© Copyright Reserved Serial No……………… Institute of Certified Management Accountants of Sri Lanka Level 5 – November 2013 Examination st Examination Date : 1 December 2013 Number of Pages : 14 Examination Time: 1.30 p:m. – 4.30 p:m. Number of Questions: 06 Instructions to candidates: 1. Time allowed is three (3) hours. 2. Attached to the question are Scenario I given in advance and Scenario II 3. The answers should be given in English language. Subject Subject Code Integrative Case Study (ICS - 405) Question (100 Marks) Crown Limited and Entertainment Business You are required to: 1. Prepare a report by showing weaknesses of and threats that are likely to be faced by Crown Limited in relation to new investments proposals. (10 Marks) 2. Analyse the external environment of the Crown Colombo by referring to TEMPLES model. (15 Marks) 3. Explain possible corporate governance and regulatory issues of Crown Colombo . (15 Marks) 4. Write a report to the Chairman of Crown Limited on the assessment of competitive position of Crown Colombo by referring to threat of new entrance, power of buyers, power of suppliers, threat of substitutes and assuming that you have been appointed as a consultant . (20 Marks) 5. Explain the possible socio economic and political consequences and their impact on the economy assuming the new investment would successfully complete by 2016. (20 Marks) 6. Discuss the possible strategies that Crown Colombo can adopt with a view to hold a competitive edge in the market by 2020. (20 Marks) (Total 100 Marks) Institute of Certified Management Accountants of Sri Lanka 1 Level 5 - Integrative Case Study (ICS – 405) – November 2013 Examination Crown Limited and Entertainment Business Scenario I Brief History Crown Limited was established in 2007 and is one of Australia's largest gaming and entertainment businesses comprising of casino, hotels, properties, function, shopping and entertainment facilities and restaurants. Crown is also a registered training organization with a state-of-the-art training facilities. The Crown Limited was formed as a result of acquiring Publishing and Broadcasting Limited (PBL) in which the Chairman Mr. James Packer has a controlling interest. The Crown is diversifying its businesses and possessing the control of many entities. Crown Casino and Entertainment Complex in Melbourne (Crown Casino) and Crown Perth Entertainment Complex, in Perth (Burswood Entertainment Complex) are two major entertainment companies which the Crown holds 100% equity of them. In addition the following entertainment businesses contribute to the group income from entertainment significantly. Aspinalls United Kingdom casinos (50%) Betfair Australasia Pty Ltd: an online betting exchange (50%) Melco Crown Entertainment (Macau) Limited: a joint venture developing casino/hotel properties on the Cotai Strip in Macau, including City of Dreams (34%) Cannery Casino Resorts LLC: which operates casinos and hotels in Nevada and Western Pennsylvania, USA (24.5%)? Aspers Holdings (Jersey) Limited: a casino business in the United Kingdom Meantime, Australian government invited the Crown to start the next stage of developing a six star hotel including VIP gaming facilities in New South Wales near Sydney Harbour. The Crown has accepted the conditions of the invitation and is expected to run by Crown Perth. The hotel is supposed to have 350 rooms and suits, 80 luxury apartments, signature restaurants, bars, luxury retail outlets, pool and SPA facilities, conference rooms and VIP gaming facilities. If this project would be completed successfully that will be the first 6 star hotel in Sydney. The Crown has already initiated the work on designing the hotel. However, an independent committee has been appointed by New South Wales government chaired by former head of Australian Future Fund David Murray to determine whether the agreement formulated is consistent with the project terms and conditions established in stage 2 which is operated by Crown Melbourne and has connection with the new stage. The management is considering new investment proposals as a part of its expansion strategy. One of such investment proposals is to diversify its investment to an emerging market in Sri Lanka (Crown Colombo -Lake Limited Holdings). After several rounds of discussions and negotiations, the Sri Lankan government has given the approval to James Packer to invest in a two tower building in Colombo. This project is expected to be completed and start its operations. Crown Casino and Entertainment Complex (Melbourne) This wholly owned subsidiary located in Melbourne, Australia and started its operations in 1994. It was originally founded, owned and run by Lloyd Williams a businessman until 1999 when Packer took over it through PBL. The entire complex has a space of 510,000 square meters and is considered to be one of the largest in the world. Children under 18 are permitted only to the entertainment and shopping section of complex, but not into the gaming area or areas serving alcohol. It is open for 24 hours a day, 7 days a week except for few national holidays. Institute of Certified Management Accountants of Sri Lanka 2 Level 5 - Integrative Case Study (ICS – 405) – November 2013 Examination It has the license for 500 table games and 2,500 poker machines. Crown provides the six main casino games namely Blackjack, Craps, PaiGow, Poker, Baccarat and Roulette. Crown was the first to introduce an electronic version of Roulette known as Rapid Roulette where all gaming takes place on a personal electronic touch screen connected to a central roulette wheel. With respect to poker gaming, the Crown is considered to be one of the major centres for competitive poker in the Asia-Pacific region. The Crown Entertainment Complex launched in 2009 has several nightclubs, a Village Cinema complex and multiple restaurants. The complex also facilitates for an electronic games arcade, laser tag game and bowling alley. Club members of the entertainment complex can earn points on every dollar spent at most outlets within the Crown complex. These points are redeemed for goods and services within the complex. On average the expected amount of points earned in the year 2013 amounted to US $ 10 million. Crown casino runs three hotels within its premises. Crown Metropol is a 5 star hotel having 658 rooms and the largest in terms of number of rooms available in an Australian hotel. Crown Towers is also a 5-star Luxury hotel with 481 rooms and Villas over 38 floors offering guests unparalleled opulence and grandeur accommodation. The other one is Crown Promenade which consists of 465 rooms and provides leisure and is the only purpose built hotel conference facilities. Crown Casino has established modern technology in all the gaming areas and business operations including the internal controls. However, it was reported in 2013 that one had infiltrated to the system and defrauded a huge amount of money which is more than US $ 30 million. During the year, the equity in Echo Entertainment Group Limited was disposed by incurring a loss of $95.6 million. CEO of the Crown said admitted that consumer sentiments in general and particularly in Melbourne is becoming weakening now despite the fact that Crown Casino Melbourne reported an increase of EBITDA by 7.1% compared to the previous year. Victorian Commission for Gambling Regulation (VCGR) has been vested with powers to oversee the operations of Crown Casino to make sure that Crown conforms to Victorian Gambling laws. VCGR also investigates in to grievances of affected parties. VCGR has the evidence that Crown has been repeatedly charged and fined for minor breaches of the Casino Control Act 1991 in many occasions. Crown Perth Crown Perth is located in Perth and provides 24-hour casino, a wide range of restaurants and bars, two hotels, a Convention Centre, nightclub, a theatre with 2,300 searing capacity. The early operations showed high public interest in the casino and reported a gross profit of US $ 1 million per day for its first two months thus showing flourishing results which is much greater than expected annual gross profit of US$ 100 million. People were reportedly in the queue at the entrance for hours as the gaming floor to enter the premises. In 2004, Publishing and Broadcasting Limited (PBL), whose principal shareholder was Kerry Packer, acquired full control of Crown Perth Casino. In 2007 PBL sold it to Crown Limited which is now controlled by James Packer, the son of Kerry Packer. It opened “Riviera Room” a new gaming room which is open to the general public in 2007. In December 2008, a new world-class dedicated poker room featuring plasma screens, dedicated bar and lounge area was opened. In 2012, operations were re-branded in line with sister complex Crown Casino Melbourne upon completion of a US$750 million refurbishment. Institute of Certified Management Accountants of Sri Lanka 3 Level 5 - Integrative Case Study (ICS – 405) – November 2013 Examination A new project is now underway to construct a 500 room 'six star' hotel within the premises of Crown Perth at a cost of US$568 million including VIP gaming facilities. The facilities of the hotel will further include luxury apartments, signature restaurants, bars, luxury retail outlets, pool and SPA facilities and conference rooms. This project is expected to be completed by 2016. If this project would be completed successfully that will be the first 6 star hotel in Sydney. The premier of the Government of Western Australia has already announced its support to Crown Perth admitting that his government was backing a bid by Crown to increase its number of poker machines by 500, and the number of gaming tables by 130. This proposal would increase the number of poker machines to 2,500 and gaming tables to 350. However, an independent committee has been appointed by New South Wales government chaired by former head of Australian Future Fund David Murray to determine whether the agreement formulated is consistent with the project terms and conditions established in stage 2 which is operated by Crown Melbourne and has connection with the new stage.