Many questions received had common themes.  To avoid repetition, similar questions have been summarised into one broader question and sorted under a range of different headings.

A. DE-AMALGAMATION PROCESSES

The principal reason the Board has put forward for the de-merger is the “cultural difference” between the two memberships. Could the Board please elaborate and spell out:

• what the “cultural” differences are?
• why isn’t the Board working to overcome them?

Whether "cultural differences” is the best way to describe the differences is debateable, but irrespective there are clearly different attitudes and priorities etc that create significant angst amongst the two venues’ members.

At the time of amalgamation there were different views as to the nature of the union.  Some members felt MIBC Ltd was taking over TBCC Ltd as a “favour” before it was eventually forced to close, whilst others felt it was a union of equals. Given MIBC Ltd’s greater asset base and the limited options available to TBCC Ltd, MIBC Ltd inevitably became the senior partner.  The joining of unequal parties resulted in the Constitution of MIBC Ltd providing greater rights for bowlers than it did for golfers.  Some members understood golfer’s rights were to be increased over time to equalise this imbalance whereas other members do not accept this view and say amalgamation would not have been supported by Merimbula bowlers if there were plans for the two parties to ultimately be considered equal “custodians” of the new entity.  Today, part of the membership (golfers) resent the constitutional discrimination of being disenfranchised – and that MIBC Ltd is being regarded as a bowling, rather than a Sporting Club.

The differences also stem from the respective histories of the two earlier Clubs.  The founders, Boards and members of MIBC Ltd worked very hard to create a prosperous business for the specific purpose of current and future funding of the sport of bowling in Merimbula.

In comparison, Tura Beach has not had the benefit of a strong commercial location but does have a strong member community ethos among both golfers and bowlers.  Volunteer contribution has been an essential part of the culture at Tura, whereas the need for volunteer participation has been much lower at Merimbula.

Due to the difficult environment NSW Registered Clubs operate in today the Merimbula venue is not able to produce the cash surpluses that it did in the past and this has reduced Merimbula’s capacity to fund the sport of bowling in Merimbula at past levels. Some Merimbula members believe Tura Beach is a further drain on MIBC resources, whilst at the same time at Tura Beach, there is a view not enough of these resources are spent at Tura.  Until recently Merimbula did subsidise Tura, but in recent times Tura on average, pays its way each year.

The Board’s policy of recent years is each venue must stand on its own financially and neither venue should subsidise the other.  The Merimbula venue related assets and annual revenues are approximately five times those of the Tura venue. Therefore, in line with policy, expenditure including capital expenditure on Merimbula is going to be significantly larger than that of Tura.  Some Tura members take exception to this perceived inequitable split of expenditure.

Based on all of the above, the members of the two venues have differing perspectives on many decisions by the Board.  It is not the view of the Board that previous Boards have adopted policies to entrench these views.

The Board has sought to bring the two groups together without success.  Some examples of this include; joint venue Liaison Committees, introduction of marketing names Club Sapphire Merimbula and Club Sapphire Tura, joint venue Volunteers Cocktail Party, Amalgamation Day Bowls event, unsuccessful attempt to negotiate a compromise on the golfers voting rights issue, multi venue staffing, joint venue advertising and promotional slogans and other promotional initiatives, parity of bowling membership fees across the two venues, etc.

Many of these initiatives have failed or had limited success due to resistance from members.

One enduring difference that exists between the two clubs is concern over the distribution of resources.  From the outset why have Boards adopted policies which entrench these differences and do not support a “One Club” culture?

At the time of Amalgamation TBCC Ltd did not own any freehold land.  This land had been previously sold to a group of private investors known as “the Friends of Tura”.  At that time TBCC Ltd was leasing this land at a cost of approximately $100,000 per year.

It was the understanding that the MIBC Ltd would pay off TBCC Ltd debts, MIBC Ltd would buy back the freehold land previously sold off by TBCC Ltd, and MIBC Ltd would pay to refurbish and extend the existing club house.  After this the Tura venue would be expected to stand on its own two feet and be self sufficient. The Board’s policy of neither venue subsidizing the other is consistent with this objective.

Due to a range of matters impacting on the Club Industry the Merimbula venue is no longer the cash generator it once was.  Merimbula, like all clubs, is struggling to keep its head above water these days. Gone are the days of Merimbula making in excess of $2million cash flow profits which were being regularly achieved at the time of amalgamation.  In those days Merimbula could help Tura as it had surplus cash.  However, this year Merimbula will only generate net cash flows of about $1.3million.  Its depreciation level is greater than this at about $1.4mill and therefore it is not in a position to subsidize or provide any significant financial assistance to any other venue.   Consequently, perceptions that MIBC Ltd provides a safety net and access to funds for Tura Beach are unrealistic.

Are there any annual or other external deadlines (e.g. legal, legislative, financial, tax, governance, accounting etc.) that in any way suggest or impact a timeframe for separation, or is the timeframe completely within the control of the club?

The proposal is being progressed in consultation with the Solicitor and in accordance with his suggested order and timetable of events. The Solicitor advises that it will take at least 12 months for de- amalgamation to be finalized.  A practical date for change is 1 July 2011 due to financial year and membership year considerations, but this is not essential.

While specific timeframes for submitting applications for incorporation and a liquor licence are not set by regulatory authorities there is a significant amount of work required to meet their requirements. The major tasks for a steering committee will include preparation of a business plan and associated evidence for viability required by OLGR for obtaining a liquor license and  for ASIC a constitution for the new club as is required for Incorporation. There will also be lag times between submissions and final approval.

A General Meeting of members of the new club will be required to approve incorporation, the application to ASIC to re-register Tura Beach; and the new Constitution. It should be noted that should member approval not be granted the de-amalgamation could not proceed.

The Board feels that not to proceed in this manner could be seen as unduly delaying initiating the de-amalgamation process and benefits that might result.

There would appear to be undue haste in the process of decision-making about the proposed de-amalgamation - what is the reason for such a tight time-table?

As mentioned above, the Board does not feel the proposal is being pursued with undue haste - it is being done in consultation with the Solicitor and in accordance with his suggested order and timetable of events. There is significant time, cost, and effort, in implementing de-amalgamation and the Board is of the view that members need to approve the concept before this work is undertaken and costs incurred.

As stated in the Notice of Meeting for the General Meeting, the vote to transfer land to non-core will only proceed if de-amalgamation occurs. This vote does not dictate the timetable for any de-amalgamation, if it proceeds, but it is a necessary step before the assessment process can begin.

Are there any precedents of other clubs de-amalgamating in this way from which we might learn?

The Board has been advised by the Solicitor that there have been no examples of de-amalgamation in recent years or under current legislation.  There is an example in our area from 1989 where the Bateman’s Bay Soldiers Club and Malua Bay Bowling Club de-amalgamated.  Both clubs are still going strong and are successful today.  We have had discussions with the current CEO of the Soldiers Club.

Why doesn’t the Board allow time for a full and detailed analysis of the situation before requiring the members to vote?

To undertake a full, detailed financial analysis before there is an indication of whether members wish to pursue de-amalgamation would be pre-emptive.  In the event of member approval for proceeding with de-amalgamation, a full analysis must be undertaken independently by a steering committee comprised of Tura Beach members as part of the application to Office of Liquor, Gaming and Racing for a Club Licence.

If after careful analysis it were to be determined that one or more of the clubs would not be financially viable apart, but that both would be financially viable together, would the board recommend the clubs remain as one?

If these circumstances arose the Board would not pursue de-amalgamation. In addition, should it be demonstrated that Tura Beach would not be viable as a stand alone Club the de-amalgamation could not proceed as financial viability is a major criterion for the Office of Liquor, Gaming and Racing (OLGR) to approve a licence.

Would the Tura Club be required to close for a period during the amalgamation process?

No, but there may be a very brief period where gaming machines may not be in operation as part of the transfer process.

Should the members pass the first resolution but de-amalgamation does not take place, then the Club's current core property land holdings located at The Fairway, Tura Beach will revert to being "core" property?

The classification as non-core property will only apply to any disposal of the property for the purposes of achieving the de-amalgamation.  For all other purposes the land will remain as core property.

Some members believe that there has been a lack of expert advice for members and they feel they are inadequately educated about the issues involved.

Since the Board made the decision to recommend de-amalgamation to members it has primarily sought legal advice on the practicalities associated with splitting MIBC Ltd into two clubs – Merimbula Imlay and Tura Beach. In accordance with this advice it has been established that a steering committee of Tura Beach members be established to examine the issues, including legal and financial aspects as well as undertaking the necessary groundwork in preparation for de-amalgamation.

There has also been a member information night, two sets of Questions and Answers posted on member boards and the Website and opportunity for members to submit questions and for the Board to provide answers.

For Tura Beach members, it would be reasonable to say that a vote for de-amalgamation processes to proceed is an in-principle vote as there are many aspects to be investigated in full before submission of applications for Incorporation and to obtain a Club Licence.  Before these applications can be submitted the members of the new Club must approve (that is vote) for such lodgements to proceed.

B. BUDGETING

What capital equipment and/or intellectual property is shared across both venues?  What provisions, if any, have been made for the purchase of additional equipment or intellectual property to support two separate organisations?

A new computer server will be required for Tura along with software and licenses to run payroll, accounts, administration, membership, and gaming loyalty systems (if required).

These items will be purchased for Tura from MIBC Ltd’s Tura venue annual capital expenditure budget prior to de-amalgamation being effective.  It is anticipated a budget of $20,000 would be adequate.

Will the courtesy bus be retained?

If de-amalgamation proceeds the existing courtesy bus will remain the property of Tura.  The Courtesy Bus was purchased from Tura’s Capital budget, though ongoing costs have been split between the two venues since the service was extended to the Merimbula venue.  Merimbula will be required to purchase its own vehicle if it chooses to continue with a bus service.

We have a courtesy bus that is too old, so some replacement will sooner or later be required.

This is a matter for future Boards to assess as part of their normal annual budget process. The current Board had no intention to replace/upgrade the existing bus in the near future irrespective of de-amalgamation or not.

What is the Board’s policy for establishing annual fees for golfers and bowlers? What are the forecast fees for 2010-11 and beyond?

Fees are reviewed and set annually taking into consideration financial and budgetary requirements for each venue at that time while also taking into account the need to be competitive with other sporting clubs in the district. The Budgets for each venue for 2010/11 are currently being developed and members will be notified of fees set for 2010/11 in the next few weeks.    It is the responsibility of each successive Board to establish annual fees and membership fees beyond next year would be set by the Board of the new Club.

Are any joint costs currently apportioned solely to one venue, e.g. CEO salary?

At present some costs e.g. honoraria, costs of AGM and Half Yearly Meetings, advertising, shared computer systems and software, website, insurance policies, workers comp, auditing, company legals etc, are allocated pro-rata between the clubs on an individual basis.  However the salaries of the Merimbula based management team, including the CEO, are currently covered entirely by the Merimbula venue and the Tura based administration team is currently covered entirely by the Tura venue.  All Social Membership subscriptions are currently allocated to Merimbula.

What allowance has been made for ongoing costs for computer systems (financial, payroll, membership) and staff? What allowance has been made for ongoing costs for insurance, workers compensation and workcover, PR and advertising, telecommunications, website support, accounting, auditing, company reporting and so on?

Most of these costs are already covered either directly or in pro-rata by budgets at each venue. Increases in operational costs are an ongoing factor in any business.  It is standard practice to incorporate projected increases within annual budgets.  Ultimately the allowance made for these costs will be at the discretion of the new Board.

No estimates have been done for either increased costs or increased revenues.  Budget estimates for both venues in 2010/11 will be developed over May/June but, should de-amalgamation proceed, future estimates would need to be developed by the new Clubs’ Boards.

Of particular note is that in some cases [e.g. insurance and advertising] there may be opportunities for reduced expenses that will see the respective clubs operate more efficiently than before.  This is a matter that may be examined by the Steering Committee and would be the responsibility of future Boards of the Clubs.

What allowance has been made in the projections for the one-off costs associated with de-amalgamation, e.g. legal, accounting, signage and logos, printing and stationery, new website, uniforms, splitting or re-negotiating contracts and so on?

Most of the immediate costs of de-amalgamation, such as legal advice and accounting, are being funded by MIBC Ltd.  Other costs, such as stationary, signage and uniforms would be managed over time as a normal part of business. Ordering of new supplies, such as stationary and uniforms (for which there is an existing annual allowance), combined with running down of existing stocks would be the normal business practice to minimize costs.

Much of the current signage at the Tura venue specifies Tura Beach Country Club – this would remain, unless members of the new Club wish to have an alternative name for the new Club.  MIBC Ltd. had planned to refresh these signs in the near future and will still do so.

What is the current lease payment to BVSC on the course, how long does the lease have to run?

This is a 20 year lease expiring in 2022.  Current annual payment to BVSC is approximately $5,000.  This payment level is reviewed every three years.

Has the:

1. insurance broker been contacted as to Tura’s likely insurance account, if not, can an estimate be obtained from him?
2. company’s auditor been asked his opinion/views on Tura’s financial position to “stand alone” particularly in reference to cash flow. If not, can his opinion be sought?

1.  Revised insurance costs have not been sought at this stage as it would be part of the responsibilities of the Steering Committee who will have the authority to obtain an estimate.

2.  The Auditor is not permitted to make projections about the viability of a yet to be formed company.  It should be noted that the December 2009 figures used in estimating end year outcomes had been audited.  As above, the Steering Committee would have the authority to request an opinion (although it may be appropriate to wait until final 2009/2010 figures).   The auditor will attend the General Meeting of 19 April 2010.

What is the likely depreciation level at time of de-amalgamation? Is it possible for this to be nil due to the assets being transferred for no cost?

MIBC Ltd’s auditor’s initial and informal view is that the initial depreciation would be based on the written down value of the assets at the time of the transfer, not on the amount paid by Tura for the transferred assets.  However, this is a decision of the new Tura Board and it’s own auditor.

The level of depreciation is a function of the level of assets.  However the more important question is the appropriate level of ongoing capital expenditure.  The answer to this question will be up to the Steering Committee to consider when establishing viability and the Business Plan.

Has the possibility of a 25%  + increase in electrical cost been considered, what is Tura’s current annual account?

The Board is aware that costs are projected to increase and, as with other areas these are assessed when developing annual budgets.  Certainly, the seeking of efficiencies is, and would be undertaken by the MIBC Ltd Board and future Boards of any new Tura Club. The Tura Beach general electricity accounts for 2007/08 and 2008/09 were $62,770.29 and $56,395.27 respectively.  As at end December 2009, electricity expenditure was $34,457.

C. NEW CLUB MEMBERSHIP

What projections have been made regarding expected future membership profiles, e.g. how many members of different categories are expected to belong to each new club?  Would existing members belong to both clubs at the point of de-amalgamation?

As a pre-requisite, members will be asked to join as social members in order for the club to seek Incorporation (minimum of 200 is required).  It would be reasonable to anticipate that most of the current Tura Beach based sporting members of MIBC Ltd (currently 620) would join the new Club.  In any case, this will be established when nominations are called for membership of the new Club in preparation for these members to approve the new Club’s Constitution and applications for Incorporation and a Club Licence which are necessary steps before de-amalgamation can proceed.

The Board has also assumed 600 one year social members will also join the new club – this is approximately the number prior to amalgamation.

How will the existing social members be allocated to the new entities of Merimbula and Tura?

Existing social members will be able to apply for membership of the newly formed Tura Beach Club along with all other members.  As mentioned the Board anticipates this would equate to around 600.  Ideally, the de-amalgamation will be effective at the start of the membership year so to minimise the need for pro-rata distribution of existing membership fees between the two clubs.   The Board will discuss options with the Steering Committee as to how to best treat existing multi-year social members including an option of a partial refund of MIBC Ltd membership fee to any existing multi-year member who chooses to join Tura.

Social members are the majority shareholders of the MIBC.  What benefits flow to social members from a de-merger?

The current benefits received by social members would be expected to remain, de-amalgamation should not have any significant impact.  The initiative should enhance viability of the two venues and therefore ongoing access to a variety of membership facilities is more likely.  Social members will be required to be a member of both clubs if they wish to access both if they live within 5km of both venues.

D. POKER MACHINES

Is it assumed that poker machine revenue will continue to decline at each venue and has this been factored into projections?  If not, upon what basis were different assumptions used?

There been no assumptions regarding future revenue or costs.

The clubs have operated within their respective poker machine budgets in recent years and this is not going to change in the future whether there is de-amalgamation or not.  In respect of the Tura Beach venue, poker machine revenues, while decreasing in the past two years, have not been impacted as severely as many clubs.  Net profit from poker machine trading is as follows:

2005/06 - $729,669, 2006/2007 - $757,690, 2007/2008 - $711,166, 2008/09 - $720,532.

How many poker machines did Tura Beach own at the time the clubs merged?

There were 39 poker machines at the time of amalgamation – as compared with 43 now with OLGR approval for an additional 6.

Are both clubs poker machine incomes currently combined for taxation consideration?

No.

Tura is expected to lose some poker machine licences as part of the transfer process.  What will be the cost of replacing these machines?  Can they be replaced under current legislation?

Under current legislation there is a one in three forfeiture in poker machine entitlements when transferred from one club to another.  Current legislation provides for this forfeiture to not apply when it relates to an amalgamation of clubs.  However, the legislation does not deal with de-amalgamation.  Common sense would suggest the same concession should apply to de-amalgamation but this would require a change to the law.   The Board is seeking advice on this matter and how to best achieve a transfer of all 43 entitlements.

Similar to the transfer of gaming machine entitlements, current Legislation provides for the transfer of assets between clubs during the amalgamation process to be stamp duty exempt but the current Legislation is silent with regard to stamp duty during de-amalgamation.

The Board will be seeking advice from and liaising with relevant government and industry bodies.

The transfer of poker machines to ‘Tura’ may result in a reduction of around 13 machines.  Is this true?

This is not yet known but it is possible.

One of Australia’s leading gaming consultants reviewed Tura’s gaming machine installation approximately two years ago and advised that he felt Tura was “over machined” and recommended 30 machines would be the most productive number to install.   He based his recommendation on the savings from a reduction in the significant holding and replacement costs of each machine compared to any potential reduction in gross revenue of a smaller installation.   Due to a general decline in gaming in NSW Registered Clubs, the demand for large installations of machines continues to decrease.

The Club does have approval to purchase six additional entitlements for Tura if need be. The cost of purchasing the additional entitlements would be the responsibility of the new Tura Club.

Should the current poker machine capital replacement program ($100,000 this year) be maintained for best financial returns for the club, or should it be greater or less?

The designated capital requirements are determined annually within the context of the budgetary framework and allocations for total capital expenditures.  The Board is currently of the view that revenues are optimised with maintaining up to date gaming machines, and it has been the experience of other clubs that older machines are not patronised well and revenues decline.  There are early indications that the replacement of older machines with the four new ones at Tura Beach in February has been well received by patrons, with encouraging turnover increases emerging.

Ultimately, what amount is the right amount is debateable and depends largely on the number of machines a venue offers.  If 40 machines was considered the right number for Tura, $100,000 is barely adequate.  If 30 machines is the right number $100,000 would be more than adequate.  The very significant ongoing cost of keeping machines attractive and relevant is obviously a major factor considered by the gaming consultant when he recommended a reduction in machine numbers.

E. CAPITAL EXPENDITURES

Does the Board have a strategic plan and capital investment program covering the future development and maintenance of the golf course (including irrigation)?

This is the responsibility of the Course Superintendant and the Course Management Committee to cost and submit proposals and strategies they consider necessary for the continued maintenance of the sporting facilities. Currently, these are under review. When such proposals and strategies are received the Board considers these within the budgetary context and determines the efficacy of implementation.

It would be expected that the question of irrigation would be included but costs need to be quantified for the various alternatives to be considered. These costs depend on a number of outstanding issues including participation of Local Government in its funding, what systems are available (and their cost) and the level of irrigation necessary.

It may well be possible to fund replacement of irrigation within the normal annual capital budget of Tura Beach.  In any case regardless of whether de-amalgamation goes ahead it is currently the responsibility of Tura Beach to fund such expenditure from its own revenues and it will be up to future Boards to manage this process.

Does the Board have a capital improvement plan which covers upgrade/refurbishment of the bar, toilet and kitchen facilities of the Tura Beach Clubhouse?

Refurbishment of Clubhouse facilities is a normal ongoing operational expenditure rather than an item incorporated in a capital improvement plan.  There are no current plans for upgrading Clubhouse facilities.

F.  LAND

Why is it necessary for land to be retained by MIBC?

The land is currently owned by MIBC Ltd.  At the time of amalgamation TBCC did not own this land and MIBC Ltd separately paid $850,000 to purchase both Lots 1441 and 1442 DP 615595 from a group of private owners known as “The Friends of Tura” who had been leasing the land to TBCC.

There is the possibility of stamp duty fees to transfer it to a new Tura Beach Club.  It has been agreed by the Board that MIBC retain ownership of this land as recompense for the investment made into Tura Beach and the costs of undertaking the de-amalgamation.

What value does the Board place on the Tura Beach land to be retained by MIBC?   Would the club be prepared to sell the land for that valuation?

As in any such case the value of the land depends on who is available to purchase it.  Under current zoning it is not possible to sub-divide it for residential and this reduces the value.

Following re-zoning it will be available for residential development, however there are significant expenses required (e.g. roads, and services) that would be required before it could be sold for that purpose.

While it is not currently intended to sell the land, the Board has sought estimates of its value as part of its general asset valuations and land tax assessments that have suggested a value of between $180,000 and $275,000 under current zoning.  Local valuers Caddey Searl Jarman have estimated a potential doubling of this valuation if rezoned. The Board has indicated in principle agreement that, should in the future it decide to sell the land then it would offer a first option to any future Tura Beach Club to purchase the land.

The Board would be prepared to sell the land but the sale price would need to have regard for the current and rezoned value of the land.

G. ADMINISTRATIVE

What management and staffing structures are being proposed for the purposes of modelling costs for the new clubs (accepting that the final structures will be decisions for the new boards)?  What honoraria are being proposed for the new boards?

Staffing structures etc will be the responsibility of the steering committee and new Board.  However, the MIBC Ltd. Board has said that it will endeavour to transfer all existing staff and their entitlements to the new Tura Club under the same or similar conditions as exist today.  This would create a relatively seamless change and no change to cost.

There will be a requirement to expand administrative positions.  Currently Tura Beach has a full time Venue Supervisor and a part time administrative officer.  In the short term it would be expected that there would be no change in these positions until the new Board has had the opportunity to examine options. Nevertheless, responsibilities such as company administration, payroll, finance, membership, which are not currently fully covered, will need to be addressed. The associated increases in administrative costs were flagged at the members Information Night in March.

At the March information meeting the Treasurer said that Honoraria for Tura Beach would not be expected, however, should a future Board assess that this is reasonable it would be subject to member approval.

What will happen to existing contracts for staffing and the Club Professional?

Subject to the agreement of the individual or contractor concerned MIBC Ltd will endeavour to transfer all MIBC Ltd rights and obligations under such contracts to the new Tura Club.

Will Club Cash continue in a new Tura Beach Club?

Club Cash was designed to meet MIBC Ltd auditor’s recommendations and to be applied equally to all internal clubs of both venues.  Due to the variety of different arrangements that previously existed across the various clubs this system suits some clubs better than others.  It would be expected that the Steering Committee would be consulting with all Tura sporting sections with regard to either retaining Club Cash or reverting to a simpler system that would meet auditing requirements.

On behalf of the Board

Gerry Hammond
Chairman
MIBC Ltd
14 April 2010