Review of the Registered Clubs Industry in NSW - Clubs NSW

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6 Strengthening the financial viability of the registered clubs industry Table 6.3 Measures of financial viability for registered clubs Measure Earnings before interest, income tax, depreciation, amortisation, rent and donations as a proportion of revenue (EBITDARD%) a Working capital surplus (or deficiency) Operating cash flows/working capital deficiency Operating cash flows/borrowings Capital expenditure/operating cash flows Purpose Provides a consistent and comparable measure of the recurring cash trading surpluses before non-cash items and financial commitments. Measures the excess or deficiency of current assets over current liabilities. Provides an indication of the club’s solvency and short–term viability. Measures the club’s prima facie ability to fund any working capital deficiency through operating cash flows. Measures the prima facie time period that it would take the club to repay total borrowings through operating cash flows. Measures the club’s level of capital expenditure as a proportion of operating cash flows. a The standard accounting EBITDA measure is extended to exclude rent and donations paid by clubs to provide a more accurate comparison of financial performance between clubs. Rent is excluded to remove the impact of decisions to lease/rent assets as opposed to purchasing and depreciating assets. Donations are excluded to remove the differences between those clubs not within the CDSE Scheme, those paying the minimum under the CDSE Scheme and those paying amounts over and above their CDSE obligations. None of these measures on its own will provide a definitive indication of a club’s financial viability – they need to be considered together to provide a complete picture. Nevertheless, IPART considers it useful for clubs to be able to use one measure as an initial indicator of financial viability. In IPART’s view, the most useful measure for this is Earnings Before Interest Tax, Depreciation, Amortisation, Rent and Donations as a percentage of revenue (EBITDARD%). EBITDARD% represents the net operating cash surplus of a club that is available to service external debt (loan commitments) and re-invest in the club. If EBITDARD% is low and/or declining, it can indicate that a club is experiencing financial distress. The use of the level of EBITDARD% as an initial indicator (but not a definitive measure) of possible financial distress is discussed in greater detail in Chapter 7. Second, IPART developed a series of positive and negative indicators of financial viability, based on the measures listed on Table 6.3. These indicators (shown in Table 6.4) provide an insight into the financial strength and long-term viability of a club. For example, growing membership numbers is likely to indicate higher levels of revenue and increasing EBITDARD%. Similarly, an increase in trade creditor days is likely to indicate a higher working capital surplus. 92 IPART Review of the Registered Clubs Industry in NSW
6 Strengthening the financial viability of the registered clubs industry Table 6.4 Indicators of financial viability for registered clubs Positive indicators Stable or increasing positive EBITDARD% (>15%) Cash flows from operations greater than any working capital deficiency Sufficient cash flows from operations that allow regular debt repayments and ongoing capital expenditure from trading cash flow No reliance on interest bearing debt Ongoing repayment of interest interest-bearing debt Ongoing capital expenditure and maintenance program Stable or growing membership Strategic sales of assets made and ongoing sales of plant and equipment with short lifespan (eg, gaming machines, audio visual equipment) Stable or declining trade creditor days Negative indicators Declining EBITDARD% Increasing working capital deficiency Declining cash flows from operations or negative cash flows from operations High levels of interest bearing debt Inability to repay long-term debt Low or declining capital expenditure and maintenance expenditure Declining membership Sales of non-current assets (eg, land, gaming machine entitlements) to fund working capital deficiencies Increasing trade creditor days As noted above, it is essential that such indicators are not viewed in isolation to assess the financial viability of a club. For example, a club may have a large working capital deficiency and not be making ongoing principal debt repayments on longterm loans. However, it may also have strong EBITDARD%, be generating strong cash flows from its trading activities greater than its working capital deficiency, and be undertaking a large capital expenditure program. In this instance, it would be wrong to conclude that the club’s financial viability is in question based only on its large working capital deficiency and the fact that it is not making ongoing principal debt repayments on long-term loans. The indicators must be considered in combination. 6.1.3 The club financial distress timeline Clubs that go into administration or receivership tend to exhibit similar patterns and symptoms leading up to this severe financial stress. Figure 6.1 (the club financial distress timeline) illustrates the sequence of events typically experienced by financially distressed clubs. Review of the Registered Clubs Industry in NSW IPART 93
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Independent Pricing and Regulatory
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© Independent Pricing and Regulato
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Contents 6 Strengthening the financ
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Executive Summary Executive Summary
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Executive Summary estimated the val
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Executive Summary Therefore, IPART
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Executive Summary However, IPART al
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Executive Summary List of Recommend
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Executive Summary 15 Once the stand
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Executive Summary 29 That ClubsNSW
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Executive Summary 46 That ClubsNSW
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Executive Summary 60 That OLGR deve
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1 Introduction 1 Introduction Over
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1 Introduction 1.1.2 Review’s foc
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1 Introduction 1.2 Other reviews an
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1 Introduction 1.3 The structure of
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2 The registered clubs industry in
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Page 49 and 50: 3 Understanding the social contribu
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9 Improving corporate governance IP
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9 Improving corporate governance Ch
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10 Helping clubs better understand
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11 Making it easier for clubs to am
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12 Making it easier for new clubs t
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13 Removing unnecessary regulatory
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14 A framework for a management pla
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A Terms of reference A Terms of ref
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A Terms of reference The proc
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B Terms of reference checklist Term
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C List of submitters, roundtable pa
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D Gambling expenditure and problem
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E IPART’s methodology for recordi
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F ACG’s approach to measuring the
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G ClubsNSW - steps to establishing
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G ClubsNSW - steps to establishing
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Glossary and Abbreviations Glossary
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Review of the Registered Clubs Industry in NSW - Clubs NSW

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