italy. Secondly, the increase in trade and other receivables lead to the increase in cash flow to the centre. This was because of the good measures of credit control management which were very effective during the financial year limiting the exposure to the risk of bad debts for the centre. Therefore, decrease in bad debts means that good amount of cash was received from the accounts receivables which lead to the increase in the cash flow position improvement (Harrison, 2001). The third is the increase in the provisions has lead to the improvement in the cash flow position. A provision is a form of receipt in the cash flow statements and therefore if any provision in center is increased, it increases its cash flow position. Hence the increase in the provisions has lead to the improvements in the cash flow statement The fourth factor that leads to the improvement in the cash flow position is the decrease in trade and other and other payables due after more than one year. Any decrease in the trade and other accounts payable leads to the improvement in the cash flow position as less cash will be paid out. . This ensures that little cash is paid out which would then lead to the increase in cash flow position. The other factor that leads to the increase in the cash position is the increase in the interest received. The interest received for the company increased mainly due to the increase in its investments in other organizations. The center increased its investments in various stocks that lead to the increase in interest earned and interest earned from the amount kept in the bank. All these lead to the increase in the interest earned by the centre which leads to the improvement of the cash flow position. Lastly, the other factor that caused the improvement in the cash flow is the increase in depreciation. Depreciation is an allowance for wear and tear of the organizations fixed assets. As the centre continues to provide housing services, some of its fixed assets depreciate. The depreciation increases as the assets continue to be used. This makes the depreciation amount to increase with time. Being that depreciation is a form of cash inflow, its increase lead to the improvement of the centre’s cash flow position. Reasons why it is important for QEII to retain cash. Cash is among the current assets of an organization which is very liquid as explained by Elliot and Elliot (2008). It is the life blood of an organization. Therefore, QEII needs to retain it for its day today activities and operations due to the following reasons as illustrated by (Maynard Keynes) QEII needs to retain its cash for the transaction purposes. This is the cash needed to carry the day today transactions such as payment of the centre’s bill. The centre requires various products and services for its day to day operations and has to pay for them. Some payments are so small such that the cash payment is the most efficient and effective means to settle such claims. The transaction motive to old cash comes from the normal disbursement and collection activities. The disbursement activities include the payment of salaries, taxes, trade debts and dividends (Meigs and Meigs, 2009). Therefore, for the centre to make such small payments frequently and efficiently it has to retain some cash to serve as a buffer to the centre. The other reason as to why the centre needs to retain cash is for the precautionary motives. This is the need to old money for the unknown contingencies. This may be occurrence of death, accident or sickness of the workers or any of its clients who resides within the centre. If the centre retains some of its cash, then it becomes very easy for any measures to be taken to solve such contingencies. Speculative motive to retain cash is also a reason as to why the QEII should retain cash. This is the need to hold cash in order to take advantage of investment opportunities for example bargain purchases, attractive interest rate and favorable exchange rates. As discussed earlier one of the sources of the revenue for QEII is the interest earned. This comes from the investments in various organizations. Therefore, the centre needs to retain cash so that incase of any investment opportunity it can use that cash to invest in that opportunity so that it can increase its revenue. The last reason as to why the company should retain cash is for compensating balances. Most of the centre’s cash balances are kept at banks so that they compensate for the banking services rendered to the centre. Banks charge interest on the amount given as loan to the center and at the same time charges for the services offered to the centre. For the QEII to compensate for such charges it needs to retain cash in the banks so that the amounts deposited with the banks earns interest in return. This way the centre shall have compensated for the amount charged by the bank. Part B Queen Elizabeth II Conference Center (QEII) Statement of Profit and Loss Account For the Year ended 31st March 2012 and 2013. 2013 2012 £ (000) £ (000) REVENUE. Income from conference activities 10325 9914 Other rental income 321 248 Interest receivable 26 19 TOTAL REVENUE 10676 10181 EXPENSES. Wages and salaries (1554) (1637) Social security costs (128) (163) Pension costs (282) (284) Holiday pay accruals - (9) Temporary agency staff 1 (11) Maintenance and cleaning (884) (1322) Subcontracted services (903) (915) Utilities (547) (498) Rates (477) (472) Equipment hires (349) (415) Advertising and marketing (163) (126) Travel and subsistence (43) (36) Auditors remunerations’ (38) (35) Entertainment (7) (7) Self-insurance losses (26) (2) Other costs (932) (978) Depreciation (805) (796) Amortization (5) (5) Provision for the doubtful debts (20) (16) TOTAL EXPENSES (7162) (7727) Operating income before tax 3514 2454 Tax (payment to exchequer) (2250) (1200) NET INCOME 1264 1254 COMMENTS. The change in revenue mix is positive which means there was an increase in all the revenue mix. These revenues items are; income from conference activities, other rental income and interest receivable. There is also a positive change of 491 in the total revenue compared to the previous year. The change in the cost profile is negative for the first seven items, positive for the next two items, negative for the following tenth item, positive for the next five items after tenth item, negative for the sixteenth item and lastly positive for the last three items. The most relevant cost are the wages and salary, maintenance and equipment hires. This is because they are the costs that decreased most hence leading to more profit (Stittle and Wearing, 2008). Therefore they affect the decision making of the QEII for it to realize more profit. There is also a change in the profit of the QEII. The change is a positive of £ 10 which shows that QEII profit increased by £10 compared to the previous year. Part D This part discusses the issues that the QEII should consider if it has decided to seek sponsorship for their venue or events to as to be competitive in the increasingly competitive environment. Sponsorship is an investment in cash of kind in an event, team or person in order to secure sponsors access to the commercial potential associated with that event, team or the person as explained by West (2010). The presentation of these issues are in terms of the advantages and the disadvantages that come as a result of sponsorship to the organization. The advantages QEII should consider when seeking sponsorship for its venue or event. 1. It position QEII as an innovator and a leader. Sponsorship will raise the profile of the organization and its personnel and host its clients and prospects in an inspirational environment. This is a better way to develop contacts and enhance the centers credibility with important people and organizations. Sponsorship through participating in the development of major events can contribute to the discussion of the centre’s issues and opportunities through debating on the issues, collaborating on the solutions and defining best practices which creates a better understanding of the centre hence giving it a better hedge to the stiff competitive environment by focusing on the centre’s communications and marketing objectives for the venue and the events. 2. Creates brand awareness among the target markets. QEII Conference centre can create and reinforce awareness of its events and venues through seeking sponsorship as this will attract more clients and customers to use the centre’s venues and participate in the events of the centre. This will improve its brand awareness in the competitive market hence remains more competitive in the market leading to the increase in its revenue generation. 3. Sponsorship generates prospects and sales by bringing customers to the centre. Sponsorship of the events and venues will generate more sales to the centre hence making it to be better placed in the competitive environment. As most of the sponsors are will be the customers to the centre and therefore it will create loyalty and increase in sales to the centre and the sponsors will have some form of influence to their followers hence leading to more prospect and increase in sales, making the centre to be more competitive in the increasing competitive environment (Meigs and Meigs, 2009). 4. Sponsorship presents opportunities for QEII to form important and new business relationships. Through sponsorship; the conference centre will form new and important business relationship. When an organization is related to the many other organizations or many prominent people it increases its chances of being very competitive in that market as most of these organizations or persons are the main customers in the market. Therefore, their good relationship with the centre will increase the centre’s customers in the market hence high chances of increasing its market share leading to more revenue generation from its events and venues. 5. Offers flexibility in Sponsor Partner level, involvement and commitment. When the centre offers sponsorship it will increase the sponsors flexibility, involvement and commitment which will then lead to the improvement to the centre’s publicity and awareness hence making it to be more competitive. 6. Provides a respected forum for QEII ideas on topics that affect your business. By sponsoring various events or people will increase the level of respect for the centre’s ideas on various topics that affect its business. It is through the sponsors that QEII will be using mostly to air its ideas on the venues and the events. Therefore through this, the centre will have ample opportunity to air its idea topics to its customers hence creating a better understanding in the market which increases it competitiveness in the market (Elliot and Elliot, 2008). 7. Sponsorship will increase the QEII’s public image and good public relations. This is an issue that the centre must consider as to whether the sponsorship for its events and venues will increase its public image. Sponsorship programs increases the organizations public image and good relations. If QEII seeks sponsorship, its corporate image and public relations will increase making it to have a better hedge to be more competitive in the market in the increasing competitive environment. The disadvantages QEII should consider in seeking sponsorship for its events and avenues. 1. Probability of development of controversies leading to negative attitudes. The presence of competitors is on its own a disadvantage for the centre. There will always be a challenger to each company to stay on top in the increasing competitive environment. Therefore, controversies can result which can affect the QEII’s customers due to faltered belief from its consumers and this can create a negative relationship with the sponsee association. 2. The sponsorship may have absence of standardization. The partnership between the centre and its supported individual, organization, or event may not have a sure way of how best to benefit from the sponsorship. Though there are different methods may be applied by QEII to sponsees depending on each parties needs. Therefore this illustrate that there is no standard planning and evaluation. 3. Sponsorship consumes more time.ore time. As sponsorship promotes a more business involvement or relationship, more is spent time on planning on how to carry out the relationship. Therefore the amount of time required for planning may be more hence consumes the centre’s time. Conclusion In conclusion the good marketing of the conference room lead to the increase in revenue which made the centers cash inflow to increase. Seek sponsorship have more advantages to the Conference Centre, which will make it more competitive in the increasing competitive environment. It is also important for the QEII to retain cash for its day to day activities and operation. Appendix Queen Elizabeth II Conference Center (QEII) Variance analysis that compare the Income and Expenditure For the Year ended 31st March 2012 and 2013. 2013 2012 variance £ (000) £ (000) £ (000) REVENUE. Income from conference activities 10325 9914 411 Other rental income 321 248 73 Interest receivable 26 19 7 TOTAL REVENUE 10676 10181 491 EXPENSES. Wages and salaries (1554) (1637) -83 Social security costs (128) (163) -35 Pension costs (282) (284) -2 Holiday pay accruals - (9) -9 Temporary agency staff 1 (11) -10 Maintenance and cleaning (884) (1322) -438 Subcontracted services (903) (915) -12 Utilities (547) (498) 49 Rates (477) (472) 5 Equipment hires (349) (415) -66 Advertising and marketing (163) (126) 37 Travel and subsistence (43) (36) 7 Auditors remunerations’ (38) (35) 3 Entertainment (7) (7) 0 Self-insurance losses (26) (2) 24 Other costs (932) (978) -46 Depreciation (805) (796) 9 Amortization (5) (5) 0 Provision for the doubtful debts (20) (16) 4 TOTAL EXPENSES (7162) (7727) -565 Operating income before tax 3514 2454 1060 Tax (payment to exchequer) (2250) (1200) 1050 NET INCOME 1264 1254 10 References Elliott, B and Elliott, J, 2008, Financial accounting and reporting, 12th ed, Harlow, Financial Times Prentice Hall. Harrison, W, T & Horngren, C, T., 2001, Financial accounting, 4th ed, Upper Saddle River, NJ, Prentice Hall. Meigs, B, & Meigs, R, F 2009, Financial accounting, 3d ed, New York, McGraw Hill. Stittle, J & Wearing, B 2008, Financial accounting, Los Angeles, SAGE Publications. West, D, 2010, Project sponsorship an essential guide for those sponsoring projects within their organizations, Farnham, Surrey, England, Gower. Read More