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Leagues Clubs Australia Conference. May 2010 Managing budgets and the bottom line. Topics. Why so important - now more than ever Recent earnings trends Some budgeting techniques What targets to set Using budgets to drive performance Turning budgets into an operating plan - PowerPoint PPT PresentationTRANSCRIPT
Leagues Clubs Australia Conference
May 2010
Managing budgets and the bottom line
2
Topics
Why so important - now more than ever Recent earnings trends Some budgeting techniques What targets to set Using budgets to drive performance Turning budgets into an operating plan Driving a marketing budget Summary
3
Thanks to CDOL
Financial flows – NSW
Gaming surplus$44 (64%)
Bar surplus$4 (27%)
Cater surplus<$1 (2%)
Other $1
Front of house GP$51 (51%)
EBITDARD$17 (17%)
Overheads$34 (34%)
Gaming $69
Bar $15
Catering $13
Other $1
Retail$2
Retail<$1(14%)
Community$3-$4
Capital/debt$8 - $15 (8%- 15%)
$100
Financial flows – Qld
Gaming surplus$37 (60%)
Bar surplus$5 (33%)
Cater surplus$1.70 (10%)
Other $3
Front of house GP$47 (47%)
EBITDARD$18 (18%)
Overheads$29 (29%)
Gaming $61
Bar $15
Catering $17
Other $3
Retail$4
Retail<$1(5%)
Community$3 (3%)
Capital/debt$8 - $15 (8%- 15%)
$100
Financial flows – ACT
Gaming surplus$43 (65%)
Bar surplus$5 (27%)
Cater surplus$0 (0%)
Other $2
Front of house GP$51 (51%)
EBITDARD$20 (20%)
Overheads$31 (31%)
Gaming $66
Bar $19
Catering $12
Other $2
Retail$?
Retail$?(?%)
Community$3
Capital/debt$8 - $15 (8%- 15%)
$100
Financial flows – NT
Gaming surplus$26 (51%)
Bar surplus$4 (26%)
Cater surplus$0 (1%)
Other $1
Front of house GP$34 (34%)
EBITDARD$11 (11%)
Overheads$23 (23%)
$100Gaming
$50Bar $15
Catering $12
Other $1
Retail$22
Retail$3 (14%)
Community
Capital/debt
8
Why so important
Gaming and beverage shows little growth Operating cost are growing by 4% to 6%
annually Capex has grown at over 6% per annum
in the last 5 years The margins are declining
9
EBITDA trend in NSW
Longer term trend is stable
10
EBITDA trend in Qld
11
EBITDA trend in ACT
1212
Expenditure per person
13
Leisure (3mnths)80%
0%
40%
60%
20%
68.4%
60.6%
54.2%49.1%45.3%
34.8%
23.9%
75.1%
66.9%
52.9%
43.1%
40.1%
29.7%
20.9%
Jan 02 Mar 099 years
Use computer at home
Entertainment
Novel
Saw a movie
Day trip
HobbyHobby
Played sportPlayed sport
Source: Roy Morgan
14
Went to a club
Went to a casino
Went to a racetrack
30.8%
11.6%
5.4%
Jan 02 Mar 099 years
28.4%
9.4%
4.6%
Source: Roy Morgan
Leisure (3mnths)
15
Spare time We are awake 112 hours each week Comprised of:
– 16 hrs on the Internet– 12 hrs watching TV (declining)– 8 hrs listening to radio– 8 hrs using the PC off line– 5 hrs playing video games– 3 hrs reading newspapers– 2 hrs reading magazines
That’s 54 hrs without work, study or house work
16
Competition for leisure wallet
We now spend $32-$35b on mobile phones each year
32% of kids under 15 years have a mobile Pay TV $3.2b
17
So... Clubs must achieve at least 15% EBITDARD for
“survival” 12% and below is concerning Over 20% allows a club to progress and grow with
the market Over 24+% EBITDARD is superior and will
advance a club far beyond competitors These parameters set the basis for targets and
budgets
18
Budgeting technique
Top-down and bottom -up and top-down
Senior management
Operational management
Staff
Operational management
Senior management
Senior management
Board
Operational management
19
Budgets to Op Plan
Budgets are often the numbers that actual results are compared with in the middle of the next month
A budget is only effective if it drives operations - the whole management team and staff
Best results are achieved from converting budgets to goals, initiatives, targets, responsibilities, timeframes etc
The whole team must be engaged and “own” the budget
20
Budgeting technique Use of base budget and stretch budget
– Base budget is the most likely outcome given strong management input and reasonable diligence
– Stretch budget is normally based on best case outcomes eg 10% improvement in revenues and 2% reduction in some costs
Also use maximum reasonable adversity (MRA) to assess the budget risk and financial sensitivity of the business
Profit and loss budgets PLUS cash flow
21
Debt coverage Debt coverage measures how susceptible the
business is to its debt burden - from movements in earnings, interest rates and unforeseen expenditure
Interest rate cover – number of times the earnings of the club can cover interest commitments – 2 times is a min benchmark
Principal and interest cover - number of times the earnings of the club can cover principal and interest commitments – 1.5 times is a min benchmark
22
Key business drivers
EBITDARD <12% 25%Total wages >24% 18%Total AEMP >12% 6%Net/EGM/Day <$120 >$180Gaming Promo >6% 4%Gaming wages ?6% 4%Bar GP <55% >64%Bar wages >24% <20%Catering GP <55% >62%Catering wages >50% <42%Overheads >35% <25%
Needs improvement Excellent
23
Marketing - AEMP AEMP – Advertising, Entertainment, Marketing
and Promotions Measured as a percentage of total revenue
+ =
3%-4% of gaming
2.5% total revenue
6.5% total revenue 9%
24
How do we spend 9%
Gaming promotions 2.5%
General marketing and promotions 4.0%
Entertainment 1.5%
General advertising 1.0%
Total 9.0%
25
Marketing - AEMP
26
Marketing - AEMP
27
Why 9%?
We need high member penetration within the 2 – 5 km area – The average NSW clubs needs 17% of every adult within 5km to be a member
Average Qld club needs 12% penetration Larger clubs with over 250 machines needs a 30%
penetration rate in 5km On average, each member must visit around 11
times each year and spend $55 Clubs survive on localised repeat visitation and
this requires regular communication and engagement
28
Why 9%?
High level of competition Members benefits form a large part of AEMP and
this is like a running “dividend” A large part of our benefits are provided as goods
in the venue, such as meals, which are recorded at the full sales level but actually cost less (cost of goods)
But we suspect that clubs have historically layered additional marketing initiatives rather than rationalise, refine, rotate and modify
29
Where is it going? Web-based and SMS platforms are obviously
more cost effective compared with the traditional forms of communications
But clubs still cater by and large to an aged demographic and they don’t respond well to this technology
Fighting against a very crowded array of messages
Response rates very low (20% open rate and 4% click-through rate are considered good)
The real costs are in the database and technology
30
Where is it going?
Social media marketing – Twitter, Facebook 350 million users worldwide 7.6 million users in Australia But it’s hard to get a clear message on social
media Greatest benefit is gained when it is used as a
referral base from users (the social media community)
31
Where is it going?
More tiered loyalty This is particularly the case in Qld with four
casinos Competition of the “wallet” Most wallets carry 12 cards We carry on average 3-4 credit cards each Add to that Medicare, MBF, licence, debit cards,
senior card and it’s a crowded space So your card has to be relevant Rebates of between 0.25% and 0.50% turnover
32
Measuring ROI
If we spend 9% of every dollar that comes through the door on AEMP, then we must understand the return
Every material marketing activity would benefit from:– A business case assessment – A post completion short term and longer term
impact and return assessment
33
How to measure ROI
Door counters Average spend analysis (revenue/door count) Hourly revenue tracking and comparison Player loyalty expenditure analysis Focus group research Survey research Compare business activity with and without the
marketing event (do nothing v outcome case)
34
Some common issues
Marketing activity that generates enormous crowds but no-one enjoys themselves
Marketing activity that simply moves existing visitation or expenditure to a different time or a lower margin product
Marketing activity that drives low value customers in preference to high value customers
35
Some common issues
Poorly executed marketing activities that no-one understands including staff
Broad media marketing eg radio and TV when most clubs cater for a localised catchment (65% within 2km)
Showcases v cash v product rewards Small v medium v large cash rewards Members’ draws? Gaming promotions that annoy premium players Entertainment that annoys players
36
Summary
In the current market there is a need to drive EBITDA
EBITDA below 15% needs to be improved upon We advocate all management understanding
EBITDA All staff should understand the budget and be
provided with business results At 9%, AEMP can be a big black hole or used to
drive the business Marketing is an investment
37
Jim HollingtonPartner PKF Chartered Accountants and
Business Advisors
Geoff WohlsenPrincipal DWS