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Pestel Analysis

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AICD Company Directors Course

Assignment

Case Study 1: Traveltime Global Limited (TGL)

Part 2

|External Risks - PESTEL |
|Political |US is a stable political environment |
| |We already do business in the US and understand the legal, tax etc regime |
| |Sunbelt suffered a severe downturn post 9/11 and took 3 years to recover – potential for similar |
| |impact from future terrorist activity |
|Economic |US economy has stalled and expected to remain flat for some time |
| |Travel industry suffering downturn – potentially depressed holiday revenues |
| |Already seeing slowing in property sales (and 80% sales at TV are domestic) |
| |International sales are currently declining (from 20%) - weakening US$ may encourage some |
| |regrowth |
| |Insurance premiums in hurricane prone districts have risen since Katrina and likely to continue |
| |to rise |
|Social |Ageing population in the US and traditional attractiveness of Florida as retirement destination |
| |mean there is a growing population of potential buyers/visitors (however see also environmental |
| |risk) |
| |Orlando is well established as both a retirement and vacation destination – with proximity to |
| |attractions such as Disneyland |
| |Global anti-US sentiment still relatively high (20% TV sales from off shore) |
|Environmental |TV district is prone to storms – likely to cause further construction delays and ongoing |
| |rectification costs |
| |Risk that perception that storm activity signals an area impacted by climate change/global |
| |warming will reduce Orlando’s perceived attractiveness as a long term destination and so depress |
| |consumers willingness to buy |
| |Risk that consumers will be unwilling to visit due to perceived risk of bad weather/storms |
|Legal |Exposure to long tail property development legal claims risks (not a part of the ‘main’ business |
| |portfolio) |
|Internal Risks |
|Capability |TGL has limited experience in most of the capabilities required for the ongoing development of |
| |TV. |
|Capability |Core to TGL? |Current performance |Overall assessment |
|Property development |( |Behind schedule due to weather delays | |
| | |Spec change to higher cost units | |
|Property ownership |( | | |
|Property mgt |( | | |
|Resort operations |( |High LTIFR and 15% staff turnover suggest operational | |
| | |issues | |
|Real estate selling |( |Behind schedule due to weather delays | |
|Vacation selling |( | |Strong |
|Financial |The balance of the project is considered to contain financial risk as a result of: |
| |significant capital expenditure ($240M) still being required; |
| |the US economy is at risk of slipping into deep recession as a result of the sub-prime crisis; |
| |equity and debt is difficult to raise; |
| |when equity and debt can be raised it is costly to do so; |
| |a gluten of property is on the market due to wide spread foreclosures. |
| |cash flow / earnings risk. If |
| |completion (construction) of the remaining works is delayed; |
| |sales are delayed; and/or |
| |forecast sale prices aren’t achieved; |
| |could put significant pressure on the group cash flows / earnings. |
| |Compression of the construction program to make up lost time due to weather could result in the |
| |quality of the work diminishing result in additional provision being required for warranty |
| |claims. |
| |Opportunity cost of distraction from core business other better performing opportunities |
|Competitive Advantage |The appears to be little competitive advantage derived from the investment of TV. |
| |Current returns from the business are less than the rest of the business. Hockey stick future |
| |forecast returns. |
|Operational |LTIFR of 22 and rising. Considered high |
| |Staff turnover high at 15% |
|Synergies / Value |The project is not seen as synergistic. If anything it has the potential to distract management |
|Proposition |from the core business. This is of particular relevance if thing don’t go well. Already the |
| |project is behind schedule in a market where property sales and the US economy generally are |
| |contracting rapidly. |

Capability assessment

Recommendation

Sell TV, and use the resulting proceeds to pay down debt and build a war chest that can be used to fund further acquisitions in the core business. We anticipate that with the slowing travel market, there will be distressed sales coming to market and some may prove attractive for TGL.

Key Points

External economic environment has changed

High opportunity cost

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