Sheffield Wednesday Plc

Independent Financial Statements Review For the year ended 31 May 2009

Prepared by Paul Holmes - Wednesdayite

Period of the accounts year to 31/5/09 Seven months of old regime to 31/12/08 Five months of Lee Strafford and Nick Parker at the helm Accounts approved on25 September These accounts were filed at Companies House on 3

October They have not yet been distributed to shareholders

[edit] distributed 2 November 2009 Fundamental changes in culture and communication in

those first five months Still a lot of work to do Now lets look at the accounts in more detail

Introduction

Turnover down 9% to £11.170m (2008 12.317m) Operating expenses increased by £1.77m to £14.2m Operating Loss £3.078m (2008 0.162m) 2008 included a profit on player sales of £3.274m –

being primarily Chris Brunt and Glenn Whelan 2009 had no such sales with a loss on player sales of

£65,000 Loss before interest and tax £3.143m (2008

£3.112m profit) Interest charge £565,000 (2008 £895,000) Overall Loss £3.708m (2008 £2.217m) So has it all gone wrong , have Lee and Nick failed?

Profit and Loss Account Overview

Match receipts Commercial activities

Other0

1,000

2,000

3,000

4,000

5,000

6,000

7,000 59565,206

8

6,826

5,462

29

Turnover

20092008

Turnover in detail

Why have they fallen ? Down £870,000 (12.7%) Average attendance up less than 0.6% to 21,542 from 21,418 But.................. Average for first 13 games 2008/2009 19,619 (down 10% on

equivalent games 2007/2008(including Sheffield United game October 2008).

It appeared attendance were in terminal decline with attendances being as low as 14,792.

Season ticket sales had fallen from 14,150 to 11,967 following the 12.5% price increase.

In come Lee and Nick... Average for last 10 games 24,042 – increase due to cut in ticket

prices(price increase reversed) and free ticket promotions ...... But we needed to get the fans back into the stadium.

Match receipts

Down to cup receipts?? Income from cup competitions will have been a lot lower than

2007/08 following early exit from Cups. 2007/2008 Carling Cup – Rotherham Away, Hartlepool and Everton at Home

32,000 attendance in three games FA Cup – Away tie and replay against Derby over 38,000 attendance

in the two ties 2008/2009 Carling Cup – Rotherham Home (16,300) FA Cup – Fulham Home (18,377) Fall in cup attendances of over 35,000 – this could be in excess of

£300,000. In addition fall in solidarity payment from Premier League of around

£700,000. This is due to the number of clubs receiving a parachute payment.

Match Receipts ...continued

Down 4.7% (256,000) Due to lower retail sales Retail cycle of replica kit....... Expect an increase this current year Decrease in retail sales offset by good

match day corporate sales.

Commercial Revenue

Operating expenses

Series1(2,000)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Operating expenses

Profit on sale of assetsAmortisation of player contractsCommercial activity expensesAdministrative expensesGround and Property expensesDirect Football expenses

2009 2008

£000's £000's Change %

Direct Football expenses 9544 8371 1173 14.01%

Ground and Property expenses 1222 1123 99 8.82%

Administrative expenses 1162 674 488 72.40%

Commercial activity expenses 1442 1411 31 2.20%

Amortisation of player contracts 878 918 -40 -4.36%

Profit on sale of assets -18 18

14248 12479 1769 14.18%

Includes players wages; Manager and coaching staff; Match day expenses – policing, turnstile operatives,

stewarding etc. Medical staff and physiotherapists

Increased by 14% £1.173m Main increase will be in wages costs – across all

categories risen by £1.011m. Player and staff costs increased from £7.2m to £8.2m

being 57% of all costs Unfortunately the wages costs are not split to show

player wages separately.

Direct football expenditure

Substantial increase of £488,000 -72% This increase is due in the main to the following: £150,000 paid to Deloitte for corporate finance work-

prospectus to sell business Compensation to former CEO Other corporate finance expenses and stock exchange

reporting costs.

Note 4 to the accounts shows £70k paid to Directors’ during the year, this will be in respect of Nick Parker who replaced the former CEO. This represents 5 months package – I understand this is considerably lower than the package of the former CEO, but as he was not a Director it is not required to be disclosed.

Administrative Expenses

Other costs have only increased by around £100,000, primarily on ground and property expenses, this may be due to some of the initial improvements the new board carried out.

Interest costs show a decrease £330,000 (37%) This is due to the fall in the bank base rate – to

a record low- this fall coincided with Lee and Nick coming in – perhaps they have more influence than we think!

Other costs and Interest

Profit and loss summary

Series1

(2,000)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Operating expenses

Profit on sale of assetsAmortisation of player contractsCommercial activity expensesAdministrative expensesGround and Property expensesDirect Football expenses

What is a balance sheet?

A balance sheet is a snapshot of the company’s assets and liabilities at a particular time.

Sheffield Wednesday Plc’s balance sheet is drawn up to 31 May 2009

Lets look at the major components and see how they have changed from 2008.

Balance Sheet at 31May 2009

Intangible assets represent the cost of players registrations written off (amortised) evenly over a players contract term.

The cost can include transfer fees and agents fees The value of intangibles fell from £1,693,000 to

£770,000 due to the amortisation charge. Note 8 shows we paid £132,000 for players in the year

(O’Connor, Buxton,Gray Miller,) It also shows we sold or released players who

originally cost £647,000 (Burch, O’Brien, Burton) for a total of £112,000

The £770,000 does not represent the value of the current playing squad

Intangible Fixed Assets

The main asset is the Freehold Property -Stadium which is included in the accounts at £24.6m – this is 0.5m lower than 2008 due to the asset being depreciated (written down). £39,000 was spent on improvements in the year

This was last re-valued in 2007. Long leasehold property - £135,000 – training ground Plant and machinery - £369,000, this will include

office furniture, computers, shop fittings, equipment for pitch maintenance etc.

£141,000 was spent on new plant and machinery in the year.

Tangible fixed assets

Overall £400,000 (2008 £1,755,000).

The main fall is due to transfer fee instalment owed (around £1m) in respect of Chris Brunt being paid in the year.

Debtors

These total £30.1m (2008 £27.4m). The majority of this relates to debt – we will

look in further detail at this later. The main increase are : “B” loan notes(£2.1m) being re-categorised as a

current liability , as their due date is May 2010. Accruals and deferred income increased by £1.2m to

£3.8m- the majority of this will be in respect of advance season ticket monies received prior to 31 May 2009 for 2009/10

Vat liability has increased from £136,000 to £325,000 – this will be due to the VAT on the advance season ticket income.

Creditors – due within one year

Fallen from £5,471,000 to £3,604,000

This is due to re-categorisation of “B” loan notes to due within one year

New unsecured loan from Football league of £0.5m – advance to all clubs for TV revenues

Creditors -Due after one year

There has been no change to the issued share capital The only change to reserves is the retained loss for the year

this has increased the net liabilities of the company from £3.46m to £7.2m

According to newspaper reports Mr Allen transferred 275,000 shares to Ashley Carson in the spring of 2009 to reduce his holding below 10%. Based on this the major shareholders are:

Share capital and reserves

    2009  2008  ChangeK T Addy 5,398,395 10.80% 5,398,395 10.80% 0Wednesdayite 5,037,017 10.07% 5,037,017 10.07% 0G K Hulley 4,964,995 9.93% 4,964,995 9.93% 0D E D Allen 4,728,118 9.45% 5,003,118 10.00% -275,000

  20,128,525 40.25%20,403,52

5 40.80% -275,000R M Grierson 367,200 0.73% 367,200 0.73% 0K Cooke 22,000 0.04% 22,000 0.04% 0

  20,517,725 41.03%20,792,72

5 41.58% -275,000   

  2009 2008 2007 2006 2005 2004

  £000's £000's £000's £000's £000's £000's

Intangible fixed assets 770 1,693 1,415 917 425 225

Tangible fixed assets 25,111 25,617 25,951 24,882 25,475 24,566

Current assets 657 2,139 2,359 718 956 763

Current liabilities (excl loans/overdraft) (3,497) (2,345) (2,960) (3,045) (2,676) (1,848)

Bank Loans and overdrafts(incl accrued interest) (21,656) (22,629) (23,910) (23,580) (23,996) (22,690)

Other loans - directors incl accrued interest (5,259) (4,539) (5,241) (5,360) (5,109) (4,405)

Deferred grants and hire purchase (3,299) (3,401) (3,296) (3,374) (3,460) (3,518)

Net liabilities Per accounts (7,173) (3,465) (5,682) (8,842) (8,385) (6,907)

Interest and charges not provided for (2,772) (2,376) (1,873) (960)

Revised Net Liabilities (9,945) (5,841) (7,555) (9,802) (8,385) (6,907)

Total net debt (see later slide) 29,532 29,669 31,020 29,896 29,105 27,095

Balance sheet summary

Loans – Bank Debt             

  Debt Accrued Total Debt Accrued Total  

 interest/fee 2009 interest 2008  

Co-operative Bank £000's £000's £000's £000's £000's £000's  

Cash at bank -4 -4 -6 -6  

Bank overdraft 7999 1351 9350 8684 1351 10035  

Training ground loan 7500 1772 9272 7750 1626 9376  

Parked debt 4806 750 5556 4844 750 5594  

  20301 3873 24174 21272 3727 24999  

The accrued interest on the training ground has not been recognized in the Financial statements as in the Directors'

opinion the sales proceeds of the training ground cannot be determined.  

The amount shown for accrued interest on the parked debt has not been recognized in the Financial statements as

the bank have an entitlement to receive a facility fee on repayment of this loan, the level of such facility fee has

not yet been agreed.  

Consequently the amounts shown in the financial statements are lower than the calculated bank debt above.

Loans – Net Debt   

Debt summary 2009 Addy Allen Cooke Hulley Grierson Wright Total Bank Other Total

  Net debt

  £000's £000's £000's £000's £000's £000's £000's £000's £000's £000's

Accrued interest 265 265  

A Loan notes 150 850 150 100 1250  

Accrued interest 51 291 51 34 426  

B loan notes 150 650 500 150 150 500 2100  

Accrued interest 51 222 170 51 51 170 715  

  402 2278 670 402 201 804 4756 24174 602 29532

Debt summary 2008 Addy Allen Cooke Hulley Grierson Wright Total Bank Other Total

  Net debt

  £000's £000's £000's £000's £000's £000's £000's £000's £000's £000's

Accrued interest 265 240  

A Loan notes 150 850 150 100 1250  

Accrued interest 43 241 43 28 355  

B loan notes 150 650 500 150 150 500 2100  

Accrued interest 43 185 142 43 43 142 595  

    386 2191 642 386 193 770 4540 24999 130 29669

Loans – When are they payable

Bank facilities and agreements renewed September Bank overdraft £7,999,000 - repayable on demand –facility agreed until 31

December 2010 “A” loan notes £1,250,000 - 21 May 2008 “B” loan notes £2,100,000 - 21 May 2010 The accounts indicate that the loan notes can only be repaid if 75% of the loan

note holders request repayment A majority of the loan note holders have confirmed they will not seek repayment

for at least 12 months We also understand there is a “deed of priorities” in place, which limits the loan

note holders rights to demand repayment, unless the bank debt is below £14m. Parked debt £4,806,000 - 31 December 2010, or earlier at the banks

option Training ground loan £7,500,000 - on sale of training ground, or earlier at

the banks option. It is unlikely the business will generate sufficient cash for the loans to be paid on

their scheduled due dates therefore the facilities and loan notes will either need to be renegotiated or refinanced in the next 14 months.  

How have we managed to reduce the debt as we incurred losses of £3.7m

1. Non cash items – depreciation and amortisation of assets £1.55m

2. Increase in season tickets sold prior to year end £1.2m

3. Receipt of remaining Chris Brunt transfer monies – £1.0m

Cash flow

Annual report and accounts to be issued to shareholders [edit] issued 2/12/09

AGM – expect it to be held at the end of November [edit] 24/11/09 @St Paul’s @10:30am

And so on to the current year........ Season ticket sales around 14,000 Attendances and match day revenues are well up

on 2008 Retail sales are well in advance of 2008 – in

particular puma kit sales. BUT – our player wages budget was increased at

the beginning of the year based on average attendances being higher than we are achieving, so will we need to sell players to balance the budget.

So what next

Amounts owed to the Bank and Directors in its various forms is around £29.5m – a huge 2.7 times multiple of total annual turnover. In simple terms this means that even if we had NO costs whatsoever, it would still take over two years and eight months of trading to extinguish these liabilities.

Unless Income streams are increased it is impossible to reduce these liabilities (they will increase), save:

a massive conversion of debt to equity a material debt write off a windfall asset sale (including any player sale) a significant new equity injection promotion to the Premier League a substantial cash gift revenue acceleration (season tickets – shortly on sale)

Inner Circle Sports are looking for this new equity injection for us. The directors are working hard to make this club attractive to

investors – Fan base, Harmony in the club, Ground Developments, etc

So what next (continued)

Firstly for me – Paul Holmes BA(Hons) FCA – Wednesdayite Director

Secondly to put in writing to the club

Thirdly for the board of Sheffield Wednesday Plc , to ask at the AGM

If so please email paul.holmes@wednesdayite.com

Any questions

Thank you for listening to :

Sheffield Wednesday PlcIndependent Financial Statements Review

For the year ended 31 May 2009