2015 HLB Mann Judd Sydney Golf Report

SIMON JAMES AUGUST 2015

The HLB Sydney Golf Survey Reducing your business handicap

hlb.com.au

Great people, great results

Note from the Author It is with great pride that I welcome you to the fifth annual Sydney Metropolitan Golf Survey released by HLB Mann Judd.

The main objectives of this report are to: Inform local business on the performance of the industry in its entirety

over the last twelve months;

Provide a benchmark of useful information to compare the performance of

your club against that of other clubs in the Sydney metropolitan area; and

Present our opinions on the direction of the golf industry for the next

twelve months.

The information contained within this survey is taken from our sample of the 92 courses classified as being in the Sydney Metropolitan area. We have limited our survey sample to this area as it is our intention to provide informative results to the clubs in the areas that we ourselves work and play.

Expanding the survey outside of these boundaries would have reduced the applicability of the results across the group as a whole. We understand that the challenges faced by clubs in the Sydney Metropolitan area may not be applicable to those dealt with by those in country and rural NSW. Some of the key highlights contained in our survey include: The continuing trend of joining fees decreasing year on year. Clubs are

continuing to offer incentives such as family discounts and payment plans, in an attempt to curb falling member numbers.

Revenue received from membership subscriptions rose by 2%, as clubs

correctly recognise the requirement to increase fees annually.

Wages have increased by 1.2% in 2014 and by 2.0% in the prior period.

This demonstrates club management’s continuing efforts to monitor their costs year on year in an effort to boost profitability and reduce staff turnover.

We hope that you enjoy the survey.

Simon James

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2015 Survey Highlights Contents

There has been a 1.1% decrease in the number of playing

members during the period (2013: decrease of 1.4%).

Note from the Author

2

Survey Highlights

3

Membership Composition

4

Profitability: Inflows and Outflows

6

Club Development

11

Profile of Simon James

11

There has been a 3.8% decrease in the number of

non playing members during the period (2013: increase of 3%).

Average spend per member has increased by

3.5% (2013: 5.0%).

Total revenue has increased in line with prior year of 1.8%.

The proportion of playing memberships in golf clubs rose

slightly to 68%, whilst non playing memberships declined.

The average wage expense increased by

1.2% (2013: 2.0%).

50% of clubs reported a surplus for the year, down

from 64% in the prior period.

Cash balances have increased by 17%, highlighting a

slowdown in capital expenditure.

Revenue from joining fees has declined by 32% as golf

clubs attempt to boost their membership base by waiving fees or offering incentives (2013: decrease of 42%).

Revenue received per playing member has increased

by 4.5% (2013: 6.0%).

Great people, great results

3

Membership Composition Playing memberships are on the rise in 2014.

With golf being a sport suitable for both the young and old, it is pivotal to golf clubs to have a comprehensive knowledge of their membership base, as well as changes and trends across the various membership categories, whilst developing strategic plans.

32% Non Playing Figure 1: Member Composition 2014

68% Playing

33% Non Playing 67% Playing

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Figure 2: Member Composition 2013

Non playing member numbers as a percentage of membership base fell in 2014.

When considering the split between playing and non playing memberships, golf clubs are still heavily weighted towards a playing membership base, with approximately 68% of members falling into this category. Both overall playing member numbers and playing percentages however, have experienced decreases during the year, with playing memberships falling by 1.1%. In regards to golf club’s non playing category of its membership composition, again, we have seen a decrease in both overall member numbers and as a percentage of total membership, having decreased by 3.8% in the 2014 year. This is the second straight year that this category has experienced a decrease in member numbers. Whilst relaxing club restrictions to use the golf, bar and catering facilities can prove beneficial in attracting more non playing members to the club, it can also take away the feel of exclusivity and prestige that some clubs enjoy having the reputation of being associated with.

-1.99% Total

-1.12% Playing

-3.77% Non Playing ď Ž Growth

-4%

-3%

-2%

-1%

0%

Figure 3: Membership Category Movement

Great people, great results

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Profitability: Inflows and Outflows Spend per member increased by 3.5% in 2014.

With changing weather patterns and overall course wear and tear from golfers forcing clubs to continuously repair and maintain the course, it is vital that golf clubs ensure they have sufficient funds available to maintain a high quality facility for their members, whilst still having excess money to finance various capital expenditure projects.

The majority of a golf club’s costs are fixed, with variable costs being food, beverage, event labour and course consumables. For club’s to return a surplus at the end of their financial year, they are presented with three different options to compensate for rising costs. These options are:

2014 average movement

2013 average movement

1

Increasing membership subscriptions

2.1%

2.2%

2

Increasing club member numbers

-2.0%

-2.7%

3

Increasing spend per member

3.5%

5.1%

Generally, the higher performing and more profitable clubs are above the industry average across all three strategies.

The relationship between golf course profitability and member numbers demonstrated that on average, golf clubs that reported a surplus for the year tended to have a higher than average playing membership base than those clubs that returned a loss. Conversely, the majority of golf clubs that reported a deficit were found to have a higher average non playing member base. The fall in overall non playing members shows that clubs are tending to be more “golf centred” and offer a facility and services aimed more so at a playing member as opposed to a non playing.

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Overall revenue has increased by approximately 2%.

Playing Playing

Non Playing Non Playing

 Reported Surplus  Reported Deficit

0

200

400

600

800

1000

Figure 4: Membership base vs Profitability

When analysing revenue from joining fees, it can prove very difficult to draw conclusions from data. With golf clubs experiencing a decrease in membership numbers across both playing and non playing categories, it is common to see joining fees being reduced or even waived entirely. Deals such as family incentives, age incentives and deferred payment options are examples of these strategies being adopted by clubs. Further, with an ever increasing average age of golf club members, it is vital that clubs continue to attract new members and target their appeal to the younger generations.

Overall, we have seen revenue from joining fees decrease by 32% (2013: 42% decrease) which is in line with expectations due to the decrease in overall membership numbers by 2%.

Looking at the bigger picture, overall revenue has increased by 1.9% in 2014.

Revenue from membership subscriptions accounted for approximately 46% of total revenue received by golf clubs, which in the prior year was 47%.

Other major sources of revenue for golf clubs were one off green fees and bar and catering sales, accounting for approximately 30% of a club’s revenue stream. Respectively, these categories experienced a 2% and 2.8% increase during the year, which helped drive the overall increase in club revenue.

Great people, great results

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Expenditure increased by 6.4% behind the bar, up to $440 per member in 2014.

2014

2013

2012

0%

20%

40%

60%

100%

 One-off Green Fees

 Pro-shop Sales

 Membership Subscriptions

 Poker Machines & Gambling

 Joining Fees

 Bar Sales

 Competition Fees

 Restaurant Sales

O ther (i.e room hire, interest, returns from investments, telecommunications)

Figure 5: Average Spend Per Member

Whilst membership numbers have fallen across all categories, an increase in overall revenue is still being reported. This indicates that similar to previous years, there has been an increase in the average spend per member at golf clubs. As this is one of the aforementioned key drivers of golf club profitability, this is a positive sign for the overall health and longevity of the golf club industry.

Bar and catering sales has proven to be a major driver of a golf club’s revenue inflows, accounting for approximately 24% of total revenue in the year. It was found that per member over the past year, on average, approximately $440 is spent behind the bar, representing a 6.4% increase compared to 2013.

This increase is the result of increased overall revenue inflows and decreased overall membership numbers. On top of this increase in bar and catering sales, revenue received per playing member has increased by 4.5%, which incorporates income from member subscriptions, bar sales, pro shop sales and competition fees.

Despite overall revenue increasing for 2014, the average net profit margin of golf clubs has halved from 1.23% in 2013, to 0.61% in 2014. With golf clubs having minimal fixed costs to account for, the decrease in the NPM (Net Profit Margin) has to be attributable to the rising price of variable costs, such as casual bar wages, utilities and council rates. This has a follow on effect with smaller net profits equating to less money being saved and put aside for clubs to fund future capital expenditure projects and developments.

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Revenue received per playing member has increased by 4.5%.

4.13% Oneoff Green Fees 3.97% Membership Subscriptions -34.43% Joining Fees -1.75% Poker Machine & Gambling 6.06% Bar Sales -0.76% Restaurant Sales 0.36% Bar & Restaurant 2.05% Pro-shop Sales 1.20% Competition Fees 8.60% Other*

-35

-30

-25

-20

-15

-10

-5

0

5

10

*Other includes room hire, interest, returns from investments, telecommunications Figure 6: Revenue Growth

 One-off Green Fees

 Bar Sales

 Competition Fees

 Membership Subscriptions

 Restaurant Sales

 Joining Fees

 Bar & Restaurant

 Poker Machines & Gambling

 Pro-shop Sales

O ther (i.e room hire, interest, returns from investments, telecommunications)

Figure 7: 2014 Revenue Composition

Great people, great results

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Bar costs have risen mainly due to an increase in Bar sales for 2014.

When considering the outflows of club funds during the year, in particular, salaries and wages expense, a 1.2% increase was noted, which is less than the 2% increase noted in 2013. The makeup in overall salaries and wages can be broken down to a departmental basis, which sees the main driver of this overall increase as a raise in bar and catering wages, which rose by 3.6%.

This increase is expected due to the effects of inflation throughout the year, as well as a high level of casual and other wage-paid staff members, typically being associated with the bar and catering department being a further contributing factor.

8% Pro Shop 21% Admin

39% Grounds

33% Bar/Restaurant

Figure 8: 2014 Wage Allocation

1% Admin 3.58% Bar/Restaurant -0.92% Grounds 3.33% Pro Shop ď Ž Growth

-1

0

1

Figure 9: Wage Movement

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2

3

4

Club Development During the past year, the outflow of golf club funds on capital expenditure projects varied by less than 1% to the prior year, showing that clubs are being frugal with funds available and wary of decreasing revenue inflows due to a declining membership base. Approximately 9% of revenue is spent on these capital projects, which flowed through to clubs showing an increase in their NBV (Net Book Value) of property, plant and equipment of 6.1%. Clubs have also been consistent with the proportion they spend on capital projects vs labour, with $0.20 being allocated to capital projects for every dollar spent on wages for both the 2014 and 2013 years.

Simon James Partner, Audit & Corporate Advisory, Sydney +61 2 9020 4212 sjames@hlbnsw.com.au

Simon James is a highly credentialed practitioner and internationally experienced professional.

Simon began his accountancy and consultancy career within KPMG’s middle market division in London. During this time he participated in over 120 corporate acquisitions in addition to running a diversified audit portfolio.

In 2003, he relocated to Australia and joined Ernst & Young’s Sydney office where he was responsible for auditing a highly diversified client base, which included private equity funds, family-owned businesses, ASX-listed groups, overseas subsidiaries and Australian-led international groups. His emphasis on transaction advisory continued leading transactions for private equity, corporate and private acquirers.

Simon joined HLB Mann Judd in 2009 and now heads the Corporate Advisory Division. Responsible for assisting clients with a wide range of accounting and corporate matters, with a particular emphasis on audit and assurance, due diligence, strategic and succession planning and the initial public offering of shares.

Simon is widely regarded for his strong professionalism, strategic thinking and client-focused, progressive approach.

Simon’s audit and advisory clients include numerous golf, sporting and social clubs.

Simon is a keen but time poor golfer, having had a career low handicap of 11.2 back in 2009.

Great people, great results

11

The HLB Sydney Golf Survey Reducing your business handicap

About HLB Mann Judd HLB Mann Judd is a leading Australasian chartered accounting and business advisory firm. Throughout Australia and New Zealand we have the collaboration of over 700 partners, directors and staff members with offices in all major business centres. Through our affiliation and membership of HLB International our clients have access to worldwide expertise and service. HLB International is a fast growing, dynamic network of professional accounting firms and business advisers. HLBI is ranked in the top 12 largest accounting and business advisory groups worldwide. HLB Mann Judd Sydney provides clients with a comprehensive range of business and advisory services in addition to audit, accounting, taxation and wealth management services that are core to our practice.

The Sydney office has 19 Partners, 8 Directors and over 150 staff. We provide our clients with a comprehensive range of business and advisory services in addition to the audit, accounting, taxation and insolvency services that are central to our practices. Our people not only provide value but actively work to support our clients.

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