The Trust is pleased to see that the Club filed its accounts for the year ended 30 June 2019 on time. (Note that due to disruption caused by Covid-19 filing deadlines for submissions to Companies House have been extended by 3 months).
Preceding the filing, the Trust’s Chair and the Trust’s nominated Club Director reviewed the draft results and had useful detailed discussion with the Club’s Finance Director over our comments and queries. The accounts are the responsibility of the Club’s Directors. The Trust does not and cannot “certify” or “approve” the Club’s accounts, but we have commented on them – and some amendments were made as a result.
The Trust has seen a full set of accounts, although the Club has chosen to exercise its right to file only “filleted” accounts, without the detailed income statement and Directors Report. The Trust urges the Club to consider publishing the accounts in full on its website, but recognises that the Club has met its legal obligations.
More reliable accounting data
The Trust also welcomes the Club’s decision to reprocess the accounting records for the 2017/18 period and to reissue those accounts, providing a more reliable basis for 2018/19. When the Trust met with the Club’s newly appointed accountant in October 2019 it was evident to both parties that there were more questions than answers.
The preparation and finalisation of the accounts had previously been outsourced, and some important records and working papers were unavailable. As a result, there was inadequate explanation available for a number of asset values, concern whether all liabilities had been recognised and uncertainty over the consistency of classification of expenses.
It is to the Club’s credit that they have spent considerable time and money on a forensic accounting exercise, reprocessing the accounting data and undertaking a creditors circularisation. Unsubstantiated asset balances have been written off, the net to identify possible unrecorded liabilities has been cast wide and contingent liabilities have been recognised and quantified.
The reported operating profit was inflated by the beneficial effect of creditors writing off loans as part of the restructuring of the Club finances under the purchase agreement by the new majority shareholder, and the writing-off of unsubstantiated balanced following the Club’s creditor confirmation exercise. Trading turnover has reduced in 2019 due to lower ticket sales following relegation and reduced funding from EFL as the Club is in League 2 not League 1.
On the other hand, the Direct Costs have reduced substantially as the player budget, which was high for League 1 in 2018, has been reduced substantially and is now close to the middle of the range of playing budgets for League 2 clubs. Whilst there have been some changes in the composition of overhead expenses, the filling of vacant posts in 2019 has been largely offset by savings in areas such as travel and subsistence.
A balance for goodwill was fully written off in 2019 so there are now no intangible assets.
The values shown for tangible assets relate to the capitalised value of finance leases. The Club does not own its fixed assets. Under required accounting practice, it is required to show the capital value of the leased asset (matched by the value of future payments under the lease in creditors) even though it does not own the assets concerned, as the Club is expected to enjoy the substantial economic benefits. The cost of £1.9 million relates to the remaining value of the finance lease for the stadium at the point it has been capitalised.
The Balance Sheet shows that the level of Net Current Liabilities remains is very similar to 2018 at £2.2 million. This is normally worrying, because it means that creditors due for payment in the next 12 months exceed the liquid assets available to settle them, although this is not uncommon in football.
The Club remains a going concern (and thus able to keep trading on normal terms) solely due to the capacity and willingness of the majority shareholder to continue to finance the club’s activities and make good the deficiency in its assets as debts fall due to payment.
Debtors have risen substantially to £0.8 million – primarily but not solely reflecting the fee for the sale of George Edmundson had not yet been paid by Rangers by 30th June 2019. Also, there is an increase in the Director’s Loan account to £1.32 million, reflecting cash injections by the majority shareholder. This is well below the levels of Directors Loans under Chris Moore (which ultimately caused the demise of OAFC when he needed the cash back at short notice) but it improves the liquidity position if the loan account were converted to shares.
It should be noted that in 17/18, £1.05 million of Directors’ loans were converted into shares. Companies House filings indicate that a further £1m+ has been converted into shares in 2019/20, which should improve liquidity and increase Shareholders Funds in the 2019/20 accounts.
Long-term Creditors more than halved, as Other Long-Term Creditors reduced by £2.0 million due to the amounts owing having been written off by the lenders.
The business plan calls for the Club to become sustainable. The good news is that net debt has reduced very substantially by £2.0 million due to cancellation of long-term debts. The bad news is that the Club still has net indebtedness of £4.1 million.
It continued to lose money on trading at the rate of around a million pounds a year. Without a dramatic increase in crowds, the key to eliminating the deficit remains the generation of more commercial income. The facilities in the Joe Royle North Stand were intended to be the key to unlock much higher levels of commercial income and provide sustainability.
Sadly, the facilities in the North Stand remain incomplete and the potential commercial revenue much reduced. Disputes over operation of these facilities during 2019/20, and then closure due to Covid-19 means that prospects for improvement in commercial income – and hence improvement in the underlying trading loss position – look poor.
Philippa and Kenny have spoken with officials at the EFL about finances of clubs in leagues 1 and 2. Our Club’s profile – a loss-making club with a dominant owner who finances annual losses – is not uncommon and characterises many EFL League 1 and 2 clubs.