Finance Institute for Attractions Managers IAAPA Operations and Safety MarketingLeadershipFinance Revenue Operations

Finance Objectives Upon completion of this course, attendees will be able 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 Indicators Managers should be in control by monitoring: % Cost of Goods SoldCOGS / Revenue Per capsRevenue / Number of visitors (pax) YieldDiscounted price / Full Price Labour %Labour costs / Revenue Labour Hourly RateLabour costs / Worked Hours Sick RateSick costs / Labour Costs % EbitdaEbitda / Revenue Capacity per hourSum of all hourly capacity of rides/shows Revenue per square meterRevenue / 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

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

Finance Funworld Park’s Financial Statement (cont’d) Funworld Park expenses

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, equipment The industry has very high fixed costs – Very capital intensive Fixed 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 You sell it for After the sale, you would subtract cost of goods, as well as the cost of labor, sales and marketing, general/administrative, and depreciation/amortization, to get 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, Season pass holders –Individual, –Early Bird, –After 2:00 pm, Discounts –Family of 4 Discount, 12.00/family –Discount tickets, 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 years Annual 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 100,000 A 30-year mortgage is secured Monthly 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 500,000 A new gift shop will go next to it 50,000 Total 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 project Shorter payback periods are preferable Organizations choose a project payback period. The greater the risk, the shorter the payback period Easy 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

Finance Return on Investment (ROI) ROI is an accounting measure of income divided by an accounting measure of investment

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

Finance Up Next: Now - Your Facilities Next - Heineken Experience Tour 19:30 - ctaste Restaurant

Finance ctaste 19:30 Amsteldijk 55, 1074 HX Amsterdam