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http://www.walesonline.co.uk/sport/f...l-87m-12702240
as per usual, these mean absolutely nothing to me so hopefully Keith can explain it all whenever he gets a chance.
In probably totally wrong, but seems like we are going in the right direction to me. Wages are down, tan converting debt. If we have a good season under Warnock next season then we should have bigger crowds with more revenue coming in. Surprised we haven't sold naming rights to our stadium
I would appreciate a commentary from Keith as well.
On the face of it the story seems to be positive. But there is no mention in the report of any progress/timescale for the big debt to equity conversion that Vincent Tan announced at the Q&A in February 2016 - although otherwise the debt is slowly shrinking and is not (in the main) accruing interest, and the annual debt to equity conversions are happening (5 x £8m). The main Tan debt bits in the report are:
However, the new figures from the club's overall company – Cardiff City Football Club (Holdings) Limited, which relate to the 2015/16 season up to June last year, do state that Tan has continued with his plan to make the club debt-free with £10m of his loan written off and, following the accounts' reporting period, a further £8m converted to equity.
Despite Tan providing further loans in this financial year, the stated debt to Tan still actually fell by around £1m and is down from £123m in May 2014 with pledges to continue his financial support.
In terms of Tan's loan, the full amount of it is again referred to as a non-current liability while the vast majority is cited as non-interest bearing.
In terms of the debt, the accounts cite “exceptional income” of £10m that “relates to the discharge of an amount due to the owner” which had been £13m the previous year.
It also cites the aforementioned conversion of £8m in loan to equity in November 2016.
The accounts state that further money was loaned by Tan during the season, coming with conversion agreements while notes in the accounts add that he will continue to support the group “in the foreseeable future and provide additional finance in order that it can settle its liabilities.”
What is the Tormen Finance 'loan' about?
A bit of a simplistic response,without the benefit of either having seen the actual accounts or an accountancy qualification, but yes, things look far more positive than before. Key for me is - Reduced debt to Tan, reduced operating cost (necessary to cover the reduction in revenue) and a reduction in losses.
Personally I don't get too hung up on the debt to Tan, I see this all the time where businesses report the debt to the owner as a liability on their balance sheet, which they should. But remove that debt and the accounts paint a very different story. The only time it could be a problem is if the owner calls in that debt and bankrupts his own company. Sure there's a risk, albeit minimal, of that happening, but an owner with no debt could break the company up anyway if he wanted to.
What jumps of the page to me is that the club relies on broadcast revenue for 75% of it's revenue, presumably that applies to most clubs, and demonstrates the reliance on SKY etc. I'f hate to think what would happen to football if that bubble ever burst.
Keith Morgan's commentary from the Trust website:
http://www.ccfctrust.org/?p=4897
Football finance expert Keith Morgan, who chairs the Trust, gives his views on Cardiff City’s latest financial accounts
CARDIFF CITY FOOTBALL CLUB (HOLDINGS) LIMITED
COMMENTARY ON THE AUDITED ACCOUNTS FOR THE YEAR
ENDED 31 MAY 2016
There are a few key issues which need to be brought to the attention of readers of the accounts which I will deal with later in this commentary but I will firstly concentrate on a summary of the financial results they reveal.
My commentary is based upon an analysis of the accounts, discussions as to their content with the club`s financial senior management and face to face discussions with the club’sChair Mehmet Dalman and its CEO Ken Choo.
The views expressed in this commentary are my own personal , independent and impartial views.
Overall summary
1) CCFCH made a loss in the year to 31 May 2016 but the level of losses meant that the club was compliant with Financial Fair Play Regulations.
2) A loan write off of £10m by the owner , and a cash injection from him of £7m, plus a further cash injection by Tormen Finance of £7.3m and financial assistance by WMG Funds greatly helped the club`s financial position in the year.
3) A major cost cutting exercise was necessary during the year to try and balance out the club`s drop in income compared to the previous season , and this is likely to have to be repeated in the current season , plus further into the future., particularly when “parachute payment” receipts end in June 2018.
Summary of results for the year
The company (referred to as CCFCH or the club for the purposes of this commentary) made a net loss of £8.7m in the year to 31 May 2016. This compares to a reported net profit of £3.9m in the previous year. An analysis of the main elements causing this deterioration of£12.6m in results is set out below:
£m Note
Reduction in income (7.1) 1
Reduction in cost of sales 9.2 2
Reduction in Admin. expenses 7.5 3
Reduction in “exceptional income” (1.6) 4
Reduction in player sale profits (7.2) 5
Reduction in finance income (12.6) 6
Increase in finance costs (0.8) 7
Total deterioration in results (12.6)
The club`s income fell by £7.1m from the previous season , across all areas of income. Match day income fell by £1.5m to £4.2m (ave. attendances fell from 21,147 to 16,427), central broadcasting income (largely the “parachute” payments) fell by £3.6m to £24.9m, and other commercial income fell by £2.0m to £4.1m.
To help compensate for the fall in income, CCSTH management had to try and reduce costs, including wage costs. Of the total reduction of £9.2m in the cost of sales, £6.6m related to wage cost savings (£5.4m re playing staff and £1.2m re other staff).
Efforts were also made to reduce administration costs. Of the total of £7.5m achieved, £6.5m resulted from lower player depreciation and impairment costs.(Player signing costs are written off over their contract period as depreciation and if this is deemed not to be enough to write down their cost to their likely realisable sales value, there is a further charge made called an impairment provision).This was also a reflection of the benefits of the ongoing work to reduce the cost of the playing squad.
The fall in “exceptional” income is caused by a few factors. Firstly, the amount of debt write off by Vincent Tan in the year was considerable at £10m , but down on the previous year when it was £13m. Secondly 2016 benefitted from a £500k rates rebate which wasn`t there in 2015. Thirdly, the costs of removing managers, terminating player contracts etc. was down from £3.1m to £2.2m.It is debateable whether “exceptional” is now an appropriate definition of these change costs as they seem to happen every year at the club. There was also a cost for this of £2.1m in 2013/14.
The club did not make as much profit on the sale of players as it did in season 2014/15. The figure was down from £9.7m to £2.5m.
The fall in finance income is largely due to the non repeat of a one-off benefit of £13.4m which arose in 2014/15 which I commented on at the time and was a technical adjustment (required to comply with accounting standards but apparently not accepted for FFP purposes by the League) to the value of long terms loans in the balance sheet. Instead of this benefit also being available in 2015/16, the equivalent adjustment figure was a net cost of £1.2m, so a net extra cost of £14.6m in the profit and loss account. This was then reduced by a benefit of £750k in the year which was in respect of settling the Langston claim for £5.0m rather than the £5.75m figure being claimed and provided for.
There was an increase in finance costs in the year, largely due to the fact that the loan made by Tormen Finance increased by £7.3m in the year, attracting interest at a rate of 8% pa.
Overall, the club managed to balance out the fall in income by a corresponding reduction in the costs that it could control. Virtually all of the deterioration in the net results by £12.6m was down to the technical accounting treatment of long term loans referred to in note 6 above.
The balance sheet and cash flows
As a result of the losses recorded in the year , the CCFCH net liabilities increased to £67.7m as at 31 May 2016 – £68.4m of assets and £136.1m of liabilities.
The main asset of CCFCH remains the Cardiff City Stadium at a balance sheet value of £52m. Player total value was £4.8m . It was £12m at 31 May 2015. The main liability remains the debt due to Tan Sri Vincent Tan at £100.8m and this is the first of my main areas of concern. Despite a public pledge in February 2016 that this debt would be entirely converted into shares to make the club debt free (£68m “immediately” then £8m a year over 5 years for the balance then owing), the debt is still shown as repayable in full.
In my face to face discussions with the Chair and CEO ,I have been categorically assured that it remains Vincent Tan`s intention to honour the pledge made as soon as the barriers currently preventing a full debt to equity conversion can be removed. In November 2016, the first of the five annual debt to equity conversions of £8m was completed.
Another substantial liability is a debt due to Tormen Finance Limited, in which CCFCH Chair Mehmet Dalman has a major interest. This company has helped CCFCH by lending it money at reasonable interest rates. However, the accounts say that the loans are secured against company assets when no such charge has been registered at Companies House suggesting that, in fact, the debt is unsecured (such charges should be registered within 21 days of their creation).
In addition to the loans made by Tormen in the year, it appears that a further £7m of net cash was introduced by the owner Vincent Tan during the year on top of a further £10m of debt which he wrote off in full (rather than convert to shares) in the year. Hopefully, this will refute the claims of certain fans that the owner is taking money out of the club – the fact is the opposite is true.
Other matters of interest
The accounts were signed off by the directors on 15 December 2016 and by the auditors on 4 January 2017. In my discussions with the club on this point, I have been categorically assured that the submission of the signed financial statements after the usual League deadline of 1 December 2016 was with the prior knowledge and consent of the League . The formal filing of fully signed off accounts with the League was delayed by the need to obtain formal sign off of key documents by the club`s owner and subsequent approval by the club`s board and auditors.
A second major query and initial concern is a payment of £970k in the year (£1.2m was also paid in 2014/15 but not disclosed at the time as it should have been) to WMG Funds Limited in what is a related party transaction. My initial research showed that WMG Funds Limited is a company in which Mehmet Dalman was a director until June 2015. My direct discussions with Mehmet confirm his interest in WMG and that the payments to WMG were in respect of services provided by WMG in contracting with and settlement of third party liabilities onbehalf of the club in the normal course of club business.
Current season and future financial prospects
Like all fans of the club, I wish that it was financially strong and able to spend lots of money on a load of quality players to improve the playing squad. The financial reality is however totally different.
For the current season 2016/17 just to break even financially the club will have to improve results by £8m compared to 2015/16. And this is against a background of further falls in income across the board. The club is in its third year of “parachute payment” receipts, which will therefore be lower than in 2015/16. Attendances are not likely to have risen much to compensate from the average of 16,427 last season, nor have other sponsorship or commercial income levels.
Further cost cutting has therefore been crucial during the current season and unless income levels somehow increase considerably, will also be necessary next season. The bigger problem arises from season 2018/19 onwards when “parachute” receipts will have ceased altogether.
Some areas where cost reductions may be feasible this season compared to last are as follow:
1) The release of players from the squad, reducing the wage bill.
2) Profit on sale of players (e.g David Marshall) this season will be higher than last year`s figure of £2.5m
3) The club has spent very little on player transfer fees this season (in 2015/16 it spent £2.4m ) and the year end value of the entire playing squad was only £4.8m after those additions. As a consequence, the cost in the profit and loss account this season for player amortisation and impairment will be a lot less than the £9.4m cost last season.
Keith Morgan, Chair, Cardiff City Supporters’ Trust
Last edited by Michael Morris; 07-03-17 at 15:21.
I'd be interested in Keith's thoughts on the following - given the club's recent pledge to 'support NW in a promotion push next season':
Where can or will the extra money come from?
If we push the boat out financially next season and DON'T get promoted then how serious will our financial plight be in the years after that given that the parachute payments will end?
I'd love us to be spending millions on a promotion push next year as well - it also worries me!
In a nutshell, I've got no idea.Originally Posted by Austrian Bluebird
And stuffed but we're stuffed anyway so what difference does it make? We need Tan to survive and our wage bill is already too big to cope with in the Championship realistically. Even if we don't buy £6m worth of players next season, we're miles away from being sustainable so I can see the sense in giving a good manager a chance. However, it is an awfully big risk but with it being the last year of our parachute payments it is probably our last chance.
Interestingly I'm struggling to find anything much about them.
Keith's refers to Tormen Finance in his notes - it is a company where Mehmet Dalman has a major interest
Yes, I saw that when I read Keith's commentary. It feels a bit odd though. I thought the direction of travel was for Tan to hoover up all but a few 'other' shareholders, and for the club to pay off 'other' creditors - leaving just Tan holding the club debts. I don't know if there is any finance/technical/political reason for another third party (even if associated with the Chairman) to be lending money to the club?
I doubt it, but could it be a way of avoiding further FFP sanctions?
I don't know what the rationale is so will rely on Keith to provide further info if he is aware. It is not the first I have heard of Tormen though as i'm pretty sure that there was an investment of around £7.5m a few years ago, possibly in our promotion season.
I think the club are banking on increased matchday income next season as well as Warnock slashing the wage bill via the departures of Le Fondre et al
We could also see some "big" sales from non-essential players (Noone?)
But as someone with no qualification in either Accountancy or Economics, this is probably completely wrong
I would say that player sales are definitely part of the equation. When he signed his new contract Warnock talked about doing his bit to balance finances & I think it was no coincidence that only yesterday Mick McCarthy was suggesting that Emyr Huws could be surplus to requirements in the Summer.
That was my thought if you cant fully follow the money from the start ?
Yes off loading will be the answer, and we might have some shocks with perhaps big movements out for the likes of:
Whitt's, if he doesn't sign a revised contracts, it,s of interest we seem to be playing without more than ever ,so an expensive sub ?
Manga is on good money, you could argue , do we get our worth .
Pilk's in and out , on good money
Le Fondre ,well no comment ,bye and the wage
Amos goes back decent money
Lambert on, ouch money I guess ,so cancel his contract ?
Noone moved out finally ,on good money ,we have a few wide men at the club ,including Declan John, who NW plays wide .
Bennett may go ,will be on good money coming form greedy Viila ,decent player , however NW does seem to have a problem with him though ,is he worth the money in and out of the team ?
Connolly will be a good earner , is his time up ?
Fred, who knows ???
Allan Mcgregor probably beyond us in wages and fee ,should find a decent experienced lad about in his last years contract such as Julian Speroni
Then we have the loans:
Huws decent money must be gone .
Adeyemi decent money, must be gone
Kennedy another winger from Everton, so on decent money,not sure ??
Deji surely we keep if Connolly goes
O'Keefe ex Palace so wages decent , NW not that keen ??
Ajayi surley we keep ?
Ben Wilson , wage is low, so perhaps our nos 3
Idriss Saadi , bring him back and work on him to support the attack , I do wonder if he and Zohore could do the the business for us with Harris and Hoilett wide ,pace galore ??
We buy in midfielders with pace , central defender, with pace , full back with pace ,keeper .
There is a fair bit of money to be had in the list above , bring in more loans , in case it doesn't go right next year , and we can quickly off load the following year when the parachute goes .
And the hidden factor , Warnock' undoubted contacts and knowledge in the game , canny ability to spot and motivate players.
One thing for sure its big season next year , with a lot to lose and win , I am soooo glad Warnock is with us to see it through,he a safe pair of hands .
76% of revenue is from broadcasting, add in other commercial revenue and a few other bums on seats isn't really going to help that much imho. Looks like we need another season in the prem to boost revenue but then that inevitably increases the wage bill, bit of a vicious circle I guess.
Adeyemi, Oshilaja and Ajayi all out of contract so not our decision who stays.
And this is what makes a good manager , if Oshilaja and Ajayi want better contracts , the manager has to decide are they worth it , or does he cast his net wider with the same wage offer , looking for experience or better developing players who have played at a higher level .
There is no doubting both Oshilaja and Ajayi have talent , its whether we carry the wage costs, for potential talent , or as It seems with these lads they seem to go loan a lot , are they capable enough of bridging that leap to the first team ??
I hope we are watching their performances ?? .
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