Isle of Capri Strategic
Audit
To: Board of Directors
Kendyl Leuck
Kevyn Holden
Alicia Nunez
Bill Sunderland
Zach Boyd
Melissa Marvin
Table of Contents
Executive Summary ........................................................................................................................................
Past and Current Strategies ........................................................................................................................... 1
Past Strategies ........................................................................................................................................... 1
Current Mission, Vision ............................................................................................................................ 1
Current Strategies ..................................................................................................................................... 1
New Mission and Vision ........................................................................................................................... 1
SWOT Analysis ............................................................................................................................................ 2
Isle of Capri SWOT Analysis (Refer to Appendix A) .............................................................................. 2
Isle of Capri SWOT Matrix (Refer to Appendix B) ................................................................................. 2
Competitor SWOT Analysis (Refer to Appendix C) ................................................................................ 3
Isle of Capri Macro-Economic Factors ..................................................................................................... 3
Conclusion ................................................................................................................................................ 4
Organizational Structure (Refer to Appendix D) .......................................................................................... 4
Current Organizational Chart .................................................................................................................... 4
New Organizational Chart ........................................................................................................................ 4
Companies Uniqueness ................................................................................................................................. 4
Key Success Factors ................................................................................................................................. 4
Distinctive Core Competency ................................................................................................................... 5
Value Chain Analysis (Refer to Appendix E) ........................................................................................... 5
Conclusion ................................................................................................................................................ 6
Market and Competitive Analysis................................................................................................................. 6
Competitors Analysis (Refer to Appendix F) ........................................................................................... 6
Porters Five Forces (Refer to Appendix G) .......................................................................................... 6
Strategic Group Map (Refer to Appendix H) ........................................................................................ 7
IE Matrices (Refer to Appendix I) ........................................................................................................ 7
BCG Growth/Share Matrices (Refer to Appendix J) ............................................................................ 7
GE Nine-Cell Planning Grid- Space Matrix (Refer to Appendix K) ........................................................ 8
Company Life Cycle (Refer to Appendix L) ............................................................................................ 8
In-Depth Financial Analysis ......................................................................................................................... 8
Edward Altman Z-Score (Refer to Appendix M) ..................................................................................... 8
Revenues, Expenses, and NI Graph (Refer to Appendix N) ..................................................................... 8
Trend Analysis (Refer to Appendix O) ..................................................................................................... 9
Ratio Analysis (Refer to Appendix P) .................................................................................................... 10
Conclusions ............................................................................................................................................. 11
QSPM Analysis (Refer to Appendix Q) ................................................................................................. 11
Grand Strategy Matrix (Refer to Appendix R) ....................................................................................... 11
Balance Score Card (Refer to Appendix S) ............................................................................................ 12
Joint Venture/Start-ups/Acquisition/Sell off Ideas ................................................................................. 12
Five Generic Competitive Strategies ...................................................................................................... 12
Short Term Recommendations................................................................................................................ 12
Long Term Recommendations ................................................................................................................ 14
EBIT/ EPS Analysis (Refer to Appendix T) ........................................................................................... 15
Net Worth Analysis (Refer to Appendix U) ........................................................................................... 15
Pro Forma Income and Cash Flow (Refer to Appendix V and W) ......................................................... 16
Turnaround Timeline .................................................................................................................................. 16
Sources of Resistance ................................................................................................................................. 16
Contingency Plans ...................................................................................................................................... 16
Epilogue ...................................................................................................................................................... 17
Assumptions Page ....................................................................................................................................... 17
Works Cited ................................................................................................................................................. 18
Executive Summary
This strategic audit plan was conducted to analyze the current position of Isle of Capri
and the efforts that Isle of Capri will need to take in order to turn the company around. The
existing strategies cover the two-brand strategy as well as the five newly implemented strategies
in early 2011.
The SWOT analysis covered the internal strengths and weaknesses and external
opportunities and threats of the company. This analysis leads to the SWOT Matrix. The SWOT
Matrix created strategies used as recommendations for the company. A SWOT was also
conducted for all competitors as a beneficial tool in the market and competitive analysis section.
The organizational structure of the company will be changing with recommendations in
order to improve efficiency. No one will be fired; however, Vice Presidents will work directly
under their superior and a CMO will be hired. Isle of Capri’s uniqueness comes from its thrive
for financial discipline and strong relationships with suppliers, customers, and employees.
The market and competitive analysis shows Isle of Capri’s relative standing among
competitors for various situations in more detail. Quite a few models were used to analyze the
current position of the company.
Isle of Capri’s end goal is to become profitable. Through studies such as the z-score,
trend and ratio analysis, and net income analysis, Isle of Capri has a better understanding of their
current position financially.
All suggested recommendations were made on a short term or long-term basis. These
recommendations should be implemented in a timely manner in order to receive optimal results.
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Past and Current Strategies
Past Strategies
Isle of Capri Casinos transformed the company in 2007 by implementing a new strategic
plan. These strategies would strengthen the business’ operations and draw in more customer
loyalty. It would provide the audience with the most current gaming technology resulting in
better customer loyalty and exceeding expectations (Capri, Annual Report, 2006, 2011).
Current Mission, Vision
The current mission and vision statement for the Isle of Capri Casinos is not clearly
identified. However, in the 2011 annual report, Virginia McDowell states the Isle of Capri
Casinos operates in regional markets with properties focused on an environment that is clean,
safe, friendly and fun; they are one that delivers value to their customers. She also points out that
they “remain fully committed to the continued enhancement of our company-focused on fiscal
discipline and shareholder value, building stronger relationships with profitable customers,
creating premier entertainment experiences for our customer and providing quality opportunities
for our valued employees” (Capri, Annaul Report p.6, 2011).
Current Strategies
There are 5 main strategies currently being utilized by Isle of Capri Casinos. These strategies
include focusing on operations, elevating the customer experience, fortifying the financial
discipline, leveraging human capital, and repositioning the brands (Capri, Press Kit p.2-3,
2011).
New Mission and Vision
The new vision of Isle of Capri is to be the most desirable casino to visit in the gaming
industry. Through maintaining a standard of excellence the company will be the best in
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providing a wide range of entertainment, a positive work environment, and an upward trend of
profitability in the industry. The new vision is for Isle of Capri to become the top destination and
most recognized low price brand in the gaming industry through the combination of
entertainment, relaxation and adventure.
SWOT Analysis
Isle of Capri SWOT Analysis (Refer to Appendix A)
Isle of Capri’s current SWOT Analysis covers a large variety of areas and aspects. The
internal part of the analysis covered the strengths and weaknesses of the company. The strengths
focus primarily on improvements in efficiency with the staff through the implementation of a
new COO, five new strategies for the company as a whole, and things such as employee benefit
plans. Many of the weaknesses are financial. Revenue changes are taking place as well as
decreases in consumer spending. This also negatively affects the current debt the company holds.
In terms of the external factors affecting the SWOT of Isle of Capri there are various
opportunities and threats. These opportunities include expansion in the market through
acquisitions, property development and online gaming (Hotel Industry Fact Sheet, 2012). Many
of current threats facing Isle of Capri are based on the competition in the gaming/casino industry.
All casinos are facing very similar threats. A huge threat of Isle of Capri is environmental,
particularly natural disasters. This includes the Mississippi’s water levels rising and possible
hurricanes that are around the Florida and southeast properties.
Isle of Capri SWOT Matrix (Refer to Appendix B)
The SWOT Matrix showed many possible strategies that the company can take in turning
the company around and using as recommendations for the future. These strategies include
acquiring properties in new locations, expansion of hotel rooms and properties, lowering prices
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and advertising in new ways. These are a few strategies also used as recommendations for short
and long term purposes.
Competitor SWOT Analysis (Refer to Appendix C)
It seems that all companies are at different places in the market in terms of their internal
strengths and weaknesses; however, all companies have similar opportunities and threats. The
industry currently has very high rivalry, with low threat of entry, but geographic threats.
A huge weakness seen across all competitors is the lack of room capacity for guests. In a
down economy, Isle of Capri can turn this weakness into an external opportunity. Isle of Capri
can implement stronger promotions to attract the spending of guests that would usually stay at
competitors’ casinos and have the room capacity for them as well. Another weakness seen across
the board is significant debt. By paying off the company’s debt, Isle of Capri can increase their
market share and have cash on hand for expanding in the current economy and market.
Isle of Capri Macro-Economic Factors
Current macro-economic factors such as technological, competitive, economic, and
geographical forces are affecting the company. These forces affect the company on a regular
basis. For example one of Porter’s Five Forces is the threat of substitutes. This threat is high up
on our list because it affects the financial standing of the company as well as the economic
macro effects. Another large macro-economic effect is the technological change in the gaming
industry. There is a large push towards wireless and online gaming currently. Another huge
factor is competition and geography. Competitors are primarily located in very close vicinity.
Since, Isle of Capri is currently not located in the Las Vegas area, the company has a small
advantage; however, it does make it difficult for Isle of Capri to ever enter into the Las Vegas
location, due to high rivalry.
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Conclusion
In conclusion the SWOT shows some major flaws currently affecting the company. The
weaknesses stem from financial issues the company is currently undergoing. The current goal of
the company is to become profitable. A large threat facing the company stems from economic,
environmental, and competitive macro-economic issues. Strategies such as becoming more
aggressive in the current pricing strategy and increasing marketing efforts are part of the
recommendations being made.
Organizational Structure (Refer to Appendix D)
Current Organizational Chart
The current organizational structure includes all of the board down to C level
management and Senior Vice Presidents. The company currently has Senior Vice Presidents
working at the same level as C level management (Capri, Press Kit p. 6-10, 2011).
New Organizational Chart
The new organizational chart now has a CMO. One of the recommendations by the
company is to increase marketing efforts; therefore, the new chart has a CMO. The Human
Resource Director will be promoted to CHRO and the Information Systems Director will be
promoted to CTO. The Senior Vice President of Accounting will directly report to the CFO and
the Senior Vice President of Lady Luck Operations will report directly to the COO. This will
further communication and create a more efficient chain of command.
Companies Uniqueness
Key Success Factors
The key success factors for Isle of Capri are retaining customers and quality employees.
Being able to provide the most popular gaming entertainment attracts new customers and keeps
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the interest of existing customers. The company realizes customer loyalty is what generates
revenue, which in turn, provides us the ability to obtain the latest technology. Without loyal
customers and the latest technology, Isle of Capri is at risk for financial hardships. Maintaining
quality employees ensures each guest has a memorable experience and will return for years to
come.
Distinctive Core Competency
The distinctive core competencies for Isle of Capri are employee and customer relations.
The company understands that without these core competencies, the company cannot improve
operations or significantly control costs (Core Competencies, 2013).
Value Chain Analysis (Refer to Appendix E)
The value chain analysis shows the primary system used by Isle of Capri and the support
system as well. The primary structure covers inbound logistics, operations, outbound logistics,
marketing and sales, and service. These different activities cover such things as staffing of the
facility, warehousing and storing of products, control over inventory, location, layout of casinos,
supplier relationships, and maintenance. Isle of Capri’s marketing tactics includes online and
Internet marketing, word of mouth promotions, courtesy programs, advertising and guerilla
tactics. Finally, service includes everything from rooms to amenities to entertainment.
The support system covers procurement, technological development, human resources,
and infrastructure. In terms of procurement, Isle of Capri has a low price/ low cost strategy.
Currently Isle of Capri is below the industry average according to cost analysis on
Merchant.com. Technologically the company is advancing with the development of their current
slot machines and going through an upgrading process. Isle of Capri is also implementing a
reward system for the teams who execute the operating plans. This is from top-level management
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down to low-level employees. Infrastructure is remaining constant with internal financial control,
growth, and enforcement of security in the casinos.
Conclusion
According to the value chain analysis, the distinctive core competency of Isle of Capri,
and the company’s key success factors, there is opportunity for growth inorganically. Isle of
Capri also puts a lot of emphasis on the relationship with its employees and customers.
Market and Competitive Analysis
Competitors Analysis (Refer to Appendix F)
Currently Isle of Capri has five main competitors. These competitors are Monarch
Casinos, Boyd Gaming, MGM International, Caesars Entertainment, and the Las Vegas Sands.
Currently there is very high competition between MGM, Caesars, and the Las Vegas Sands.
They are in the top of the industry, in terms of market share, out of the six competitors listed
including Isle of Capri.
Porters Five Forces (Refer to Appendix G)
The use of Porter’s Five- Forces Model allows Isle of Capri Casinos to see the
competition they face within the casino gaming and hotel industry. The rivalry among competing
firms is the main force Isle of Capri Casinos is experiencing pressure from. Sands is the leading
competitor Isle of Capri faces, with Caesars, and MGM closely behind. When analyzing the
model, the bargaining power of suppliers and consumers also show a significant amount of
impact for Isle of Capri Casinos. It seems as though the quality of the product from the suppliers,
and the online packages, have meaningful influence. The suppliers who offer the latest, high-end
products have the most power when bargaining with the consumer.
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When deals available online, the consumers are more likely to purchase them, and the
casino is able to benefit from these purchases. Additionally, substitutes also show a significant
impact with online gambling becoming more popular, taking business away from the casinos.
However, the potential entry of new competitors is low.
Strategic Group Map (Refer to Appendix H)
The pre and post strategic group maps used relative market share versus share price to
analyze the position Isle of Capri has in comparison to its competitors. Isle of Capri is at a low
point in the pre-group map; however, strategically, this increases the opportunity for potential
growth in the industry and market. After recommendations, the post strategic map shows that the
company has the opportunity to grow in its share price and market size.
IE Matrices (Refer to Appendix I)
The IE Matrix shows that the company is currently in a good position. Isle of Capri is
outside the clutter of other companies; however, this is a turning point in the life of the company.
Isle of Capri either needs to begin growing or needs to be let go. This is also reflected in the
analysis of the BCG Growth Model. After recommendations, it is believed that Isle of Capri will
move into a prime position where they should invest and grow.
BCG Growth/Share Matrices (Refer to Appendix J)
Isle of Capri also compared market growth and relative market share using revenue from
all competitors. Relative market share was found by summing all competitors’ revenue and
dividing individual revenue by the total to get an average market share. The market growth was
taken from 2012 revenue, subtracted by 2011 revenue, and divided by 2011 revenue (Isle of
Capri Casinos Inc., 2012). The pre-recommendations BCG shows Isle of Capri in the dog square
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with a 3% relative market share and -3% market growth. After recommendations it is predicted
that Isle of Capri will move into the question mark square.
GE Nine-Cell Planning Grid- Space Matrix (Refer to Appendix K)
Currently in the Nine Cell Matrix all competitors are shown as being in the same
industry; therefore they all have the same score in the ISA analysis. Another analysis was created
for ISA with different divisions in order to do a thorough comparison of what other industries
compete with the casino industry. The CSA comparison showed that Isle of Capri is located in
the grow cell. Post- recommendations show the company moving towards the invest cell.
Company Life Cycle (Refer to Appendix L)
Currently the company is in the decline stage of the life cycle. This needs to change. The
Company was at its peak of maturity in 2006; however, this is only over a 10-year period. Over a
longer period of time there is a chance this could just be the beginning of the decline and it could
swing back up through the business cycle. The Company Life Cycle after recommendations will
level out and hopefully grow.
In-Depth Financial Analysis
Edward Altman Z-Score (Refer to Appendix M)
Currently, Isle of Capri is in the red with a 97% chance of falling into bankruptcy. The
standard deviation of the z-score is 0.25684 and the z-score is .9037 which strongly supports the
unfortunate chance that Isle of Capri could fall into bankruptcy. This is supported by referring to
the Z-Score key. Any score less than or equal to 1.81 has a 97% chance of bankruptcy.
Revenues, Expenses, and NI Graph (Refer to Appendix N)
When examining Isle of Capri’s income statement, it is apparent that Isle of Capri has
been experiencing difficulties. Isle of Capri’s revenue and expenses were nearly equal in 2011,
and barley changed in 2012, causing net income to decrease significantly. Isle of Capri,
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Monarch, and Boyd’s net income stayed steady during 2011; however, Caesars’ has been
negative since 2010. These companies generate far less revenue than other competitors such as
MGM and Sands. Although the information for the competitors’ 2012 net income was not
available, Isle of Capri fell into the negative, also generating a negative profit margin. This
shows that Isle of Capri is behind the competition in regards to total market share.
After reviewing the revenue and net income for Isle of Capri and all its locations, the
outcome seems bleak. Without a turnaround, the company will not survive. The overall revenue
has been fairly steady, and net income has been increasing; however, it has been tapering off.
The projected trend for the average net income, for all the states combined, is a dramatic
decrease in net income to approximately $15 million in 3 years. This is quite a drop from about
$26 million. Around a 42% drop in the average net income will be devastating to Isle of Capri. If
that trend continues, the company will have a net loss and eventual bankruptcy. This is consistent
with the analysis of the Z-Score for the Isle of Capri. By looking at the individual revenues and
net incomes for each individual location and state, all the locations in Mississippi have shown a
decrease in net income and revenue (except Vicksburg which has an increase in revenue but a
decrease in net income). The total for the state shows the same results, and the projected net
income for the combined locations in Mississippi are expected to be negative with 3 years, to
over $40 million in losses. Mississippi has the most locations but one of the lowest net incomes
for all the states. There should be major changes made to these locations. Only 2 out of the 6
locations have a positive net income projected (Missouri and Colorado). The remaining states
need to be turned around.
Trend Analysis (Refer to Appendix O)
The current ratio has increased above one, which is a good indicator Isle of Capri can
meet its short-term obligations. The reason why the ratio has increased is due to greater cash on
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hand from $75.178 to $94.461 million. In addition to $46.703 million in assets held for sale.
There is no huge variance in current liabilities. In 2011, they had $153.878 million in current
liabilities, which increase to $156.116 million in 2012. Some larger variances worth noting are
return on stockholders equity, debt to equity, total debt to equity, cash flow, operating income,
and income from discontinued operations. In the years 2011-2012, stockholders’ equity
decreased from $309.028 to $183.620 million. One of the reasons for such a big decline in
equity, is the decrease in retained earnings from $103.095 to $-26.658 million. The primary
reason for the large decline in retained earnings is from the major decrease in net income. As
shown above we had major decline in net income. The primary reason is the loss in discontinued
operations. The valuation charges of the sale of the Biloxi casino were $-112,564,000, the net
realizable value of the net assets held for sale. Most other ratios and growth numbers have been
consistent.
Ratio Analysis (Refer to Appendix P)
There are a few things to take out of each of the ratio categories. In profitability ratios,
Isle of Capri is above the industry average in return on shareholder equity, return on capital
employed, gross margin, and EBITDA margin. They are below the industry average in return on
total assets, profit margin, and EBIT margin. All of our profitability ratios are in a close range of
the industry average. Therefore, there are no big weaknesses in this area. One very intriguing
ratio is the gross margin ratio. We have a very high gross margin ratio, allowing us to cover
operating expenses. Our operating expenses increased 2.4% from 2011. Our EBITDA % and
EBIT % are close to the industry average, but once we take out the interest and tax, Isle of Capri
is losing money for every dollar earned, indicated by the profit margin. In 2012, the interest
expense decreased 4.4%, but the primary reason why the bottom line of Isle of Capri is negative
10
is the loss from discontinued operations of $112.370,000. With operational ratios, Isle of Capri is
above the industry average in interest cover and below the industry average in net assets
turnover, collection period, and credit period. The gearing ratio indicates a company’s level of
long-term debt compared to its equity capital. Isle of Capri is well above the industry average in
this ratio. Therefore, they need to increase equity and decrease long-term debt to improve their
leverage.
Conclusions
To conclude Isle of Capri has strengthened their financial position in a few areas. They
are now able to meet short-term obligations. In addition, the increase in the EBIT ratio is a very
good indicator that the company is more efficient with operating expenses. If Isle of Capri had
not incurred the huge loss of discontinued operations they would have been around the industry
average in profit margin ratio. One other pressing issue, is the very low equity and their leverage
position. They decreased their stockholders’ equity by 40% from 2011 to 2012.
QSPM Analysis (Refer to Appendix Q)
Isle of Capri currently has three strategic acquisition options: (1) Zynga, (2) Explore St.
Louis, and (3) Sharkey’s casino. QSPM determined we acquire Sharkey’s.
Grand Strategy Matrix (Refer to Appendix R)
The Grand Strategy Matrix shows that Isle of Capri has rapid slow market growth and a
weak competitive position. This is also very similar to the results of the BCG Model. After
recommendations, the company is predicting that there will be a change from the current position
to a stronger competitive position with more growth; however, it will still be slow growth.
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Balance Score Card (Refer to Appendix S)
The balanced score card is comprised of financial, internal, customer and growth. These
areas all have objectives, how they will be measured, what our target is, and the initiatives that
will be taken to get there.
Joint Venture/Start-ups/Acquisition/Sell off Ideas
Isle of Capri plans to acquire Sharkey’s Casino in Gardnerville Nevada as well as start up
an online gambling phone app.
Five Generic Competitive Strategies
The current strategy being used by Isle of Capri is a low price low cost strategy. The
company feels this strategy will become even more beneficial after recommendations are
properly implemented. Isle of Capri feels that through marketing, and other efforts to gain
relative market share and increased growth, the company can implement an even better, lower
pricing strategy.
Short Term Recommendations
Short term recommendations will be implemented in under a year. The first, is that Isle of
Capri should consider reorganizing their management. There needs to be a CMO, CTO, ad
CHRO. The remaining senior VP’s should work directly under their coordinating C level
superior. Second, the company should start-up an online gaming app which takes 6 months to 1
year to create. The total approx. cost would be $187,000. This total comes from the following
numbers: (1) The game itself would cost between $10,000 to $250,000. Angry birds averaged
$125,000. This includes developer costs of $75-$250 per hour. However we should be able to
keep the cost low by using grad students from nearby Universities. (2)The cost of purchasing app
space is between $1,000 to $3,000. (3) The price of the Web service is between $1,000 to
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$5,000. (4) Joining Game center is approximately $1,000. (5) To share the program ranges
between $500 to $1,500 (Thomas, 2012). Third, the company should invest in new slot
machines. IGT slot machines cost $600-$800/machine (buy back is $200), $1500-2500 for video
machines (Slot Machines USA, 2013).
Fourth, is based on advertising and marketing. This includes clarifying the 2 Brand
Model and increasing marketing expenses by 2%. Currently expenses are at $234 million and net
revenue is equal to $977 million which means that 23% of revenue came from marketing
expenses. By increasing marketing revenue to 25% marketing expenses will increase to $249.25
million out of the projected net revenue of $977 million. A 2% increase in net revenue will give
us an extra $15.25 million to spend. This should be allocated to the weather promo, bill boards,
and social marketing. The breakdown is as follows: Weather Promo: $ 3 million, Pandora Ads:
average banner ad starts at $20,000, Facebook: $1.5 million, Pennsylvania Property: $2.2
million, and billboards: Average Billboard per side starts at $2,000 (Own a Billboard or Bench
Advertising Business, 2012). By covering 3 interstates with double sided billboards, the total
comes to $12,000. And everything else will come to$8,518,000.
Fifth, will include decreasing operating expenses. The company can do this by keeping
current employee salaries for 3 years constant, only paying new hires the cost of living per
location of casino, and changing food and beverage suppliers. Currently, beverage, food and
other expenses of $41 million exceed the revenues of $32 million and by finding less expensive
suppliers in the regions, potentially costs can be decreased. Next, the goal is to decrease staffing
costs by 2%. This will involve layoffs and decreases at the Mississippi locations and everywhere
else except Louisiana, Florida, and Colorado. On average the company is paying each employee
$9 an hour. This multiplied by 7,700 employees is equal to spending $144,144,000.00 yearly on
13
employees’ wages. By laying off employees approx. 150 employees the company will be able to
save approximately 2%. The company will also need to decrease non-monetary compensation, in
house training costs and move to online and virtual simulations for training, and allowance for
overtime. Also, the company should create internship positions at the corporate office and at
casinos located near universities, then offer internship for credit to decrease staff costs and
employee wages. Finally, weather discounts will allow the company to decrease the current
pricing strategy. This includes offering $5 free play, two for one meals, and room discounts
varying form 10% in bad weather seasons (January-April) and 15% discounts during extremely
bad forecasts such as floods, and extensive rain. The company should promote discounts in bad
weather areas and promote through social media and direct email.
Long Term Recommendations
There are quite a few long term recommendations beneficial to Isle of Capri. The first is
to keep the Five Currently Implemented Strategies which include: focusing on Operations,
Elevating the Customer Experience, Fortifying the Financial Discipline, Leveraging Human
Capital, and Repositioning the Brands. The second deals with the significant number of Casinos
owned by Isle of Capri that are not part of the hospitality industry. A long term recommendation
is to add hotels onto those current casinos. The cost of creating an average hotel is approximately
$22.2 million (Build a Hotel Costs, 2013); therefore, we will add a hotel onto Lady Luck Casino
Caruthersville. Thirdly, according to the QSPM the best company to acquire is a privately owned
Casino. Isle of Capri should acquire Sharky’s in Gardnerville, Nevada. Its estimated cost would
be $20 million. Finally we need to expand in the north and east coast regions. This includes the
recent expansion in Pennsylvania. The company should plan on allocate $2.2 million to TV,
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radio, billboards, and all extra advertising expenses. Total recommendations costs come to
approximately $54.5 million.
EBIT/ EPS Analysis (Refer to Appendix T)
While looking at the EPS/EBIT analysis, we came to a simple conclusion: debt financing
would be much more beneficial for our company than both common stock financing and
combination financing. The inputs that went into the analysis were as follows: recommendation
amount is $57.5 million, normal revenue amount is $209 million (the recession and boom are ½
and 2 times, respectively, the normal), the interest rate is 13%, the tax rate is 35%, the current
stock price is $5.52 per share and there are 39,490,000 shares outstanding. The reason debt
financing is so much more beneficial than both common stock and combination financing is
because the stock price is incredibly low at $5.52 per share. It would take over 4 million shares
of common stock to cover the recommendation amount of $57.5 million. That makes the
difference between the EAT and EPS for the common stock and debt financing continue to grow
as the EBIT from a recession to normal to boom. Because debt financing is continually a better
option and there is no crossover point between common stock financing and debt financing,
combination financing would not be as beneficial; it will always be lower than debt financing. So
in order to finance the needed $57.5 million for the recommendations, Isle of Capri will use debt
financing.
Net Worth Analysis (Refer to Appendix U)
Isle of Capri’s current net worth is calculated to be $-112,118,864. In 2013, Isle of
Capri’s net worth is estimated to be $ 194,675,250. This projected increase is due to the
projected changes in revenue, stock price, and overall EPS.
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Pro Forma Income and Cash Flow (Refer to Appendix V and W)
Net Income for the first turnaround year sees a drop in operating expense by 5% and a
projected increase in revenue by 2%. A few different avenues have been taken to reduce
expenses and boost net income. The reduction in these expenses for the first year equates to
roughly $17.5 million. This brings total net income for the first turnaround year to $196 million.
The majority of cash flows from the first turnaround year are from the continuation of operating
activities and additional hotel revenue.
Turnaround Timeline
According to the all states income in the Net Income Analysis, the turnaround should
take a maximum of six months. All long-term recommendations will be take approximately 3-5
years for implementation.
Sources of Resistance
Resistance to change may be encountered when implementing strategies such as the
acquisition of new properties, staffing cost cuts, and introduction of new managers. In order
to minimize resistance, employees will be included in all aspects of strategic planning,
implementation, and evaluation. Strong communication at all levels of the company is vital to
minimizing resistance, as well as making training and additional resources available.
Contingency Plans
If the strategic turnaround plan fails there is the chance that the company will have to file
for bankruptcy. The Edward Altman Z-score currently shows approximately a 90% chance of
Isle of Capri going into bankruptcy. If this happens, the company should be prepared to file for
Chapter 11 bankruptcy, which would involve restructuring of the businesses affairs and assets.
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Epilogue
Isle of Capri is projected to purchase property for expansion in Pennsylvania as of 2012.
The company will also create an online gaming app and acquire Sharkey’s casino to increase
relative market growth.
Assumptions Page
1. This plan assumes Isle of Capri will take all the recommendations into account and
implement them where necessary.
2. This plan assumes that all financial information acquired is correct.
3. This plan should assume that post recommendation models all support hypothesized
data.
4. This plan assumes all subjective analysis of ratings and weights are created in
response to current and post hypothesized information given by the company.
5. This plan assumes that if the plan fails, that the company will be forced to file for
bankruptcy.
6. Assume turnaround is for 2011. Used 2012 numbers are considered projected.
17
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