PKF ClubSpeak
PKF ClubSpeak
February 2012
Assess and improve club performance To address changes in the environment, including tax, smoking and gaming legislation changes, clubs must be responsive and flexible, and make business adjustments to achieve a financially viable and sustainable trading future. The table below is a PKF performance indicator for clubs. Table 1 – Earnings before Interest, Tax, Depreciation, Amortisation, Rent and Donations (EBITDARD) Performance indicator
Narration
25%
Great result
20%
Good result
15%
Acceptable (work to be done)
10%
Not sufficient/likely to fail
The following table demonstrates the difference between levels in cashflow that can be achieved with the same revenue, and the subsequent sustainable debt level with appropriate interest cover (three times) and interest rate (eight percent). Revenue
$10.0m
$10.0m
$10.0m
$10.0m
EBITDA
$2.5m
$2.0m
$1.5m
$1.0m
Performance indicator
25%
20%
15%
10%
$10.4m
$8.3m
$6.25m
$4.16m
Sustainable debt @ three x interest cover and eight % interest rate
In the current, challenging environment clubs should look to increase cashflow through optimising existing revenue streams. This will subsequently increase the sustainable debt levels which can be used for further business development opportunities.
Achieving optimisation A performance indicator of 25 percent is a realistic aim in most cases and is generally achievable through making efficiencies to existing costs in each trading area and the wider administration segment. To be able to make effective efficiency decisions, the board and management must understand the business drivers and make difficult decisions. There are a number of key indicators which can assist the board and management in the performance improvement process. Among the key indicators are: »» Profit streams - what are the sources of profit? Most clubs are dependant on gaming by 80 percent or more. »» Main contribution areas - some club’s gaming contributes 100% of total income after cost.
Contribution breakdown after all costs by trading area: Trading area
Contribution
Bar trading
8-12 percent per $1 sales
Catering trading
nil - usually a loss
Gaming
58-65 percent per $1 net receipts
Advertising, Entertainment, Marketing and Promotions (AEMP)
loss (should not be more than 6-8 percent of net gaming receipts)
Management costs (all managers)
not more than 5-6 percent of revenue
The most common areas where improvements can be made are: »» labour costs across all trading areas; »» AEMP costs; »» under utilised trading areas (70 percent unused) - consider whether these areas can earn rentals; »» neglected gaming and replacement programmes; and »» the number of gaming machines being held (with accompanying low earnings and cost of services).
Understanding how to apply the key performance indicators to your business to make the necessary improvements can be difficult, if you require any support in the process please contact Peter Hodge on (02) 9240 9879 or at [email protected].
Australian accounting standards update The following standards should be adopted by an entity during the first annual reporting period commencing after the effective date of each pronouncement. In certain circumstances earlier adoption may be permitted; refer to the full pronouncements for further detail.
AASB 9 Financial Instruments
AASB 11 Joint Arrangements
Issue date - December 2010 and operative from annual reporting periods beginning on or after 1 January 2013
Issue date - August 2011 and operative from annual reporting periods beginning on or after 1 January 2013
AASB 9 replaces AASB 139 Financial Instruments: Recognition and Measurement. The main change in this standard compared with AASB 139 is:
AASB 11 replaces AASB 131 Interests in Joint Ventures. The previous standard had three types of joint ventures whereas AASB 11 only has two. These are:
»» financial assets are classified based on:
»» joint operations; and
(i) the objective of the entity’s business model for managing the financial assets; and (ii) the characteristics of the contractual cash flows.
This replaces the categories of financial assets in AASB 139 (four categories) each of which had its own classification criteria. Application guidance has been included in AASB 9 on the conditions necessary for a financial asset to be measured at amortised cost. AASB 10 Consolidation Issue date - August 2011 and operative from annual reporting periods beginning on or after 1 January 2013
AASB 10 replaces AASB 127, and changes three key elements of control. According to AASB 10 an investor controls an investee only if the investor has all of the following: (a) power over the investee; (b) exposure, or rights, to variable returns from its involvement with the investee; and (c) the ability to use its power over the investee to affect the amount of the investor’s returns.
»» joint ventures.
AASB 12 Disclosure of Interests in Other Entities Issue date - August 2011 and operative from annual reporting periods beginning on or after 1 January 2013
AASB 12 provides the disclosure requirements for entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. As such, it pulls together and replaces disclosure requirements from many existing standards. AASB 13 Fair Value Measurement Issue date - September 2011 and operative from annual reporting periods beginning on or after 1 January 2013
AASB 13: (a) defines fair value; (b) sets out in a single IFRS a framework for measuring fair value; and (c) requires disclosures about fair value measurements.
Fair value is defined as: “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price)”.
Ph: 1300 753 222 (1300 PKF ACC)
www.pkf.com.au Sydney
Melbourne
Brisbane
Peter Hodge | P: (02) 9240 9879 E: [email protected]
John Kelly | P: (03) 9603 1719 E: [email protected]
Angie Hicks | P: (07) 3811 4433 E: [email protected]
Paul Cheeseman | P: (02) 9240 9856 E: [email protected]
James Mooney | P: (03) 9603 1796 E: [email protected]
John Keating | P: (07) 3226 3516 E: [email protected]
Stephen Bladwell | P: (02) 9240 9707 E: [email protected]
The information in this publication is not a comprehensive guide and should not be solely relied upon as advice from any PKF firm. For more details and customised advice, please contact your PKF business adviser. The PKF East Coast Practice is a member of the PKF International Limited network of legally independent member firms. The PKF East Coast Practice is also a member of PKF Australia Limited, a national network of legally independent member firms that trade as PKF. PKF East Coast Practice has offices in NSW, Victoria and Brisbane. PKF East Coast Practice does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees.
February 2012
Assess and improve club performance To address changes in the environment, including tax, smoking and gaming legislation changes, clubs must be responsive and flexible, and make business adjustments to achieve a financially viable and sustainable trading future. The table below is a PKF performance indicator for clubs. Table 1 – Earnings before Interest, Tax, Depreciation, Amortisation, Rent and Donations (EBITDARD) Performance indicator
Narration
25%
Great result
20%
Good result
15%
Acceptable (work to be done)
10%
Not sufficient/likely to fail
The following table demonstrates the difference between levels in cashflow that can be achieved with the same revenue, and the subsequent sustainable debt level with appropriate interest cover (three times) and interest rate (eight percent). Revenue
$10.0m
$10.0m
$10.0m
$10.0m
EBITDA
$2.5m
$2.0m
$1.5m
$1.0m
Performance indicator
25%
20%
15%
10%
$10.4m
$8.3m
$6.25m
$4.16m
Sustainable debt @ three x interest cover and eight % interest rate
In the current, challenging environment clubs should look to increase cashflow through optimising existing revenue streams. This will subsequently increase the sustainable debt levels which can be used for further business development opportunities.
Achieving optimisation A performance indicator of 25 percent is a realistic aim in most cases and is generally achievable through making efficiencies to existing costs in each trading area and the wider administration segment. To be able to make effective efficiency decisions, the board and management must understand the business drivers and make difficult decisions. There are a number of key indicators which can assist the board and management in the performance improvement process. Among the key indicators are: »» Profit streams - what are the sources of profit? Most clubs are dependant on gaming by 80 percent or more. »» Main contribution areas - some club’s gaming contributes 100% of total income after cost.
Contribution breakdown after all costs by trading area: Trading area
Contribution
Bar trading
8-12 percent per $1 sales
Catering trading
nil - usually a loss
Gaming
58-65 percent per $1 net receipts
Advertising, Entertainment, Marketing and Promotions (AEMP)
loss (should not be more than 6-8 percent of net gaming receipts)
Management costs (all managers)
not more than 5-6 percent of revenue
The most common areas where improvements can be made are: »» labour costs across all trading areas; »» AEMP costs; »» under utilised trading areas (70 percent unused) - consider whether these areas can earn rentals; »» neglected gaming and replacement programmes; and »» the number of gaming machines being held (with accompanying low earnings and cost of services).
Understanding how to apply the key performance indicators to your business to make the necessary improvements can be difficult, if you require any support in the process please contact Peter Hodge on (02) 9240 9879 or at [email protected].
Australian accounting standards update The following standards should be adopted by an entity during the first annual reporting period commencing after the effective date of each pronouncement. In certain circumstances earlier adoption may be permitted; refer to the full pronouncements for further detail.
AASB 9 Financial Instruments
AASB 11 Joint Arrangements
Issue date - December 2010 and operative from annual reporting periods beginning on or after 1 January 2013
Issue date - August 2011 and operative from annual reporting periods beginning on or after 1 January 2013
AASB 9 replaces AASB 139 Financial Instruments: Recognition and Measurement. The main change in this standard compared with AASB 139 is:
AASB 11 replaces AASB 131 Interests in Joint Ventures. The previous standard had three types of joint ventures whereas AASB 11 only has two. These are:
»» financial assets are classified based on:
»» joint operations; and
(i) the objective of the entity’s business model for managing the financial assets; and (ii) the characteristics of the contractual cash flows.
This replaces the categories of financial assets in AASB 139 (four categories) each of which had its own classification criteria. Application guidance has been included in AASB 9 on the conditions necessary for a financial asset to be measured at amortised cost. AASB 10 Consolidation Issue date - August 2011 and operative from annual reporting periods beginning on or after 1 January 2013
AASB 10 replaces AASB 127, and changes three key elements of control. According to AASB 10 an investor controls an investee only if the investor has all of the following: (a) power over the investee; (b) exposure, or rights, to variable returns from its involvement with the investee; and (c) the ability to use its power over the investee to affect the amount of the investor’s returns.
»» joint ventures.
AASB 12 Disclosure of Interests in Other Entities Issue date - August 2011 and operative from annual reporting periods beginning on or after 1 January 2013
AASB 12 provides the disclosure requirements for entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. As such, it pulls together and replaces disclosure requirements from many existing standards. AASB 13 Fair Value Measurement Issue date - September 2011 and operative from annual reporting periods beginning on or after 1 January 2013
AASB 13: (a) defines fair value; (b) sets out in a single IFRS a framework for measuring fair value; and (c) requires disclosures about fair value measurements.
Fair value is defined as: “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price)”.
Ph: 1300 753 222 (1300 PKF ACC)
www.pkf.com.au Sydney
Melbourne
Brisbane
Peter Hodge | P: (02) 9240 9879 E: [email protected]
John Kelly | P: (03) 9603 1719 E: [email protected]
Angie Hicks | P: (07) 3811 4433 E: [email protected]
Paul Cheeseman | P: (02) 9240 9856 E: [email protected]
James Mooney | P: (03) 9603 1796 E: [email protected]
John Keating | P: (07) 3226 3516 E: [email protected]
Stephen Bladwell | P: (02) 9240 9707 E: [email protected]
The information in this publication is not a comprehensive guide and should not be solely relied upon as advice from any PKF firm. For more details and customised advice, please contact your PKF business adviser. The PKF East Coast Practice is a member of the PKF International Limited network of legally independent member firms. The PKF East Coast Practice is also a member of PKF Australia Limited, a national network of legally independent member firms that trade as PKF. PKF East Coast Practice has offices in NSW, Victoria and Brisbane. PKF East Coast Practice does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees.
