Financial Accounting for Executives

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6 Group Proje ct Todd Ahmadi Thana Kittisathanon Dana Carlson Kwaku Gyabaah Jessica Quick Peter Maharaj

Transcript of Financial Accounting for Executives

Team 6Group Project

Todd AhmadiThana KittisathanonDana CarlsonKwaku GyabaahJessica QuickPeter Maharaj

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Come Back To The Sea

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Cruise Industry AnalysisIndustry Origin: 1960sMajor Players: Carnival Cruise LinesRoyal Caribbean Cruises Ltd.Norwegian Cruise LinesIndustry Size: 36 companiesMarket Share: Carnival (42.2%)Royal Caribbean (22.1%)Norwegian (12.4%) Single Brand Cruise Lines (23.2%)

Cruise Industry Analysis 1990-2020: 6.55% compounded annual growth rate projection for worldwide passengers carried2015-2017: 22 new ship builds added to cruise industry fleet $3.6B expected annual revenue yield from shipbuilding expansion planPassenger demographics (74% of passengers earn > $60K)

Cruise Industry Growth StrategyIncrease of local ports Increase of destinations and consumer driven, on-board/on-shore activities Diversified ship portfolio offerings Ship builds with increased capacitiesRapid international expansionNorth American increased market penetration (cruise taken by only 24% of U.S. population)

Company Background InformationMardi Gras ship: Carnivals first successful passenger shipIPO (in 1987) issuance of 20K Common StockRoyal Caribbean Cruises Ltd. (RCL) was conceived by three shipping companies: Anders Wilhelmsen & Company, I.M. Skaugen & Company and Gotaas Larsen in NorwaySong of Norway: RCLs first successful passenger shipShip building innovation: RCLs market differentiatorFounded19721968Industry Rank12IPO19871993Total Fleet10642Acquisitions94First Ship BuiltMardi GrasSong of Norway

Company Business ModelsSingle-industry firms, no diversification & uses different brands to appeal to different customers and experiencesRevenueTicket salesOnboard & shore activities 25% - Total RevenuesRevenueTicket salesOnboard & shore activities 25% - Total RevenuesSong of Norway: RCLs first successful passenger shipShip building innovation: RCLs market differentiatorDataRevenues$15,456MM$7,959MMTicket11,548MM$5,722MMOnboard/Tour$3,808MM$2,237MMExpenses$10,624MM$5,305MMCommissions$2,303MM$1,314MMFuel$2,208MM$924K

Company Revenue StrategiesKey Stats:Carnival increased ship investment activities from $40B in 2012 to $42B in 2013RCL partially attributes its $143.7MM increase in onboard revenue to its ship revitalization projectsCustomer focus: MillennialsCustomer focus: Baby BoomersPurchase/lease several ports Increased presence w/ foreign travel agencies 10 new ships to be operational in the next 3 yearsVessel Revitalization Program16 ships upgraded over last 3 years adding latest innovations and featuresExpansion strategy: Asia and new portsExpansion strategy: Latin America, Europe and Australia

Company Opportunities & RiskOPPORTUNITIESRISKSDrive more vacation customers onto cruise vessels - (only 20% of US takes cruises) Fluctuation in fuel prices, exchange rates, and interest rates.Increase number of vessels and vessel capacityCapital and time for new ship builds.Capitalize on emerging international markets Latin America/ Australia (RCL) and Asia (Carnival)Ship accidents and onboard health related issues, and other common risksGreater focus on the generational customer--Millennials (Carnival) and Baby Boomers (RC)Non-US based company By-Laws and Articles of Incorporation are governed by Liberia *

* Specific to RCL

Reflection of Opportunities & Risks in Financial Reports Use of hedging instruments / derivative instruments (interest rate, currency, & fuel price risks)Emphasis on Shipbuilding (Carnival) vs. Ship Improvements (RCL)2012 Pullmantur Goodwill Impairment of $385.4MM - Led to a net income of only $18.2MMSeveral major vessel incidents (Novovirus, Propulsion/engine issues, Costa Concordia)Increased 2013 revenues by 3.5% (to $7.9B) , ticket prices & onboard spending (28% RCL vs. 23% Carnival)2.5% decrease (from $12,158MM to $11,658MM) in total revenues between 2011 and 2012.Grew passenger capacity by 0.8% which boosted revenues to $44.6MM & increased operating expenses

Accounting Practices

Carnival and Royal Caribbean both use GAAP and IFRS accounting principles for their financial statements and reporting.Net Cruise Revenues Net revenues x ALBD (Available Lower Berth Day)Net Yield Net revenues x APCD (Average Passenger Cruise Days) Constant Dollar BasisApply one foreign exchange rate for the fiscal year Goodwill Evaluation and Impairment Evaluation of goodwill in two-step test using discounted future cash flow modelDepreciation/Amortization useful life of 30 years with 15% residual values Depreciation/Amortization useful life of 30 years with 15% residual values

Measurement of Company Success Profit MarginsFiscal year 20136.97%5.95%Fiscal year 20128.44%0.24%Fiscal year 201112.11%8.05%Return on AssetsFiscal Year 20132.72%2.36%Fiscal year 20123.34%0.09%Fiscal Year 20115.02%3.06%

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Measurement of Company Success YEARNI /EBTEBT /EBITEBIT /SALESSALES /AVG. ASSETSAVG. ASSETS /AVG. EQUITYROEFiscal Year 2013101%79%9%39%163%4%Fiscal Year 2012100%79%11%40%163%5%Fiscal Year 2011100%85%14%41%163%6%Fiscal Year 201395%58%11%40%228%5.56%Fiscal Year 201225%9%10%39%239%0.22%Fiscal Year 201197%67%12%38%236%7.33%

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Group Question What do cruise companies do to show protection against passenger claims, litigation and voyage disruptions? Health Claims including onboard illnessLitigation and Settlement(s)Reserves for financial obligations

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AnswerAnalysis: both cruise lines account for financial liability in their balance sheets, under other long-term liabilities.Recommendation: more information for shareholders on protection of investment. Recommendation: additional details in financial notes on insurance policies and cash reserves.

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