18/19 Financial loss of £20.2m

[stu]

 

[stu]

https://www.lcfc.com/news/1634038/leicester-city-201819-financial-results/press-release
 

Leicester City 2018/19 Financial Results

Leicester City Football Club today announces its financial results for the year-ending 31 May 2019, which set out the scale and depth of the Club’s commitment to continued investment in its long-term future.

 

Looking to build on its first decade under the ownership of King Power International – a period of significant initial investment, leading to sustained profitability and unprecedented on-pitch success – the Club enters into the next phase of King Power’s vision with a renewed commitment to reinvesting growing revenues back into the Club.

 

Following significant investments into the development of its new training facility in Charnwood, the planning and design related to the proposed expansion of King Power Stadium and continued investment in the playing squad and key staff, the Club recorded a pre-tax loss of £20.2M for the year ending 31 May, 2019.

 

An increase in turnover to £178.4M (£158.9 in 2018) represents a continuation of a trend since the Club’s promotion to the Premier League in 2014, with turnover increasing on average by nearly 20% every season, omitting the extraordinary figures of 2017 under the previous UEFA Champions League distribution model.

 

The increase in turnover was mainly driven by commercial revenues growing to £29.9M (£14.2M in 2018), as the Club continues to develop its brand and international reach.

Continued investments in player registrations and the recruitment of key staff are designed to equip the Club’s football operation to be a consistent, long-term competitor for domestic honours, aspiring to return to European football.

 

The transformational investment into the Club’s new training ground has been financed by the Club entering into a six-year facility with King Power after the year-end, further demonstrating the commitment of the Club’s shareholders to its long-term development. Further capital investments have also been supported through the planned utilisation of other financing facilities available to the Club. 

 

Sitting securely among the King Power Group of Companies, the Club’s future course continues to be safely navigated by the Srivaddhanaprabha family, whose successful and responsible ownership of Leicester City began its 10th season in August 2019.

 

Leicester City Chief Executive Susan Whelan said: “Ten years on from King Power’s takeover in 2010, Leicester City finds itself in a position of strength from which we can all move securely forward with confidence and ambition. During that time, the Club’s supporters have put their faith in King Power’s long-term investment strategy and we aim to continue rewarding that faith with progress, growth and success both on and off the pitch.

 

“We remain a Club of fierce ambition: striving to progress every season; giving ourselves every opportunity to compete more consistently at the elite level of the game; giving amazing experiences to our fans in the stadium and around the world; and making our community proud of its football club. It’s the reason every penny of revenue generated during those 10 years under King Power’s ownership has been reinvested into the Club.

 

“I’m excited to assure our supporters that, even with the considerable progress that has been made in the last 10 years, we’re very confident that the best is yet to come.”

[Guest ttfn]

At first glance it’s odd that we managed to make a loss especially given the sale of Mahrez.

 

Interesting that the investment into the training ground is being used as a reason for the loss, I’d have thought that almost all of the expense will still be on the balance sheet until it comes into use.

 

[Fox in the North]

5 minutes ago, ttfn said:

At first glance it’s odd that we managed to make a loss especially given the sale of Mahrez.

 

Interesting that the investment into the training ground is being used as a reason for the loss, I’d have thought that almost all of the expense will still be on the balance sheet until it comes into use.

 

I imagine we’ll find out more when the full accounts are live on Companies House.

[jeffschlupp]

2 minutes ago, ttfn said:

At first glance it’s odd that we managed to make a loss especially given the sale of Mahrez.

 

Interesting that the investment into the training ground is being used as a reason for the loss, I’d have thought that almost all of the expense will still be on the balance sheet until it comes into use.

 

The sale of Mahrez was in one instalment paid instantly of £24m, with two further payments of £18m paid in August 2019 and this coming August. We took out a loan against the other £36m with Macquarie Bank, mind I'm no financial expert to know whether that counts positive in terms of profits/losses.

 

People might also forget the number of massive new contracts we handed out last season - Ndidi, Schmeichel, Vardy, Albrighton, Chilwell, Amartey etc. all signed big extensions, on top of the likely high wages of Evans. All of those deals will have come with significant wage hikes and signing on bonuses, so the wage bill increased significantly.

 

We also spent more than is typical for us in that summer (7 new signings).

 

There's nothing to be worried about if we're making a £20m loss in a season three months before we sold Maguire for £80m. We will hopefully have the massive boost of CL revenues next year too.

 

The six-year facility with KP is interesting. By 'after the year-end' I assume it means the end of 2019, so that isn't in these figures? So perhaps the club have spent the cash for the training ground themselves and only now have KP loaned us it back to fill the gap?

[urban.spaceman]

 

[urban.spaceman]

19 minutes ago, ttfn said:

At first glance it’s odd that we managed to make a loss especially given the sale of Mahrez.

 

Interesting that the investment into the training ground is being used as a reason for the loss, I’d have thought that almost all of the expense will still be on the balance sheet until it comes into use.

IIRC the Mahrez deal was originally supposed to be in at least 3 instalments but then we signed a loan deal with Australian bank Macquarie for about £100m, and Man City agreed to pay the rest directly to the bank. 

[Guest ttfn]

21 minutes ago, jeffschlupp said:

The sale of Mahrez was in one instalment paid instantly of £24m, with two further payments of £18m paid in August 2019 and this coming August. We took out a loan against the other £36m with Macquarie Bank, mind I'm no financial expert to know whether that counts positive in terms of profits/losses.

The timing of the receipt of the cash is irrelevant unless there are performance conditions attached (to my recollection if there were any they were insignificant).

 

21 minutes ago, jeffschlupp said:

People might also forget the number of massive new contracts we handed out last season - Ndidi, Schmeichel, Vardy, Albrighton, Chilwell, Amartey etc. all signed big extensions, on top of the likely high wages of Evans. All of those deals will have come with significant wage hikes and signing on bonuses, so the wage bill increased significantly.

True but the impact compared to last year (when we made a pre-tax profit) is only the incremental increase. The press release suggests our turnover is up by about £20m, which is more than enough to cover any such increase many times over.

 

21 minutes ago, jeffschlupp said:

 

There's nothing to be worried about if we're making a £20m loss in a season three months before we sold Maguire for £80m. We will hopefully have the massive boost of CL revenues next year too.

Agree that there’s nothing to worry about, I just don’t think that the press release makes sense.

 

21 minutes ago, jeffschlupp said:

 

The six-year facility with KP is interesting. By 'after the year-end' I assume it means the end of 2019, so that isn't in these figures? So perhaps the club have spent the cash for the training ground themselves and only now have KP loaned us it back to fill the gap?

After the year-end will mean after 31 May 2019 so it’s not in these figures (but wouldn’t be anyway as only the interest on the loan would impact the profit anyway. I think I remember reading that the training ground cash was borrowed elsewhere so I guess we’ve paid it back to the third party and now owe KP the money at (hopefully) a lower interest rate.

 

Interesting that we’re back to loans from King Power, which is where we were in the early days before about £100m was converted to equity. 

Edited 3 March 2020 by ttfn

[davieG]

7 minutes ago, urban.spaceman said:

 

Does it include the  £80m approx spent on Tielemans Praet Justin 

[Guest ttfn]

Just now, urban.spaceman said:

IIRC the Mahrez deal was originally supposed to be in at least 3 instalments but then we signed a loan deal with Australian bank Macquarie for about £100m, and Man City agreed to pay the rest directly to the bank. 

I don’t know the ins and outs of the deal but I would guess that’s pretty much irrelevant. The only likely impact would be that we’d discount the future instalments.

[Guest ttfn]

1 minute ago, davieG said:

Does it include the  £80m approx spent on Tielemans Praet Justin 

No, it will include a portion of the spend on the likes of Soyuncu, Benkovic, Maddison and Ghezzal from the previous summer depending on the lengths of their contracts.

 

By contrast the full profit from the Mahrez sale will be in the 18/19 accounts.

[Guest ttfn]

17 minutes ago, Fox in the North said:

I imagine we’ll find out more when the full accounts are live on Companies House.

True, like I say the press release doesn’t properly explain why we’ve made a loss so we’d need to see the accounts.

 

In reality the accounts are published so late that they’re of little to no use to the reader at this point anyway.

[davieG]

Just now, ttfn said:

No, it will include a portion of the spend on the likes of Soyuncu, Benkovic, Maddison and Ghezzal from the previous summer depending on the lengths of their contracts.

 

By contrast the full profit from the Mahrez sale will be in the 18/19 accounts.

I didn't think it did it was a rhetorical response to it not including the £80 for Maguire

[jeffschlupp]

1 minute ago, ttfn said:

After the year-end will mean after 31 May 2019 so it’s not in these figures (but wouldn’t be anyway as only the interest on the loan would impact the profit anyway. I think I remember reading that the training ground cash was borrowed elsewhere so I guess we’ve paid it back to the third party and now owe KP the money at (hopefully) a lower interest rate.

 

Interesting that we’re back to loans from King Power, which is where we were in the early days before about £100m was converted to equity. 

Great post, thanks for explaining!

 

Do we think loans from KP are a good thing? Last year's full report talked about the club being self-sufficient and therefore I'd assume not relying on anything external from the owners.

 

Is that a change in policy from the top of the club (and KP) to make us more competitive more quickly?

[Guest ttfn]

Just now, jeffschlupp said:

Great post, thanks for explaining!

 

Do we think loans from KP are a good thing? Last year's full report talked about the club being self-sufficient and therefore I'd assume not relying on anything external from the owners.

 

Is that a change in policy from the top of the club (and KP) to make us more competitive more quickly?

Not sure, ultimately I would have thought that it depends on King Power’s cash resources at a given time. If they’re flush with cash it makes sense to use it in Leicester but to loan it rather than putting in more capital (in the spirit of self sufficiency). KP then has a decent use for its cash and LCFC will presumably be paying a below-market interest rate with (again, hopefully) less stringent repayment terms in the event of the club’s finances going belly up.

 

I’m sure they know what they’re doing, I just don’t think the press release does a good job of explaining why we’ve made a loss. Then again, LCFC isn’t a FTSE 100 whose principal stakeholders are investors, the press release has presumably been designed to speak to fans rather than pedants like me.

[Ric Flair]

This isn't surprising at all. We spent more than we received from selling Mahrez and what we spend in wages in the majority of our revenue. It's well within the allowed losses so WE GO AGAIN.

[Corky]

6 minutes ago, Ric Flair said:

This isn't surprising at all. We spent more than we received from selling Mahrez and what we spend in wages in the majority of our revenue. It's well within the allowed losses so WE GO AGAIN.

Brendan's pay-off plus Nige and Shakey's compensation and astronomical wages for their glorious return factored into next year's accounts but the increased international profile and sponsorship of having world famous managers will alleviate that.

 

[ealingfox]

Not ideal to say the least. We didnt even spend much on players and there was a major sale in there.

 

Will have to see the Swiss Ramble write-up when it comes.

[Sly]

You’ll be able to see the full accounts here in 5 days time:

 

https://beta.companieshouse.gov.uk/company/04593477/filing-history

[The Syrup]

3 hours ago, jeffschlupp said:

Do we think loans from KP are a good thing? Last year's full report talked about the club being self-sufficient and therefore I'd assume not relying on anything external from the owners.

 

Is that a change in policy from the top of the club (and KP) to make us more competitive more quickly?

Could the loans from KP be interest-free, or low interest rates just to cover admin costs. Its essentially cash moving between different parts of the KP organisation after all, if you can do some creative accounting and avoid borrowing from the usual sources then why not.

 

I'm no accountant so WTF do I know.

[yorkie1999]

I thought if a company made a loss, they can claim back tax paid 3 years ago.

[Lambert09]

4 hours ago, ttfn said:

No, it will include a portion of the spend on the likes of Soyuncu, Benkovic, Maddison and Ghezzal from the previous summer depending on the lengths of their contracts.

 

By contrast the full profit from the Mahrez sale will be in the 18/19 accounts.

Urgh, I was happy forgetting we’d paid actual money for Ghezal

[WigstonWanderer]

5 hours ago, davieG said:

Does it include the  £80m approx spent on Tielemans Praet Justin 

Player costs are amortised over the length of the contract, so probably cost ~ 20m per year rather than a single hit of 80m. The Mahrez sale would have counted as virtually pure profit I believe. Presumably training centre costs would be amortised over ~ 10 years or more.

 

Edit: Already noted above I see.

Edited 4 March 2020 by WigstonWanderer

[Smudge]

Cash in or out does not reflect profit or loss.

I'm not sure how they depreciate the capital cost of a player but if you buy a piece of equipment for a million pounds you can depreciate that over five years. In other words what hits the cost line is 200k per year for five years not a million in the first  year

[dsr-burnley]

12 minutes ago, Smudge said:

Cash in or out does not reflect profit or loss.

I'm not sure how they depreciate the capital cost of a player but if you buy a piece of equipment for a million pounds you can depreciate that over five years. In other words what hits the cost line is 200k per year for five years not a million in the first  year

That's exactly how they depreciate a player - as if he was plant and machinery.  If you sell a player for £60m on 31st May 2019, the full sale proceeds count as income; if you buy a player for £60m on 31st May 2019, the purchase cost will be spread over the next 5 years starting from year ended 2020.  So buy a player for £60m, sell a player for £60m, and you have made £60m profit. 

 

It's the fantasy land of accountants, I'm afraid.  Those of us at the business end tend to think differently from the logical theorists in their ivory towers.