Does anyone recall this slide from the LRPC Town Halls?

One must applaud the President and the new GM for all their work in presenting the case for the upcoming EGM.

It is clear, transparent and clearly lays out the current financial position of the Club...which is DIRE. But then everyone, other than those who embrace MORAL HAZARD as a code to live by, already knew that.

Also a huge "Thank You"plus "Elephant Stamp" is due to the President for putting together the debt re-structure. Without that, we wouldn't have made it to this EGM.

 The move toward a DUES BASED model is the only sensible approach given the reality of demographics and turnover.

Summary comments:

 1. Membership numbers to support this model - more like 4,500 and not high 3,000's.

 2. The presentation is deficient in only one area - breakout of labour costs and numbers.

 3. Promises of substantial reductions in this area have not been honoured. Target Yen 1.5bn.

 4. Immediate outsourcing of Engineering.

Clearly this blog needs to be re-activated

Sadly I have just looked at the latest TAC accounts and they are indeed enough to drive you to drink. On all measures TAC is drawing ever closer to bankruptcy. No amount of positive spin around the re-financing can hide the fact that the club continues to lose members and operate at unsustainable losses. Recent attempts to get members at Yen 800K joining fee is a sad testament to that fact. Like all good bureaucracies we note that the cost of labor still remains above USD 20m. Nero on the balcony rings a s true today as it did when those paragons of virtue consigned the future of TAC to Mitsubishi.

Nero on the Balcony with another Committee

Well Rome is well and truly alight and all we hear are the sounds of violins on the balcony...or is it just fiddling?

From the BOG Meeting 5 July:

Resolved #3668 ..I move that the Board create a Board-level Special
Compensation Committee with the following structure and responsibilities.

The Compensation Committee shall consist of five voting members, all of whom
will be members of the Board of Governors. The President will select the
Chair who will then select the other four Board members, all five appointees
subject to the approval of the Board.

Later in #3670 it goes on:

The next discussion concerned overlapping responsibilities of the new
committee, the HR committee and TWG2 concerning compensation. The discussion
did not result in resolution, but it was suggested the chairs get together
and resolve any relevant issues. A related discussion involved the need for
the new committee to work with TWG2 in a timely manner in recognition of the
urgency of the TWG¹s commission. This discussion resulted in the following
motion.

Resolved #3671: The Board instruct the Compensation Committee to cooperate
with maximum extent possible with TWG2.

So we have the Board appointing a committee made up entirely of Board
members and then instructing itself to cooperate with itself.

I see that we are making solid progress, at least on increasing the number
of committees.

The CASE

Following is a note from the Club President which puts the affirmative case for the LEVY:

Dear Fellow Members,

We the undersigned are asking you to fill out the online proxy and participate in the upcoming Special General Meeting. No solution is perfect, but we wholeheartedly endorse the proposals on the Agenda and especially the Special Assessment. Since the financial downturn of late 2008, the number of Club memberships has declined from 3,756 by 460 to date and is projected to fall by up to 20% from our original projections by November 2012. Approving the Assessment will greatly improve the Club's flexibility to deal with the economic downturn and decline in memberships. Everyone understands that Members are justifiably concerned whether the Club has done enough before asking the Members to consider and approve an Assessment. Here are some of the steps the Club has taken to date.

Implemented various cost saving measures, including a hiring freeze beginning in April 2009 that has resulted in a reduction of 38 staff positions in the past twelve months, representing 88.4 million yen in annual savings and a decline of 12% in staff levels
Reduced total expenses, including labor costs, by 179 million yen (6.2%) for the 12 month period ending this past March
Greatly reduced projected staffing for the New Club representing a 221 million yen savings
Reduced Executive cash compensation by 13 million yen for the current year
Reduced bonuses for management for a savings of 16 million yen
Reduced staff benefits which will result in an annual saving of 24 million yen
Taken major steps to improve efficiency including outsourcing for a projected savings of 54 million yen
Approved a proposal to review and implement a management restructuring program once we complete the move into the new Club
Approved new initiatives including new member categories such as term memberships in order to help increase membership recruiting
Initiated a new sub-committee under the Membership Committee to focus strictly on membership recruitment issues

Through these and other measures, labor costs alone have been reduced by over 700 million yen (26%) relative to our original budgeting for the new Club.

The current Recovery Plan is the result of the efforts of over 25 people including Members and Management who spent hundreds of hours evaluating and vigorously debating many different options. This group, the Transition Working Group, forwarded its recommendations to the Board in April for review. The full report is available after log in to the Club website Board of Governors page at:

www.tokyoamericanclub.org/news-a-info/committees-a-management/board-of-governors.html

We encourage you to take a look at it.

The Transition Working Group will continue to look for ways to both enhance revenues and decrease expenses at the Club. In addition to their report a profit and loss statement and summary of key performance indicators are also available to offer a clear perspective on the club’s financial condition. These are available after log in to the Club website Board of Governors page at:

www.tokyoamericanclub.org/news-a-info/committees-a-management/board-of-governors.html

At the Town Hall meetings a question was raised on the timing of an Assessment. We are forecasting a significant cash flow shortage in 2011. The Board thinks it prudent to address the shortfall as soon as possible and requests a vote before summer holidays. A positive decision on the Assessment will put us in a better position with our lender. A timely decision will also allow us to better determine service levels in the new facility. The Club has been receiving much constructive feedback on its plan and will give serious consideration to all the views of the members as we go forward.

If we the Members collectively decide not to implement the Assessment, there are no magic bullets to realize significant further cost savings without considering additional service reductions. The fundamental question which the Transition Working Group addressed and which we as Members have to answer is whether we prefer an Assessment or whether we prefer cuts to service and new or additional fees for existing activities such as parking, recreation, and food and beverage. We believe that the majority of Members would prefer the 114,000 yen Assessment (9,500 yen per month for 12 months) that has been proposed rather than a reduction in service and the imposition of an array of fees. If you are in agreement with this, we encourage you to participate and vote in favor of the Assessment. The following link will allow you to quickly and easily vote by online proxy: https://eballot3.votenet.com/tokyoamericanclub. [Your voting password was previously sent by email. If you do not have it, please contact the Membership Office. Phone: 03-4588-0687 Email: membership@tac-club.org ]

As much as one can applaud the earnest endeavours of the TWG who have given selflessly of their time and energy in the interests of the Club, the structural issues are so profound that the proposed levy will at best buy the Club 12 months.

The Club has a labor bill of Yen 1,800,000,0000.

The Club has a structural deficit of Yen 812,000,000 in 2011 trending down to Yen 513,000,000 in 2013.

The levy will raise approximately Yen 300,000,000 of that in 2011.

Staffing reductions are commendable but when a 12% reduction in staff equates to a 4% reduction in labor costs it raises questions.

The balance of the revenue enhancement package is at best wishful thinking, especially where it relates to a rapid ramp up in member numbers producing Yen 262,000,000 in 2011.

Nowhere is the F&B issue addressed. It seems that frontline staff reductions and giving up on substantial banquet capability is a tacit acknowledgement of the reality of the current economic conditions continuing for the foreseeable future.

It is up to each and every member to make up their own mind but like every one of life's problems, delaying the inevitable is to compound the mistakes.

I see no acknowledgement of the real predicament; which makes it highly likely that the levy will be a recipe for pouring good money after bad.

Members' equity in the Club has been wiped out in toto.

If you owe the bank a million you have a problem. If you owe them a hundred million, they have a problem.

Town Hall Meetings

The meetings seemed to raise more questions than they answered.

TWG recommendations still seem blindly oblivious of prevailing market sentiment, being almost totally reliant on revenue enhancement as opposed to an aggressive re-structure.

Since the move out of Azabudai to Takanawa, labor costs have been reduced by approximately 5% and remain at approximately Yen 1.87 billion yen. The mix of full-time to part-time employees has been adjusted to 25%/75% but this has had little impact. Whilst there remains no transparency on management share of the Yen 1.87 billion, members should rightly be sceptical.

The chart at the bottom shows some of the key indicators over the past 26 years. During that time (not accounting for the most recent trends) it shows that per member F&B spending in the club has declined precipitously from just under Yen 500k to approximately Yen 200k per annum.

Attracting new members using the 'fees are increasing by 30%' slogan does seem a bit dis-ingenious to say the least.

There was no thought given to outsourcing real cost areas such as engineering, IT and even the whole F&B function. Instead we have a proposal to save Yen 10m per annum by outsourcing the staff canteen.

Until the big cost items are addressed and the payroll is reduced by another 20-30%, the cost structure of the club will never make it a competitive proposition.

At least the TWG has recognised TAC is a service organisation that should provide value for money. It is a pity they have no idea how to go about it and remain mired in well-intentioned but outdated thinking.

I am afraid a few bandaid proposals will not work when the survival plan is based on nonsense projections on the revenue side and an unrealistic approach to re-structuring.

Membership has tracked down to about 3,000 and there seems to be no idea of how to stem the outflow of US members.

The Club has to learn how to cut its cloth and not continue to rely on joining fees to mask the underlying inefficiencies and high cost structure. The TWG has failed by not addressing this fundamental imperative.

More and more it is members' personal income not corporate packages that pay for the Club. Why then has the Board, management and the TWG failed to make this the basic platform to analyse the problems.

We are saddled with the high capital costs of the new club. At Yen 5m per tsubo this is nearly 3 times current market for a comparable structure. The finest club in Asia it may well be, but it may not be your club for much longer

Key:

Payroll, F&B Rev in Yen billion

Membership in thousands

Per capita F&B spending in Yen 100,000

TACROPOLIS

So, it is about to be admitted by the Board and the Management that the plan to build the TAC MAHAL was actually based on Greek accounting standards and sub-prime CDO morality.

TAC is about to go to the market...which means pick your pockets...with a rights issue...without the rights of course.

Prepare yourselves to be touched up with a Yen 100,000 levy.

This begs the simple question of why you would consider forking over another USD 3 million to an organisation that has consistently failed to exercise fiscal discipline over an extended period of time?

The simple answer, of course, is that you should not, regardless of the consequences.

This would only be delaying the ultimate day of reckoning bearing in mind that USD3m is approximately 5 months of operating deficit at the current rate of cash burn.

TAC MAHAL

Time to resume watch!

Anyone perusing the recent TAC financials will realise it is a race against time.

An 800m yen operating loss for the last fiscal year means that the Club is losing nearly USD1m per month and that is without having any rent costs. Sounds like JAL...fly on in blissful ignorance until the wings fall off.

No serious attempts have been made to address 'major cost items' at the interim club in Takanawa. All the heavy costs of expat management have been maintained. You can cut all the front line hourly labor you want but it doesn't address the real issues that needed to be addressed.

Satisfaction surveys = bandaid management.

The planning folk are working furiously on revenue enhancements. This basically equals surcharges for use of Club facilities...that, by the way, you are already paying for in monthly dues. If that doesn't further gut membership then I will eat my hat.

The old cry of 'value for money ' has always been ignored, as if TAC is immune to market forces.

All care and no responsibility...

Breach of Privacy

All TAC Members will have recently received a mailing from Mitsubishi Estate Company , "on behalf of the American Club", that in part was gathering marketing info for MEC's Condos at the new TAC Azabudai site.

It would appear that the mailing from MEC has been enabled via access to private information, i.e. names and addresses of Club Members. Further, as the cover note states this mailing is "with the support of the Tokyo American Club", the Management/leadership of the Club almost certainly provided MEC with your information. It is also possible, though unlikely, that MEC got hold of a Membership Directory somehow without management/leadership knowledge and used it for this purpose. In either case, Members private information has been shared with, and used by MEC for their own commercial purposes.

Apart from the potential illegality of such an action, this is also a clear breach of the regulation restricting the use of the membership directory information "to the exclusive and private noncommercial use of members" ( see p.1 of the Directory). This regulation has been enforced in the past, and was the basis of disciplinary action against a Member.

You can make a formal complaint, as provided for in the Rules, to the General Manager. This is up to each individual member should this be of concern.

It will take more than one Member to act in order for the Management and Board of the Club to take this matter seriously and stop sharing our private data with MEC and other organizations that come knocking.

This apparent breach of our privacy should not be allowed to go unnoticed.

Want a Free TAC Membership?

For anyone seeking a cost effective entry to TAC,I suggest you rent accommodation close to the temporary club in Takanawa.

It would seem that some local residents who have made complaints about the proximity of the club and perceived increases in traffic and noise, have received free memberships.

It's a novel approach to revenue enhancement but desperate times call for desperate measures.

Hats off to the team for thinking outside the box.

I Declare the Games of 2008 Officially Open

Dear Member,

In regards to the planned sneak preview of the Food & Beverage outlets on January 9th, 2008 from 18:30 we unfortunately need to inform you that this event needed to be cancelled. This cancellation is caused due to serious problems in the Club’s kitchens during our testing of the facility. The contractors are now addressing the problems, but they have seriously impacted our ability to operate our F&B outlets and banqueting in accordance to provide the appropriate service to our members.

The General Manager will send out to all members within today a detailed message in regards of the general opening of the Club.

We very much regret in not offering to you this special event. A special present will be provided from the F&B team to you at your next visit at the Club.

Thank you very much for your understanding and continuous support.

Your Food & Beverage Team

Editorial Note

Humble apologies from the Troglodytes...

Some comments got stuck in moderator function and it may have appeared as if they were being censored.

They were not and are now posted.

Also worth linking to the reprise blog..

Move your clackers to:

http://tacunlocked.blogspot.com

Financial Highlights 2006

Seems the rhetoric is not matched by the numbers...not that the numbers provide immense enlightenment.

The dot point summary seems to be as follows:

Balance Sheet - continued to deteriorate - by Yen 500 million

Free cash depletion Yen 80 million
Accounts receivable up Yen 64 million
Inventories up by Yen 10 million

In addition there is a mumbo jumbo raft of verbage in the Property & Equipment notes which seems to say the Club paid about Yen 200 million to obtain one extra unit in Azabu Towers ( compared to Yen 74 million in 2005).

P&L - Revenues flat, Operating Expenses up by Yen 750 million


F&B up by net Yen 20 million
Employee costs up by Yen 150 million
Investment income down by Yen 70 million
Income from AT down Yen 50m, costs upYen 90m

Basically the Club ran a Yen 500 million operating deficit in its last minute mad rush to depreciate fixed assets.

I must be missing something or is all this rhetoric about fiscal rectitude and sharpened management just a farrago of twisted dingleberries.

Magical Mystery Tour on the Gravy Train

As your Club approaches a critical stage of its journey, it is probably timely to take a more in depth look at where all the money has gone and continues to go.

I think this blog has already done the staff issues to death so let's focus on some of the other costs.

Let me start the ball rolling:

Club Magazine

This is an anachronism in today's world of IT communications and PDF files. God only knows what this costs to produce on glossy paper and post out.How many members read it? One third of the membership is Japanese and we are in Japan ... but not one word of Japanese.

Why hasn't it been done away with? Simple answer is that it is not an arms length relationship.

PR Consultants

US10K per month. What value is this company adding other than to do work the staff should be doing?

Wine Consultant

I see the Club now has a globetrotting wine consultant. Wonder where this line item gets buried??

IT Consultant

US10k per month for one 'high-powered' person on for 4 hours a week.

Equipment

Long printer/photocopiers.In fact there are 27 of these babies at the Club. Again another less-than-arms-length transaction some time back.

Carpets & Curtains

Then there was the US25k spent on a consultant to procure from home. Problem was the stuff didn't meet Japanese fire regulations.

A lot of this stuff is treated a bit like the War on Terror...no longer a conflict of interest.

Feel free to add to the list while your bare foot reporter continues his journey through the swamp...

Could it possibly be worse?

Not a thing since the vote is right, so much for the freedom and flow of information! Are GA still earning their 1m yen a month retainer? Methinks the whole thing is headed for disaster but if I'm wrong I'd love someone who knows better to tell us why.

More than that though, an immediate dilemma. Have you noticed how unbearably bad the food and service have become in the last year, particularly the last 6 months?

Menus have changed for the worse, great items of the past have been dropped in favor of cheaper-to-make and less tasty dishes, sizes have decreased, service has gone somewhere into the sewer and no-one seems to care!

Getting the attention of staff at Vineyards is like extracting teeth, Trader's Bar is not much better as the staff gather around the end of the bar to chat all the time, paying little attention to the needs of the patrons. Garden Cafe is a disgrace in terms of service and deplorable food, but then it always has been. The American Room may steal Vineyards nickname of "Graveyards" as no-one is ever in there (what is it with that confusing lunch menu???) and that leaves us only with the Mixed Grill. This place is probably TAC's saving grace but again great menu items seem to disappear all the time and are replaced with inedible garbage.

Could it be that the staff smell a rat or at least an unpleasant odor eminating from the GM's office and have responded accordingly?

Michael Marlay, are you listening? Back from your long holidays in the sun? "Get your ass in gear" is about as gentle a message as I can muster!