Finance

Institute for Attractions ManagersIAAPA

Operations

and Safety

Marketing LeadershipFinance

RevenueOperations

Finance

Objectives

Upon completion of this course, attendees will beable to: Understand role and importance of finance within

an organization Understand and define major income and expense

items for facilities Describe the financial metrics that attractions

should be monitoring regularly and why Describe the key principles of operating margin and

yield management Explain depreciation, amortization, and EBITDA

Finance

Role of Finance in a Themepark

• Facilitator and service dept. to other departments

• Financial accounts versus management accounts

• Directors should be prepared:Money is important

• Finance involved in decisions/approvals

Finance

Role of finance in a Themepark

• Bookkeeping and reporting• Budget and Control• Loss Prevention• Cash Office• Taxes (VAT, import duties, sales tax,

income tax)• Legal, Contracts• Stock taking• Payments (terms and conditions)

Finance

Impact of finance in a Department

• P&L responsibility• Budgeting• Staffing• Reporting

• Entrepreneurs• Proposals of new initiatives• Be Prepared• Show Spirit and Believe!

• Actuals• Invoicing, purchasing on time• No surprises• Time Sheets

Numbers/information should be correct, accurate

Finance

Main Key Performance IndicatorsManagers should be in control by monitoring:•% Cost of Goods Sold COGS / Revenue•Per caps Revenue / Number of visitors (pax)•Yield Discounted price / Full Price•Labour % Labour costs / Revenue•Labour Hourly Rate Labour costs / Worked Hours•Sick Rate Sick costs / Labour Costs•% Ebitda Ebitda / Revenue•Capacity per hour Sum of all hourly capacity of rides/shows•Revenue per square meter Revenue / square meters• • •

Finance

Main Key Performance Indicators (cont’d)

Only worth when figures are compared by:-Actual -Previous year-Budget

And when periods are clearly defined-Day, week, month-Year to date-Full year

Finance

Key metrics These metrics should be monitored daily:

• Per caps• Daily attendance• Planned/budgeted income versus actual• Labor costs (can be hourly labor, or a productivity

metric) Daily, weekly, monthly, quarterly, and annual

tracking of actuals against the budget Increases in daily attendance are worth more to the

bottom line than increased per caps for the same day Good budgeting anticipates known causes of revenue

increases or decreases; e.g., special events that will bring in more guests

Main Key Performance Indicators (cont’d)

Finance

Funworld Park’s Financial Statement

ACTUALS PER CAPS

% ACTUALS PER CAPS

%

ATTENDANCE € 753.000 € 730.000 CAPITAL IMPROVEMENTS € 1.000.000 € 1.300.000

REVENUES TICKETS € 8.515.000 € 11,31 60% € 7.992.500 € 10,95 60%

ATTRACTIONS € 150.600 € 0,20 1% € 131.400 € 0,18 1% FOOD € 2.635.500 € 3,50 19% € 2.416.300 € 3,31 18%

RETAIL € 1.091.850 € 1,45 8% € 1.022.000 € 1,40 8% GAMES € 993.960 € 1,32 7% € 941.700 € 1,29 7%

PARKING € 301.200 € 0,40 2% € 270.100 € 0,37 2% LESSEE/OTHER € 195.780 € 0,26 1% € 189.800 € 0,26 1% SPONSORSHIP € 291.040 € 0,39 2% € 281.336 € 0,39 2%

INTEREST & OTHER INCOME € 60.000 € 0,08 0% € 57.999 € 0,08 0%TOTAL REVENUES € 14.234.930 100% € 13.303.135 100%

2013 2012

Finance

Funworld Park’s 2013 Income •Ticket/gate revenue was 8,515,000, or 60.00% of gross revenue •Total F&B, games, and retail income was 4,721,310, 33.% of gross revenue•Per caps: Gate – 11.31; F&B, games, and retail – 6.27•Per caps growth 2013–2012: Gate: 3,28% F&B: 5,74% Games: 2,32% Retail: 3,57%

Funworld Park’s Financial Statement (cont’d)

Finance

Funworld Park’s Financial Statement (cont’d)

Funworld Park Cost of Goods

COST OF SALES % Rev. % Rev.

FOOD € 856.538 32,50% € 797.379 33% RETAIL € 491.333 45,00% € 480.340 47% GAMES € 253.460 25,50% € 254.259 27%

TOTAL COST OF SALES € 1.601.330 € 1.531.978

2013 2012

Finance

Funworld Park’s Financial Statement (cont’d)

Funworld Park expenses

EXPENSES SALARIES/WAGES (INCL TAXES) € 4.379.353 30,76% € 4.272.540 32,12%

MARKETING € 1.170.000 8,22% € 1.015.000 7,63% TRAVEL / ENTERTAINMENT € 54.750 0,38% € 51.100 0,38%

EQUIPMENT RENTAL € 73.000 0,51% € 73.000 0,55% OUTSIDE SERVICES € 693.500 4,87% € 671.600 5,05%

REPAIRS & MAINT € 800.000 5,62% € 605.900 4,55% OPERATING SUPPLIES € 708.100 4,97% € 693.500 5,21%

UTILITIES € 650.000 4,57% € 600.000 4,51% INSURANCE € 210.000 1,48% € 200.000 1,50%

PROPERTY & OTHER TAXES € 72.331 0,51% € 58.400 0,44%TOTAL EXPENSES € 8.811.034 61,90% € 8.241.040 61,95%

EBITDA € 3.822.566 26,85% € 3.530.117 26,54%

2013 2012

Finance

Funworld Park’s 2013 Expense highlights Total cost of goods sold (F&B, games, and retail)

was 1,601,330 or 33,92% of revenue from those areas

Cost of goods sold was a slight increase from 2012, which was 1,531,978, or 34,97.% of revenue

Total expenses for 2013 were 8,839,137, an increase of 6,90% over 2013

Funworld Park’s Financial Statement (cont’d)

Finance

14

FunWorld Park’s Financial Statement (cont’d)

Fixed and Variable costs • Fixed costs - A fixed cost is a cost whose total dollar

amount remains constant as the activity level changes.Include rides, facilities, buildings, equipmentThe industry has very high fixed costs – Very capital intensiveFixed items must be paid for whether the park is open or

closed; whether there are guests or not • Variable costs –A variable cost is a cost whose total

dollar amount varies in direct proportion to changes in the activity level.

Include labor (largest component), and all non-capital costs, such as electricity, supplies, etc. A park must cover both its fixed and variable costs out of generated revenue – Once these are paid, the remaining amount is profit

Seasonal facilities lose money when they’re closed – This is why peak season is so critical to these facilities

Finance

Operating margin A measure of what proportion of a company's

revenue is left over after paying for variable costs such as wages, supplies, etc. (i.e., cost of goods), or, operating income divided by sales revenue (net sales)• Example:

Your cost for a Funworld Park T-shirt is 3.00. You sell it for 15.00. After the sale, you would subtract cost of goods, as well as the cost of labor, sales and marketing,general/administrative, and depreciation/amortization, toget the operating margin

• A good operating margin is needed to cover fixed costs

Revenue Theory and Practice

Finance

Yield management The process of understanding, anticipating and

reacting to consumer behavior in order to maximize revenue or profits• In the attractions industry the key relevance of

yield management is in reductions in the posted gate price: discounts, coupons, multi-day passes, etc.. Intended to increase attendance – Gate price reductions typically decrease the actual

gate revenue per person, but will tend to drive volume

Revenue Theory and Practice (cont’d)

Finance

Funworld Park’s Financial Statement (cont’d)

Funworld Park: Other operating characteristics 126 Operating Days Pricing Policy – Regular Adult, 18.00; Child, 13.50;

Senior/Handicap, 13.50• Season pass holders

– Individual, 40.00– Early Bird, 30.00– After 2:00 pm, 15.00

• Discounts– Family of 4 Discount, 12.00/family– Discount tickets, 12.00

• Coupons– Bring the price down to 12.50

Finance

Depreciation Measuring the loss in value of an asset: In accounting,

the allocation of the cost of an asset over its economic life. Covers deterioration from use, age, and exposure to the elements

Depreciation is a very important factor in the attractions industry, because of the high fixed cost investments in rides and ride machinery, equipment, and buildings

Example: New roller coaster cost: 10

Million Depreciation period: 10 yearsAnnual depreciation amount: 1 Million

• Second year purchase: 500,000 ride, 5 years• What will the depreciation amount be in the second year?

Funworld Park’s Financial Statement (cont’d)

Finance

Amortization The gradual elimination of a liability, such as a

mortgage, in regular payments over a specified period of time

Parallel to how depreciation breaks out an asset into separate years as it declines in value, so amortization divides the cost of a liability over several years to represent its increasing value to the company as the liability (typically a mortgage or other loan) is paid off

Example:A park buys 20 acres of land 100,000A 30-year mortgage is securedMonthly payment is: 10,000

Funworld Park’s Financial Statement (cont’d)

Finance

CASH FLOW Movement of Cash into or out of a

business/project/financial product:• High revenue might sound great but does not

mean anything when the invoices are not being paid!!!!

Funworld Park’s Financial Statement (cont’d)

Finance

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) An approximate measure of a company's operating

cash flow based on data from the company's income statement: Calculated by looking at earnings before the deduction of interest expenses, taxes, depreciation, and amortization• Offers an indication of how much cash the company is

generating• Such an earnings measure is of particular interest in

cases where companies have large amounts of fixed assets which are subject to heavy depreciation charges (such as the theme park/amusement/attractions industry)

Funworld Park’s Financial Statement (cont’d)

Finance

Funworld Park’s Financial Statement (cont’d)

Is EBITDA and Cash Flow the Same?

Finance

NO

They Are different

EBITDA does not take into account the actual cash inflows and outflows.

Example: Principle payment is not reflected in EBITDA Account Receivable Collection Accounts Payable Payments

Funworld Park’s Financial Statement (cont’d)

Finance

Capital investment and ROI In this capital-intensive business, management must

constantly invest and re-invest, to continually refresh the quality of the park experience for the visitor base• Owner/operator must have a “new attraction strategy”:

– What should I spend money on for next season?– When will I recoup the money?

• Make projections of additional visits, higher spending that will flow from the new investment

Example: A park buys a new teacup ride 500,000A new gift shop will go next to it 50,000Total investment 550,000

• Projected recoup percentage per year: 10%

Capital Investments

Finance

Asset management and valuing a facility Asset management: Management should develop a

rationale and a set of well-defined steps to govern the investment process• Take an intelligent approach to investments

Valuing a facility: Measuring what a property is worth • “Multiple of revenues”: Use of EBITDA to value

property– Examples:

» Cedar Fair paid about 10 times EBITDA for Paramount» Premier paid about 8 times EBITDA for Six Flags

• Value of the land the park is sited on• Value of the assets (used especially in liquidation)

Capital Investments (cont’d)

Finance

Capital Investments (cont’d)

Funworld Park’s Finance Department is planning an investment... What will be the return? How many years should

the loan be for? How is the return calculated? What will be the impact on

revenues: and how will that be calculated?

Finance

27

Capital Investments (cont’d) Decision process

1. Identification Stage – determine which types of capital investments are necessary to accomplish organizational objectives and strategies

2. Search Stage – explore alternative capital investments that will achieve organization objectives

3. Information-Acquisition Stage – consider the expected costs and benefits of alternative capital investments

4. Selection Stage – choose projects for implementation

5. Financing Stage – obtain project financing

6. Implementation and Control Stage – get projects under way and monitor their performance

Finance

Payback Method

Payback measures the time it will take to recoup, in the form of expected future cash flows, the net initial investment in a projectShorter payback periods are preferableOrganizations choose a project payback period. The greater the risk, the shorter the payback periodEasy to understand

Finance

Payback Method (continued)

With uniform cash flows:

With non-uniform cash flows: add cash flows period by period until the initial investment is recovered; count the number of periods included for payback period

Payback Net Initial InvestmentPeriod Uniform Increase in Annual Future Cash Flows=

Finance

Return on Investment (ROI)

ROI is an accounting measure of income divided by an accounting measure of investment

IncomeInvestmentROI =

Finance

• Role of Finance• Budget and Control (KPI’s)• Look at major Income and Expense• Definitions of Key Accounting Terms• Steps to Capital Budgeting• Evaluations Methods

Summary of Learnings

Finance

When all else fail you could just roll the dice

Finance

• Role of Finance• Budget and Control (KPI’s)• Look at major Income and Expense• Definitions of Key Accounting Terms• Steps to Capital Budgeting• Evaluations Methods

Summary of Learnings

Finance

When all else fail you could just roll the dice

Finance

Breakeven calculation

Attendance 753.000 Days 126

Av. Att. Per day 5.976

Expenses 8.811.034

Total Costs 8.811.034

Margin per cap 16,78

Total costs/ per cap 525.164

4.168

Revenu 14.234.930COGS -1.601.330

Gross Margin 12.633.600

Margin per cap 16,78

Costs per day 69.929

Break even 4.168

Finance

Up Next:Now - Your FacilitiesNext - Heineken Experience Tour19:30 - ctaste Restaurant

Finance

ctaste 19:30

Amsteldijk 55, 1074 HX Amsterdam