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The below has just been sent out to Trust members.
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 28 February 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 31 May 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)
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Net decrease in losses 35.2
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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 31 May 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 31 May 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 31 May 2018 it acquired new players of total value £14.3m (2017 was £5.9m), in the year to 31 May 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 (Zohore,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 31 May 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 31 May 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.
This is exactly what a number of other Championship clubs did to get around FFP rules. We will have Mr Gibson, of Middlesborough, and the EFL after us fairly shortly.Originally Posted by the other bob wilson
Does anyone really think that the stadium increased in value in the period up to 2018?
It is exactly not what other Championship teams did.This is exactly what a number of other Championship clubs did to get around FFP rules. We will have Mr Gibson, of Middlesborough, and the EFL after us fairly shortly.
Does anyone really think that the stadium increased in value in the period up to 2018?
Other Championship teams sold the stadium to owner / companies involved with owner which paid far over market value of stadium to funnel funds in avoiding FFP.
Did he take back 32m and then somebody else lend us 39.5?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).
So basically harris will have to wheel and deal in the transfer market
That's the way it is
We are where we are
It could be far far worse , we could be Portsmouth or Sunderland
I'm no expert, but seems to be good that we have made provision for the Sala fee
Yes, but the outcome is identical. They all increased the value of the stadium to reduce losses.
Presumably replacement value. However, in one sense the stadium has no value because, if CCFC wanted to sell, it nobody would want it and the land I believe is owned by the County Council.
The increase in the value of an asset is not a profit and loss item therefore it cannot reduce the amount of any loss. It can, of course, increase the net worth of the company. The only way that it can be included in the P&L is upon a sale. Therefore, the outcome is not identical.
If i read it correctly it looks like £32.3m of debt has been repaid to Vincent Tan whilst being replaced by £39.5 of borrowing from another source. It's not clear who the other lender is but not a member of the board. So a third party, is there anything worrying about this now that this amount of debt is with someone else rather than Vincent Tan, who has repeatedly reduced our debt? Or maybe it's an accounting process?
Big difference between selling way above market value to invest into club, contrary to FFP and having an independent valuation of the stadium.
I quote Since62, "Firstly, the 2018 loss was significantly reduced down to £9m by a £27m revaluation adjustment on the club`s stadium."
We have not sold the ground, the value of it, as with any piece of real estate, has changed between one set of accounts and another.
You will need to ask Since 62 exactly what he meant by that but I stand by my statement. A company cannot reduce it losses by merely increasing the value of its assets until any of the assets are sold at a greater figure than its book value. The increase in value will be shown in the accounts as a revaluation reserve thus increasing the net worth of the Company not its annual profit.
In the cases of DerbyCounty. Sheffield Wednesday and, I believe, also Aston Villa, the asset ie the Stadium, was sold at a greater value than in its books thus creating a profit on sale the sale of the asset.
This is the fact of the matter. CCFC revalued their stadium to the amount independent professional valuers said it was worth as at 31 May 2018. This would form the basis for assessing whether it is subsequently sold on at an arms length fair value (there is nothing to suggest that this will happen) which is where Derby and Sheffield Wednesday in particular have come unstuck.
Yes
The revaluation surplus in 2018 DID go through the profit and loss account (more accurately called the Consolidated Statement of Comprehensive Income - boring accounting terminology) with the effect of reducing the reported loss for the financial year by £27m.The asset doesn`t have to leave the club to impact on reported profits even though it is not a "normal" trading item
I remember people predicting last season some huge war chests being available that would allow us to go on a championship spending spree.
We didn't spend a lot in premier League standards, but we still made a loss over the year.
Keith: in basic terms, what is the club's current level of debt and who is the money owed to?
To clarify (I’m a qualified accountant):
An increase in the value of the stadium WILL increase the reported profit (or reduce the loss), but unlike selling the stadium, it won’t result in additional cash coming in to the club.
Similarly, the provision for the Sala dispute decreases profit (or increases loss), but again, there’s no cash impact, as it is merely a provision.
Sorry to trouble you
My old man qualified as an accountant after being a carpenter
He finished his working life as an auditor for BP chemicals in port Talbot
What's the difference between what you do and an auditor ?
But in your original post you said that the stadium revaluation didn`t impact on the profit and loss account. As you say now , it does. As does the provision for costs re the Sala dispute.
Your (revised) point now that it has no impact on cash is a separate , and correct, point.
I’m not an accountant any more, but the difference is that accountants produce the accounts (among other things) and the auditors effectively validate the accounts and the basis upon which they are produced - well, in theory.
Auditors are a bona fide pain in the neck in my experience! 🤣
Last edited by The Hooded Claw; 04-03-20 at 14:14. Reason: Missed a bit
How exactly does a stadium increase in value? The only thing of value is the land. Maybe you could flog the seats. How much does it cost to demolish and clear a stadium?This is exactly what a number of other Championship clubs did to get around FFP rules. We will have Mr Gibson, of Middlesborough, and the EFL after us fairly shortly.
Does anyone really think that the stadium increased in value in the period up to 2018?
I didn’t have a post earlier on...
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