Sunday, March 13, 2016

Flawed Execution

,The club's accounts to 30 June 2015 have recently been filed at Companies House (despite being signed in late-November).  

Given the understandably toxic relationship between supporters and the Board, these accounts arguably represent one of the very few sources of real 'truth''.  

My analysis follows below and it relates interchangeably to both Charlton Athletic Football Club Ltd (the 100%-owned subsidiary) and Baton 2010 Ltd (the parent).  My personal interpretation and opinions are given in brackets: 

The 'Group Strategic Report' contains a notable gem, "It remains a target of the Board to grow the current attendance levels to a target of 20,000 in the Championship." (If this report had been written in March 2016 rather than November 2015 [or earlier], I suspect this item would have been omitted for obvious reasons).

Turnover was slightly down from the prior year (£11.8m vs £12.7m), explained by the run to the FA Cup quarter-finals in 2013/14.

£9.5m of financing was injected into the club by way of additional loans from Staprix (this represented continued funding of operational deficits, plus other outgoings such as capital expenditure and bank debt repayment [more on this later]).

Wages and salaries were unchanged at £11.5m though this still represents nearly 100% of turnover (a simple statistic which encapsulates the madness of the football finance model).

The operating loss was down from £5.9m to £4.4m thanks to the sale predominantly of the homegrown pair, Gomez and Poyet (if my interpretation of the accounting treatment is correct, the total transfer fees received [including from others eg. Lepoint, Morrison...] was a total of £4.47m, of which some remains payable [see below]).

Perhaps a more telling statistic is that the club now has £73m of cumulative tax losses (a more telling data point about the flawed football business model it would be hard to find.  Indeed even since Baton 2010 Ltd was created just prior to the Slater/Jimenez purchase, cumulative losses have been nearly £27m.).

Total full-time club employees fell from 161 to 144, almost entirely explained by the non-football side (perhaps supports the commonly held view [evidenced by various well-publicised cock-ups] that the club is insufficiently resourced).

Exceptional items included £162k relating to 'staff restructuring' (it seems reasonable to assume this relates to the sacking of Bob Peeters mid-season.  Curiously the amount paid in 2014/15 is exactly 50% of the amount paid in 2013/14 [ie. £324k] - one might conclude that if one briefly tenured ex-manager was paid six months' salary in severance, and another longer tenured ex-manager [Powell?] was paid twelve months' salary, then the going rate for a Charlton first team coach might be around £324k pa.  Then again it may just indeed be a coincidence!).

Just under £1m was paid to Staprix in the form of interest payable on its loans to the club (at 3% pa) - debt outstanding to Staprix was approx £40m at 30 Jun 2015 (it is not entirely clear why Duchatelet would not provide these loans interest-free, except perhaps to inject a sense of commercial reality into an inherently uncommercial investment.  Some fans are deeply concerned about this aspect of the club's financing, but injecting debt into a perennially loss-making business is arguably akin to equity. Moreover an interest rate of 3% hardly reflects the true risk of lending to the club - in short I view this aspect as virtually irrelevant).

Former directors continue to be owed £7m, contingent upon promotion back to the Premiership (now if anyone deserved even a meagre 3% return....).

Approx 2/3rds of the outstanding bank loans were repaid during the year (total £1.8m) and are now <£1m and due within one year (reassuringly or worryingly [depending on your point of view], the club will shortly be in a position where the only stakeholder with a enforceable claim on the club will be the owner himself).

No directors fees were paid during the year (so either Katrien Meire is working on a pro bono basis or more likely she is being compensated through some other entity, possibly directly by Staprix).

Transfer fees of £1.7m were paid during the year and these predominantly related to Bauer and Ba who were signed before fiscal year-end (although Bauer had been moderately impactful before he got injured, these signings hardly scream 'value for money' compared to what else might have been available).

£1.2m was spent in the form of fixed asset capital expenditure (presumably representing improvements to the stadium, pitch and training ground).

'Accruals and deferred income' of £3.2m must mainly relate to season ticket revenue earned prior to 30 Jun 2015 but relating to the 2015/16 season (since this represents >25% of total turnover and >60% of ticket/matchday turnover [and is received upfront], it emphasises how powerful a season ticket boycott could be).

Up to £6.2m of additional receipts may be due if former players sold achieve certain targets (this is £2m higher than the previous year suggesting that Poyet and Gomez were sold with contingent payments included in the agreement).

On a similar note the amount for 'trade debtors due after more than one year' is a nice round £1.500m (reading between the lines, it is quite possible that rumours of a £3m initial fee for Gomez were true with the amounts payable in two £1.5m instalments).

Rather more curiously the amounts that Charlton may have to pay to other clubs contingent on its own signings achieving certain targets, increased by £1.3m to £1.7m (if Bauer and Ba represented the only significant transfer fees paid during the year, did they really also need to include £1m+ contingencies? For the club's sake let's hope this is only payable upon promotion to the Premier League and not mere appearances etc.).

Between 30 Jun 2015 and the signing of the accounts in late-Nov, £300k was received in the form of transfer/loan fees (there is no additional transparency given, but this is likely to have included Rhoys Wiggins [who is now back in the Premier League!]).

Similarly between 30 Jun 2015 and late-Nov, a further £2.6m was paid out in transfer fees (this would include Sarr, Kashi and Bergdich, as well as a possible loan fee for Makienok).

In truth, there were not many huge surprises in the accounts although the biggest frustration is that unlike fans of say Blackpool, we cannot seriously accuse Duchatelet of fleecing the club.  

Staprix has now injected £40m in total (in the form of the initial deal with the former owners and the funding of ongoing deficits since) and his 'return' is a measly 3% pa, equivalent to the sort of return he could generate in blue-chip 'investment grade' bonds with virtually no risk.  He doesn't even get to enjoy watching the matches.

The club continues to pay transfer fees including £4.3m for the players signed last summer, only two of which (Bauer and Kashi) could be described as good additions.  

Indeed the transfer fees paid almost exactly mirror those received during the full period examined, so even the argument that Duchatelet wants the club to become self-financing through player sales seems very flawed.

Meanwhile the accounts prove that solid Championship players like Wiggins and Morrison are being offloaded for peanuts, yet in both cases the greater value to their new clubs is obvious as subsequent developments show.

So in short one must conclude that (for reasons unclear) he is either acting in a wholly irrational and non-commercial manner with regard to this investment, or more likely he has perfectly good intentions but has executed in a remarkably bad way whether due to naivety or gross incompetence.

With League One football looking increasingly inevitable, the 2016/17 accounts could be a veritable horror show.


5 Comments:

At 9:54 AM, Anonymous Anonymous said...

It would be interesting to see the forecast for the 12 months following the signing of the balance sheet to prove a going concern basis. Would this have been based on Championship football or League 1?

 
At 11:59 AM, Anonymous Dave said...

NYA - thanks for that; interesting stuff.
I agree entirely with your conclusion - pig-headed cock up, not evil conspiracy: not that that makes it any easier to stomach!!
Dave

 
At 12:34 PM, Anonymous Anonymous said...

The going concern attestation can only reflect a judgement about 'secure owner funding' rather than a forecast that the club will be profitable any time soon.

 
At 11:50 PM, Anonymous ChicagoAddick said...

Very interesting as always NYA.

 
At 8:47 AM, Blogger Blackheath Addicted said...

So, NYA, perhaps the most sympathetic conclusion we can draw is 'the road to hell is paved with good intentions'.

 

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