Blue Anorak

Last modified on Monday, 23 April 2007 at 21:09:06
News

Finance news

  1. Summary of this page
  2. Accounts for the years ending:
  3. Refinancing deal
  4. Shareholders' letter (5th March 1999)
  5. Supporters' letter (10th March 1999)

Summary

There seems to be a lot of this floating around on the mailing list at the moment so I hope to bring you a brief summary. It has been reported that some of the staff at Boots & Laces have been failing to get paid and the heating there is being used extremely frugally. The staff were told by John Main that finances are strained and the wage bill is a bit much.

Some listees have reported fears that the club may be being wound down, bringing us back to some of the earlier fears about the Martin Dawn takeover.

On this page I simply want to bring to you some of the more credible rumours I have heard and you should read all this with the standard disclaimer: It could all be lies, make up your own mind.


Southend United FC accounts for the year ending 31st July 1996

My thanks to Colin Nicoll, who posted this to the Southend United list on 11th July 1998, for the information.

Hi Folks,
I've recently obtained a copy of the last set of accounts (as above) and have had them looked at by someone qualified understand them fully, so I thought I'd pass on their conclusions:

The accounts are dated 11 Feb 1997, the auditors report is dated 18 Feb 1997

The accounts for the year ended 31st July 1997 are now long overdue, in fact the accounts for 31st July 1998 should shortly be prepared.

The auditors report is not qualified but they do state that provisions may be required against the carrying value of equity shares in the property (i.e. equity shares in the flats sold in the joint venture with Fairclough Homes Ltd). There is a dispute as to the interpretation of certain clauses in the joint venture agreement and final accounts have not been produced so the SUFC Ltd has not accounted for either profits or losses from the joint venture.

There are 8 directors and 2 associate directors. The secretary J W Adams is also a director.

There would appear to be nothing untoward in the accounts, but there would seem that some smoke screening has been made to cover all the events of the joint venture agreement.

In the year there were improvements to freehold land and buildings of £804 482 and this together with previous additions of £2 229 673 have been transferred to freehold land and buildings (from improvements).

In previous years there had been accumulated depreciation of £97 874 against the improvements but this had been back on revaluation of the property. The revaluation of the freehold added £1 215 845 to the freehold and £525 000 to the long leasehold land and buildings.

Only £19 000 depreciation has been charged in the year for freehold and £10 000 for long leasehold. The charge for the year for depreciation of fixtures, fittings and equipment, also motor vehicles appears adequate.

The revaluation of property was carried out by DTZ Debenham Thorpe, chartered surveyors. It would be useful to find out if any of the partners of this firm have any connection with the board of directors either directly or indirectly. The land and buildings were valued at market value on the basis of existing use.

Although we know how the income was made up, there is no detail of the administration expenses £121 656.

The company owns 50% of Crevette Clothing Ltd, but their accounts have not been consolidated with SUFC Ltd. It would be useful to know who are the directors and shareholders of C.C. Ltd.

No significant changes have occurred in the share holdings of SUFC Ltd (up to 31st July 1996). I would like to find out the changes since!

Directors fees and remuneration seemed reasonable— the chairman received £63 736 (V.J.Jobson).

No dividends have been paid in 1995 nor 1996.

The company made a loss (historical cost) of £1 028 216 against a profit the previous year of £768 038.

There would seem to be little to comment upon regarding these accounts but I feel that the next year and the current year might well show up something of interest!

From the shareholders point of view the dangerous situation is that the current liabilities exceeded the current assets by £2 359 588 against the previous year of £648 173. The dangerous situation has been covered by the revaluation of the fixed assets. The Profit & Loss Account balance has changed from a credit balance of £227 024 to a debit of £801 192. All in all a very bad position.

In an ordinary commercial concern such a situation would lead the directors to seek a liquidation or a merger / takeover, as the company is not in a position to pay its creditors. However football clubs seem to be in a unique position and many of them struggle along in similar circumstances relying on the goodwill of their bankers and others. Very often, chairman and others inject large sums to keep the clubs alive without any commercial consideration.

The '97 & '98 accounts are eagerly awaited!

That's all for now!

Colin


SUFC Accounts, Year Ended 31st July 1997

Post Balance Sheet Events

In September 1997 the Company sold and leased back fixtures and fittings at the ground for £800 000 plus VAT. If the VAT is at 17.5% this would amount to £140 000. The leasing agreement is for 4 years with repayments being made monthly at a rate of £16 666.66 (x48 = £800 000) and £7 611.57 in respect of interest (x48 = £365 355).

How is the VAT to be accounted for ?

Secondary period

At the end of the 4 year period there is a Secondary Period rental of £8 000 for each Secondary Period.

Is the Secondary Period 4 years or some other length of time ?

Sale and leaseback of training ground

On 12 May 1998 the Company sold, to Martin Dawn PLC, and leased back its training ground at Eastern Avenue for £525 000. The lease which is for 25 years, is subject to 5 yearly reviews and an annual rental of £72 000. Even if the annual rental were to stay the same it would cost the Company £1 800 000 over 25 years.

Fairclough Homes deal

The Auditors report have brought to the attention of the shareholders the fundamental uncertainty relating to the joint venture with Fairclough Homes Ltd.

Balance Sheet as at 31st July 1997

The Net Current Liabilities have increased from the previous year of £2 359 588 to £3 153 246 an increase of £793 658— a serious situation.

The Net Assets have decreased from £3 507 056 to £2 947 475— a decrease of £559 581— again a serious situation.

The Profit and Loss account is in deficit: this year £1 323 554 against £801 192— a worsening situation of £522 362.

Transfer fees receivable have reduced from £1 066 175 to £335 000 and transfer fees payable have reduced from £1 105 020 to £41 000.

Bank interest payable on loans and overdraft (repayable within 5 years) has increased from £18 008 to £117 141.

The Bank loans and overdrafts have increased from £1 316 936 to £1 604 468 (repayable within 1 year or on demand).

The amount owing to the Inland Revenue (presumably for PAYE/NI) has increased from £169 168 to £718 272.

Joint venture agreement with Fairclough Homes Ltd.

In the absence of any independent valuation report, uncertainties exist over the realisable value and the ability of the lessees to settle the remainder of the sale price in the absence of agreed facilities to fulfil this commitment.

Proceedings have been commenced against the Company by Fairclough Homes Ltd, claiming £871 183 in relation to the joint venture.

At the Balance sheet date there were various legal actions in progress, the final outcome of which is unknown. These cases may be subject to further actions.


Refinancing deal

Roots Hall, Southend United's stadium, is set to be sold off and then rented back to the club in a bid to pay off massive debts.

An Extraordinary General Meeting will be held on 24th March at which shareholders will be asked to vote on the issue. The club has already admitted that this is basically a publicity exercise as 55% (or so) of the shares are held by Martin Dawn PLC and, as is written below, there is no real choice:

I read the EGM documents on Saturday (6th March 1999), and I have to say that I was pleasantly surprised.
Now, before I get misinterpreted, my position was one of severe scepticism before reading the document— I saw another Brighton, etc happening. As soon as the takeover was announced involving a property development company, alarm bells were ringing very loudly, especially as it involved Vic's next door neighbour.
However, I know people who have been in close contact with John Main, and the impression I have given was that at first they saw the development issue as a big money-maker for them, but they also saw the team / supporters as having big potential to grow as well. I was obviously still sceptical until I saw it myself.

Then I read the document on Saturday. I have to say that I disagree with the views of people who have written about the issue on the list. Even though I know that there can be more than meets the eye as far as SUFC is concerned, on the surface, the following thoughts struck me:

  1. The club, as we have been led to believe, is in deep, deep trouble financially. I always believed that the past accounts were, shall we say, massaged but the extent of it is beyond belief. Between July 1997 (Vic's last accounts, I believe) and July 1998, tangible assets fell from £8.2m to £4.4. This is incredible. I think the directors and auditors pre-1998 have a lot of questions to answer on that front. Did that affect the price of sale of the shares by the previous owner? Certainly, it meant that unless anything happens now, the club is insolvent— i.e. total assets are less than total liabilities— to the tune of £1.3m!

    According to the statement, unless there is a fraud, the new valuations (based upon how much the squad and the ground is really worth) was carried out by independent valuers.

    On that basis, if the club does nothing, it must close now, as according to the report, the club cannot meet its debts and has no likely way of meeting them. Therefore, the choice is to do nothing and close now, or for Martin Dawn to help us out, even if that works against us. The choice is that dire!

    As I say, Martin Dawn could have us over a barrel as there is no other choice for us (other than a sugar daddy like Jack Walker to rescue us) but, on the surface, I was just left dumbfounded as to how much MD are prepared to give Southend United considering what a strong position MD are in. They are willing to pay SUFC £4m for the true valuation of Roots Hall. (Instead of paying debts at interest of £400 000 per year, we will be in the black and paying rent at £400 000 a year. There is no down side there— only positive.

    MD are also paying us £500 000 for the training ground. Why, I don't know, as they have already paid us that.

    MD will pay SUFC £250 000 for any increase in value to Roots Hall when they develop it.

    MD will pay SUFC £250 000 when the new ground is developed on the training ground.

    MD will pay 30% of any profit from Roots Hall being developed. This is likely to increase greatly if the council choose to change the land use at Roots Hall (as I understand it)

    MD will pay 30% of any increase in land value for the new development (also likely to increase greatly if the planning use changes).

    Added to all of that— Roots Hall is rent free for 12 months and the training ground is rent free for 6 months.

    Delancey has paid for and taken over all SUFC's debts, so they are being owed £3.7m by an insolvent comapny! This keeps all other creditors at bay!

    This does not seem like a company who wants to see SUFC go bust! I have to say that I am amazed at the above figures. Why are they putting so much money in, when, since they have not been paid any rent on the training ground since they took over the freehold from SUFC, they could already have started liquidation proceedings? If they wanted to wind up the club and sell its assets, they could have done so by now.

  2. The document was a breath of fresh air— openness and honesty, rather than the years of secrecy under Vic.
  3. It may be that the money that MD are putting in may be as a result of negotiations by Vic on his sale. As much as he was greedy and arrogant, he did care about SUFC.
  4. As MD say, they already have over 50% of the votes, so why bother explaining things in such detail? Because, they see us supporters, as being a goldmine— they obviously think SUFC, the team and supporters, has a lot of potential as a going concern.

As for Ron Martin being VJ's neighbour, I too was highly sceptical at first. However, Vic was neighbours with his solicitor once, purely by coincidence. It may be that when Vic was looking to find a seller, he was telling all and sundry, including his neighbour. After years of milking the club dry, Vic has a very big house. His neighbour, also rich, therefore saw a good investment opportunity, especially if Vic did not reveal the truth about the financial situation. Pure coincidence, perhaps...

In addition, why have they spent so much money on the team if they want to wind things down?

I admit that I was sceptical, but there is a lot in the above that says that things are really changing for the better at Roots Hall. I believe in being realistic, but I honestly think that I am being so. And I was sceptical about the whole deal previously, but the truth is that MD could have closed down SUFC already rather than sink so much money into the club. I think we should be grateful.

I hope the above does not give anyone reason to believe that I am not concerned. I am extremely concerned about the state of SUFC's finances. I was just trying to lay the blame at the right feet— the old board— and praise the current board for realising the situation and giving us an over-generous deal in the circumstances.

Make no mistake: we are in deep trouble. If MD want to pull the plug, they will. I cannot think why MD are doing this package if they want to shut us down. They already could have done. Why give us all this money and rent free periods and uplifts on profits and money on players, etc.? We are right to be concerned with the situation, but MD is clearly on side at the moment. Let's not antagonise them but we should be ready if they do want to pull the plug. At the end of the day, all that matters to them is profit, and they still must see the team/club as being profitable in the future.

Why can we get a stadium now, while we have failed for 14 years? As much as I did not like the old council, I believe there is enough good will in the current council to grant us a stadium if Vic is not there. Vic was the main stumbling block with many of Southend's business relations.

By the way, if my memory serves correctly, the lease at the training ground was for 25 years. There is a rent review clause every 5 years, so that SUFC will pay a revalued amount according to the correct market rate at the time; incidentally, I think the amount they are charging us now is already under the market value.

On a legal point, the directors must not allow the club to trade if the club is insolvent has no reasonable prospect of reducing its debts. i.e. if the refinancing package is not done, The club must close today under the law. As I said yesterday, MD could have us over a barrel. The fact that they are being so generous should be commended, not attacked. On that basis, what would you do if you were in MD's position now? After all, they are a profit-making organisation. Short of them donating millions to the club, they are giving us the best possible deal.


© Luke Bosman Monday, 23 April 2007 at 21:09:06

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Contributions and updates to the site are always welcome.
With thanks to Colin Nicoll and others