Aladin Water & Amusement Parks : Financial Analysis
Aladin Water & Amusement Parks : Financial Analysis
The financial situation of Aladin water and amusement park has a 50:50 debt equity ratio. Half of the capital is provided by the equity holders while the other half is obtained through leases and loans. The total size of the balance sheet amounts to Rs. 372.161 million out of which 186.081 million rupees were generated through sale of equity and an equal amount is serviced through long term loans and lease financing. With respect to foreign and local investment component Rs. 309.081million is local while there is also Rs. 63.08 million worth of direct foreign investments. The detailed financial structure is given below :
all figures in ‘000
Sponsor’s Equity 146,081 0 146,081
Foreign Placements 0 20,000 20,000
ECIP’s Conyribution 0 20,000 20,000
146,081 40,000 186,081
Long Term Loans 26,920 23,080 50,000
Lease Financing 136,081 0 136,081
163,001 23,080 186,081
COST OF PROJECT 309,081 63,080 372,161
DEBT 50% 186,081
EQUITY 50% 186,081
STOCK HOLDING PATTERN
The stock holding pattern of Aladin is very tight with all the stock being held by a single family. This stock pattern is uncondusive to the growth of the company as only a limited number of individuals are allowed to participate in raising of capital. The company is therefore a private limited company and its size is small compared to the companies listed on the stock exchanges.
PURPOSE OF DEBT
The prime purpose of using debt was to finance the amusement rides as these were being used for the first time in such a large number and there were fears of a failure. These rides are also very expensive and as such in order to reduce the fixed costs and hence to reduce the break-even they were leased through local and foreign companies. This has resulted in a debt equity ratio of 50/50 which is scheduled to be brought down to 35/65 by the fifth year of operation.
WHY LEASE ?
This decision was taken keeping in mind the fact that in case of a lease the principal as well as interest is tax deductible while for a loan only the interest is tax deductible. This has given Aladin a large tax benefit. When the leases expire the company is going to have enough cash on hand to purchase them at the reduced price for their used condition.
NO GOVERNMENT SUPPORT
There is no government support for the project because it is not a recognized industry and as such is deregulated. The government does not provide any assistance to this industry which is why the industry is not thriving.
CHIEF FINANCIAL INDICATORS
The latest figures suggest that the company has a Gross Profit of 56.36% of total revenues as compared to 52.5% for last year. The Net Operating Income is 50.28% of total revenues compared to last year’s figure of 46.11%. The Net Profit today stands at 26.71% of revenues which was 23.14% the previous year. Earnings Per Share in Rupees equal 2.99 over last figures of 2.25. All these indicators point towards a robust growth of the park and hint at its success in the future as well.
THE FINANCIAL RATIOS
Current Ratio is 1.43 which last year came out to be 1.3. The aim of the company management is to reduce the Debt Equity Ratio from the current 50:50 scenario to a less risky and more manageable 35:65. Debt Service Coverage Ratio is currently a healthy 2.55 times the interest due whereas last year it amounted to 1.88 times interest due. Capital Gearing is now 1 but last year it remained 1.07.
OTHER FINANCIAL MEASUREMENTS
The Internal Rate of Return (IRR) is 23.2% and this rate is considered high. The Return On Investment (ROI) is 36.99% . The Pay back Period is calculated as 4.2 years. These figures are a proof that the park will have enough cash inflows to not only recover the initial investment but also to ensure profitability during the useful life of the project and will make the park feasible even under the harshest economic conditions.
ORGANIZATION OF THE FINANCE DEPARTMENT
The finance department is organized in 6 sub departments:
- Financial Accounting and Book Keeping
This department is responsible for Recording Business Transactions, Collections Income/Paying Debts, Preparing Financial Statements, Bookkeeping & Accountancy, Dealing with Auditors and Company Secretarialship.
This sub-department is responsible for cash management, investments, collecting receivables, paying wages, expenses, paying to suppliers, paying taxes, pay to government agencies and for utilities.
- Management Accounting Audit
The prime functions of the sub-unit are
- Recording interpreting & analyzing financial information for internal planning control & decision-making.
- Coordinating with Marketing / Park Management Budget / Costing & control division.
- Complete Internal Audit
- Inventory Control ( Store Operation )
- Bank, Leasing, Insurance and Income Tax
The sub-unit not only carries out the entire Banking Transactions and Complete Leasing Management but also takes care of all sorts of Insurance and the Company Income Tax.
- Management Information System ( MIS )
This department has developed the entire MIS software that helps monitor policy implementations, procedures, and programs. The system provides quick access to confidential / internal reports and examines areas of business for improved value for money.
- Personnel Management
The personnel department is also a constituent of the finance division. The department’s major objectives are to recruit, manage, and develop workforce from the mostly contractual blue-collar workers. It is also charged with providing ample compensation to these important human resources.
Memberships are increasing in the various categories and already there are 22 complimentary memberships with 67 persons, 32 life memberships including 187 members, 365 annual memberships with 1740 persons, and 228 swimming class registrations in 1997. While all revenues of the other membership go solely to Aladin, the company shares revenues generated from swimming classes with KSDC, the company running these classes. The total revenues generated through the memberships are Rs. 6,481,125 and those from swimming classes are Rs. 335,000 out of which Aladin’s share comes out to be Rs. 201,000. The memberships were about 847 in 1998 and earned revenues worth 13.84 million including new member revenues of Rs. 7,523,875.
EVENING FAMILY GROUP PACKAGE
Everyday after 1500 hours the “ Evening Family Group Package “ 50 allows the park to generate sales from otherwise unproductive time. The package is priced at Rs.80/ Person for the Water Park Only, Rs. 60/ Person for Amusement Park Only, and Rs. 140 for both parks.
BIRTHDAY AT ALADIN
This package allows customers to celebrate their birthdays at the park. It is priced at Rs.75/ Person for Water Park only ( min. requirement of 30 persons ). It costs Rs. 50/ Person for the Amusement Park Only ( min. requirement of 30 persons). The complete package for both parks is for Rs. 100/ Person ( min. requirement of 50 persons ).
ALADIN SUMMER CAMP
The total number of memberships for the camp running 1st June 1997—31st July 1997 remained 31 children providing Rs. 31,000 to the administration as revenue.
The sponsorship revenues from ride sponsors for the year 1997 was Rs 8.1 million for the Water Park while they were Rs. 16.75 million for Amusement Park rides. However, it was Rs. 2.7 million and Rs. 3.75 million for Water and Amusement Parks respectively in 1998 due to weak condition of the economy.
IN HOUSE ADVERTISING
The total amount generated from different forms of the In House Advertising of other products was Rs. 504,000 and it came down to Rs. 501,000 in 1998. The types of advertisement boards being used are Unipole Signs, Lamp Posts, Fence Boards, Information Signs, Inside the Gates, Fiest-Aid Booth, Changing Rooms, and Water Stations.
Aladin ran various promotional schemes in collaboration with large companies. These included the Vita Bread Bumper Gift Scheme, DHL Jumbo Scheme, American Express TRS Promo, Aladin – Select ( Shell ) Promotional Scheme, Aladin – Aero Asia, Aladin – Sanaullah, Aladin – Go Cards, Kidzone Promotion, 50% discount on Water Park, Aladin – KFC – Caltex joint promotion, Free Tornado Rides, Free ride coupons on Monster ride, Free ride of visitor’s choice. These helped earn Rs. 1,006,915.
The event calendar was rather just a single event ‘ ALADIN QUAID FEST ‘ only in 1996. The second year had about 5 organized events spanning 13 days. Last year, Aladin organized as many as 12 events lasting 26 days.
The number of both students and schools visiting Aladin registered a tremendous increase. In 1997, Aladin Sales Team targeted 2297 schools out of which 271 schools arrived availing a special school package that earned Rs. 5,273,280. These schools brought a total of 67319 students. In 1998, Aladin Sales Team targeted 8200 schools out of which 780 arrived with 195000 students and earned Rs. 9,750,000 for Aladin.
There are no records available for Gate Money as these figures are not estimated by the Park Management.
The total revenues for 1997 exceeded Rs. 13 million however due to a slump in the economy stemming from the bomb and the subsequent FCA freeze resulted in lowering revenues to approximately Rs. 12.5 million. This is attributed to the fact that people after the freeze were in a depressed mood and did not have enough to pay for entertainment.
TOTAL CASH OUTLAY SINCE INCEPTION
The total cash outlay includes all costs incurred by the company owners on this project which includes all the sunk costs. These are:
All figures in Milions
Land ( Lease Amount ) 20
Water Park 60
Utilities Expense 40
Amusement Park 50
Information Structure 10
AFC – Aladin Fun Centre 55
Single Loop Roller Coaster 40
4 New Rides 25
Video Arcade ( Expansion ) 5
Bowling Alley 8
Sports Club 15
AFC ( Expansion ) 20
Grand Total 393
JUSTIFICATION OF EXPENSES INCURRED
These expenditures are justified by the small payback period and have been recovered already through the operation of the park over three years. The shops in the AFC would be sold to interested parties who will then provide the products of their choice to the people. The projects under construction are scheduled to be completed by the end of the year and will open in coincidence with the millenium celebrations at the park. The sports club will have its own members as well as the AMI members as its customers. Its costs would therefore be met by the membership fees paid on an annual basis. The completed projects such as restaurants are already on lease and generate a lot of money through lease payments. The core facilities include the Amusement & Water Rides which were financed through leases and are tax deductible in whole.
This strategy is being followed by the Aladin Management through the use of various low priced packages such as, Evening Family Group 50, School Visit Package, Package for both parks in one ticket. The high end of the market is being penetrated via the Swimming Classes, Summer Camp, and Birthday at Aladin. These packages help Aladin attract all types of people and enter all consumer markets. This allows maximization of attendance at the parks and provides maximum revenues possible. The low end market is catered to by the packages priced as low as Rs.75 per person while high end is catered to by providing all the worthwhile facilities in one package. This strategy is highly successful and has played a major part in the growth of revenues since the park’s inception.
The parent company of Aladin is known as A.A Joyland Pvt. Ltd., which owns amusement parks in Lahore and Murree ( Patriata ). These parks cater to the amusement needs of the people in these cities. This allows the company to expand its services to different geographic locations and follow a market development strategy. The other parks are however, relatively small and only provide the amusement park services. Although the Aladin brand name is not used by these parks, they are still successful and are proving to be quite profitable ventures for A.A.Joyland. The products being offered are similar and are of the same high quality as the products here. The company has plans to expand facilities at all the three parks to attract more customers.
The market penetration strategy can also be followed by trying to come up with a package for the lower and lower middle segment instead of targeting only the middle and upper middle segment. Certain days can be specified that will allow people from a particular area of concentration of that type of population can come in large numbers which can easily offset the low entry price. The days can be organized for people from Lyari, Orangi, Korangi etc. in such a manner that only these people can come. This can be done by checking ID Cards and by advertising in their specific area only. This will help the park exploit those markets it had not previously targeted.
This strategy although is being followed can be followed more aggressively by opening similar parks at new sites. The strategy calls for opening of at least 3 more parks. The present parks can be expanded and followed by new ones at Karachi, Rawalpindi and Faisalabad. The other major cities are being avoided due to lack of target market in others and law and order situation in Hyderabad. This strategy provides a magnificent opportunity to tap the market all over the country. The Karachi venue has been suggested because the park’s brand name is recognizable at the local level and another park can be located at a place that otherwise would be located at an inconvenient distance from the present location.