Toon Finances - 2001 Annual Report

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In the Toon’s 2001 Annual Report, Chairman John Fender, concludes, “I believe that revenue growth from the enlarged SJP and the new television deals, combined with sensible cost control, will provide the Group with strong cash flows and financial stability”.

Comforting words, but does recent past performance provide grounds for optimism – especially given the obvious need to continue strengthening the playing squad?

Turnover increased by £10mm (ie. 22%) to £54.9mm - “primarily reflecting the increased stadium capacity”. However, a closer look at the detail shows that £3mm of that £10mm increase was simply down to including catering revenue which was reported differently last year. A further £2.3mm of that increase was due to increased TV and merchandising revenue.

So, at the end of the day, the vast expense on the stadium expanpsion resulted in additional turnover of only £4.7mm - and, this was then offset by £3.7mm in interest payments on the debt facility, £1.6mm in additional depreciation charges, and £1.5mm in additional stadium running costs.

Overall effect of the stadium expansion? Allowing for the £1mm reduction in sponsorship revenue that resulted from the £25mm loan provided by NTL - the overall effect of the additional stadium capacity appears to be a LOSS of some £1.2mm!

Attempting to look at things simplistically, the Club took in £54.9mm in turnover, and it spent £47.7mm in running the business day-to-day. That is, before considering player trading activities etc. This effectively left them with £7.2mm with which to fund ‘other things’.

They then needed to spend £3.7mm to cover interest payments on the debt. The net cost of all player trading activities was some £12.3mm. They then paid out £4.5mm in dividends.

This means they spent £20.5mm, even though they only really had £7.2mm available to spend. The resulting shortfall of ca. £13mm simply reduces the “intrinsic value”, or nett worth, of the Company, as per its Balance Sheet.

Finally, looking briefly at the Balance Sheet, it is apparent that the "nett worth" of the Company diminished from £56mm in ’99 - to £36mm in ’00 - and to only £23mm in ’01. During this same period dividends of £8.3mm have been paid to shareholders – with two-thirds being paid to the two major shareholders.

Does this inspire you with confidence?

-- Anonymous, October 26, 2001

Answers

Clarky you are as sad as me !!!

I'd gone thro and highlighted points of interest. The catering was the first !! Thing was I wasn't sure whether the increase in revenue form it was offset by some sort of secondary income elsewhere ?

Also I was uncomfortable with a 22% increase on a 44% increase incapacity, but there were less games, particularly in Europe/Cups. This is where the difference is. Each home cup match which had a 50,000 crowd would increase reevnue by over £1m. Even Inter Toto of 25,000 should bring in 500k, for little extra outlay.

You missed something that I haven't been able to get my head around. The £13m deficit looks, and is, bad, but that is for the company . The group has an increase in net funds of £15m in the same period. What's that about ?

Also of note is David Stonehouse. He was paid £140k for his 11 months to June 3rd, with a further bonus of £40k, for an unspecified reason. Following his resignation he was then paid £221k !!!!

The directors Jones and Shepherd awarded themselves £150k bonuses, half of the Jones one for managing the stadium expansion. Freddie, as an executive direcotr was paid £232k in the year on top of his dividend payments of £362k. The final dividend for this year is as per holdings on 12th October 2001, when did he buy his NTL shares ? If NTL were selling at 30p (ish) and were also taking 2.04p per share out the club, it looks like they had a final dividend payment of nearly 7%, nice.

The group also spent £2.95m with Cameron Hall.

The club took out a thre eyear loan for £7m "in connection with the purchase of Bellamy and Robert".

Something I missed last year, was "Director's compensation for loss of office" of £532k, must have had Fletcher smiling for once !

-- Anonymous, October 26, 2001


The only hope seems to be Europe and SKY

-- Anonymous, October 26, 2001

Well what does it all mean in then end though? We are still NOT the club with the worst financial state of affairs in the PL. Chelsea for instance are in millions of debt. If we get hit by some sort of 'bubble bursting' - it will affect all clubs.

The worth of the company is not that relevant unless they are looking to sell surely? And an accountant 'friend of mine' told me that turnover is the most important thing anyway. Debts and the servicing of debts is normal in big business. The NTL loan is the equivalent of the mortgages lots of us have.

I think we could all worry ourselves into an early grave at the thought of NUFC's finances but we can impact on them even less then we can influence events on the pitch.

-- Anonymous, October 26, 2001


Clarky, what scares me is that had we not basically sold all wor tickets, the predicament we'd be in. The team really needs to get it right at SJP. Home is your bread and buttter and unless things improve there dramatically, the club may not get the luck it got this year with ST renewals. Generally, though, many PL clubs are struggling badly. Someone has mentioned Chelsea but Leeds and Villa are also in a bad way (only the perceived value of Leeds' first team prevents commentary on that).

-- Anonymous, October 26, 2001

Macbeth - the Group Retained Loss for the period is £13.3mm, as reported in my post, as are the diminishing 'shareholders funds', or nett worth.

Stonehouse's payments will be as negotiated for the termination of his contract, and will have formed part of a legal agreement under which he will have agreed not to publicly disclose 'the truth'.

Lynda - frankly, I have no interest in how other PL Clubs manage their busineses - although they do all have common problems and issues - but I am seriously interested in the well-being of MY club. If your accountant friend really believes company turnover is the only thing that is important, then I think I understand where he is coming from, but I'm afraid he is talking bollox.

The relevance of the diminishing shareholders funds (nett worth) figures that I posted is immense - if this figure were to go negative, the company would become technically insolvent. That is why the major reported diminishment for the third year running is so scary, and why Directors rewarding themselves for failure with unaffordable dividends is so repugnant to me.

NUFC plc are gambling heavily that attendances will hold up at very high levels, AND on substantial continued growth in TV revenues. For all our sakes I hope they are proven to be correct.

-- Anonymous, October 26, 2001



The problem is that we have a publicly listed company here which is effectively run as a personal fiefdom of the major shareholders. If I was Stonehouse I would have done a runner as well, before I got the type of press that the Marconi squad got for destroying shareholder value. Bye bye, a career in the City. The issue of dividends may well be determined not by whether the group has profits to cover it, it may well be a matter of what the financing structure behind the offshore holding companies looks like. So the group may not be only servicing its own debt, it may be servicing the debt of the majority shareholders as well. Double whammy.

-- Anonymous, October 26, 2001

Clarky I was making the point that many football clubs are in the same position as NUFC because I feel it is symptomatic of the state of football. I take your point that you're not bothered about other clubs but again the point is NUFC's position is not unusual.

BTW I told my mate you thought he was talking bollix, he still says turnover is one of the most important factors in looking at the financial health of the company but not the only thing.

-- Anonymous, October 26, 2001


Lynda,
I'm sorry if my initial response seemed overly aggressive. However, I've seen the comment on turnover in the press before - those with the biggest turnover will be the survivors. I understand this argument, but it is just not that simple - my discussion over the "solvency" issue was intended to demonstrate one reason why.

The turnover argument is based on the increasingly large percentage of turnover that is being paid to the players. The simple argument is that in this situation only those with the biggest turnover will be able to attract the top talent - I've read Shepherd advancing this argument.

In actual fact if you look at players wages as a % of turnover, NUFC at around 45% is one of the lowest%. So, with the 2nd highest turnover and one of the lowest relative wage bills, you could conclude that NUFC is financially strong - and as you suggest it may indeed be "relatively strong" compared to some other PL Clubs. However, taking into consideration their debt position and the obvious need for substantial investment in playing resources, I feel their finances are far from being strong.

In particular, I feel they are being fiscally imprudent in paying out large dividends which denudes both their cash position and shareholder value (ie. net worth).

I do accept that the game in general is suffering from common problems, in particular the short- sighted greed of the top players. The ludicrous over-exposure on TV is perhaps the most dangerous factor in the long run. The game is now totally dependant on TV revenues, and if/when the bubble does burst it could be argued that those with the highest dependance on this source of income will suffer most.

Most certainly it seems to me that Clubs should be doing everything they possibly can to nurture their fan base, in particular the future generations of fans, in order to minimise the problems that will almost ivevitably arise with regard to TV income - another area in which sadly NUFC is grossly negligent.

-- Anonymous, October 27, 2001


Against this backdrop, Clarky, why is there talk of Shepherd wanting to defloat? Seems mad to me.

-- Anonymous, October 27, 2001

Dougal,
Well, he is a Toon fan and seems a bit of a megalomaniac. If I remember correctly, he only paid about £500k for his inital 9% stake in the Club, and has acquired another 10% for only £4.3mm. So, he has acquired one fifth of NUFC for less than £5mm.

My guess is he wants total freedom to run the business in the way he sees fit. Although we tend to believe he does this anyway, there have been stories that the non-executive Directors have vetoed several transfer moves, including one for Lee Clark in the close season. In addition, he will have looked at the fiscal position of a number of other footy Clubs and concluded that the Toon is relatively strong. From this, he will have concluded that if he can continue to build the playing strength 'unfettered', he will be able to re-establish the Toon as a top six Club playing regularly in Europe within 2-3 years.

In addition, he will be expecting the JV with NTL to be beginning to deliver, or at least promising to deliver, substantial profits from the Toon's media assets (Toon TV etc.).

Put together, this would establish a solid foundation from which to sell the business at a substantial profit.

Frankly, if that is his plan I admire his ambition, and his balls. Unfortunately, I would be one of the small shareholding fans to suffer financially - but if it resulted in him finally delivering success on the pitch it would actually be worth it.

-- Anonymous, October 27, 2001



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