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CHIEF EXEC: September update part 3

A further review of finances

9 September 2021

Chief executive Nigel Clibbens closes off his September update with a comprehensive financial review.

Club News

CHIEF EXEC: September update part 2

8 September 2021

Finances - 20/21 update

Subject to a full independent audit, the 20/21 financial year ended 30 June 2021 is now expected to show an overall profit of around £400k, following the £782k profit achieved in 19/20.  

This headline £400k profit reflects a recurring loss of around £550k (19/20: £350k) before profits from player transfers of around £975k (19/20: £1.1m). The recurring loss is broadly in-line with normal performance of the club, despite the huge impact of Coronavirus. 

We suffered lost income of around £1.2m during the lockout of fans, which we had to replace and deal with. A very detailed ongoing commentary of the year has been provided previously. Click HERE to read that article. 

We ended the financial year with a very strong working capital position compared with previous years, with a significantly increased cash balance compared with 30 June 2020, as a result of:

  • the 19/20 cash balance brought forward of circa £400k starting the year.
  • cash being conserved during the lockdown in 20/21 with all the lost income from Covid being replaced.
  • cash from player sales in 20/21 on top of add-ons received from previous deals.
  • earlier delivery of stock, and end of lockdown, allowing normal kit sales to resume and starting the selling of 21/22 season tickets before the year end.
  • Again, no debt repayments were made in 20/21 (debt interest incurred remains unpaid).
  • repayment of short-term PAYE and VAT deferrals under HMRC Covid schemes.

In 19/20 and 20/21 together, we earned approximately £2m profit from player transfers (compared with only £1.2m in the prior 5 years combined). This allowed us to avoid the need for external funding.

Club News

CHIEF EXEC: September update part 1

8 September 2021

We have also created a bank of future guaranteed cash receipts and potential windfall gains from contingent add-ons and possible sell-ons, to provide some assurance of cash flows in coming years. This approach is central to the plan we must follow as a self-financing club. 

Since the year end, with two further player sales, this position has improved again.

It should be noted the guaranteed element of the transfer fees reported in the media for Hayden and Tanner are inaccurate and overstated. I accept that speculation is the consequence of undisclosed fees. 

Also, in terms of guaranteed cash, only a portion of what is due to be received in total has been paid up front so far, and the rest comes over a much longer period. 

The financial audit is planned to start in September. Date of publication of the 20/21 accounts is to be confirmed by Holdings, but at this stage is anticipated to be in 2022.

I explained at last month’s meeting of the fans’ groups at CUSG plans for the new guide for fans on Understanding the Club’s Finances. This is now up on the website. Click HERE to read the guide.

It has explanations and trend data over the 5-6 years up to 30 June 2020 to further improve transparency. For those fans interested in that detail, it’s there to see.

21/22 outlook

Looking ahead to the 21/22 financial year, as is the case every year, we start again initially facing a significant budgeted overall loss. This is before unpredictable Football Fortune (from player sales and cup runs). This starting point loss, normally around £500k, is expected to be higher this year, reflecting the ongoing expected impact of Covid on Business Turnover and Business Costs (like tickets and commercial) and additional planned spending on football this year. 

We will continue to operate as a self-sustaining club financially through 21/22, as we have since May 2019.

No new external debt funding is anticipated to come in, and no new debt or repayments are planned either (except £40k to the EFL). We will repay the remaining £108k of VAT deferred from January 2020, as allowed under the HM Government scheme. 

No additional cash for new investment is expected to be injected. Any cash for investment, including any extra off-the-field spending, will again need to be self-funded by 1921 outperforming its operating budgets. 

Of course, behind this, the major financial challenge still remains the need for long-term new investment capital (not day to day working capital just now) - a challenge that is growing with every passing day as the stadium ages and the wider game advances, and we need to spend more to keep up. This is how it is, as I have consistently said previously, so this is no surprise. We understand this and are doing what we can operationally to deal with it.

Having cash in the bank now and potentially more transfer cash in the future from past deals is only part of the picture, as we all know cash balances can very quickly be used funding losses, if not replaced by new Football Fortune (as we experienced from 2016/17 – 2018/19).

This is because of the large fixed element in our costs (wages and stadium expenses), variable Business Turnover (which can quickly go down and is generally slower to increase) from tickets, commercial and retail and underlying losses (because our Business Turnover remains insufficient to pay for our football spending on its own).

In terms of Football Fortune, income from cups is very much down to luck of the draw (2020/21 was the lowest since 2011/12). Income from player sales cannot be taken for granted either, it is not predictable. It requires reinvestment and excellence in recruiting and player development.  

Successes being achieved now are not guarantees of successes in the future, and there can be fallow periods.  We must be mindful of this, and not to take recent sales for granted, or think we can sell and improve without reinvesting.

So, even with this immediate and medium-term financial comfort, the club has the need for long-term new investment capital to run in parallel. There has to be a balance in reinvestment of Football Fortune:

  • back into the team and football department (to get better and improve, to be successful on the pitch now); to fund a team that can achieve and get promoted and win games this season – without risking the club. As CB said this week: “As a club, in terms of recruitment, we’re continuously looking at how we can improve what we have.”
  • developing playing assets for the future.
  • building cash reserves as contingency.
  • debt repayments if necessary (non-planned in 21/22).
  • day-to-day operational spending and improvements off the field.

In our current ownership and funding structure, and until there is any change (and there is no guarantee this will change even with succession), we have to be financially self-sufficient. That remains the approach across the club. Finding the right balances and making the right spending and selling decisions is the challenge.

We have no benefactor to top up our own spending or provide investment money, or bail us out if needed. Without that comfort and safeguard, we have to recognise the risks we face and take steps to deal with it ourselves within the club by the decisions we make. We continue to do that.

The club continues to need around £500k of new cash each year (this again is broadly unchanged for a very long time). It will need more in 21/22 for the reasons above.

In reality, we cannot afford what we spend on football now without selling players. The £500k needed is even before any new major investment spending, or year-to-year variance in Business Costs or Business Turnover, or unplanned spending. 

We have to get that £500k extra cash in to simply maintain our existing football spending levels, which everyone knows still gives us far less spending power than most of our rivals, and stand still off the field (which in reality is to go backwards and build problems for later).

If we don’t achieve new player sales each year we are reliant on collecting the guaranteed outstanding instalments on old deals, or unpredictable add-ons and sell-ons to help us to survive. If these are insufficient we can be faced with a big cash ‘hole’ which cannot be quickly fixed. The consequences can last years.

I believe this means not making long-term ‘unfunded’ fixed-spending commitments based on larger than normal football fortune recurring year after year.

We must, in my view, control our own destiny to withstand the threat of intervention from unpredictable or external events. 

We need to stay solvent on our own and must be able to withstand possible shocks - that means taking a long-term view, but acting now. That is what we have been doing since we started this process in early calendar year 2018. We must therefore take difficult decisions both on selling, and also on spending whatever it is that comes in. 

Overall, financially, on a day-to-day basis, the club is in the best position since I joined in June 2016. 

Of course short-term finance is only one element of many within the club. 

In the feedback from fans I see a recognition that player sales are important for the greater good of the club, but I also recognise the concerns over reinvestment to win now, and improve in the short-term. 

We are a football club and the top priority is winning. 

Being financially sound now gives more choices and options for the short and medium-term. These present new challenges and considerations compared with recent years, for spending, investment plans, decision making.

I see fans understanding the need for balance. I don’t see fans wanting or calling for us to gamble, which is comforting and shows a realistic approach to what we can and can’t do.

None of that constrains our ability to succeed, or our ambitions, but has to be reflected in our decisions.

We can deal with all of that and improve and succeed - no question, in my view, if we take the right risks at the right time, to push on when the opportunity is there, and grasp the chances when they come. 

That means investing in the club when the ‘sun is shining’ to increase future income and reduce future costs at every opportunity. That way we grow and can reinvest again. It means building cash reserves when we have larger than normal football fortune for a ‘rainy day’. All this has to be alongside winning games to inspire and create excitement now. 

With David making the strategic football decisions alongside Andrew, as chairman, they both are striving to push the club forward on the football side. The shareholders and Holdings Board want that success and want to give David and Chris all the tools they can provide. 

Operationally, day-to-day, the wider club continues to do all we can to support that approach.

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