Thursday, April 03, 2014

Red Army

“How did you go bankrupt?"
Two ways. Gradually, then suddenly.”

(Ernest Hemingway)

The audited financial statements of the club were finally posted to the Companies House website this week.

My summary follows with personal thoughts and interpretations in italics. 

All references are actually to the financial statements of Baton 2010 Ltd, the 100% owner of both Charlton Athletic Football Company Ltd ("the club") and Charlton Athletic Holdings Ltd ("the property investment subsidiary").

As a reminder the accounts are for the year ended 30 Jun 2013 and thus effectively comprise a summary of the first season back in the Championship.

  • The accounts were signed off by the auditors on 17 Jan 2014 - thus it seems the club waited until the last possible moment to file them  (31 Mar deadline) for reasons unclear.

  • The accounts confirm that Staprix NV acquired Baton 2010 Ltd (from CAFC Holdings Ltd) on 3 Jan 2014 - interestingly they note that Staprix NV is owned only 95% by Roland Duchatelet suggesting a 5% minority owner may exist (although it may well be a related party such as a family member or trust).  Nonetheless this is potentially a curious observation.

  • Turnover was 39.3% higher at £11.9m - this was explained as expected by a substantial 257% increase in 'central income' (ie. TV), even though the accounts additionally note that this was the first year of a new three year Sky deal which was valued 26% lower than the previous one.  Clearly the dwindling TV revenues in the Championship (as Premiership TV revenues skyrocket) provides a further challenge to any second-tier club seeking to break even.

  • Within turnover, matchday income was only 10% higher than the prior League One season - the average attendance was only 6% higher at 18,481 which must be a disappointment given the 9th place finish.  Indeed there seems a reasonable likelihood that matchday income in 2013/14 may be lower than the League One 2011/12 title season given current (lower) average attendances of only 16,248.

  • Within turnover, commercial income was 23% lower at £1.4m but this is explained by a change in the way the retail operation is managed (now outsourced to Just Sport), and is thus not meaningful.

  • The loss on ordinary activities was £6m, down slightly from £6.8m in 2011/12 - the failure to reduce the loss significantly in the Championship is simply explained by an increase in adminstrative expenses almost identical to the increase in turnover (both £3.3m).  The largest component of administrative expenses is of course staff costs which rose by £3.1m to £12.0m (including national insurance of £1.3m).  As a result, staff costs remain higher than turnover in 2012/13 just as they were in 2011/12 although the ratio has fallen slightly to 100.5% of turnover from 103.7%.  Either way this is a wholly unsustainable situation and perhaps pours some water on the idea that we were being run on a shoestring last season.  Moreover whilst promotion took us one step closer to the promised land of the Premiership, from a purely financial point of view promotion did not really improve the club's situation at all.

  • The average total number of employees (excluding temporary matchday staff) rose by 18 to 146 during the year, almost entirely on the playing, training and football management side (rising from 73 to 90) - the wage bill is not categorised separately between those on the playing side and those on the operational side, but if one assumes that those 90 playing staff (representing 62% of total staff) take a 80% share of total staff costs, then it implies average wages per individual of £95k although of course there will be considerable divergence between say the top ten or so best players/management and the rest.  A better interpretation may thus be as follows - to use some round numbers, if one assumes that there is a first-team squad of 15 'senior pros', 10 'junior pros' plus 5 key management personnel (Powell, Dyer, Hart etc.) and if one assumed that the 15 senior pros earn say £300k, the 10 junior pros earn say £100k and the 5 key management personnel earn an average of say £150k then these 30 earn a total of £6.25m.  If so this would leave £4.4m to be spread amongst the remaining 116 total staff (146 - 30) implying an average wage of £38k for the remainder.  Given this includes some well-paid operational staff like Martin Prothero, as well as a myriad of coaches, Academy pros, medical staff, commercial staff etc. (In addition to less well-paid admin staff) this doesn't appear an unreasonable set of 'guesstimates' to me.

  • The highest paid director was paid £150k - others have suggested this was Martin Prothero and I've no reason to disagree.

  • The interest burden on the club's debt was £360k, down slightly from £384k - the interest burden is not especially significant at just 3% of turnover but this is a little misleading given the vast majority of the debt is not interest-bearing (so-called 'friendly debt' owed to the holding company and former directors).

  • During the year £813k was paid to acquire player registrations - these would appear to largely relate to Lawrie Wilson and David Button, and almost certainly also promotion-related add-ons relating to transfers from the summer of 2011.

  • There was profit on players sold of £1.7m arising predominantly from contingent fees relating to Shelvey/Elliott/Jenkinson/Richardson/Hudson/McCarthy and Academy players, Palmer and Huddart (to Chelsea and Arsenal respectively) - it is frustrating to learn that Academy players that most fans wouldn't have heard of are being poached by the big clubs though with the likes of Poyet and Cousins making such a big and public impact at first-team level, hopefully this trend will slow.

  • Subsequent to year-end, the disposal of player registrations has generated income of £570k -  given the date the accounts were signed, this can't relate to Kermorgant, Stephens and Smith.  However it may include the likes of Button and some contingency payments on prior sales.
  • The carrying value of the club's tangible fixed assets (freehold and leasehold property) was revalued upwards following an independent review by £9.6m - this is probably an irrelevant fact (certainly not offering any cashflow benefit) reflecting rising property valuations across the region, although cynics will no doubt point out that this may be interesting news should the club be considering a move someday from The Valley.  The flipside of course is that the value of the land we might have to purchase or lease to build a new stadium will have increased too!

  • Short-term debts (due in less than 1 year) fell slightly as a result of the repayment of £250k due to Richard Murray (as noted in the previous year's accounts).  Bank loans and overdrafts remain at £2.2m of which Murray has guaranteed up to £800k.

  • Longer-term debts (due in more than 1 year) rose as expected by nearly £6m simply reflecting the need to finance the ongoing operational deficit above of exactly £6m.  Total debts due in >1 year now total a somewhat shocking £29.7m of which £2.5m are bank loans, £7.7m are former director loans, £15.4m are loans to the parent company ('owner loans') and £3.8m are grants received - the majority of long-term debt remains 'friendly' in nature but the figure will simply keep going up unless either the club breaks even or the new owners perhaps choose to inject equity rather than more debt (or convert one to the other).  I continue to remind fans however that the specific nature of the club's debts both now and in the recent past renders administration a highly unlikely possibility (why would owners and/or former directors push the club into administration thus almost guaranteeing a near worthless return?) - this fact is very clearly misunderstood by many fans.  On a different note it was good to see that £1.6m of the longer-term (and 'less friendly') bank loans were repaid during the year, reducing the total outstanding to £4.2m (paying a floating rate of LIBOR + 2.5 to 3%). 

  • In addition to the repayment of Murray's £250k short-term loan above, a further £880k of longer-term loans to Murray were also repaid - per the previous year's accounts, £1.55m of Murray's loans became repayable upon promotion to the Championship and it appears that over half of this amount due was indeed repaid.  If my calculations are correct therefore, Murray was repaid a total of £1.1m during the year and moreover in Jan 2014 was of course relieved of his 10% stake in CAFC Holdings Ltd, the previous ultimate parent company of the club.  In short the club's financial obligations to Murray remain significant but reduced, whilst Murray's quasi 'obligation to the club' (via his equity stake) has been removed as of January.
So in short despite promotion to the Championship, limited investment in new players and a respectable 9th place finish, the club's finances remain perilous with a £6m running annual loss and long-term debt of £30m. 

It is not surprising therefore that Duchatelet might wish to adopt an alternative approach, and it is one which we ought to cautiously welcome if only because the approaches that came before have patently failed to deliver stability. 

Clubs like ours can deliver footballing success with a degree of financial stability (think Brighton, Burnley, Swansea) or without it (think Portsmouth, Leeds, QPR). 

As a fan with hopefully many more decades of support in front of me, I'd personally rather wait longer for a shot at the former than recklessly target the latter. 

Early signs suggest Duchatelet feels the same way.


At 10:01 PM, Anonymous Sciurus Carolinensis Nemesis said...

The transfer fees for Kermorgant and Stephens can categorically not be referred to in these financial statements as they were signed off by the auditors on 17 January and both were sold at the very end of the month. Any transactions of significance arising before the accounts are presented to the general meeting at which they would be approved woulf have to be noted in the financial statements. Were transactions to take place that the directors wished to highlight in the published statements, the auditors would have to consider the addition and the accounts approved by the members and auditors after the update. The fact that the accounts may not have been filed at companies house until March is of no consequence, there is no obligation to file accounts before the 9 month deadline.

At 10:09 PM, Blogger New York Addick said...

Thanks - now corrected.

At 11:14 PM, Blogger Richard Hunt said...

Very useful comments, hard to find anything to disagree with. Cannot see break even without a more equitable distribution of TV money, though.

At 7:44 AM, Blogger Dave said...

Thanks B - I know I can rely on your assessment to give me an understandable and insightful summary.

At 10:24 AM, Anonymous Airman Brown said...

Useful analysis as usual. I'd forgotten about Button.

I think you will be wrong about matchday income in 2013/14, however, because it is very likely this will include CAFC's share of away FA Cup ticket receipts and taken with an increase in ST revenue - against a likely fall in ancillary income and home matchday receipts - this should take it positive.

At 9:29 AM, Anonymous Keith Harmer said...

Thanks @New York Addick for your interpretation of the figures. @Airman Brown net additional income from the FA Cup run will depend on level of bonus paid to the squad?

At 9:39 AM, Anonymous Anonymous said...

Thanks @New York Addick for your interpretation of the accounts. @Airman Brown any net additional income from the FA Cup run will depend on how much was paid out in players bonus's.

At 10:28 PM, Anonymous CharltonChris said...

I wish you'd go back to commenting on the football as well as the finances.

As the owner of a long abandoned blog I guess time is the primary reason that you don't, but still.. It's missed.

At 4:48 PM, Anonymous noel said...

it's interesting that of the clubs with a lower average attendance than us this season (we are in 13th place at 15,373 off Football365) only Wigan, Burnley and Bournemouth can be said to be 'performing'. Taking away parachutes and rich owners, really only Burnley are significantly outperforming their support. We are clearly underperforming.
All of this I find surprising as I assumed TV money still counted for more than home gate. What %ge of our revenue was attributable to our support?
..and I'm with Charlton Chris, if you ever feel like writing your thoughts on the actual football again you have a ready readership...

At 5:12 PM, Blogger New York Addick said...

@noel, @charltonchris - thanks for the kind words - I don't feel I go to enough games to comment intelligently on the playing side (and the various forums do a good job at this, once you filter through all the 'noise').

@noel - for the year to 30 Jun 2013, £4.1m of revenue was from TV and £5.6m from matchday - a further £2.1m came from other sources eg. commercial.

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