PRE-SEEN ANALYSIS May 2021 - Aug 2021 Acellerate
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PRE-SEEN ANALYSIS
May 2021 – Aug 2021
Acellerate
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Job and role outline
You are a Finance Officer for Acellerate, a car rental company.
What is the Role of a “Finance Officer”
A finance officer must help with:
-Short term focused decisions
-costing
-budgets
-variance analysis
-working capital management
-cash management
-risk management in the short term
Your main role is to support Ethan Tennant, the Finance Manager.
Your tasks include preparation of the annual budget, producing the monthly
management accounts and providing information to management as
required.
P1 Syllabus
You also assist with the preparation of the financial statements and deal with
any queries regarding financial reporting.
F1 Syllabus
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Finntutors.comCompany information
Company background
The company, Acellerate, is a leading car rental company based in Everland, in
Western Europe.
Acellerate is located in a developed economy and so it opens
up advantages such as better infrastructure, highly skilled
workforce and customers have the spending power.
Whereas, we need to also take into consideration the higher
regulation and high factors of productions costs.
This tells us that
“Demand
Conditions”: From this we learn:
Porters Diamond
are strong. Everland is a highly developed
economy which means people
have the interest and the
money to spend on such
services. Also, the government
will have infrastructure in place
to promote such markets.
Everland has a population of around 72 million and has the E$ as its home
currency.
We are also one of the leading car rental
companies.
Market Leader. Competitive Advantage.
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Finntutors.comIn the financial year to 31 December 2020 the company reported sales revenue
of E$206.3 million, a decrease of 25% from the previous year.
It incurred a loss before tax of E$0.8 million compared to a profit before tax
for 2019 of E$11 million.
Please make sure you take ideas from these numbers and use them in
your answers
The reduction in revenue and the pre-tax loss arose as a result of a global
economic recession which impacted the business throughout most of 2020.
A global recession indicates the risk of macro-environmental factors
affecting this industry.
Our business must look at risk management and alternative measures of
risk diversification.
The company was formed in 2002 by Joseph Waller, the current Managing
Director.
Company Founded in 2002 so roughly we have been in business for 19
Years. A business can only and only survive for so long because it has
garnered a set of loyal customers, a growing brand image all of which
amount to increasing Goodwill.
The company’s development was initially slow as it faced severe competition
from global car rental brands.
As we read in the industry analysis, the market is fragmented and there are
some Major players that have huge presence globally and hence
competition is always going to be a big feature of this market.
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Finntutors.comHowever, between 2010 and 2019 it grew rapidly, exploiting its home-grown
credentials and commitment to quality customer service.
Home-grown credentials and quality commitment along with superior
customer service are factors that have generated competitive advantage for
us.
The company, operating under the Acellerate brand, provides a high-quality
car rental service.
Rental fees are generally above those of value-branded car rental companies.
It mainly services the business and premium leisure segments of the travel
industry.
From our industry analysis we know that the business segment is also
called the executive segment. It is anticipated to exhibit the fastest growth
over the forecast period. The rising number of business travellers across the
globe, especially in developing countries, is a prominent factor in
accelerating segment growth. Furthermore, the increased preference for
executive cars can be attributed to the fact that they provide the optimum
blend of sophisticated features and cost-effectiveness, thereby making
them a preferred medium of transport among corporate consumers.
From our industry analysis we also know that the luxury segment is
picking up pace in emerging countries whereas it has already attained its
maturity in many developed countries.
Opportunity
The economy segment dominated the market in 2018-2020
with over 30.0% revenue share and is expected to retain its
dominance over the forecast timeframe.
Since our revenues are falling and recession has hit the
global economy offering economic options could be a step
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Finntutors.comThe company operates a number of sales locations throughout Everland.
The sales locations are situated at, or close to, airports and in some off-
airport sites.
Each sales location is supported by a car maintenance centre which is located
close to the sales location.
A single maintenance centre may support more than one sales location.
Some of the sales locations and maintenance centre properties are owned by
the company whilst others are leased.
Important Syllabus Areas
Since we own some sales locations and maintenance centre properties
your F1 syllabus revolving around IAS 16 PPE, Revaluation entries,
disposal of assets, IAS 36: Impairment of assets becomes very important.
Since we lease some of the sales locations and maintenance centre
properties IAS 16: Leases become a very important syllabus area.
In response to the reduced demand, and in an effort to lower costs, the
number of sales locations was cut in 2020 from 155 to 117.
The main closures were in off-airport sites.
Acellerate however continues to operate car rental sales locations at most of
the airports and largest cities in Everland.
Maintenance centres were also closed in 2020 where the sales locations that
they supported were closed or where it was decided that the maintenance
work could be carried out at another centre.
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Finntutors.comThe company’s rental fleet consists of a mixture of company-owned cars and
cars subject to repurchase agreements (see the extract from the notes to the
financial statements on page 20).
Under a repurchase agreement, the manufacturers agree to repurchase the car
at a specified price subject to car condition, mileage and holding period
requirements. Typically, the holding period for a car is 12 months.
The fleet was reduced during 2020 by a mixture of disposals and non-
replacement when the car repurchase agreement expired.
It currently has a fleet of 15,000 cars down 4,995 from the previous year.
In normal trading conditions, the size of the fleet will vary throughout the year
depending on the season.
Important Syllabus Areas
Seasonal factors affect this industry and hence your Time Series Analysis
topic from P1 becomes important.
The demand for car rental is at its highest during the summer months.
The actions taken by the company in 2020, such as reducing the fleet size and
closing some sales locations and maintenance centres, have proved to be
effective in enabling the company to survive the worst effect of the recession.
In addition, the failure of some companies operating in the market has
provided opportunities for Acellerate.
Opportunity
Financial performance for the first quarter of 2021 was in line with budget
and the Senior Management Team believes that the company is now in a solid
position for future development.
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Finntutors.comCompany services
The company provides car rental services throughout Everland.
Customers normally rent a car for 1 day or for a period of up to 1 month.
The average daily fee for the car rental varies depending on the length of the
rental period and the size and type of car hired.
The company’s rental fleet includes a wide variety of types of cars in different
sizes from a range of manufacturers.
The fleet includes cars with manual and automatic transmission.
Fleet management and maintenance will be a major competitive
advantage for this industry.
The fleet cars are mainly diesel and petrol powered but there are also a small
number of electric cars.
A new but upcoming market segment. Is arguably cheaper in maintenance
for the operator (Acellerate) and for customer.
This area can be seen as a growth opportunity.
Additionally, it includes a number of “Prestige” cars which are expected to
appeal to the business market or to leisure customers who are looking for a bit
of indulgence on their vacation.
A specific and focused market.
The average monthly car rental fleet size typically peaks in the summer
months.
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Finntutors.comThe car rental fee includes basic insurance.
Risk management will be a key concern here.
The car will have a full tank of fuel on collection and customers are expected
to return the car with a full tank.
In the event that the car is returned without a full tank, the customer will be
charged for the shortfall.
Customers can book the car rental online direct via the company’s website or
app.
Website and App Management is key for any modern business and adds
to your competitive advantage.
This brings in your E1 syllabus of:
-App management
-Data management
-Digital costing
-Big Data
-Data Analysis
Alternatively, the customer can book at the sales location on arrival.
Such customers run the risk, especially at busy times, that the sales location
will have no cars available of the size and type required.
Incentives to use the app/website and book in advance can be looked at
so we can manage capacity effectively.
In addition, car rental can be booked via third parties, including hotels,
airlines and other third-party brokers.
Acellerate pays a commission on all rentals booked through third parties.
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Finntutors.comAdditional rental services
Long-term car rental: The company offers long-term car hire of periods
between 1 month and 3 months. The rental is charged at a fixed fee per month
and includes an enhanced level of insurance cover and free additional drivers.
There is a restriction on total mileage with an additional fee payable for extra
mileage.
Deliver and collect: On payment of an additional fee, the rental car will be
delivered at the start of the rental period and collected at the end of the rental
period from the customer’s home or place of work.
One-way rental: This service allows customers to collect the car from one sales
location and return it to another location on payment of an additional fee.
Ancillary products and services
In addition to revenue generated from the car rentals and the additional
services detailed above, the company generates revenue from customers
through the sales and/or rental of optional ancillary products and services
including:
• Collision and loss damage waivers, under which Acellerate agrees to relieve
a customer from financial responsibility arising from car damage incurred
during the rental.
• Additional / supplementary liability insurance or personal accident / effects
insurance products which provide customers with additional protection for
personal or third-party losses incurred.
• Products for driving convenience such as roadside assistance services,
portable navigation units and child safety seats.
An ancillary product is a product that is acquired as a bonus or add-on
purchase when buying another product.
This type of product is often offered as a bonus instead of reducing prices
or offering discounts to incentivize customers to purchase the
main product.
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Finntutors.comCompany strategy
The company aims to grow the business through both the development of
new markets and expansion of its range of services.
Whenever suggesting any strategic direction remember our major
aims and you can use it to form a better and more informed answer.
The main objective is to continue to improve margins by utilising digital
technologies to:
• improve asset utilisation;
• improve methods for car disposal using online, direct to consumer and
direct to dealer channels;
• achieve fleet cost efficiencies through fleet planning initiatives;
• control costs and increase efficiencies through process improvements.
Digital focus and commitment is shown by this company and adds to your
competitive advantage.
This brings in your E1 syllabus of:
-Digital costing
-Big Data
-Data Analysis
-Digital cost control
-Intranet systems.
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Finntutors.comThe people
The company currently employs 885 staff.
Most of the staff are employed at the sales locations and maintenance
centres (751) and the remainder at Head Office (134).
134 people to manage the most important functions of the
organization?
The breakup of the “Head Office” function is not given here so I
assume that IT, HR, Finance, Accounting, Marketing, Sales
everything falls here.
IT is every growing in this digital world and with website/app
management in line with our development strategy further IT
improvements and expansions will be on the cards.
Similarly, innovative marketing and sales techniques are being
promoted all over the world. If staff are under unrealistic pressure,
they will not be able to perform and meet the goals that our
company aims to achieve.
HR is one of the most important functions in any organization.
People make companies and having the right, competent people is
imperative.
The finance function which is ever-evolving and demanding needs
to be taken into account. If unrealistic workloads are being
implemented it will not be to the long term success of the
company.
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Finntutors.comThe directors The company directors are as follows: Well experienced to carry out the job. He previously worked with a competitor so knows the day to day of the business and has worked his way up so is also bound to have good market/external knowledge which could prove to be very beneficial. His interest in setting up future expansion and digital technologies can be a big boost and a positive sign for the business. Megan is well educated and qualified to carry out the role. She has a reputation to keep expenses in control and this is something that would have helped us surive the worst of the recession and still stay afloat. Her interest in integrating digital technology into the finance process gives us a competitive advantage as this can help better the company’s financial system. Finntutors.com- All rights reserved. Do not share, copy, reproduce or sell unless you have written permission from Finntutors.com
Well educated director. Has been at the helm of the fleet management system which has proven to be ground breaking in its use of digital technology. His skill and role is vital for us. She has worked as a marketing executive for a retailing company in the past. Her market knowledge and expertise can be a big competitive advantage for our business. Branding is being given importance. Which is definitely a good thing for a business that is a market leader. Leveraging the brand to make sure customers are returning for purchases is a key for our business. Her interest in social media marketing means we are focusing on new trends. Finntutors.com- All rights reserved. Do not share, copy, reproduce or sell unless you have written permission from Finntutors.com
Well educated director. Expanding the company’s services is part of our
strategy and its good to see that we have someone who is directly trying
to fulfil this. His constant focus on potential new opportunities gives us
the forward-looking approach most companies need in this dynamic
business environment.
Very well experienced director. His beliefs of employees being an asset for
the company and key to company’s success are well founded and very
important in today’s modern business environment.
The directors have a wide range of previous experience, mainly in the car
rental industry. They are relatively young and highly enthusiastic.
Couple important points given here.
They say directors have a wide range of experience which is definitely
a competitive advantage for our business.
They also say that the directors are relatively young and highly
enthusiastic. This means that they will be ready to accept modern
business trends and also have a higher risk taking appetitive which
can sometimes be positive for the business.
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Currently we have a Functional Group Structure:
Seeing the images above we can say that a functional structure seems to
be in place where similar activities are grouped together and there is a
degree of specialisation.
Generally recommended for smaller sized organizations who work in a
stable environment and do not offer many different kinds of products.
Benefits:
1. Specialization
2. Scope of expansion
3. Better control
4. More efficiency
Limitations:
1. Long decision-making progress
2. Conflicts between departments
3. Doesn’t give importance to customer and outputs.
It the future we could be asked to move onto a
divisional or matrix structure as our organization
continues to grow.
E1 Syllabus
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