AQA A2
Business Studies
BUSS3 - Strategies
for Success
Revision Workshop
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PEG's origins date back to 1995 when property developer Jon Prior opened the first Animal Adventure
Park near Windsor. Four further Animal Adventure parks were opened in the following two decades. In
2011 PEG plc floated on the London Stock Exchange and, in 2012, PEG raised new share capital
and bank debt to finance the acquisition of Florida Fun Inc. for £200m. Florida Fun operates five water
parks across Florida.
With 6 million visitors in 2013, PEG is a well-established and profitable operator but it is substantially
smaller than the market leaders in the global visitor attraction market.
PEG's two theme park brands can be summarised as follows:
Brand
Average
Annual
Attendance
Market Positioning
(visitors per park)
Animal
Adventure
(5 locations)
400,000
Targeted at families and those seeking an adrenaline rush! An
adventure park featuring rope courses, climbing walls, zip lines
and other challenges. The animal exhibits at each park emphasise
protection of endangered species and conservation.
Florida Fun
(5 locations)
800,000
Targeted at families, each Florida Fun location features a standard
layout of over 40 water slides, wave machines, lagoons and flowriders. Each location also includes a themed hotel and conference
complex.
Jon Prior retired from day-to-day control of the business
in June 2012 and was succeeded as CEO by Michelle
Clark who was previously International Development
Director for Merlin Entertainment. Following a difficult
summer in 2012 due to poor weather and the adverse
impact of the 2012 Olympics, Michelle conducted a
strategic review of the UK business. The main purpose
was to identify strategies which could improve the
competitiveness and financial performance of PEG.
2 AQA A2 BUSS3 Revision Workshop
Issues Identified from the UK Strategic Review
The Strategic Review included a comprehensive benchmarking exercise which compared
the competitiveness of PEG against the likes of Merlin Entertainment, Disney, Six Flags
and other leading theme park operators.
The benchmarking identified that PEG’s unit costs in the UK were substantially higher than
comparable UK attractions. This had already been highlighted as a problem by Finance
Director Jamie Harrison who was concerned that individual parks rarely managed to achieve
revenue targets or keep within annual cost budgets. Investment projects in the UK parks
invariably resulted in cost overruns as a result of delays and optimistic forecasting. Jamie
believes that the introduction of profit centres in the UK, as used by Florida Fun in the US, would
address these problems. He proposes that each Animal Adventure park is treated as a profit centre
from 2014 with local management offered a substantial bonus if they achieve budgeted revenue.
The benchmarking data also revealed that PEG had some ground to make up in terms of revenue
generation. The leading theme park competitors have all invested heavily in online booking and
sophisticated flexible pricing systems. Michelle is worried that PEG’s systems are outdated and
ineffective and has asked Operations Director Rachel Brooks to evaluate a proposal to outsource
PEG’s IT system development operation.
As part of the review, PEG’s HRM department conducted a major employee survey focusing on
how “engaged” they felt with the business. Some key survey findings are shown in Appendix 2.
Michelle believes that Animal Adventure could benefit from learning how Florida Fun is organised
and managed. She believes that the decentralised approach taken by Florida Fun together than with
their flat organisational structure at each location is a model that will help improve the competitiveness
of the UK parks. However, implementing this change will involve a significant
delayering and the potential loss of some highly-experienced middle managers.
Another challenge faced by PEG is workforce planning given the
unpredictable and seasonal nature of demand for visitor attractions,
particularly in the UK. At the next board meeting, HR Director Sian
Cahill plans to propose that PEG implement a system of zero-hours
contracts for all employees in the UK as way of minimising
employment costs and providing attraction management with
maximum operational flexibility. A similar system already
exists and works well at Florida Fun.
www.tutor2u.net 3
Michelle’s Proposed Strategy
In addition to the functional strategies outlined above, Michelle has
proposed two key investment projects to support higher returns for
shareholders in the medium-to-long term:
1 Transforming the UK theme parks into destination resorts by
adding accommodation and conference facilities;
2 Launching the successful Florida Fun brand and format in China
Hotels: Accommodation and Conference Facilities in the UK
Each Animal Adventure park has substantial unused freehold land and it is proposed that a new hotel and
conference facility is built at each one, similar to the successful facilities at competitor attractions like Alton
Towers and LEGOLAND Windsor. The estimated investment returns for this project are included in Appendix 5.
PEG has been approached by Whitbread plc, the operator of Premier Inn, expressing interest in partnering with
PEG on this growth project. Whitbread propose that the hotels use the Premier Inn format and that PEG is
paid a profit share based on annual performance – this proposal will be considered by the Board together
with the original approach of funding and managing the hotels as an internal project.
New Parks in China
Market research commissioned by PEG suggests that China represents a significant growth opportunity. Two
China-based theme park chains, OCT Group and Haichang Group, are now in the Top 10 global chains.
Total theme park visits in China (109m in 2012) are expected to surpass those of the US (132m in 2012)
in the near future as millions of people join China’s rapidly-growing middle class.
Michelle has recently returned from a business development trip to China during which she met with the
Haichang Group. They have agreed a draft investment proposal (summarised in Appendix 5) which would
involve PEG investing £100m into a joint venture to launch the Florida Fun water park brand into China.
Major shareholders and PEG’s
bankers are supportive of both
investment projects. However, they
have indicated that the maximum
equity and debt funding that PEG
might be able to raise is £100m
and they wish the Board to focus
on just one of the two growth
opportunities.
4 AQA A2 BUSS3 Revision Workshop
Appendices
Appendix 1: Marketing Data
Leading Theme Park Groups Worldwide (2012)
Walt Disney Attractions
Merlin Entertainments Group
Universal Studios Recreation Group
Six Flags
Prior Entertainment Group
Seaworld Parks & Entertainment
Haichang Group
Visitors (m)
% visitor growth over 2011
126
54
35
26
6
24
8
4.7%
16.4%
7.9%
6.0%
2.6%
3.0%
24.5%
Competitor benchmarking
Animal
Adventure
Florida Fun
Leading
Competitors
(average)
18%
£45
12%
7%
42%
£55
15%
17%
38%
£75
20%
21%
% of bookings made online
Average spend per visitor (£)
Marketing costs as a percentage of revenues
% of visitors with an annual pass
Appendix 2: HRM Data
Selected results from recent employee engagement survey
Statement: % of Employees Agreeing
I have a clear understanding of the company’s objectives
I am paid fairly
I enjoy working here
I would like to be given more responsibility
Animal Adventure
Florida Fun
51%
74%
88%
70%
90%
52%
87%
45%
Animal Adventure
Florida Fun
Centralised
5
7
80%
Decentralised
3
12
70%
Key HRM data
Approach to decision-making
Levels of hierarchy
Average span of control
Average labour turnover
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Appendix 3: Operations Data
Selected operations data
Animal Adventure
Florida Fun
120
6%
64%
2%
100
9%
75%
12%
Index of real unit cost
% of revenue spent on new rides & exhibits
% of customers rating their visit as good value for money
% of operating costs from outsourced functions
Appendix 4: Financial Data
Extracts from Prior Entertainment Group plc.’s annual accounts
Number of issued shares
Dividend per share (£)
Non-current assets (£m)
Current assets (£m)
Cash included in current assets (£m)
Current liabilities (£m)
Non-current liabilities (£m)
Revenue (£m)
Operating profit (£m)
Total equity (£m)
Share price (31 Dec)
2012
2013
20,000,000
£0.30
690
120
95
140
215
280
42
455
£15.00
20,000,000
£0.12
720
125
105
145
210
310
56
490
£12.00
Appendix 5: Investment Project Data
Extracts from the investment appraisal of the two growth projects
Add Accommodation to UK Parks
Expand into China
Proposed method
Add hotel & conference facilities
to UK parks
Own build
Total investment
Method of finance
Increase in annual operating profit
ARR
Payback Period
NPV *
£100m
Bank loan / debenture #
£20m
15%
5 years
£30m
Build 5 Florida Fun
water parks in China
50:50 joint venture
with Haichang Group
£100m
Cash
£25m
25%
8 years
£50m
Project
* NPV calculated using a 10% discount rate
# Assumes an interest rate of 8%
6 AQA A2 BUSS3 Revision Workshop