finances
finances
General Introduction
Introducción General
ADVISORY COUNCIL MEETINGS OCTOBER 24-26, 2011
Reuniones del Consejo Consultivo, 24 AL 26 DE OCTUBRE DE 2011
Advisory Council members for The Royal Mayan, The Royal Caribbean, The Royal Islander and The Royal Sands attended a general meeting on Monday, October 24, 2011 in the conference room at The Royal Mayan. They were welcomed by Royal Resorts’ Operations Director Armando Millet, Jr., with a special welcome to new Council members and Directors Norman Carpenter and Dr. Kemil Rizk. Chief Financial Officer Fernando López addressed the group concerning the adverse effect of a strong peso on 2011 expenses. He explained the selection of the exchange rate and inflation percentage used to prepare the 2012 budgets, these being the two most important variables affecting the cost of resort operations. Based on the projections of major Mexican financial institutions and the government, an average exchange rate of $12.25/US$1 and 3.97% inflation were used as the basis for the 2012 budgets. Mr. López announced that the Employee Disaster Relief Fund, established six years ago to assist needy employees, has a current balance of US$750,457.
Mr. López introduced the guest speaker, leading economist Dr. Jonathan Heath. Dr. Heath’s topic “Economic Outlook for Mexico – Another Recession?” compared the current economic situations of the United States and Mexico. Although both are in periods of extended recovery, the Mexican economy is growing at two to four times the rate of the US economy. Fueled by the rapid growth of automotive exports (25% of manufacturing exports), growth in non-auto exports, exchange rate competiveness in world markets, increased retail sales, and producer and consumer confidence, the Mexican economy will likely avoid another recession and continue on the road to recovery. Dr. Heath stated that he believes Mexico’s gross domestic product (GDP) will reach 3.7% by the end of 2011 versus 1.6% for the US. His predictions for 2012 are that Mexico’s GDP will experience an overall 3.7% growth versus 2.3% GDP growth for the US and that the exchange rate will move in a downward direction. Following Dr. Heath’s presentation, Mr. Millet summarized several general issues pertaining to all the resorts –
• The owner satisfaction rate derived from the In Search of Excellence surveys is 94% which is very high among timeshare owners. • The resorts’ 77% occupancy rate is higher than other resorts and hotels in Cancún and the Riviera Maya. • The resorts’ recycling program has collected over 79 tons of material to date worth $4,000 used to fund community and conservation programs. • As a result of the dedication of the Royal Resorts’ Security Department, biologists and resort guests, the popular Turtle Protection Program had released an astounding 61,600 baby turtles as of mid-October 2011. • The solar panels atop the Royal Sands used to heat water for the resort have resulted in a 20% reduction in power used by the heat machines normally used for this purpose. • The use of ozone equipment in the filtration process for the swimming pools has resulted in a 40% decrease in the use of conventional pool chemicals. Mr. Millet then introduced Alma Conde, a representative of the Royal Resorts Foundation, who gave an overview of the four causes selected to be the focus of fundraising initiatives. See article on page 51.
NOTES RELATING TO THE ADVISORY REPORTS Budget Assumptions Based on economic forecasts prepared by various Mexican and US financial sources, assumptions used to prepare the 2012 budgets were an inflation rate of 3.9% and an average exchange rate of $12.25/US$1. Inflation and the exchange rate are the two most important variables affecting the cost of resort operations. Mandatory wage increases for union employees are also taken into account in budget preparation. Water and Sewage Budgets for 2011 were based on anticipated metered water and sewage charges. The installation of water meters was completed in 2011; however, the water company continued to charge a percentage of consumption. The cost of water is offset by the efficiency of the reverse osmosis plants which produce 80% of the water used by the resorts. The installation of sewage meters is complete. Therefore, the water and
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sewage budget for 2012 is based on anticipated metered usage. Electricity The cost of electricity continues to escalate. Non-negotiable rates are set by the Mexican government. Energy saving measures are being used extensively throughout the resorts. For budgeting purposes, the cost of electricity reflects new rate increases although usage is expected to remain stable. Taxes Property taxes have increased. There is a potential savings if a discount for early payment is permitted by the government. Security Security costs have risen slightly because an extra hour has been added to the seven-hour schedule of third shift employees.
Miembros del Consejo Consultivo de The Royal Mayan, The Royal Caribbean, The Royal Islander y The Royal Sands asistieron a la junta general el lunes, 24 de octubre del 2011 en la sala de juntas de The Royal Mayan. Armando Millet Vales, Director de Operaciones, les dio la bienvenida, en especial a los nuevos miembros, así como a Norman Carpenter y el Dr. Kemil Rizk, ambos miembros del Consejo Directivo. El Lic. Fernando López, Director de Finanzas, habló acerca del efecto adverso de la fuerza del peso mexicano sobre los gastos del 2011. Explicó cómo se obtuvo el tipo de cambio y la tasa de inflación que se utilizaron para preparar los presupuestos del 2012, siendo éstas las dos variables más importantes que afectan el costo de operación de los desarrollos. En base a las proyecciones de las más importantes instituciones financieras y el gobierno de México, se utilizó un tipo de cambio promedio de $12.25/US$1 y 3.97% de inflación para elaborar los presupuestos del 2012. El Lic. López anunció que el Fondo de Emergencia para Empleados, que se estableció hace seis años para ayudar a empleados necesitados, es de US$750,457. El Lic. López presentó al conferencista invitado, el Dr. Jonathan Heath, un respetado economista mundial quien ha dado presentaciones ante el Consejo Consultivo en varias ocasiones desde 1995. La presentación del Dr. Heath titulada “El
Panorama Económico de México – Otra Recesión?” compara las situaciones económicas actuales de Estados Unidos y México. Aunque ambos están en periodos de recuperación, la economía de México está creciendo entre 2 y 4 veces más rápido que la economía estadounidense. Impulsada por el crecimiento rápido de la exportación automotriz (25% de la exportación manufacturera), crecimiento en exportación de productos de otros ramos, tipo de cambio competitivo en mercados mundiales, crecimiento en ventas al por menor y confianza del productor y consumidor, la economía mexicana probablemente evitará otra recesión y continuará en recuperación. El Dr. Heath opina que el Producto Interno Bruto de México (PIB) llegará al 3.7% al final del 2011 en comparación con 1.6% en Estados Unidos. Pronostica que en 2012 el PIB de México tendrá un crecimiento del 3.7% en comparación con 2.3% en Estados Unidos y que el tipo de cambio disminuirá. Después de la presentación del Dr. Heath, el Lic. Millet dio un resumen de varios temas generales referentes a todos los desarrollos: • La tasa de satisfacción de los socios según la encuesta En Busca de la Excelencia es del 94% que es muy buena entre socios de tiempo compartido. • La ocupación de los desarrollos es del 77%. Es mayor a la de otros resorts y hoteles en Cancún y la Riviera Maya.
• El programa de reciclaje de los desarrollos ha recopilado más de 79 toneladas de material con un valor de US$4,000 que se han utilizado para apoyar programas comunitarios y de conservación. • Como resultado de la dedicación del personal de Seguridad de Royal Resorts, biólogos y huéspedes de los desarrollos, el popular Programa de Conservación de Tortugas ha liberado a 61,600 crías, un número realmente sorprendente, según registros de mediados de octubre del 2011. • Como parte del compromiso de los desarrollos hacia la Iniciativa de Turismo del Arrecife Mesoamericano (MARTI), cada desarrollo tiene un Equipo Verde dedicado a crear conciencia ambiental y desarrollar políticas en pro del medio ambiente. A mediados de octubre, el Equipo Verde alcanzó su meta del 2011 al 93%. • Los paneles solares de The Royal Sands que se utilizan para calentar el agua del desarrollo han reducido el consumo de electricidad un 20%. • El uso de equipo de ozono en el proceso de filtración para las albercas ha resultado en un ahorro del 40% en el uso de químicos convencionales para albercas. El Lic. Millet introdujo a Alma Conde, representante de la Fundación Royal Resorts, A.C. Alma Conde explicó las metas de las cuatro causas que apoyará la Fundación como parte de su programa. Ver artiículo en la página 51.
Notas relacionadas con los Reportes Fixed Assets and Major Repairs The cost reduction in this category budgeted for 2012 is the result of large and necessary projects executed during 2011 and planning for 2012 only indispensable projects to keep up with service and quality standards. Advisory Councils Although The Royal Hacienda and The Royal Cancun do not yet have Advisory Councils, the financial statements for the two resorts are included in this section for the benefit of members. When the resorts are 90% sold, Advisory Councils will be established and representatives selected. If you are interested in serving on one of the Councils, please check the Members Area of www.royalresorts.com for further information.
Supuestos del presupuesto En base a pronósticos económicos de varias fuentes financieras de México y los Estados Unidos, los supuestos que se utilizaron para preparar los presupuesto del 2012 son: una tasa de inflación de 3.9% y un tipo de cambio promedio de $12.25/US$1. La inflación y el tipo de cambio son las dos variables más importantes que afectan el costo de operación de los desarrollos. Los incrementos salariales para empleados sindicalizados están contemplados en los presupuestos. Agua y tratamiento de aguas negras Los presupuestos del 2011 se basaron en los cargos anticipados por consumo de agua y tratamiento de aguas negras. La instalación de los medidores de agua se completó en 2011; sin embargo la comisión de agua sigue cobrando en base a un porcentaje de consumo. El costo de agua se compensa por la eficiencia de las plantas de ósmosis inversa que produce el 80% del agua
que se consume en los desarrollos. Se completó la instalación de medidores de aguas residuales. Por tanto, el presupuesto de agua y tratamiento de aguas negras del 2012 se basa en el uso medido que se anticipa para el año. Electricidad El costo de electricidad sigue incrementando. Las tarifas las impone el gobierno y no son negociables. Se han tomado medidas para el ahorro de energía en todos los desarrollos. Para efectos del presupuesto, el costo de electricidad refleja un nuevo incremento en las tarifas aunque se estima que el consumo debe permanecer estable. Impuesto El impuesto predial incrementó. Existe la posibilidad de un ahorro si el gobierno permite descuento por pago anticipado. Seguridad El costo de seguridad ha tenido un leve incremento
debido a que se agregó una hora a la jornada de trabajo de los empleados de tercer turno. Activos fijos y reparaciones mayores La reducción en costo de esta categoría en 2012 se debe a que en 2011 se ejecutaron proyectos mayores y muy necesarios. En 2012 se han presupuestado únicamente aquellos proyectos indispensables para continuar ofreciendo el alto estándar de calidad y servicio que nos caracteriza. Consejos Consultivos Aunque The Royal Haciendas y The Royal Cancun no cuentan con Consejos Consultivos, los reportes financieros de ambos desarrollos se incluyen en esta sección para el conocimiento de sus Miembros. Cuando los desarrollos estén vendidos en un 90%, se establecerán los Consejos Consultivos y se elegirán sus representantes. Si está interesado en ser parte de los Consejos, por favor consulte la sección de Miembros de www.royalresorts.com para mayor información. R OYA L R E S O R T S L I F E \ \ \ 2 0 1 2
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THE ROYAL MAYAN
finances ANNUAL MEETING REPORT OF ADVISORY COUNCIL October 25, 2011.
THE ROYAL MAYAN
Advisory Council Members: Larry Hildebrandt,William Krumrey, Clyde Lawnicki, Dewey Lockwood and George Marczewski
The annual meeting of the Advisory Council for The Royal Mayan was held in Cancún on Tuesday, October 25, 2011. All Council members were present. Due to inclement weather, a tour of the resort was postponed until after the meeting. Council members met with Chief Financial Officer Fernando López, Operations Director Armando Millet and members of their staff in the conference room at The Royal Mayan. CFO López explained the 2012 financial statements in detail. The Income Statement Comparison accompanying this summary shows budgeted and actual (forecast) income and expenses as of September 30, 2011 with estimates to the end of the year. The 2012 budget unanimously approved by the Advisory Council is also shown. In 2011 the combination of a strong peso, inflation and increases in taxes negatively impacted the expenses of resort operations. These variables are beyond the control of resort management; however, conservative use of resources has resulted in completion of all the improvements approved by Council in 2010. The budget compilation process begins with preliminary budgets denominated in pesos submitted by each department to Operations Director Millet. Once approved, a collective budget is prepared and converted to US dollars using a projected average exchange rate. The 2011 budget was based on a projected average exchange rate of $12.45/US$1. However, the actual average is approximately $12.29/ US$1 resulting in a currency exchange loss of US$74,417. Repairs and replacement items approved by Council in 2010 and completed in 2011 include: COMPLETED IN 2011 Resort Improvements • Excavate trench for Building F (part 2 of 2) • Replace an electric motor in a service elevator • Install ozone equipment for the swimming pools • Perform reverse osmosis plant repairs • Repair cracks in buildings and public areas • Install hurricane protection panels in the electrical substation • Replace an electric motor in the cooling tower • Install security cameras to cover various resort areas and sections of the beach (shared expense)
• Repair wall cracks in 10 villas • Purchase 75 sheer draperies sets • Replace fan and coil sets in three villas • Repair seven villa balconies • Replace tile on terrace of four villas
Hurricane Related Items • Obtain hurricane shelter permit from Civil Defense Agency • Install remainder of roof tiles • Replacement and repair of beach palapas • Purchase Lexan window protection panels for the Social Activities area
An unbudgeted item was the purchase and installation of gold aluminum signage bearing The Royal Mayan’s name and logo mounted high on the resort’s exterior to clearly identify the property as part of the Royal Resorts group. APPROVED FOR 2012 Resort Improvements • Perform reverse osmosis plant repairs • Repair cosmetic cracks in buildings and public areas • Paint roof tiles – Buildings A,B,C,D,I,J and K • Purchase and install one cooling tower pump
Villa Improvements • Perform corrective maintenance in 30 villas • Replace marble floors with ceramic tile in 10 villas • Replace aluminum sliding glass doors in 10 villas • Purchase 38 LCD 37” TVs (part 3 of 3) • Change tees in false ceilings in 10 villas • Replace fan and coil sets in three villas • Repair wall cracks in five villas • Replace tile on the terraces of four villas
On the accompanying budget comparison, water and sewage, electricity, taxes and security show increases for 2012 (see Notes Relating to the Advisory Reports). Conversely, fixed assets and major repairs are projected to be less because of the uncertainty as to the disposition of The Royal Mayan in January of 2014.
Villa Improvements
As shown on the accompanying statement, The Royal Mayan receives income from sources other than Club Service Fees. Interest earned on bank accounts, a fee for certain ISCO transactions, guest laundry services, late checkout fees, kitchen cleaning fees and other charges, and commissions on telephone use are credited to income accounts.
• Corrective maintenance (renovation) in 30 villas • Purchase 65 LCD 37” TVs (part 2 of 3) • Replace 10 marble floors with ceramic tile • Replace 10 aluminum sliding doors • Change false ceiling tees in 10 villas • Purchase 160 cabinets for microwave ovens and bar refrigerators for villa B sides
The Royal Mayan is in an excellent financial position with an anticipated Club Cash Reserve of US$2,384,024 and a Hurricane Cash Reserve of US$1,489,996 by the end of 2011. As of September 30, 2011, the resort’s total net worth was US$3,201,212.
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With a goal of maintaining a US$1.5M cash reserve and continuing to upgrade service in keeping with five-star standards, the Advisory Council unanimously approved the budget as presented with a nominal 1.5% increase in the Club Service Fee for 2012. The Club Service Fee for 2012, including taxes, for Standard Villas will be US$948.00 and US$1,495.00 for the Presidential Villa. In private session, the Advisory Council chose Ralph Peterman to succeed retiring member Clyde Lawnicki. In closing, the Advisory Council thanked management for maintaining The Royal Mayan at the highest levels of excellence while keeping the Club Service Fee lower than similar resorts in Cancún and elsewhere. Council is confident that 2012 will be another successful year for The Royal Mayan and Royal Resorts. Following the meeting, COM Millet took Council members on a brief tour of the resort including the laundry to see a new commercial washing machine, the machine house to see boilers that heat water for the villas and the reverse osmosis equipment. Using reverse osmosis technology has saved The Royal Mayan US$2.45M since its installation in 2004. For the five Cancún resorts, the US$2M investment in reverse osmosis plants has saved a total of US$10M since 2004. The group also visited a villa to see new sheer draperies, the new ceramic tile floor, the 37” TV in the master bedroom, the new bedspreads, and the microwave and mini fridge cabinet in the second bedroom.
2011 BUDGET
FORECAST
10,200
NUMBER OF INTERVALS
INCOME STATEMENT COMPARISON BETWEEN 2011 AND 2012 ( US Dlls. ) % DIF.
DESCRIPTION
Cost Interval Std & Presid.
$1495
$948
2012
% DIF. VS
%
BUDGET
FORECAST ’11
VERTICAL
$/INTVAL.
GENERAL REVENUE 9,554,289 9,554,289 0.0% Dues Income 9,695,204 1.5% 99.6% 950.51 6,555 3,847 -41.3% Other 4,001 4.0% 0.0% 0.39 9,560,844 9,558,136 0.0% Subtotal 9,699,205 1.5% 99.7% 950.90 RESORT REVENUE 19,272 17,212 -10.7% Guest Laundry 19,594 13.8% 0.2% 1.92 9,636 16,169 67.8% Other Income 12,246 -24.3% 0.1% 1.20 28,907 33,381 15.5% Subtotal 31,840 -4.6% 0.3% 3.12 9,589,751 9,591,517 0.02% Total Revenue 9,731,044 1.45% 100.0% 954.02 RESORT OPERATING EXPENSES 993,770 1,014,097 2.0% Housekeeping Services 1,053,464 3.9% 10.8% 103.28 640,941 639,776 -0.2% Housekeeping Maintenance 612,592 -4.2% 6.3% 60.06 1,009,242 942,433 -6.6% Electricity 1,100,820 16.8% 11.3% 107.92 940,983 925,920 -1.6% Maintenance & Machine House 998,948 7.9% 10.3% 97.94 278,077 234,692 -15.6% Water & Sewage 290,745 23.9% 3.0% 28.50 289,708 278,634 -3.8% Security 313,781 12.6% 3.2% 30.76 322,620 297,936 -7.7% Front Desk 321,814 8.0% 3.3% 31.55 234,927 236,522 0.7% Int. & Guest Laundry 238,141 0.7% 2.4% 23.35 712,012 713,607 0.2% Fixed Assets & Major Repairs 482,779 -32.3% 5.0% 47.33 126,625 122,269 -3.4% Landscaping 128,614 5.2% 1.3% 12.61 76,581 69,181 -9.7% Sport Services 77,733 12.4% 0.8% 7.62 45,589 51,508 13.0% Telephone ( Net Result ) 53,438 3.7% 0.5% 5.24 85,895 76,607 -10.8% Social Activities 79,731 4.1% 0.8% 7.82 41,537 39,993 -3.7% Operational Services 41,127 2.8% 0.4% 4.03 177,048 177,048 0.0% Resort Insurance 180,528 2.0% 1.9% 17.70 49,383 50,443 2.1% Courtesy Shuttle 33,748 -33.1% 0.3% 3.31 6,024,939 5,870,667 -2.6% Total Operating Expenses 6,008,004 2.3% 61.7% 589.02 GENERAL & ADMIN EXPENSES 854,663 854,663 0.0% Management Fee 867,473 1.5% 8.9% 85.05 403,780 403,600 0.0% Corporate Services 410,347 1.7% 4.2% 40.23 167,337 171,679 2.6% Accounting 173,776 1.2% 1.8% 17.04 106,966 105,671 -1.2% Administration 108,701 2.9% 1.1% 10.66 43,250 42,947 -0.7% Training 43,051 0.2% 0.4% 4.22 65,416 62,049 -5.1% Human Resources 62,906 1.4% 0.6% 6.17 25,339 30,521 20.5% Other Expenses 34,722 13.8% 0.4% 3.40 21,076 31,232 48.2% Auditing 22,875 -26.8% 0.2% 2.24 12,900 11,664 -9.6% Printing & Miscellaneous Payments 14,000 20.0% 0.1% 1.37 288,115 289,090 0.3% Membership Services 292,745 1.3% 3.0% 28.70 1,988,841 2,003,116 0.7% Total General & Admin Expenses 2,030,596 1.4% 20.9% 199.08 1,575,972 1,717,734 9.0% Operating Income 1,692,444 -1.5% 17.4% 165.93 FINANCIAL EXPENSES/INCOME (23,298) (52,489) 125.3% Interest Earned (54,167) 3.2% -0.6% -5.31 97,953 103,589 5.8% Credit Card Commission CSF 104,030 0.4% 1.1% 10.20 74,656 51,100 -31.6% Total Financial Expenses/Income 49,863 -2.4% 0.5% 4.89 1,501,316 1,666,634 11.0% Income Before Taxes 1,642,581 -1.4% 16.9% 161.04 TAXES 153,000 149,312 -2.4% Taxes 153,000 2.5% 1.6% 15.00 559,219 626,127 12.0% V. A. Tax Non recoverable 624,825 -0.2% 6.4% 61.26 110,965 84,665 -23.7% Property Tax & Other Exp. 97,219 14.8% 1.0% 9.53 152,514 170,762 12.0% Occupancy Tax 170,407 -0.2% 1.8% 16.71 975,698 1,030,866 5.7% Total Taxes 1,045,450 1.4% 10.7% 102.50 525,618 635,768 21.0% Net Income 597,131 -6.1% 6.1% 58.54 (74,417) Peso Exchange Adjustment 525,618 710,185 35.1% Net Income Operation 597,131 -15.9% 6.1% 58.54 (360,000) (600,000) Non cash provision for Uncollectible Accounts (600,000) 165,618 35,768 Net Income After Provision (2,869) 3,110,428 3,226,813 Accounting Reserves 3,223,943 1,476,246 1,489,996 Hurricane Reserve 1,649,996 1,737,556 2,384,024 Club Cash Reserve 2,068,388
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