Topic: A going cause for concern - Emphasis of Financial Matters

[ttnbd]

Well it's that time of year again and time to look at the financial accounts of LFC.

I've had alot of people either call me an enemy sympathiser or an idiot for not wanting to follow the predjudicial (alot indirectly but a sizeable minority directly) views of a number of the clubs fans.  There's many who use certain figures given in the media, and on some independent websites as being the oracle of all things financial.  Time and again I have been ridiculed for wanting to wait to see the facts as invariably they differ greatly to the hyperbole of the various messageboards.

Well here's the facts, in a year where facts are being used in regularity, if in many cases stretched.

I'll break the key areas down for each of the group companies.

Liverpool FC & Athletic Grounds Limited

Key Figures

		2008		2007		% Change
Turnover		159,052		133,910		19%
Cost of Sales		16,523		16,417		0.6%
Admin Expenses		145,240		143,160		1.5%
Profit/(Loss) Before Tax		10,199		(21,655)		n/a
Net Debt		86,017		43,868		96%
Cashflow from Operating Activites		22,863		39,996		(43)%
Gross Transfer Expenditure		69,966		69,972		0%

Turnover

This is broken down as thus

	2008		2007		% Change
Media	68,358		52,161		31%
Matchday	39,215		38,442		2%
Commercial	49,849		41,794		19%
Museum & OSC	1,630		1,513		7.7%

Healthy increases in media was expected with the advent of the current premier league tv deal.  However a small amount of the increase is also due to the steep fall in sterling in the latter part of the season.  While there was a compensating item for failing to reach the european cup final.

Matchday turnover increased as a result of the standard increase in ticket prices.  With Anfield operating at near enough full capacity the scope for increases here are limited.

Commercial revenue increased as a result of both merchandise sales increasing aswell as an increase in the value of the club's sponsorship deal with Carlsberg.  The carlsberg deal accounted for approx £2.5m of this increase.

Admin Expenses

	2008		2007		% Change
Staff Costs	89,729		77,589		16%
Amortisation of Players Registrations	32,497		31,121		4.4%
Impairment on Players Registrations	-		2,005		(100%)
Other Operating Charges	20,406		16,991		20%

Net Debt

	2008		2007		% Change
Bank Debt	21,546		43,868		(51)%
Inter-Company Loans	79,911		-		N/A
Cash at bank and in hand	16,284		441
Total Net Debt	86,017		43,868		96%

The net debt to external parties (ie banks) has decreased, however this is more than surpassed by loans from the parent companies of LFC.  The bank debt carries an interest charge of Libor + 3.5%.  The intercompany loans were provided from the Caymen Islands company.

Since the year end and additional £21.3m was received from Kop Football Limted (ultimately from Kop Football (Caymans)) for working capital requirements.

Contingent Assets/Liabilities

If certain conditions are met the club has potential income of £11.6m (of which £2.6m has since been realised) and potential expenditure of £19.8m (of which £1.6m has since been realised) on transfer fees.

Transfer Expenditure

The one area that causes the biggest debate.  Every year we have fans complaining about the amount of money spent on players and every year they get it wrong, massively.  These are the true figures for the last 3 financial years.

(figures in £000s)

Financial Year Ending	2008		2007		2006
Purchases	69,966		69,972		41,753
Sales	29,740		25,946		16,838
Net Transfer Activity	40,226		44,026		24,915

These values include relevant levies to the premier league, VAT and agents fees.  Signing on fees go straight to the Profit & Loss at time of payment.

Since the year end Albert Riera, Peter Gulasci and Victor Palsson were bought by the club for total transfer fees of £7m (I assume this includes VAT and agents fees, but am not certain)

Since the year end the club sold Robbie Keane and Steve Finnan for a total guaranteed income of £12.8m.  However this amount will increase significantly should certain conditions be met.

The Immediate Future

The immediate future is now very difficult to predict, will we be sold again or won't we.  Will the stadium go ahead or not, will refinancing be granted or not? So many questions so little answers.  There is only a limited area of certainty.

1) The latest Premier League tv deal.  This will continue for the next 4 years, but there is the uncertainty of Setanta.

2) The increased sponsorship revenue from Carlsberg continues until the end of next season, while other improved sponsorship/advertising deals have been agreed.

3) The supporter pet hate, ticket prices, this will go the other way for the coming season, for the season just gone there will likely be a net fall due to the number of games played at home in the season.

4) The club has the full benefit of owning the company that runs the website and LFC TV.  This will increase turnover by approx £4m per year and profits from it will double from previous levels.

Benchmarking against our rivals

With this I aim to show how the top 4 compare in the revenue, core costs (player amortisation and wages) and transfer expenditure stakes.

The figures relate to the season 2006/07 and are taken from the published accounts of all 4 clubs.  There is a slight difference in accounting reference dates but I believe these are insignificant.  The figures also relate to footballing activity only (arsenal have a property development going on at present, chelsea have the hotel etc)

(in £000s unless stated)

	Liverpool		Manchester United		Chelsea		Arsenal
Turnover	159,052		256,239		199,339		207,723
Media	68,358		90,723		Not Avail		68,360
Matchday	39,215		101,468		Not Avail		94,580
Commercial	49,849		64,048		Not Avail		44,311
Amortisation of Player Registrations	32,497		35,481		57,281		21,757
Staff Wages	89,729		121,080		171,620		101,302
Staff Wages as % of Turnover	56%		47%		86%		49%
Gross Transfer Expenditure	69,966		14,338		80,727		27,490
Net Transfer Expenditure	40,226		(13,254)		48,106		(13,707)

It must be noted that the following events occurred after the balance sheet dates.

Manchester United bought players for fees totalling £34.4m, with £1.6m recouped from sales. Contingent Liabilities on transfers stand at £14.8m

The figures for Chelsea only relate to football activites, hotel revenues are excluded to make the figures more comparable.  The Staff Wages includes termination costs of £23.1m

Chelsea sold players for a profit of £8.5m since the balance sheet date. Contingent Liabilities on transfers stand at £3.7m

The figures for Arsenal are for footballing activities only.  Since the year end Arsenal received £1.5m net on transfer fees.  Contingent Asset/Liabilities on transfers stand at £6.3m/£12.3m respectively


LFC.tv Limited

This is appears to be a success story at present.  Nothing much to say on it.

Turnover £7.9m (from 2008/09 onwards all of this will be a wholey owned subsidiary of LFC as opposed to being a joint venture)
Profit Before Tax £2.9m

Turnover is split as follows

Website £4.7m
Television £3.2m (this is an increase from £0.5m the year before).

This suggests that the deal with setanta could be worth £2.5m per annum.  If this is true then I would say it's a great deal.


Kop Football (Holdings) Limited

Loss Before Tax £40.9m

Net Debt £299.5m. 

Gross debt £320m of which £261m owed to banks, £58.2m owed to parent companies and £7.5m of financing costs capitalised to the balance sheet.

Cash balances £20.6m

Interest charged £36.5m

Interest paid £35.2m

Net debt increased by £55m in the year.  This includes monies received from parent companies (charged at 10% per annum, interest not yet paid).


Expenses Claimed

2008 - reimbursable third party consulting, travel and other expenses with Hicks and affiliated companies £192,000

2008 - reimbursable third party consulting, legal, travel and other expenses with Hicks and affiliated companies £129,000


AUDIT REPORT

The major issue arrising from the accounts this time, however, relates to the KPMG report on Going Concern.  Due to the facilities being due for repayment on 24 July 2009 and with no refinancing agreed/announced at the time of sign off by KPMG they have raised an emphasis of matter on the going concern status of the holding companies and club.  The club/owners are in discussions to refinance the facilities and looking for possible equity finance.  I don't think there is too much to say on this as I am sure everyone will have their views on this, and the results.

I will say that as a standalone company LFC should have no problems.  I'd imagine they would get refinancing for club debt, however the millstone of the purchase debt is having an effect.  This may explain some of the rumours going round recently about the owners being told to pay down the debt over the next couple of years.

There is a comment in the report about revised stadium plans going to the council in Q2 2009, however the refinancing issue needs to be settled before this can really be taken forward.

Future prospects are both bleak and positive.  Positively the club is back in the black and has increasing revenues again, especially in the commercial area (the one area at present that the club can really increase revenues by it's own actions).  The tv deal will provide a stable platform for the next 4 years and LFC.tv is improving year on year.

Bleakly the club needs to have the refinancing/takeover saga sorted quickly.  It always has, however with the new contracts, both staff and commercial, there must be a large amount of optimism that the refinancing will occur.  However it needs to be for longer than a year to ensure short to medium term stability.

[RedJam70]

Thanks Tim.

Have sent you a pm, cheers.

[rebel23]

So tim tell us how the club can cover the parents company losses of £42m a year and how long this can continue for before they have to default

[JP-65]

Tim
Nice summary, as usual.....ignore the comments from the cheap seats!

[Yorkshire-Red]

Key Figures

		2008		2007		% Change
Turnover		159,052		133,910		19%
Cost of Sales		16,523		16,417		0.6%
Admin Expenses		145,240		143,160		1.5%
Profit/(Loss) Before Tax		10,199		(21,655)		n/a

I haven't seen the accounts, but I have seen reports that we lost £40+ million after interest. How does that square with these figures?

[DonkeyWan]

Excellent stuff, but its clear that the issue of stadium building is the major problem. If we could that under way, we might be able to compete by 2016.

[JackWard33]

i'm sorry but this is a total disgrace

when will people realise how royal fucked we've been by them

not only did they immediately increase our debt by almost 300million with NOTHING to show for it (this is not including money for transfers)
they have also turned a profitable business into an insolvent one

basically they either find a buyer which doesnt appear to be happening or they'll have to start selling assets to plug the gap

it makes me want to puke that we're in this situation when there's more money in football than ever before and our club ('brand') is so loved around the world

[Lanrmort]

Thanks for taking the time to do that. Always interesting.

[KurtVerbose]

Thanks Tim.

What seems clear is that the current business is struggling under a debt mountain which we can just about service but not pay off. 

Manu and Arse are turning over £60m and £45m more than we are purely on match day revenue.

We need a new stadium to compete but there's no way we can borrow the money to build it. Either the current owners or new owners need to put in more equity.

[JackWard33]

Thanks Tim.

What seems clear is that the current business is struggling under a debt mountain which we can just about service but not pay off. 

Manu and Arse are turning over £60m and £45m more than we are purely on match day revenue.

We need a new stadium to compete but there's no way we can borrow the money to build it. Either the current owners or new owners need to put in more equity.

two things - we can't afford to service it thats what these figures show
where is the 30 million gap going to be filled from each year - magic beans?!?

second the match day revenue thing is an on going problem but the club can still spend 25 million or more with good revenues on transfers and be a profitable business which is fine
without the debt which had no reason to exist we would be fine

'you can only sell the family silver once' - so might as well use the opportunity to fuck us for keeps

[Finch Royal]

Why the fuck are Chelsea turning over 40m quid more than us with a slightly smaller stadium ?

[Southern Pansy]

Why the fuck are Chelsea turning over 40m quid more than us with a slightly smaller stadium ?

They hate their fans more and charge a lot more per ticket.

[Sinos]

http://www.liverpoolway.co.uk/forum/ff-football-forum/79867-end-nigh-two-twats-post1747194.html#post1747194

Please tell me he's exagerating, ttnbd.

Is not true.

I work for one of the big four accounting firms, a rival of KPMG.

KPMG are not the accountants for Liverpool fc ltd, but the auditors.

To add a statement about the uncertainty around the ability to remain a going concern is a massive deal for a company as big as this. It might happen as standard to smaller companies, but never to big ones. And its not a loss that triggers it, its much bigger than that.

I've audited lots of organisations that showed a loss but we still called them going concerns, as they had healthy cash balances, or lots of reserves, or were owed alot of cash that would come in at some point.

To say a big company isnt a going concern, there has to be massive shit going down. KPMG wouldnt have issued that statement unless they had serious doubts about the yanks ability to refinance.

[ttnbd]

http://www.liverpoolway.co.uk/forum/ff-football-forum/79867-end-nigh-two-twats-post1747194.html#post1747194

Please tell me he's exagerating, ttnbd.

can be taken either way.  KPMG can only make a statement based on what's in front of them.  At the time of sign off there was no new financing in place to replace a huge amount of debt due in the matter of months.  If it was THAT bad, ie the club would not get financing then I think they would have refused to sign off as a going concern, even with a emphasis of matter statement.

Without an agreement on financing this will hang over the clubs head.  This is why they are scrambling over selling their other assets.  It's easier for them to do that than it is to sell the Kop Football Holdings group at present.

[TipTopKop]

Cheers Tim, always interesting to read your input, the facts.

[Cusamano]

Why the fuck are Chelsea turning over 40m quid more than us with a slightly smaller stadium ?

London

[Veinticinco de Mayo]

Tim, thanks for that, a rare beast, an informed post, worth reading, in Off the Pitch. 

So it appears that we are indeed stuck in that hole that the lack of credit created.  The club is solvent, turning a nice profit and growing revenues but we cannot service the purchase debt and realistically we are never going to be able to service that purchase debt without the new ground.

[royhendo]

Excellent mate, thanks very much.

Something's brewing, that's for sure. New contracts tabled but not yet signed, information coming to light of plans to start work on the new stadium... either they're confident of refinancing, or they're confident of sale/restructure - no?

[Something Else]

Tim, thanks for that, a rare beast, an informed post, worth reading, in Off the Pitch. 

[liverbnz]

Thanks very much mate. Nice to have some solid facts so well laid out. At a hunch I'd say refinancing seems likely, so with the stricter terms that will most likely be calling most of the debt in over the next 12 months, (a) what is Hicks and Gillete's best plan of action, and (b) what do you think they will actually do, if any different?

[ttnbd]

Thanks very much Tim. Nice to have some solid facts so well laid out. At a hunch I'd say refinancing seems likely, so with the stricter terms that will most likely be calling most of the debt in over the next 12 months, (a) what is Hicks and Gillete's best plan of action (b) what do you think they will actually do, if any different?

I think the recent activity to try and offload the canadiens (spelling?) and the rangers would indicate that they are trying to raise the cash required to pay down a sizeable chunk of the debt.  If this were done then the likelihood of raising finance for the stadium would be increased significantly, but by no means certain.

[Lyndsey_LFC]

I think the recent activity to try and offload the canadiens (spelling?) and the rangers would indicate that they are trying to raise the cash required to pay down a sizeable chunk of the debt.  If this were done then the likelihood of raising finance for the stadium would be increased significantly, but by no means certain.

And if they cannot sell their other assets whats happens then?

[ttnbd]

And if they cannot sell their other assets whats happens then?

I'd imagine, as I suggested is an option previously, the club would likely be sold rather quickly as a stand alone company.  Any short fall in funds would then have to come from the american guarantees.  Not saying this would happen but it would allow RBS to minimise their losses.  The club is worth more selling it as a going concern as a stand alone business separate from kop football holdings than it is to asset strip.

Administration is not impossible though.  It depends on what RBS proceedure is.

[royhendo]

RBS would move heaven and earth to avoid that you'd think Tim, no? Pure speculation I know, but they're very sensitive to their PR right now.

[redscotch]

Thanks for that, Tim. Certainly helps clear a few things up.

At the moment this feels like watching a slow car crash.
This surely has to be the time to organise something between all the Liverpool fan websites again, linking up for a big fan survey/poll, similar to what was brilliantly organised a while back.

Let RBS, the government know we want the Americans out.

At least the banks/government/Hicks +Gillett will know how the fans feel about the situation and they wouldn't be able to plead ignorance and let them refinance.

[ttnbd]

RBS would move heaven and earth to avoid that you'd think Tim, no? Pure speculation I know, but they're very sensitive to their PR right now.

they'll do what is in the best interest of themselves and their shareholders.  Now their biggest shareholder is effectively the british public so that might change their thinking, but there's no way of knowing at present.

My personal opinion is that administration would not happen officially, instead a very quick turnaround of the club on it's own being sold would occur.  I think there would be plenty out there willing to pay just, for example, £250m for the club (less £80m acquired debt, so £170m consideration).

[Liver Bird]

Just a quick question does anyone know what happened with Southampton, did they actually go into administration or was it just their holding company that did? Southampton were still deducted points by the football league regardless becos

The Holding Company has no income of its own; all revenue and expenditure is derived from the operation of Southampton Football Club Limited (SFC) and the associated stadium company.

The three entities (the Holding Company, SFC and the stadium company) comprise the football club and they are inextricably linked as one economic entity.

Amongst other things

http://www.dailyecho.co.uk/news/4314803.Saints_are_relegated_as_league_deduct_points/

[Mackeroo]

Cheers Tim.

Just as a matter of interest, how late were the accounts published?

Is the debt more or less what you expected it to be given the varying reports in the media?

[fudge]

Fuck me, we are so lucky to have someone on here that can cut through the bullshit and make complicated stuff like that appear clear to total fuckwitts like myself.

Cheers Tim

[ttnbd]

Cheers Tim.

Just as a matter of interest, how late were the accounts published?

Is the debt more or less what you expected it to be given the varying reports in the media?

They were sent to companies house at the last possible moment.  As for the debt level, I didn't know what to expect as I didn't know the full picture for the year.  If I had of guess I'd probably have guessed slightly lower.

[fudge]

Oh and i forgot to say Fuck off Hicks and take your pixie friend with you, not since Gerald Ratner has anyone had such a fantastically negative effect on a company

I spurn you both as i would a rabid dog

[rocco]

cheers tim


a worried rocco

[DonkeyWan]

Out of interest, how much of the problems are the owners, and how much the result of the credit crunch?

Also, why aren't United going tits up as well, surely they are just as exposed as we are?

Finally, does this mean the stadium will be scrapped

[Laughter is the best medicine...]

great post ttnbd - just wondering if they are allowed to sell players to meet the interest payments? that is one worrying outcome that the yanks could do in order to get out of this hole they are in

[Laughter is the best medicine...]

Also, why aren't United going tits up as well, surely they are just as exposed as we are?

i'm pretty sure they made a massive loss too

[Retro Red]

I haven't had chance to have a proper gander at the report yet, but I have discussed it with someone who's very experienced in corporate finance, accounting and audit.

ttnbd, would I be right in saying that these figures show that a further £50m debt has been taken on at the top of the group and passed into Kop Holdings, hence the net debt of near enough £300m as opposed to the bank loan at that level of £245m?

Also, does this mean, that with the debt on LFC standing at £105.5m (although I can't see that in the figures), the total group debt that has to be serviced from LFC revenues is now £400m?

Muchos gracias.

[Jack Slater]

Just a quick question does anyone know what happened with Southampton, did they actually go into administration or was it just their holding company that did? Southampton were still deducted points by the football league regardless becos

Amongst other things

http://www.dailyecho.co.uk/news/4314803.Saints_are_relegated_as_league_deduct_points/

It was just their holding company.

But in any case, they were deducted points under Football League rules.  A bit cheeky of the FL some might say as the rules didnt seem to permit this.  But there was no mileage in their trying to challenge it.

PL rules are different.  PL rules say it is an automatic 9 points deduction if the parent company (Kop, in our case) goes into insovency.

[Jack Slater]

great post ttnbd - just wondering if they are allowed to sell players to meet the interest payments? that is one worrying outcome that the yanks could do in order to get out of this hole they are in

Yeah - Course they can sell players.  But that isnt gonna help by itself.  We owe too much already.

[Laughter is the best medicine...]

Yeah - Course they can sell players.  But that isnt gonna help by itself.  We owe too much already.

i'm sure someone said that they cant sell players to pay off the loan - something to do with the terms of the loan

[Retro Red]

It was just their holding company.

But in any case, they were deducted points under Football League rules.  A bit cheeky of the FL some might say as the rules didnt seem to permit this.  But there was no mileage in their trying to challenge it.

PL rules are different.  PL rules say it is an automatic 9 points deduction if the parent company (Kop, in our case) goes into insovency.

There's about six clubs who are near enough insolvent in the Premier League. The FA and, especially, the Premier League don't want to know - bad for "the brand" and all that. What causes automatic relegation in other countries and points deductions in the football league is largely ignored in the Premier League.

RBS calling in the loans and, should the owners not have the money, taking possession of the club would not automatically be considered as "going into administration". In fact, as long as the bank was happy for the club to continue to trade while a buyer was sought, word has it that there is no way the FA or Premier League would wish to upset the applecart.