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Leagues Clubs Australia Conference

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

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Leagues Clubs Australia Conference

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  1. 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 2

  3. Thanks to CDOL 3

  4. Financial flows – NSW $100 Retail $2 Other $1 Gaming surplus $44 (64%) Gaming $69 Bar surplus $4 (27%) Bar $15 Catering $13 Cater surplus <$1 (2%) Other $1 Retail <$1(14%) Front of house GP $51 (51%) Community $3-$4 Overheads $34 (34%) EBITDARD $17 (17%) Capital/debt $8 - $15 (8%- 15%)

  5. Financial flows – Qld $100 Retail $4 Other $3 Gaming surplus $37 (60%) Gaming $61 Bar surplus $5 (33%) Bar $15 Catering $17 Cater surplus $1.70 (10%) Other $3 Retail <$1(5%) Front of house GP $47 (47%) Community $3 (3%) Overheads $29 (29%) EBITDARD $18 (18%) Capital/debt $8 - $15 (8%- 15%)

  6. Financial flows – ACT $100 Retail $? Other $2 Gaming surplus $43 (65%) Gaming $66 Bar surplus $5 (27%) Bar $19 Catering $12 Cater surplus $0 (0%) Other $2 Retail $?(?%) Front of house GP $51 (51%) Community $3 Overheads $31 (31%) EBITDARD $20 (20%) Capital/debt $8 - $15 (8%- 15%)

  7. Financial flows – NT $100 Retail $22 Other $1 Gaming surplus $26 (51%) Gaming $50 Bar surplus $4 (26%) Bar $15 Catering $12 Cater surplus $0 (1%) Other $1 Retail $3 (14%) Front of house GP $34 (34%) Community Overheads $23 (23%) EBITDARD $11 (11%) 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 8

  9. EBITDA trend in NSW Longer term trend is stable 9

  10. EBITDA trend in Qld 10

  11. EBITDA trend in ACT 11

  12. Expenditure per person 12

  13. Leisure (3mnths) 80% 75.1% Use computer at home 68.4% 66.9% 60.6% Entertainment 60% 54.2% Novel 52.9% 49.1% Saw a movie 45.3% 43.1% 40.1% 40% Day trip 34.8% 29.7% Hobby 23.9% Played sport 20.9% 20% 0% Jan 02 Mar 09 Source: Roy Morgan 9 years 13

  14. Leisure (3mnths) 30.8% Went to a club 28.4% 11.6% Went to a casino 9.4% Went to a racetrack 5.4% 4.6% Jan 02 Mar 09 Source: Roy Morgan 9 years 14

  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 15

  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 16

  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 17

  18. Budgeting technique • Top-down and bottom -up and top-down Board Senior management Senior management Senior management Operational management Operational management Operational management Staff 18

  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 19

  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 20

  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 21

  22. Key business drivers Needs improvement Excellent 22

  23. Marketing - AEMP • AEMP – Advertising, Entertainment, Marketing and Promotions • Measured as a percentage of total revenue 3%-4% of gaming + = 9% 2.5% total revenue 6.5% total revenue 23

  24. How do we spend 9% 24

  25. Marketing - AEMP 25

  26. Marketing - AEMP 26

  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 27

  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 28

  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 29

  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) 30

  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 31

  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 32

  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) 33

  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 34

  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 35

  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 36

  37. Jim HollingtonPartner PKF Chartered Accountants and Business Advisors Geoff Wohlsen Principal DWS 37

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