The Trust comments on the latest Cardiff City accounts

Cardiff City Football (Club) Holdings Limited signed accounts 31 May 2015

Trust board member and football finance expert Keith Morgan gives his take on the accounts of Cardiff City Football Club (Holdings) Limited for the year ended May 31, 2015, which have just been published. The accounts were signed off and approved by the board of directors on September 30, 2015 and by the auditors Moore Stephens on October 2, 2015. (Click link above for accounts)

Overall position

There was an overall profit for the year of £3.9m compared to a loss of £12.0m in the year to 31 May 2014. As a result of the above profit and a £3.0m conversion of debt due to Vincent Tan into equity in the year , the overall balance sheet deficit reduced by £6.9m from £65.8m to £58.9m.

Major profit and loss account items


The club obviously suffered a major drop in its income levels following its relegation from the Premier League with its total revenue dropping from £83.1m to £40.3m, a fall of £42.9m even with the benefit of the first year of “parachute” payments.

To counteract this, a huge amount of effort was needed to compensate for this reduction as well as turning a £12.0m loss into a £3.9m profit – a “swing” of £15.9m. This total improvement in cost management of £58.8m (£42.9m +£15.9m) was achieved as follows.

2) Vincent Tan input

  1. a) During the year Vincent Tan wrote off £13.0m of the debt due to him by the club with a direct consequential benefit in the profit and loss account (it is actually reduced to a figure of £9.8m on the face of the accounts by netting off the cost of £3.2m caused by the removal of OGS and his team). This compares to the cost of £2.1m from the previous season from sacking the previous manager, so an overall improvement in the profit and loss account of £11.9m (£9.8m+ £2.1m).
  2. b) A further profitability improvement linked to Vincent Tan was an accounting adjustment of £13.4m discounting the future value of the balance of loans due to him. This adjustment, required to make the accounts compliant, with accounting rules the club is bound by law to follow, also was the trigger for the Financial Fair Play alleged breach dispute between the club and the football authorities, which I have tried to explain later in this commentary.
  3. c) In addition to the debt write off, Vincent Tan converted £3m of his debt into equity in the year.

3) Player trading

In the 2014/15 season the club made a profit of £9.7m on player sales. Compared to a loss of £5.2m in the previous season. This was an improvement of £14.9m.

4) Wage costs

Player wage costs were reduced by £9.8m in the year, and other wages by £1.8m, giving a total saving of £11.6m compared to the cost of £53.2m in the previous year.

5) Administration costs savings

These costs reduced by £10.2m to £39.7m in the year. A large element of this was avoiding having to do an extra write down of the cost of the Ninian Stand extension (known as an impairment provision) which was a cost in the previous year of £5.5m but not having to be repeated in 2014/15.

By a combination of all of the above major factors (and some other more minor ones) the club`s management managed to overturn previous years` losses despite a huge reduction in income from the club’s relegation from the Premier League.

6) The balance sheet

The main assets in the balance sheet remained the value attributed to the playing squad as at 31 May 2015 (£12.0m, down from £25.2m in the previous year) and the football stadium (£53.5m).Other assets include “football receivables” (probably balances due in from player sales) of £7.2m and cash at bank of just over £1m.

7) The main liability in the balance sheet remains the debt due to Vincent Tan. However, the position regarding the debt has improved considerably due to three different factors:

  1. a) The overall debt reduced from £122.8m as at 31 May 2014 to £101.6m as at 31 May 2015 as a result of the write-offs etc. I referred to above and despite VT putting about £5m of new cash into the club during the year. To clarify for various messageboard posters etc. who claim to “know” that he has taken money out of the club, the accounts clearly show that this is not the case.
  2. b) A concern of mine in the past has been that the whole debt due to VT has been repayable on demand and was always shown as a current liability – i.e. fully repayable within one year after the balance sheet date. This is now changed, and the whole debt is now classified as a non current liability – i.e. none of it repayable within a year, but repayable between two and five years after 31 May 2015.
  3. c) Of the total debt due of £101.6m, only £28.1m is now shown as interest bearing (all interest claimable was waived in any case up to 31 May 2015) and with conversion rights into shares at VT`s option. The rest, £73.5m, is non-interest bearing, and has no conversion rights. All of the above represent a significant improvement in the Vincent Tan loan position for the club.

8) Other liabilities include a debt due to Tormen Finance, in which Mehmet Dalman has an interest, of £8.8m (up £1.5m from the previous year) which accrues interest at just under 9%.

The debt due to Langston is shown in the balance sheet at £5.75m and is marked in a note as being disputed. I am not party to knowing what exact settlement was recently reached but it would appear from people “close” to Sam that the payment to him was less than this figure.

The issue of FFP “breach”

I now understand the reasons for the disagreement between the club and the League as to whether the club has broken the FFP rules and which has caused the current transfer embargo.

The adjustment of £13.4m referred to above as a “discount” from the balance sheet value of the debt due to Vincent Tan is an accounting adjustment which the club HAS to make or it would not be compliant with current accounting regulations and it would have been in breach of Companies Act requirements etc. The League has said that this adjustment is “artificial” and should be added back to the reported £3.9m profit to show a “real” loss of £9.5m which is in breach of the FFP rules.

I side with the club on this issue and disagree with the League`s opinion (it is an opinion rather than a specific breach as I can see nothing in the FFP Rules which specifically addresses such a situation). It does seem unfair, if not a little absurd, that a club is penalised for making an accounting entry that it is required to make by law and which improves its balance sheet position. If the aim of FFP is to dissuade clubs from imprudent trading then my opinion is that their decision in the case of CCFC goes against encouraging this principle.

There are probably several other points worth noting from the accounts , and my apologies if I have missed anything obvious or of particular interest out , but hopefully this initial summary commentary is of some use to its readers.

Significant further developments

Since having had the opportunity to review and comment on the May 2015 accounts , there has been a hugely significant development in respect of the club`s finances, as announced at a meeting on Thursday, February 11, where Vincent Tan addressed an audience of invited media and fans` representatives at Cardiff City Stadium.

The excellent news emanating from the meeting was that Vincent Tan announced that, not only was he writing off a further £10m of the debt due to him by the club, but was also converting a further total of £68m of debt into share capital, leaving a balance due to him of £40m (after the meeting, in a separate interview with the media, he stated that this balance would also be cleared by equal instalments of £8m over a five year period).

The above debt write offs and conversions this current season means that the club`s balance sheet should show a surplus of assets over liabilities as at 31 May 2016, a position which the club has not enjoyed for many years. The net liabilities at 31 May 2015 were £59m so a write off and conversion of £78m would restore the balance sheet to a net asset position even if a loss of £19m was made in the season (which is highly unlikely as the club seems to be heading for FFP compliance this season).

All of the above is very positive news in respect of the finances of the club.

Keith Morgan