Trust chair Keith Morgan, an accountant and football finance expert, gives his analysis of the latest audited accounts for the year ended May 31, 2019 submitted by Cardiff City Football Club (Holdings) Limited.
Cardiff City Football Club (Holdings)
Limited
Commentary on the audited accounts
for the year ended 31 May 2019
The
following is my commentary on the audited accounts, which were signed off and
approved by the board of directors and by the auditors on February 28, 2020.
Key Findings
1. There was
a net loss for the year of £755k, after a tax charge of £3.3m, so a profit
before tax of £2.6m. This compared to a net loss of £36m in the year to May 31, 2018 (£39m before tax). There are two
points to take into account in these figures. Firstly, the 2018 loss was
significantly reduced down to £9m by a £27m revaluation adjustment on the
club`s stadium. Secondly, the 2019 result is after making a provision of £19.5m
in respect of the club`s dispute with Nantes FC over the Emiliano Sala
transfer. The club have made clear that this provision has only been made in
the profit and loss account on a prudent accounting basis and that its
directors are of the opinion (based on legal advice received) that this sum
will eventually prove to be not payable , with a consequential improvement in
reported financial results.
2. As a
consequence of the above loss, the club`s net liability position worsened
slightly from £10.7m to £11.5m.
3. The group
remains dependent upon the financial support of its owner Tan Sri Vincent Tan,
but the accounts refer to his pledge to continue supporting the club
financially for the foreseeable future.
Main Elements Of Reduction In Losses
These can be
summarised as follows
£m
Increase in
revenue
90.4
Increase in
cost of sales
(6.4)
Increase in
Administrative expenses
(47.8)
Decrease in
interest payable
5.8
Increase in
tax payable (6.6)
Smaller
profit on sale of players
(0.2)
——–
Net decrease
in losses
35.2
———
Increase In Revenue
As a
consequence of its season in the Premier League, income levels rose
dramatically. Not only did broadcasting related revenues increase by £85m to
£107m but gate receipts and sponsorship and advertising revenues also rose by
over £5m.
Increase In Cost Of Sales
The main
element of this was an (expected) increase in players` wages which rose by
£11.3m to £42.5m. However, a significant part of this wages increase was offset
by other wage reductions so that the overall increase in wage costs across the
club was limited to £5.1m.
Increase in Administrative Expenses
These
increased dramatically by £47.8m to £62.1m. Most of this increase was down to
three main factors:
The provision of £19.5m in respect of
the Emiliano Sala transfer dispute. As stated above, the directors do not
believe that this amount will eventually prove to be payable, but have provided
for it as a prudent accounting entry.
Player amortisation costs – the
amount by which their cost is written off in the accounts across their contract
periods – rose by over £10m as a result of player acquisition costs being far
higher in recent years than in earlier seasons.
Player impairment costs – the extra
write off made because players were worth less than their accounting written
down value after annual amortisation (see above) when assessed at the year end.
This figure was £11.6m in 2019 and zero in 2018. This figure would include ,
for example, an allowance for the termination of the contract of Gary Madine.
Decrease In Interest Payable
In 2018
there was a technical accounting tax charge of £6.4m which was not required in
2019. Other interest payable rose by £1.3m to £1.8m.
Increase In Tax Payable
Another
accounting technical adjustment to do with tax timing differences rather than
to do with the underlying business of the club.
Player Sale Profits
These were
£2.4m in 2018 season and £2.2m last season.
The Balance Sheet
As stated
above, the balance sheet position worsened slightly as a result of the reported
net losses for the year.
The
principal assets and liabilities as at May 31, 2019 were as follows:
Stadium Assets
Revalued
professionally in May 2018 by independent valuers at £83.5m and since
depreciated down to £82.8m. In addition to the stadium itself, its fixtures and
fittings and training ground improvements had a value in the balance sheet of
£1.6m.
Player Assets
The net
(depreciated) value of players in the balance sheet at May 31, 2019 was £23.5m.
The club has invested heavily in players over the last three seasons as funding
support for its manager. In the year to May 31, 2018 it acquired new players of
total value £14.3m (2017 was £5.9m), in the year to May 31, 2019 that rose to
£38.2m and in the current season expenditure on new players has been £23.1m.
Although the
club did not make major profits on the sale of players in that period, it was
able to generate substantial cash inflows from the sale of players (Zahore,Reid,Manga
etc) which helped offset the cash cost of new player registrations.
Other Assets
The club had
£2.2m of cash at the bank as at May 31, 2019 and debts due to it of £14.2m (of
which over £10m related to broadcasting income earned in the season but not
received until after the year end).
Current Liabilities
In addition
to the provision of £19.5m regarding a contract dispute referred to above
(which may never actually be payable), the group had liabilities payable on or
before May 31, 2020 totalling £114m.
Of the above
total of £114m, £40.1m is shown as due to the owner Vincent Tan , some £32.3m
of his debt having apparently been repaid during the year. This reduction in
debt due to him was replaced by other loans of £39.5m from other (unnamed)
parties who are not shareholders or directors (if they were the loans would
have had to have been disclosed as related party transactions).
The
remaining debt due to TSVT is split into two elements. £14.8m is stated to be
interest bearing at 7% a year and carrying the right to convert into shares
with the vast majority of the balance being non-interest
bearing and having no conversion rights. Both elements are secured by charges
over the assets of the football group.
The loans
from other parties are also stated to be secured over future guaranteed income streams – probably
broadcasting fees earned but not yet paid. That security would have had to be
given with the specific consent of creditors having registered security over
the group`s assets.
Summary And Conclusions
The season
in the Premier League in 2018-19 enabled the club to make a profit from its
trading activities of around £22m before tax and before making the provision
for a debt which may or may not prove to be payable.
In addition,
the resultant “parachute payments” receivable in the current season and, to a
lesser extent, in 2020-21 season, will assist in stabilising the club`s
financial position.
However, it
must be appreciated that there will still be a major reduction in the club`s
income stream as those payments are greatly less than the broadcasting rights
the club earned in 2018-19. Costs will have to be controlled accordingly as
best possible in order to comply with Profitability and Sustainability
(Financial Fair Play) requirements of the EFL. It is therefore highly likely
that the levels of recent expenditure on player recruitment will not be
repeated in the near future.
The football
club is also likely to remain reliant on the ongoing financial support of its
owner, and others, for the foreseeable future.
The Trust has generously been donated a number of football
books – both hard and soft cover.
The books are being sold for Headway Cardiff & South East Wales, our charity for the current season, which does fabulous work those suffering from brain injuries.
The volumes, which are just
£2 for hard-back and £1 for soft-cover, include books by and about John
Charles, Bobby Robson, Johan Cruyff, Diego Maradona, Robbie Fowler, Ron
Atkinson, Jamie Carragher, Michael Ballack, Alec Ferguson, Ronaldo, Rio
Ferdinand, Michael Owen and Neil Warnock.
You can pick up a book at
the Trust’s office near Gate 5, which is open on match-days 90 minutes before
kick-off.
Come along and pick up a
book and help Headway’s work.
Plaid Cymru AM Rhun ap Iorwerth has highlighted the threat of a sale of historic and unique Cardiff City memorabilia and documents at an auction on Saturday.
Rhun ap Iorwerth, who is a Bluebirds fan, told fellow AMs in the National Assembly: “I’d like to raise an issue as a supporter of sport in Wales and of the need to celebrate Welsh sporting history, and also as a Cardiff City fan and elected representative of a not insignificant number and hardy bunch of Bluebirds fans from Anglesey – Holyhead in particular – who’ve been very faithful to the club over the years.
“Cardiff City Supporters’ Trust has become aware of a valuable and irreplaceable collection of Cardiff City Football Club historic memorabilia that’s due to be auctioned on January 25.
“Now, the Trust has urged Cardiff City football club to acquire the collection as the basis of a museum to celebrate the history of the club. There had been some reports that the items had been withdrawn from sale. It appears that they are due still to go for sale on January 25.
“Time is running out to prevent this loss of a very important Welsh sporting heritage. Could I ask for intervention by the Minister for sport and sporting heritage, including making contact with the club to see what assistance might be given to keep this in public hands, or at least accessible to the public and for a written statement on steps that might be taken by Welsh Government to support the club in acquiring this very valuable memorabilia?”
Responding Finance Minister Rebecca Evans AM said: “Of course, the Deputy Minister with responsibility for sport has been here to hear your request for his intervention on this particular issue in terms of ensuring the memorabilia to celebrate the history of the club that you described is still accessible to fans of the club, and I’m sure that he will give it due consideration.”
Mr ap Iorwerth’s office has written to the Sports and Culture Minister Dafydd Elis Thomas this afternoon to press the issue.
Conservative AM Andrew RT Davies, who represents South Wales Central, has also supported the Trust’s call. Labour MPs and Cardiff Council Cabinet Member Peter Bradbury have been in touch with the club, we understand.
A bucket collection at the Cardiff-Swansea game in aid of Trust supported charity, Headway Cardiff & South East Wales, raised £1,442 for its work with those suffering from brain injury.
The collection before derby was
generously supported by Cardiff City fans attending the big match.
Trust chair Keith Morgan said:
“Once again, the fans of Cardiff City have come up trumps for the work of a
well deserving local charity.
“I’d like to once again thank all
at Cardiff City, including chief executive Ken Choo and Supporter Liaison
Officer Adam Gilliatt, for their support for Headway before the derby.”
Ready For Action: The Volunteer Collectors
Headway Chief Executive, Rebecca Pearce said: “‘We are bowled over by the generosity of the Cardiff City fans! On behalf of everyone here at Headway Cardiff & South East Wales, I’d like to say a huge thank you to everyone that donated and to the Supporter’s Trust for making us your charity of the season. The money raised will go a long way in helping those who have been affected by an acquired brain injury.
“All staff at the stadium should be highly praised for their help and assistance on the day – our volunteers had a wonderful experience. Thank you again, this will not only have helped us raise funds but it has also given us the opportunity to raise awareness and help our campaign.”
The Trust chose Headway Cardiff & South East Wales as its charity for the current season after considering nominations from members.
You can find out more about Headway’s fantastic work a
www.headwaycardiff.com
Adam Gilliatt, Cardiff City FC’s Supporter Liaison & Disability Access Officer, has been in touch about the club’s Audio Description Football Commentary service which went live at the weekend. It is aimed at improving access for all fans.
We’d be grateful if members and fans generally could make visually impaired friends or relatives aware if they think they might make use of this excellent service, which is free. The speech function can be used on mobile phones.
