strategy presentation

Presentation Outline

• Company Overview

• Internal Analysis: Resources, Capabilities & Core Competencies

• External Analysis: PESTLE, Porter’s 5 Forces

• Competitors Analysis

• Current Performance

• Recommendations

Company Overview

Company Overview

• Listed on SGX since 2006

• Developer, owner and manager of spas and resorts

• 2 brands

• Banyan Tree

• Angsana

CompanyOverview

InternalAnalysis

ExternalAnalysis

Competitors Analysis

Current Performance Recommendations

Company Overview

• 3 revenue sources

CompanyOverview

InternalAnalysis

ExternalAnalysis


Current Performance Recommendations

9%

29%

62%

Hotel investmentsFee-based businessesProperty sales

Source: Banyan Tree Annual Report 2010

What are Banyan Tree’s strengths?

Resources, Capabilities & Core Competencies

InternalAnalysis

ExternalAnalysis


Current Performance RecommendationsCompany

Overview

Resources Capabilities Core Competencies

• Experienced & multi-disciplinary management team

• Well-trained & innovative workforce

• Trusted brand

• Excellent reputation

• Effective brand management

• Constant innovation

• “Create holiday destinations”

• Deliver top-notch service

• Commitment to sustainable development

• Ability to leverage on strong brand equity in delivering superior customer experience

• Leads to customer loyalty & satisfactionSustainable Competitive Advantage

Business-Level Strategy

InternalAnalysis

ExternalAnalysis


Current Performance RecommendationsCompany

Overview

Overall Low-Cost Provider Strategy

Broad Differentiation Strategy

Focused Differentiation Strategy

Focused Low-Cost Strategy

Best-Cost Provider Strategy

A Broad Cross-Section of Buyers

A Narrow Buyer Segment (or Market Niche)

Lower Cost Differentiation

Mar

ket T

arge

t

Type of Competitive Advantage Being Pursued

Focused Differentiation Strategy

Where is Banyan Tree headed towards?

Expansion into China: Rationale

• Diversification

• Avoid tying the Banyan Tree fortunes to volatile Thailand market

• Leverage on tremendous growth projected for China’s domestic travel sector

• Revenue from existing resorts in China doubled from 2008 to 2010


Current Performance RecommendationsInternal

AnalysisCompany Overview

ExternalAnalysis

Expansion into China: Strategy

• Established China hospitality fund to use for expansion

• Total funds: S$214 million

• Aim to plant 19 “Banyan Trees” in China by 2015

• Locate its resorts in second-tier and third-tier cities




ExternalAnalysis

Low costs of operations

Ability to charge premium price

High profit

What are macroeconomic factors in China that Banyan Tree are exposed to?

PESTLE Analysis:Political

• Politically-stable

• Single party leadership via the Chinese Communist Party

• Satisfaction with party due to extraordinary economic growth




ExternalAnalysis

PESTLE Analysis:Economic

• World’s fastest growing economy with average GDP growth of 10.5% from 2003 to 2012




ExternalAnalysis

-10

-5

0

5

10

15

2003 2006 2009 2012

% re

al c

hang

e in

GDP

China India Germany Japan USA

Source: EIU Market Indicators & Foecasts

PESTLE Analysis:Economic




ExternalAnalysis

Source: DataMonitor

02468

10121416

2006 2007 2008 2009 20100

10203040506070

China hotels & motels industry value: $billion, 2006-2010% Growth $ billion

PESTLE Analysis:Social




ExternalAnalysis

Source: BCG Wealth Market Sizing Database 2008

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

858740

635542

465391

292230199173147

Number of millionaire households in China: 2002-2012 (in thousands)

Total millionaire HH AuM (US

$Tn)0.45 0.55 0.64 0.76 1.01 1.44 1.79 2.16 2.63 3.20 3.87

Average AuM per millionaire HH (US$ Mn)

3.08 3.18 3.25 3.30 3.47 3.68 3.84 3.98 4.14 4.32 4.51

PESTLE Analysis:Technological

• World’s second-largest expressway network

• Projected to own 820,000km of expressway in next decade

• Invested US$70billion on new airports & expanded existing airports‘ capacity




ExternalAnalysis

PESTLE Analysis:Environmental

• 41 UNESCO World Heritage sites

• Banyan Tree has received government approval to open resorts in several sites

• E.g. Mt. Huangshan, Jiuzhaigou valley & Lijiang old town




ExternalAnalysis

PESTLE Analysis:Legal

• Government imposes bureaucratic red tape

• Causes delay

• Foreign firms own right to use but not own land

• Must maintain good guanxi with the government




ExternalAnalysis

PESTLE Analysis:Conclusion

• Extremely lucrative market for players in luxury hotels and resorts industry

• Economic outlook highly positive

• Potential in domestic tourism

• Concerns

• Bureaucratic red tape

• Lack of law enforcement against counterfeits




ExternalAnalysis

Is the luxury hotels & resorts industry in China lucrative?

Industry Analysis: Porter’s 5 Forces

• Luxury hotels and resorts in China are generally lucrative




ExternalAnalysis

Bargaining power of suppliers

Bargaining power of buyers

Threat of new

entrants

Threat of substitute products

Rivalry among

existing firms

• Government: Medium

• Construction firms: Low

• Private investors: Medium

• Employees: High

Medium

• Variety of choices of luxury hotels & resorts in China

• Low switching costs

Very High

• High barriers to entryLow

• Low to middle-end hotel and resorts industry

Low

• Many established luxury players in the industry

High

How is the competition in the luxury hotels & resorts industry in China?

Competitor Analysis

Competitor Analysis



ExternalAnalysis

CompaniesCompaniesCompaniesCompaniesCompaniesCompaniesCompaniesCompaniesCompaniesCompanies

Critical Capabilities Weight Banyan

TreeBanyan

TreeAman

ResortsAman

ResortsAccor GroupAccor Group

InterContinental Group

InterContinental Group StarwoodStarwood

Raw Score

Weighted Score

Raw Score

Weighted Score

Raw Score

Weighted Score

Raw Score

Weighted Score

Raw Score

Weighted Score

Brand Management 50% 6.5 3.25 5 2.5 7 3.5 7.5 3.75 7 3.5

Innovation 10% 7 0.7 5 0.5 6.5 0.65 7 0.7 7 0.7

Quality service 25% 8.5 2.125 7 1.75 7.5 1.875 8 2.0 8 2.0

Sustainable development 15% 8.0 1.2 5 0.75 8 1.2 8 1.2 6 0.9

100% 7.275 5.5 7.225 7.65 7.1

Competitor Analysis

• Accor Group & Aman Resorts

• Offer similar resort concepts

• Neither has a strong foothold in market

Competitor Analysis



ExternalAnalysis

• InterContinental Group & Starwood

• Major players

• Mostly dealing with hotels & business travellers

• Different target market segments

Banyan Tree has potential to become dominant player

How is Banyan Tree currently performing in China?

Current Performance in China:Quantitative




ExternalAnalysis

2008

• Revenue from China’s operations doubled 2010

Future

• Future increase in revenue

• Contributions to Banyan Tree’s revenue increased from 8% to 18%

Current Performance in China:Qualitative

• Unacceptable for Banyan Tree

• Ideal should be <10%

• Affect brand equity

• China resorts yet to meet high-quality standards expected




ExternalAnalysis

23%

77%

China Positive reviewsNegative reviews

Total no. of reviews: 319

9%

91%

Thailand

Total no. of reviews: 644

16%

13%

28%

34%

9%

Transportation difficultiesLow quality of foodPoor customer servicePoor maintainanceBoredom

Source:

Are Banyan Tree’s expansion plans able to meet investors’ expectations?

Forecasted Financial Performance:Capital




ExternalAnalysis

Fund Name The Banyan Tree China Hospitality Fund

Type Private Equity Fund

Size S$214 million (RMB 1.07 billion)

Investors Chinese domestic HNWI & Banyan Tree

Time Frame 6 years (2011-2016)

Forecasted Financial Performance:Benchmark

• 6% return over 6 years

• 4% return over 10 years

• 1/3 share of its yearly profits




ExternalAnalysis

Forecasted Financial Performance:Assumptions

• 4 Banyan Tree & 2 Angsana resorts operating in China in 2010

• Assume Banyan Tree contribute 67% of revenue

• Assume operating profit margin is 9.84% (average from past 3 years)




ExternalAnalysis

China hotel revenueChina hotel revenue

2010 ($‘000)

Total hotel investment revenue in 2010 189,327

Percentage contributed by China resorts* 18%

Total revenue contribution by China resorts 34,079

Percentage contributed by Banyan Tree brand resorts only 67%

Total revenue contribution by China Banyan Tree brand resorts 22,833

Total number of China Banyan Tree brand resorts 4

Contribution per China Banyan Tree brand resort 5,708

*Percentage obtained from annual report 2010*Percentage obtained from annual report 2010

Forecasted Financial Performance:Assumptions

• Assume total number of resorts opening in 2015 is 19 (Banyan Tree website)

• Assume China corporate tax remains unchanged at 25%




ExternalAnalysis

Total number of China resortsTotal number of China resorts

Current 4

Additional resorts in 2011 2





Total no. of China resorts 19

Forecasted Financial Performance ($‘000)




ExternalAnalysis

2010 2011 2012 2013 2014 2015 2016 Total4 resorts in 2010 (existing resorts) 22,833 25,733 29,001 32,684 36,835 41,513 46,785 212,5492 resorts in 2011 0 5,708 12,886 14,500 16,342 18,417 20,756 88,5903 resorts in 2012 0 0 8,562 19,299 21,750 24,513 27,636 101,7515 resorts in 2013 0 0 0 14,271 32,166 36,251 40,855 123,5424 resorts in 2014 0 0 0 0 11,416 25,733 29,001 66,1501 resort in 2015 0 0 0 0 0 2,854 6,433 9,287Total revenue from hotels 31,441 50,429 80,754 118,509 146,280 171,455 601,869

Operating profit before tax (9.84%) 3,094 4,962 7,946 11,661 14,689 16,871 59,224Tax (25%) 773 1,241 1,987 2,915 3,672 4,218 14,806Operating profit after tax (A) 2,320 3,722 5,960 8,746 11,017 12,653 44,418

Required return (B) 7,576 7,576 7,576 7,576 7,576 7,576 45,454Additional return required (A-B) -5,255 -3,854 -1,616 1,170 3,441 5,078 -1,036

Total returns from investments will fall short of investors’ expectations by $1,036,00

Summary of Evaluations

• Hotels & resorts industry is generally lucrative in China

• Competition in this niche market is not strong

• Quality of resorts compromised in midst of expansion plans

• Current expansion plans is insufficient to meet investors’ expectations




ExternalAnalysis

Recommendations for the next three years

Recommendation 1:Open 2 Additional Resorts

• Resorts should be located in rural areas with rich local cultures & good supporting infrastructure

• 3 possible locations

• Hunan province

• Henan province

• Guizhou




ExternalAnalysis

Rationale• To generate

sufficient profits to meet investors’ expectations

Implementation Benefits

• Excess returns of $335,000

• Excess profits could be used to make up any shortfall in Banyan Tree’s Angsana brand resorts in China

Recommendation 2:Increase Quality of Resorts

• Conduct regular internal audits

• Tighten quality management policy using stricter goals & KPIs

• Increase training & implement continuous training programmes

• Review current level of human resources & employ more workers if required

• Improve quality of food




ExternalAnalysis

Rationale• Quality of

Banyan Tree resorts in China has been compromised

Implementation Benefits• Allow Banyan

Tree to continue expanding in China

• Maintain brand equity

Recommendation 3:Open Banyan Tree Management Academy in China




ExternalAnalysis

Rationale• To support Banyan Tree’s

aggressive growth in China

• Need for differentiated training for Chinese employees

Benefits• Opportunity to build a highly-

trained and dedicated workforce in China

• Opportunity to increase knowledge capital

Recommendation 4:Establish Good Guanxi with Investors

• Allow investors to establish a sense of ownership towards Banyan Tree’s projects

• Golden loyalty cards




ExternalAnalysis

Rationale• Investors play

a crucial role in providing funds for Banyan Tree’s expansion

Implementation Benefits• Boost

investors’ confidence

• Increase access to funds in future

Recommendation 5:Establish Good Guanxi with Municipal Governments




ExternalAnalysis

Rationale• Government co-operation is

essential

Benefits• Increase access to business

opportunities & information

• Reduce risk of compulsory acquisition by government

• Increase stability & certainty of business in China

Conclusion

Overall Estimated Financial Impact

2010 2011 2012 2013 2014 2015 2016 Total4 resorts in 2010 (existing resorts) 22,833 25,733 29,001 32,684 36,835 41,513 46,785 212,5492 resorts in 2011 0 5,708 12,886 14,500 16,342 18,417 20,756 88,5903 resorts in 2012 0 0 8,562 19,299 21,750 24,513 27,636 101,7515 resorts in 2013 0 0 0 14,271 32,166 36,251 40,855 123,5424 resorts in 2014 0 0 0 0 11,416 25,733 29,001 66,1501 resort in 2015 0 0 0 0 0 2,854 6,433 9,287

2 additional resorts in 2015 0 0 0 0 0 5,708 12,866 18,575

Total revenue from hotels 31,441 50,429 80,754 118,509 154,988 184,322 620,443

Operating profit before tax (9.84%) 3,094 4,962 7,946 11,661 15,251 18,137 61,052Tax (25%) 773 1,241 1,987 2,915 3,813 4,534 15,263

Operating profit after tax (A) 2,320 3,722 5,960 8,746 11,438 13,603 45,789

Required return (B) 7,576 7,576 7,576 7,576 7,576 7,576 45,454

Additional return required (A-B) -5,255 -3,854 -1,616 1,170 3,863 6,027 335

Conclusion

• Recommendations

• Open 2 new resorts in 2015

• Improve quality of resorts in China

• Open another Banyan Tree Management Academy in China

• Establish & maintain strong guanxi with investors & municipal governments

• Potential for Banyan Tree to become market leader in its premium segment in China

Question & Answer

strategy presentation

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luxury hotels

luxury hotels

banyan tree

capabilities

company overview

internal analysis

competitor analysis

competitors analysis