1
ARKHĒ International
Arkhelles
COMPANIES' REPORT Educational simulation of company management Distributed exclusively by ARKHE International All rights reserved © Copyright ARKHE International 2001
Research Centre in Pedagogy of Management 580, Cours de la Libération – 33400 Talence Telephone ++335 56 37 29 38 – Fax ++335 56 04 01 20
2
CONTENTS 1. GROUP K 1.1 GROUP 1.2 PARENT COMPANY 1.3 ALPS SUBSIDIARY 1.4 ARKHELLES SUBSIDIARY 2. KAONI HOLIDAYS: TOUR OPERATOR 2.1 CUSTOMERS 2.2 SERVICES PROVIDED 2.3 COMMERCIALISATION 2.3.1. ADVERTIZING AND PROMOTION 2.3.2. NETWORKS OF TRAVEL AGENTS 3. KAONI HOLIDAYS: HOLDING COMPANY 3.1 FINANCIAL MARKET 3.1.1. TRANSACTIONS WITH THE FINANCIAL MARKET 3.1.2. LOANS 3.1.3. PLACEMENTS 3.1.4. CASHFLOW 3.2. INTRA-GROUP RELATIONS 3.2.1. HEAD-OFFICE EXPENSES 3.2.2. FINANCIAL TRANSACTIONS WITH SUBSIDIARIES 4. K VILLAGES 4.1. VILLAGES IN OPERATION 4.2. INVESTMENTS 4.2.1. INVESTMENTS IN EXTENSIONS 4.2.2. INVESTMENTS IN COMFORT 4.2.3. DEPRECIATION ALLOWANCE 4.3. ACCOMODATION AND CATERING 4.3.1. STAFF 2.3.2. CATERING SERVICE 4.3.3. EXTRAS 4.3.4. MAINTENANCE 4.4. ORGANIZED ACTIVITIES 5. ENVIRONMENT 5.1. TAXATION 5.1.1. HOLDING COMPANY 5.1.2. SUBSIDIARIES 5.2. SUNDRY EXPENSES AND EARNINGS 5.2.1. HOLDING COMPANY 5.2.2. SUBSIDIARIES
3
1. GROUP K
You are in charge of the management in one the three following companies of group K: •
KAONI HOLIDAYS, the parent company based in France, acts both as holding company and tour operator,
•
ALPS VILLAGE subsidiary, also based in France, owns a holiday village operating in the Alps,
•
ARKHELLES VILLAGE, based in the Arkhelles archipelago, owns the second holiday village operating for the group on one the islands of the archipelago in the Indian Ocean.
You are expected to reach two conflicting goals: optimise the group's profitability, maximise you own company's profitability. The customers staying in the villages for one or several weeks are of European or American origin. A network of travel agents market the products offered by Group K in the form of packaged holidays.
4
1.1 THE GROUP Originally, Mr KAONI created KAONI HOLIDAYS, the holding company, then the first subsidiary, operating a village located in France: ALPS VILLAGE. A second subsidiary was recently formed with the aim of operating a village located in the Arkhelles Archipelago in the Indian Ocean: ARKHELLES VILLAGE. After being managing director for two years, Mr Kaoni was appointed chairman of the supervisory board of Group K holding company.
1.2 PARENT COMPANY Legal structure Corporate name
KAONI HOLIDAYS
Limited liability company with a capital of euros Shareholders
1 000 000,00
Mr Kaoni
85%
Kaoni family
10%
Other shareholders
5%
Head office
France
Financial year
April 1st to March 31st
Activity As the holding company for the group, it manages the stakes and the cashflow and implements the financial policy through loans and placements on the financial market. It provides administrative services and is in charge of •
the group's general management,
•
the sales management,
•
the commercial management,
•
the financial management,
•
the business management.
It also acts as tour operator and markets the holiday packages in the villages operated by the two subsidiaries, both in Europe and the USA.
5
1.3 THE FRENCH SUBSIDIARY Legal structure Corporate name
ALPS VILLAGE
Limited liability company with a capital of euros ( 450 000,00 + Shareholders:
50 000,00),
contribution of KAONI HOLIDAYS: euros 450 000,00 Local shareholders: Darkhis
Head office:
France
Financial year:
April 1st to March 31st
50 000,00
Activity Operating of a holiday village of comfortable standing (*** NN), located in the Alps, at the junction of the three valleys. The current accommodation capacity is 400 beds.
200 beds. The maximum capacity of the plot is
Activities vary with the seasons: they focus on skiing and snow-sports in the winter; on mountaineering, golf, tennis and other outdoor sports during the summer. Operating is ensured by a manager, assisted by a team of junior executives and permanent employees. Each manager may appeal to temporary employees when required. A team of Organizers is in charge of the customers during their sporting or leisure activities.
6
1.4 ARKHELLES SUBSIDIARY Corporate name:
ARKHELLES VILLAGE
Limited liability company with a capital of Darkhis ( 240 000,00 +
60 000,00)
Shareholders
Contribution of KAONI HOLIDAYS: Darkhis 240 000,00 Local shareholders: Darkhis 60 000,00
Head office:
Arkhelles archipelago
Financial year:
April 1st to March 31st
Activity Operating of a holiday village of comfortable standing (**** International), located in the Arkhelles archipelago. The current accommodation capacity is 300 beds divided into 2- and 3-bed cabins on a 10 hectare plot of ground. The maximum capacity of the plot is 500 beds. The sporting activities offered in the village mainly focus on the sea and water sports, as well as tennis, squash, gymnastics… As the tropical climate of the place fades off the differences in seasons, July and August are usually cool with rainy spells when December and January are dry and hot. Operating is ensured by a manager, assisted by a team of junior executives in charge of the management, technical activities and the organisation of activities. Locals are also employed as temporary employees ("temps") as well as Organizers.
7
2. KAONI HOLIDAYS: TOUR OPERATOR For strategic as well as fiscal reasons, Group K has chosen to separate legally the operating of holiday villages and the marketing activities for the packages concerned. Each subsidiary, ALPS VILLAGE and ARKHELLES VILLAGE owns the site it operates on and sells "accommodation" to the tour operator. KAONI HOLIDAYS, the parent company, acts as a tour operator and works out its products by •
buying services from the villages
•
buying transport from air carriers (including transfers)
The tour operator is charged for all the services by the subsidiaries and contractors
2.1 THE CUSTOMERS The customers targeted by KAONI HOLIDAYS are of European and American origin.
2.2 THE PRODUCTS KAONI HOLIDAYS, the parent company and tour operator, markets packages bought from the villages operated by the other companies of the group exclusively and through a network of travel agents. The marketed packages comprise one or several weeks' stays and may include flights and transfers from the airport to the villages. Stays For one person and a minimum period of one week, stays include: •
full-board accommodation: breakfast, lunch and dinner over seven days on end. Stays always start on a Saturday afternoon and end the next Saturday at noon. Consequently, the stay corresponds to 7 nights, 7 breakfasts, 7 lunches and 7 dinners.
•
Access to leisure activities, sports facilities and participation in organized activities: day and night parties, tours…
Trips Trips comprise return flight-tickets and the price of transfer from airports or train stations to places of stays.
8
Flights Considering the number of seats bought by Kaoni Holidays, special discounts are available on the following airlines: • • •
New York / Paris New York / Arkhelles Paris / Arkhelles
The American travel agents usually ensure pre-conveyance to Paris or New York at attractive prices. Considering the diversity of expectations and situations – combined trips, tours and stays, trips by stages… – the tour operator almost systematically offers two kinds of packages: • •
Stays only Stays including transport
For the Alps Village and the French customers, only the "stay only" package is available.
9
2.3 MARKETING 2.3.1 ADVERTISING AND PROMOTION Promotion of the products is insured in three ways: • • •
advertising the catalogue the free third week
Advertising Advertising is mainly done on the point of sale and through ads in magazines with a wide circulation. The catalogue It generally comes in the form of leaflets presenting the different products. The brochures, usually available at travel agents' can also be the object of a mail shot to regular customers or some categories of well-targeted prospects. A communications company, based in France and in the USA designs and prints the posters and leaflets, in collaboration with Kaoni Holidays. The free extra week In the aim of increasing the average length of stays and thus to induce customers to buy twoweek or more packages, some tour operators offer their customers one extra week free of charge if they purchase a minimum of two weeks. The tour operator being unable to bear the charge for a free week, each subsidiary was supposed to undertake the extra cost. In a meeting with the general management, the subsidiary managers had a heated argument with the marketing manager of the group. It was then agreed that Kaoni Holidays, the tour operator, would only make such offers with the consent of the subsidiaries. 2.3.2 THE NETWORKS OF TRAVEL AGENTS The stays are sold by in a network of travel agents. The companies may choose any of the following networks: •
"Evasion"
"Evasion" network is mainly based in France and has correspondents in the neighbouring countries. This network is non-exclusive and also markets products from the competitors or other types of inclusive tours. •
"Trans-American Travel"
This network is only based in the USA. •
"Universal Travel Agency"
UTA, an international group based in France and the USA, has a widely developed network of travel agents and very effective transmission equipment. The group publishes its own catalogue with a list of more than 600 tourist products for every destination.
10
3. KAONI HOLIDAYS: HOLDING COMPANY 3.1. FINANCIAL MARKET 3.1.1 TRANSACTIONS WITH THE FINANCIAL MARKET The financial department of Kaoni Holidays may get into partnership on: • the French market, • the American market. Transactions by Kaoni Holidays on these markets consist in: • medium- and short-term loans, • fixed-rate placements, • transactions on Unit Trusts in equities or bonds, • the sale or purchase of currency. Most of these transactions require preliminary negotiation with the appropriate financial partner. 3.1.2 LOANS Kaoni Holidays can make medium- and short-term loans: • on the French or American market, • in French francs or dollars, • at a variable interest rate. • Funds are made available at the beginning of the half year, • Early refund is not accepted. Mid-term loans: • Duration: 5 years, • equivalent rate, • refunding by regular instalments every half year. Short-term loans • Duration: 6 months, • proportional rate, • refunding: beginning of next half year.
11
3.1.3 PLACEMENTS The financial department may wish to optimise the management of funds held by Kaoni Holidays through placements on different markets. Placements on frozen accounts • on the French or American market, • in French francs or dollars. • Rates to be negotiated with the finance companies. • Duration of placements to be negotiated. Placements in Unit Trust (equities) • Purchase of shares in French UNIT TRUSTS specialised in the equity market. • Return on investment: half-yearly dividends (euros 6,00 for one share for the last half year). • A risky placement with an opportunity for capital gain. • Shares available for sale at any time. Placements in Unit Trusts (bonds) • Purchase of shares in French Unit Trusts specialised in the bond market • Return on investment: half-yearly dividends (euros 6,00 for one share for the last half year). • Blue chips (limited risk). • Shares available for sale at any time. 3.1.4 CASHFLOW The parent company has opened accounts in a French bank and an American one for current payments and collections. The cashflow is both in French francs and dollars. If need be, the treasurer of Kaoni Holidays may buy or sell out currency. The French bank and the American one may also grant overdraft facilities if the financial standing is favourable. The current rate is 16,00 % in France and 8,00 % in the USA.
3.2 INTRA-GROUP RELATIONS Links between the parent company and the subsidiaries are of three kinds: • • •
commercial links due to the tour operator's activity, financial links through funds made available and the management of surplus, administrative links through services.
These different kinds of links generate invoicing between the companies: •
the tour operator marketing the packages is invoiced by the subsidiaries for the service provided;
•
the holding invoices head office expenses and collects or pays interests on loans taken out or placements made by the subsidiaries.
12
3.2.1 HEAD OFFICE EXPENSES The group's holding company1 invoices head office expenses to the subsidiaries every half year. These head office expenses, decided at the beginning of the season, consist of a fixed amount plus a fraction of each subsidiary's turnover (exclusive of extra earnings). 3.2.2 FINANCIAL TRANSACTIONS WITH THE SUBSIDIARIES The parent company is the intermediary between its subsidiaries and the financial market. Consequently, the subsidiaries cannot deal directly with the financial market. They take out loans from or place funds with the parent company. The subsidiaries only have a current account open in a local bank for every-day collections and payments. The subsidiaries' permanent accounts with the parent company Each subsidiary has a permanent account open with the parent company. The advances of the holding to the subsidiaries as well as the placements of their surplus are recorded on this account. The placements on and withdrawals from this account are fixed by the subsidiaries. The advances on current accounts are decided on in agreement with the holding company, Kaoni Holidays. The rate of advances and placements are fixed by the financial department of Kaoni Holidays. The subsidiaries' current accounts with local banks Each subsidiary has opened an account with a local bank: • •
Européenne de Crédit for Alps Village Arkhelles Bank for Arkhelles Village
The local banks do not pay interests on the current accounts but they may allow overdraft facilities if the financial standing of the company is favourable. The overdraft rates are respectively 16,00 % in the Alps and 20,00 % in the Arkhelles. The banks may also charge banking expenses for services provided, such as currency exchange, transfers…
1
A company that is formed to buy shares in other companies which it then controls.
13
4. K VILLAGES
4.1 VILLAGES IN OPERATION Alps village Location • built in the Alps on a 5-hectare plot of land at an altitude of 1800 meters. • maximum capacity: 400 beds • present capacity 200 beds • standard of comfort *** Facilities Apart from the village facilities, the residents have access to neighbouring facilities. The resort near which the holiday village stands has laid out a nine-hole golf course and provides water sport facilities on the lakeside available in the summer. Arkhelles village Location • built on a 10-hectare plot of land, the village virtually spreads over the whole of one of the islands in the Arkhelles archipelago. Access to the village is only possible by motor boat. • maximum capacity 500 beds • present capacity 300 beds • standard of comfort **** international Facilities All the facilities available on the island are provided by the subsidiary, the owner of the grounds: tennis courts, sports grounds, playgrounds, pedestrian paths, beaches, marina… Obviously, access is limited to residents and included in the package. Investments The subsidiaries may invest according to their needs: • either to increase their capacity of accommodation, • or to improve the standard of comfort, • or to develop the kit for organized activities.
14
4.2 INVESTMENT The accommodation capacity of a village is expressed in number of beds. When they consider it necessary, the subsidiaries can extend the accommodation capacity and improve the standard of comfort. All investments are operational at the beginning of the half year for which they have been scheduled; they are payable over the same half year. 4.2.1 INVESTMENT IN EXTENSIONS They include: • laying out new grounds, • laying on mains services, • building chalets, bungalows, huts, • enlarging outbuildings, • acquiring equipment, furniture… Estimations to date show a cost per extra bed amounting to 94 000 for Arkhelles Village.
10 000 for Alps Village and
Two items are recorded on the balance sheet: • buildings amounting to 40% of the total, • facilities amounting to 60% of the total. 4.2.2 INVESTMENT IN COMFORT They include equipment meant for private and communal areas: • equipment for individual use: TV set, VCR, mini bar… • equipment for communal use: bicycles, electric micro-cars, vending machines… To maintain comfort at its present standard, it must be known that the 20,00 depreciation recorded corresponds to real depreciation of the equipments. These investments are recorded on the balance sheet as "equipment and furniture" for a total resulting from the sum invested in comfort per bed (as decided) multiplied by the number of beds in the village. 4.2.3 DEPRECIATION ALLOWANCE The depreciation rate of buildings is the customary one. Depreciation affects: • • • •
buildings, facilities, equipment and furniture, kits for organized activities,
France 5,00 % a year 10,00 % a year 20,00 % a year 33.33 % a year
Arkhelles 5,00 % a year 10,00 % a year 20,00 % a year 3.33 % a year
15
4.3 ACCOMMODATION AND CATERING 4.3.1 STAFF Operating a village requires a team consisting of: • permanent salaried staff, • temporary employees, • organizers. Permanent staff They act as supervisors and undertake daily tasks; they are engaged with a permanent contract. At the beginning of the half year, each subsidiary decides on: • the number of extra permanent staff to be engaged, • the number of permanent staff laid off, • the average gross salary of a permanent employee. Welfare costs are related to the social legislation of the time. In the Alps, they amount to 40,00 % of the gross salary and 20,00 % in the Arkhelles. Temporary workers They are engaged for one season with a 6-month contract through a temporary employment agency. At the beginning of each half year, each subsidiary decides on the number of temps to be engaged for the season. They are recruited locally. Even if the companies have no difficulty recruiting this type of personnel, they nevertheless seldom have the skills required. Organizers The Organizers are in charge of the activities provided for the customers, whether they be sports, cultural activities or games. At the beginning of the half year, each subsidiary decides on the number of Organizers to be engaged for a period of 6 months.
16
4.3.2 CATERING SERVICE The accommodation package paid by customers includes catering service by the village restaurant. Each village has the equipment and personnel needed per person and per week for: • 7 breakfasts, • 7 lunches, • 7 dinners. At the beginning of the half year, each subsidiary decides on the cost of foodstuff and drink per consumer. The chef and the village manager are expected to provide the best catering service without exceeding the costs decided, which they normally do. The cost of foodstuff and drink for a meal permits to assess the purchases in view of the following elements: • each customer consumes two meals and one breakfast per day, equivalent to 2.25 complete meals per day or 15.75 complete meals per week. • the number of consumers equals the number of customers plus the staff, permanent employees, temporary employees and Organizers. • the staff consume the same as the customers, • the villages remain open 52 weeks a year. The villages usually buy fresh produces, as a consequence they keep a limited stock of foodstuff and drink corresponding to a few days' consumption. 4.3.3 EXTRAS Extra expenditure by customers is varied and undertaken in: • the bars, • the disco • the shops Expenditure increases with the quality standard of the village. The sales price (exclusive of tax) of extras is obtained by multiplying the purchase price (exclusive of tax) of the products bought by a coefficient: 4 for Alps village and 6 for Arkhelles village. Stock is always rather low. 4.3.4 MAINTENANCE The expenditure permitting the upkeep of investments are carefully looked after by the managers of the subsidiaries, as customers are particularly sensitive to quality and cleanliness. At the beginning of each half year, each subsidiary decides on the half-yearly maintenance budget. On the accounts books, ( 40 x 100) % of the (decided) maintenance cost for Alps village and ( 40 x 100) % for Arkhelles village are recorded as "purchase of supplies" and the rest as "maintenance and repairs."
17
4.4 ORGANIZED ACTIVITIES Facilities required for organized activities involve equipment and supplies necessary for sports or cultural activities and games offered to the customers by the village. Assessment of investments Such equipments are specified in common units of measurement: "kits for organized activities." The kits consist of a "basket" of equipment worth Arkhelles village.
3 000 for Alps village and
27 500 for
The overall cost of investment in kits for activities for one half year equals the number of kits bought (decided) multiplied by the price of one "kit for organized activities". Kits ordered from the specialist supplier are delivered and available for the customers at once. Organizers Remember that they are engaged for a period of 6 months and that their wages amount to 0,50 % of the permanent staff's salaries in the Alps and 0,30 % of the permanent staff's salaries in the Arkhelles.
18
5. ENVIRONMENT 5.1 TAXATION 5.1.1 HOLDING COMPANY It must comply with the French legislation as far as direct and indirect taxes are concerned. Value-added tax It is calculated on the tour operator's margin and the operating proceeds it invoices. VAT thus collected is paid back after deduction of recoverable VAT in normal legal conditions. The rates are as follows: reduced rate 19,60 %.
5,50 %, intermediate rate
19,60 %, normal rate
Direct taxes There are two sorts: about euros
3 000 in local tax and
5,00 % in tax on salaries.
Corporation tax The corporation tax is calculated from the profit stated at the end of the financial year, after deducting possible deficit in the previous years. The corporation tax rate is 33,33 %. The corporation tax is paid after deducting instalments already paid out. Moreover, the parent company is subjected to the yearly flat-rate tax. 5.1.2 THE SUBSIDIARIES Alps village The French subsidiary is subjected to the same legislation. Arkhelles village Its head office being in the Arkhelles archipelago, it is rightfully subjected to the fiscal legislation applicable on the archipelago. • no VAT, • about Darkhis 60 000 in local tax, • tax on salaries: 2,00 % of gross salary, • corporation tax: 20,00 % of the profit after deducting deficit of the previous years. No flat-rate tax.
19
5.2 SUNDRY EXPENSES AND EARNINGS 5.2.1 HOLDING COMPANY The parent company bears the operating costs linked to its structure and to transactions other than purchases of services linked to its activity as a tour operator. Nature of the charges These charges mainly concern the following expenditure: • supply of power, maintenance, • business management, • consumption of services provided by external partners, o maintenance and repairs, o insurance premiums, o purchase of studies and surveys, o commissions on sales, o fees, o business trips and transportation of goods, o postage, telecommunications, o banking services. • direct taxes, notably local taxes and taxes on salaries, • staff charges, notably the salaries of the managing director and head office staff, • depreciation allowance on fixed assets owned by the company. Although some expenses are virtually fixed, others are due to services provided to the company. Service providers Kaoni Holidays can obtain services from the following providers: • the Insurer who offers guarantee against some risks. He can propose, on request, contracts adapted to the area. • Markinform: market survey company. It conducts multiple market analyses. It also examines queries by companies after providing an estimate. • Accountservices: chartered accountants. They offer to make out the companies' annual accounts syntheses, statements of income, financial and end-of-half-year charts. The parent company is also in charge of the promotion of Group K's products through adverts and the publishing of leaflets and brochures. Although part of the expenditure is directly deducted from the margin made by the holding company, some other expenses are re-invoiced as fixed or proportional head office expenses.
20
5.2.2 THE SUBSIDIARIES The villages also bear part of the expenses linked to their specific structure and functioning. Nature of the charges The charges concerned are: o supply of power and maintenance, o administrative supplies, o consumption of external services paid for by the companies: o maintenance and repairs o insurance premiums, o head office expenses, o business trips and transportation of goods, o postage, telecommunications, o banking services • direct tax and rates, notably the local tax and tax on wages. These charges are usually partly structural and partly linked to criteria such as the activity, the turnover, the accommodation capacity… Although the companies cannot always modify the volume of some expenses, the village management is directly in charge of others: maintenance (see § 4.3) and the holding company decides unilaterally on head office expenses (see § 3.2). Service providers The villages may be in relation with the insurer, for instance, but they have no direct link with such companies as Markinform or Accountservices.
