RNS Number : 7273I
Southampton Leisure Holdings PLC
24 November 2008
Southampton Leisure Holdings plc
Annual Report and Accounts 2008
Chairman's statement
The operational performance during the period reflected in these financial statements was entirely down to the previous Board as the new
Board was not appointed until 15 May 2008. I do not propose to go into the detail, which is reviewed by David Jones in the Financial Review,
but to lose �4.9m after a �12.7m profit on player disposals, and to run a player/coach wage bill of 81% of turnover speaks for itself. The
only justification for this would have been promotion, but in the event we narrowly avoided relegation!
When I, and five of my fellow Directors, resigned from the Board in June 2006, in the hope that it would bring unity, we were required
to warrant that there was �3.4m cash on deposit at Barclays Bank. There were also trail payments from Theo Walcott and other player trading,
together with a pipeline of excellent young players coming through the Academy. Upon my return in May 2008, the story was very different.
The cash on deposit had been replaced by an overdraft which peaked at �6.3m during the course of this summer. This was despite the receipt
in the 2006/07 financial year of trail payments for Theo Walcott �1m and outright sales of Gareth Bale �5m, Dexter Blackstock �0.5m, Martin
Cranie �0.4m and in the 2007/08 financial year, the buyout of Theo Walcott's trail payments �3.1m, and outright sale of Kenwyne Jones �4.8m,
Chris Baird �3m and Leon Best �0.7m. All these players came through our Academy as part of a long term plan to make the Club financially
sustainable for the future benefit of shareholders, supporters and players alike.
Since returning in May, the current Board has worked tirelessly to bring our costs more into line with our dwindling revenues. We have
done this throughout the Company where possible, but the nature of player contracts means that this process cannot be completed instantly.
This work will continue, in discussion with both our loan note holder and Barclays Bank, on whose support we remain reliant.
We are fortunate that, as a result of the long term Academy plan, we have been able to mould a team of young, dedicated and technically
able players, many of whom had been previously overlooked for first team selection. Together with some limited, but astute, signings, Jan
Poortvliet and his staff have worked to play an attacking brand of Dutch football that makes the most of the technical abilities which the
players were taught by Georges Prost and Stewart Henderson as they progressed through the Academy.
The prevailing view amongst the English football establishment was that we would struggle to win any games playing with such a young
team. We have disproved this theory by playing some very entertaining football and whilst at the time of writing we have obtained 16 points
from 17 games, we are confident that we will become stronger as the season progresses. We are proud that our team usually includes a very
high percentage of Academy players who are British, some of whom are already being recognised by their national teams. This gives us a very
good foundation upon which to build and benefit from the talents of our entire squad. We are under no illusion that our progress can be
taken for granted and there will, undoubtedly, be some "ups and downs." Building the foundation was always going to be the hardest part but
we have achieved this.
People are now beginning to sit up and take notice of our achievements under Jan Poortvliet, which has brought praise from many
quarters. Our recent match against Championship leaders Wolverhampton Wanderers is a prime example with their experienced striker Chris
Iwelumo stating after the match that Saints were one of the best footballing sides he had come across in the division this season, and
consequently one of the most attractive to watch. His sentiments were echoed by Wolves' manager Mick McCarthy who had nothing but good
things to say about our second half performance at St Mary's when we also had the added disadvantage of playing with ten men. Coventry boss
Chris Coleman and Swansea manager Roberto Martinez have been similarly forthcoming with praise.
Last Saturday's match against Wolves also showed again how passionate our supporters are and there is no doubt that this helps the
players perform better. Given time and further support from the various interested parties, we are confident that we can resolve the serious
challenges that face our Company. We are not currently strong enough to indulge the small, but vocal, negative elements of our support base
and need everybody to pull together while we recover our financial strength.
One definition of "credit" is "suspicion asleep" and as the extent of the folly of the world's banking system is laid bare, "suspicion"
is alive and well today. Balance sheets are being forcibly contracted and economies are suffering the consequences. This is not a good time
to be exposed to too much debt, particularly if revenues are likely to be adversely affected by an economic downturn. As a Club we have
never needed the people who are true supporters more than we do today. To see 3,800 fans travelling to Reading this coming weekend
encourages me to hope that this is happening and we are adamant that with everyone pulling in the same direction we can restore this great
Club back to where it belongs.
Rupert Lowe
Chairman
21 November 2008
Financial review
Summary
The financial statements have been prepared for the 12 months ended 30 June 2008 and for the first time the Group accounts have been
prepared in accordance with the principles of first time adoption of International Financial Reporting Standards (IFRS).
The 2007/08 football season was a major disappointment with the Club finishing 20th in the Coca Cola Championship, only surviving
relegation on the final day of the season. Having been so close to promotion in the 2006/07 season, and losing in a penalty shoot out in the
play off semi-final, the Board backed its football manager George Burley, to strengthen the squad with transfer fees and increased player
wages to make a further challenge for promotion to the lucrative Premier League. This challenge did not materialise and the poor football
performances had an impact on attendances and all other commercial revenue streams.
The cost of this player expenditure, together with the loss of the parachute payment from the Premier League, has had a materially
adverse impact on the financial results, which show a 36% reduction in revenue from �23.3m to �14.9m and an increase in the loss before
taxation from �0.9m to �4.9m, despite a �12.7m profit on disposal of players' registrations.
The net decrease in cash and cash equivalents for the period was �9.2m, with a net overdraft of �4.4m at the period end. The Board is
working hard to bring costs back into line with revenue and is working closely with the bank and loan note holder, to ensure the Group is
sustainable in the long term. This is involving major costs reductions and asset disposals, in particular player sales, a process which is
not yet over. Until that is the case, the Group remains reliant on the continued support of the bank and loan note holder.
Financial highlights
2008 2007
�m �m
Revenue 14.9 23.3
Operating loss before player trading (12.5) (3.9)
Player trading 9.4 5.0
Loss before taxation (4.9) (0.9)
Revenue
2008 2007
�m �m
Broadcasting 3.0 8.1
Match day 7.9 10.5
Commercial 3.3 4.6
Property 0.1 0.1
Player loan fees 0.6 -
14.9 23.3
Operating expenses
2008 2007
�m �m
Cost of sales 22.5 21.5
Depreciation 1.8 1.9
Goodwill amortisation - 0.8
Property revaluation - (0.3)
Administrative expenses 3.1 3.3
27.4 27.2
Player trading
2008 2007
�m �m
Amortisation (3.3) (2.6)
Profit on disposal of players 12.7 7.6
9.4 5.0
Balance sheet
2008 2007
�m �m
Fixed assets 39.6 40.3
Net debt (27.5) (19.2)
Net assets 2.3 7.3
Broadcasting revenue
Broadcasting revenue fell from �8.1m to �3.0m. The 2006/07 season benefitted from a parachute payment from the Premier League of
approximately �6.7m. The parachute payment is made for two seasons only following relegation from the Premier League and therefore expired
at the end of the 2006/07 season. The Company does however now receive a solidarity payment from the Premier League which amounted to �1.3m
for the 2007/08 season.
The Football League have re-negotiated their broadcasting rights with Sky which should see Championship Clubs receiving improved
broadcasting revenue effective from the 2009/10 season but this does not affect the period for which the accounts are shown.
Match day revenue
Match day revenue fell from �10.5m to �7.9m. The reduction in revenue was caused by a combination of lower attendances and lower ticket
prices. Match day attendances averaged 21,260 compared to 23,849 in the 2006/07 season, and whilst the numbers of season ticket holders
increased from 11,900 to 13,300 this was achieved at reduced prices of approximately 20%.
Revenue from participation in the FA and Carling Cups were modest in both periods and revenue from corporate match day hospitality and
catering was also down on the previous period.
For the current season, season tickets sales are down at around 10,000 and the average match day attendance is significantly down after
the first nine home games, at just under 16,000. The effect of the 'credit crunch' has clearly impacted on the level of attendances as has
the Club's slow start to the season under new management and with a very young side.
Commercial revenue
Commercial revenue reduced from �4.6m to �3.3m. All of the Clubs commercial revenue streams were down on the comparative period
including catering and non-match day hospitality, retail and sponsorship. Market conditions for the 2008/09 season continue to be extremely
difficult.
Revenue from player loan fees
During the period loan fees of �0.6m were receivable, following the loan of Rudi Skacel to Hertha Berlin and Grzegorz Rasiak to Bolton.
Several players have been loaned out for the whole or part of the 2008/09 season including Marek Saganowski, Grzegorz Rasiak, Stern John and
Nathan Dyer.
Operating expenses
Operating expenses increased from �27.2m to �27.4m. Whilst savings were made in the stadium running costs and administrative expenses,
the cost of players and coaches increased during the period. Player and coaches' wages increased from �10.5m (45% of turnover) to �12.1m
(81% of turnover). The increase in player wages was due to the signing of experienced and higher paid players (see player trading below)
together with a number of loan players signed during the season which included Alan Bennett, Christian Dailly, Adam Hammill, Gregory Vignal,
Richard Wright and Chris Lucketti. Included in operating costs are termination payments to former Directors amounting to �0.6m.
The level of operating expenses and ratio of players and coaches wages to turnover for the period in question is not sustainable and
many measures have been introduced to reduce the level of operating costs for the 2008/09 financial year. These include the sale, release
and loan out of a number of players, more emphasis on playing the younger players, staff redundancies, revised match day transportation plan
and reduced match day costs. The Boards target is to return the ratio of player and coaches wages to turnover to 50%.
Player trading
Player trading represents the profit and loss on disposal of players' registrations less the amortisation of players' registrations. The
net income from player trading was �9.4m which compares to a net income of �5.0m in the prior period.
Profit on disposal of players' registrations amounted to �12.7m and this was largely attributable to the sale of Kenwyne Jones to
Sunderland, Chris Baird to Fulham, Pele to West Brom and the early settlement of amounts due from Arsenal for contingent appearances to be
made by Theo Walcott. Since the year end further player sales have taken place including Youssef Safri, Andrew Davies and Cedric Baseya. In
addition further funds have been raised from the early settlement of amounts due from Spurs for the contingent appearances to be made by
Gareth Bale.
Six new players were added to the squad during the financial year at a cost of �4.8m. They include purchases of the registrations of
Andrew Davies, Stern John, Jason Euell, Youssef Safri, Marek Saganowski and Wayne Thomas under the previous management and Morgan
Schneiderlin under the current Board. As a consequence player amortisation increased from �2.6m to �3.3m.
Sale of subsidiary companies
In July 2007 the Company disposed of two of its non-core subsidiary companies, Southampton Insurance Services Ltd ("SIS") and Saints
Radio Ltd ("SRL"). For the financial year ended 30 June 2007 SIS had a turnover of �145k and a profit of �19k, SRL had a turnover of �265k
and a loss of �218k. The sale of SIS generated cash of �260k; SRL was sold for a nominal fee.
Balance sheet
The loss for the year amounted to �5.0m which has seen the Net Assets of the Group reduce from �7.3m to �2.3m. The Group has property,
plant and equipment assets amounting to �33.2m and intangible assets (player registrations) for purchased players amounting to �6.4m. No
value is ascribed to those players who have been developed within the Club Academy or those signed on a free transfer.
The Group had net debt of �27.5m at the balance sheet date (2007: �19.2m) comprising financial liabilities of �23.1m and a net overdraft
of �4.4m.
Whilst the Directors have taken many measures to address the financial position, the Group remains dependent on the support of its
funders until the programme of cost and debt reduction has been completed. Shareholders should be aware of the going concern disclosures set
out later in this statement.
David Jones, ACA
Finance Director
21 November 2008
Consolidated income statement
for the year ended 30 June 2008
Year ended Year ended
30 June 30 June
2008 2007
�'000 �'000
Revenue 14,917 23,269
Operating expenses (excluding player (27,446) (27,193)
amortisation)
Loss from operations before player (12,529) (3,924)
amortisation and trading
Amortisation of players' registrations (3,262) (2,566)
Profit on disposal of players' 12,652 7,554
registrations
(Loss)/profit from operations (3,139) 1,064
Financial income 463 150
Financial expenses (2,252) (2,154)
Loss before taxation (4,928) (940)
Taxation expense (65) 217
Loss for the year attributable to (4,993) (723)
equity shareholders of the parent
Loss per share - basic and diluted (17.77)p (2.57)p
Consolidated statement of changes in equity
for the year ended 30 June 2008:
Share Share Capital Merger Retained Total
capital premium redemption reserve earnings �'000
�'000 �'000 reserve �'000 �'000
�'000
Balance at 1 July 2007 1,405 3,340 390 660 1,494 7,289
Loss for the period - - - - (4,993) (4,993)
Balance at 30 June 2008 1,405 3,340 390 660 (3,499) 2,296
for the year ended 30 June 2007:
Share Share Capital Merger Retained Total
capital premium redemption reserve earnings �'000
�'000 �'000 reserve �'000 �'000
�'000
Balance at 1 July 2006 1,405 3,340 390 660 2,217 8,012
Loss for the period - - - - (723) (723)
Balance at 30 June 2007 1,405 3,340 390 660 1,494 7,289
Share capital and premium
When shares are issued, the nominal value of the shares is credited to the share capital reserve. Any premium paid above the nominal
value is taken to the share premium reserve. Southampton Leisure Holdings Plc shares have a nominal value of 5p per share.
Merger reserve
The merger reserve arose on the acquisition of Southampton Football Club Ltd and related subsidiary undertakings. It represents the
excess of fair value over the nominal value of shares issued less the cumulative amount of goodwill arising on acquisition.
Capital redemption reserve
The capital redemption reserve arose on past buy-back of shares by Southampton Leisure Holdings Plc. The purpose of this reserve is to
ensure the Company's capital is not diluted by the buy-back of shares, and amounts held in this reserve cannot be distributed to
shareholders by way of a dividend. The reserve can be used when making bonus issues to existing shareholders.
Retained earnings
The retained earnings reserves records the accumulated profits and losses of the Group since inception of the business. Where businesses
or companies are acquired, only profits arising from the date of acquisition are included.
Consolidated balance sheet
as at 30 June 2008
30 June 30 June
2008 2007
�'000 �'000
ASSETS
Non-current assets
Property, plant and equipment 32,075 33,845
Investment properties 1,100 1,100
Intangible assets 6,376 5,402
39,551 40,347
Current assets
Inventories 288 383
Trade and other receivables 4,946 2,466
Cash and cash equivalents 1,256 4,796
6,490 7,645
Total assets 46,041 47,992
LIABILITIES
Non-current liabilities
Financial liabilities 22,206 23,104
Trade and other payables - 230
Deferred grant income 3,930 4,023
Provisions 457 500
Deferred tax 1,847 1,782
28,440 29,639
Current liabilities
Trade and other payables 8,593 10,088
Deferred grant income 92 92
Financial liabilities 6,620 884
15,305 11,064
Total liabilities 43,745 40,703
Net assets 2,296 7,289
EQUITY
Issued share capital 1,405 1,405
Share premium 3,340 3,340
Capital redemption reserve 390 390
Merger reserve 660 660
Retained earnings (3,499) 1,494
Total equity attributable to the equity holders of 2,296 7,289
the parent
The financial statements were approved by the Board of Directors and authorised for issue on 21 November 2008.
Signed on behalf of the Board of Directors
David Jones
Director
Consolidated statement of cash flows
for the year ended 30 June 2008
Year ended Year ended
30 June 30 June
2008 2007
�'000 �'000
Cash flow from operating activities
Loss for the period before taxation (4,928) (940)
Adjustments for:
Finance expenses 2,252 2,154
Finance income (463) (150)
Amortisation of intangible non-current 3,262 2,566
assets
Impairment of intangible non-current - 787
assets
Profit on disposal of players' (12,652) (7,554)
registrations
Profit on sale of subsidiaries (30) -
Depreciation of property, plant and 1,787 1,883
equipment
Revaluation of investment properties - (310)
Loss on sale of property, plant and 5 -
equipment
Capital grants released (93) (93)
Decrease in trade and other receivables 63 1,031
Decrease in inventories 96 21
(Decrease)/increase in trade and other (2,538) 1,071
payables
Cash flow from operations (13,239) 466
Interest paid (2,202) (2,154)
Interest received 51 150
Net cash flow from operating activities (15,390) (1,538)
Cash flow from investing activities
Acquisition of property, plant and (71) (184)
equipment
Proceeds from sale of subsidiaries 128 -
undertakings
Acquisition of players' registrations (4,031) (6,672)
Proceeds from sale of players' 11,019 11,167
registrations
Net cash flow from investing activities 7,045 4,311
Cash flow from financing activities
Repayment of borrowings (885) (765)
Net cash flow from financing activities (885) (765)
Net (decrease)/increase in cash and cash (9,230) 2,008
equivalents
Cash and cash equivalents at start of 4,796 2,788
period
Cash and cash equivalents at end of (4,434) 4,796
period
Analysed as:
Cash and cash equivalents 1,256 4,796
Bank overdraft (5,690) -
(4,434) 4,796
Basis of Preparation
The financial information on the Group set out above does not constitute 'statutory accounts' within the meaning of section 240 of the
companies act 1985. The comparative figures for the financial year ended 30 June 2007 are not the Group's statutory accounts for that
financial year. Those accounts, which were prepared under UK GAAP, have been reported on by the Group's auditors and delivered to the
Registrar of Companies. Their report was unqualified and did not contain statements under Section 237(2) or (3) of the Companies Act 1985.
For the purposes of this report, the figures for the year ended 30 June 2007 have been restated to comply with International Financial
Reporting Standards (IFRS). The financial information for the year ended 30 June 2008 has been extracted from the Group's audited
consolidated statutory accounts for the year ended 30 June 2008, which are also prepared under IFRS. Statutory accounts for 2008 will be
delivered to the Registrar of Companies for England and Wales in due course. The statutory accounts included, in the Statement of Accounting Policies, a paragraph on Going Concern which is set out below:
Going concern
The Directors have prepared cash flow forecasts for the period to 30 November 2009 which include the sales of various assets, further
cost reductions and deferrals, and rely on the support of the bank and loan note holder.
The Group currently manages its working capital through a bank overdraft facility and in addition has issued long term loan notes to
finance the development and construction of the St Mary's Stadium.
Whilst the Group presently has an overdraft facility, for �4.5m, the Board remain in negotiations with Barclays Bank, who are seeking a
progressive reduction in their position, and the loan note holder. These negotiations involve the Group having to achieve further
significant asset sales in 2009, which the Board are confident they can achieve, but there can be no certainty at this time. Furthermore the
Group are seeking to reschedule the payment of certain current liabilities, and the Board are confident that these will be successfully
negotiated.
In the event that the Group do not comply with the terms of the new overdraft facility being discussed and the agreement still to be
reached with the loan note holder such that the facilities would be withdrawn, alternative financing would need to be found for the Group to
continue as a going concern. The Directors would then consider seeking additional opportunities for finance from internal sources. The Board
continues to explore avenues for external funding. Based on the above, the Board consider it appropriate to prepare the accounts on a going
concern basis.
The above matters indicate the existence of a material uncertainty which may cast material doubt over the Group's ability to continue as
a going concern. The accounts do not include any adjustments that would result if the Group is unable to continue as a going concern.
The auditors have reported on those accounts; their report was unqualified and did not contain statements under Section 237 (2) or (3)
of the Companies Act 1985. However, it did contain an emphasis of matter paragraph which drew attention to the material uncertainties
surrounding the going concern assumptions as set out above.
Enquiries:
Southampton Leisure Holdings plc Tel: 0845 688 9448
Rupert Lowe/David Jones
Seympur Pierce Tel: 0207 107 8000
Paul Davies, Nominated Advisor.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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