Sheepy's speech at AGM.
Posted: Fri Dec 02, 2005 2:56 am
Town Chairman David Sheepshanks addressed shareholders at the Club's AGM tonight. This is his speech...
Last year's financial results tell us a great deal about our current situation. This time last year I warned shareholders that we were predicting a sizeable loss for this year, being our first without a parachute payment from the Premier League, nowadays worth £7 million a year. To compensate for the lost parachute money, we reduced player wages for the year in question by £2.8 million and we gained a transfer profit of £2.5 million. In very simple terms the difference plus last year's half million loss gives us this result of £3 million loss.
How did we cope with a loss of that size? Within the loss figure is over £1.5 million depreciation and amortization which although a P&L figure does not affect cash.
So in Cash Management terms which are most important in running a club, we maintained a positive cash position throughout the year as a result of the £1.3 million new Loan Note investments during the year plus the extra money earned from exceeding our gate receipt budget. This enabled us to invest more in player wages last season in a push for promotion.
We have no Bank Overdraft facilities so we have to operate with a positive Bank Balance. It cannot go negative and we have to budget a positive cash figure for the whole season ahead.
Where has the money gone? That which has been paid, less what we paid for Sam Parkin has gone into our bank account, to ensure that we remain in a positive cash position this season. The remaining balances unpaid as yet by Charlton and Sunderland will maintain that position and enable us to look forward with some financial stability for this season, providing always that attendance levels and commercial income hold at budgeted levels.
This season, we have no £1.3 million new investment and we are likely to have lower gate receipts and that is why our player and coaching wage budget has had to reduce from £7.2 million last season to £5.4 million this season. So, you can see that it is a fine balancing act but the priority is that financially we are stable, and despite the fact that we have budgeted a lower loss for the year ahead, we are financially under control and that is the way it must stay.
By the same token, we are investing everything that we sensibly can in the football side of the business, something which I do not feel is always believed or understood. Our £5.4 million player/coach wage bill is amongst the higher wage bills being paid in this Division and that is quite apart from the additional £1.1 million invested in the Academy every year (or £850,000 after Football League Youth Grant and Sponsorships).
So we are competitive with most clubs but and this is a BIG BUT, we are not competitive with those who have a parachute, who nowadays, with Divisional pay structures in place, have a MASSIVE advantage over the rest of us. In addition, Sheffield United have had a £3 million injection into the playing budget this year and Reading with John Madjeski's backing, could pay £1 million for Leroy Lita, not to sell any players and afford a £2 million loss last year. I think that puts our £3 million loss in perspective, and incidentally, Sunderland published a £8.8 million loss, West Ham published a £3.8 million loss and Preston a £2 million loss.
This is the depressing shape of things in modern day English football - the Premiership model is very profitable for all their members, nowadays so too can a yo-yo club be profitable, but for a Championship side without a parachute, I would say that it is impossible to have a promotion challenging team and not make a loss. And for us, the size of loss we can afford will be dictated by the amount of cash available to keep a positive bank balance.
I will go one further, I think it is impossible nowadays to fund a promotion team without either a parachute or some other significant source of funds, for example, a benefactor. Investment or lack of investment is increasingly self fulfilling. This is what the Directors are wrestling with.
Shareholders must understand that like the Premiership, this Championship now has a Division within a Division, those with a parachute or benefactor and the rest. At the moment, we are "in the rest" category which does not sit well with me or any of us.
What do we do about it - what are we doing about it? Firstly, we run as tight and efficient a ship as we can. That means in terms of income and expenditure.
In income terms, we are sweating our assets to a maximum. Commercial performance continues to be excellent, this year's budget is in fact looking for a growth on last year's £8.5 million. Our corporate, retail, conferencing and banqueting income remain strong. Pop concerts have been valuable and, most of all, support through season tickets and at the turnstiles has been tremendous.
In cost terms, we have been through two painful rounds of redundancies, there are no extravagances, our costs have been paired down to a minimum without impinging too much on quality or service.
We are Lean and Mean - but how to afford the fighting machine?
Secondly, and this is progress, we are at an advanced stage of discussions with our 3 main lenders over the terms of our debt service. Our objective for such an arrangement is to be able to tell you that, all things being equal, we will have no financial pressure to sell players, now, next summer or hopefully beyond that. This is a very important development and would mean that we can build a 3-year strategy on maximizing the fantastic talent emerging from the Academy. Nothing is concluded but we are far enough advanced for me to tell you about it and I hope that it will be concluded by the beginning of January.
The most dispiriting thing for us, as Directors, as much as for you the Shareholders and the fans, has been the prospect of selling our best players and in so doing shooting ourselves in the foot and diminishing our chances of promotion and full recovery. We had to do something about it and we are. Our 3 lenders have reaffirmed their support for your Board and management.
We maintain a regular dialogue with them all and while on this subject I can confirm that all payments due under the CVA have been made in full and on due date.
Details of any arrangement we will make will appear in next year's Report and Accounts but I will not be disclosing any more details this evening.
This will hopefully deal with the 'drain' effect on our finances. But we are still left with how to create new money; more money to invest in the playing squad, say to the level of Sheffield United or Reading.
We can try to generate it ourselves. While I always think we can improve&..we are already sweating our assets hard. We could, however, have a kind Cup draw on Sunday, even a Cup run, which would help substantially but it is unlikely to be enough alone.
We could hope to attract new Loan Note holders, though we have a limit of £3 million agreed, we are currently at £2.2 million, so there is scope only to attract a maximum of a further £800,000 from high net worth individuals. It is unrealistic to expect there to be great interest in this as a sole solution, although there may be some.
We could have another Share Issue. We discussed this last year. At the time we were flying and the Board were planning a Share Issue last summer had we either been promoted, to strengthen us further, or even had we lost in the play-off final. However, timing is everything and our view, backed by soundings we took, was that the mood was not right after having lost to West Ham, which for many of us felt more like relegation than a play-off defeat. That is not to rule a share issue out, I know there are a number of you that would support a new issue of Shares, but again, alone, it is unlikely to be the solution, unlikely to produce an amount large enough to invest substantially in the team. That said, the timing has to be right but it will be kept regularly under review.
Which brings me to outside investment. Now, hopefully, you will all understand why I have said what I have about looking for substantial capital investment and why your Board supports that view, albeit in a most discerning fashion, as you would hope and expect. For the avoidance of doubt, I would envisage any new investment to be mainly if not entirely by the creation of new shares, thereby enabling the funds to go into the Club.
With all the plusses that I have mentioned, we have a viable and sustainable plan for the Club for the foreseeable future&.but whether it is enough to challenge is debatable&..and challenge we must if we are to retain the levels of public support that we need for this model to work. Attendances are similar to this time last year, but they will not remain so without a more successful team.
Our Academy is fantastic, one of the best in the country. Under Bryan Klug's masterful leadership, it is producing big time, but these are young players and (i) they need time and (ii) history says that they won't ALL come through. Congratulations to Bryan and his team on an excellent first defence of the trophy away at Leeds last night.
In Joe Royle's time here, while adjusting to non-Premiership facts of life, he has blooded a remarkable 15 home grown players from the Academy into First Team action. It is a fantastic record and one that is set to rise in the months ahead as our exciting young players mature.
Nevertheless, as excited as I am about the progress of our Academy, it is a sad indictment of our professional football structure these days and a direct, but long-term, consequence of the formation of the Premiership that football success is nowadays about money. In the Premiership you earn it, as a parachute club in this division you have a 2 year advantage, but the rest of us can only access it in quantity via a benefactor.
It is a fact that in each of the last 3 years, every club promoted has paid a wage bill in excess of £7 million, usually much more, and all nine clubs have either had a parachute or a benefactor. This is why we are openly looking for outside investment. The game has changed, the rules have changed, I want us to be successful and compete at the top level, so does everyone in this room.
In my head as well as my heart I believe that this club is ready to fly with the right investment. We employ great people here, people you can be proud of, starting with Derek Bowden and Joe Royle and all of their respective staff. Every department, commercial, community, academy, stadium, grounds, safety, communications and admin, they are performing well and your support is phenomenal - we have one weakness&.financial constraint that impacts directly on the football department: solve that properly and this club will fly back to the Premiership on atomic tractor power!
I think we can be selective about any significant new investors, but while there is interest, there is not exactly a queue at the door. As well as proof of the ability to fund this Club properly and substantially, ideally we want people who will love this Club, nurture this Club and commit to this Club in a way that is consistent with our heritage, and our community, family values. We will be discerning. We have had some wonderful successes and some terrible disappointments in our history, but a special trait of Ipswich Town Football Club is that everyone who has ever served on the Board, has always tried to do the right thing for the Club ahead of personal interest.
I said last year that your Directors - and I personally - had taken responsibility for what went wrong in 2002/3. There were strong mitigating circumstances but I don't want to revisit history. However, taking responsibility also means taking responsibility for effecting the recovery and we have. Financial stability has been regained, we have had two near misses at promotion, and maintained the investment in the Academy and the overall standards which you expect from the Club.
Unfortunately on the field, the script does not always go to plan. Last April, I thought, no doubt like many of you, that we had nearly done it. Certainly your Board did all in their power to support the Manager and certainly Joe Royle did all in his power to win promotion. It is what he came for. We missed out, by a whisker&..but miss out we did - and there were financial consequences, as I have explained earlier.
Circumstances change, now the market conditions are much harder, the grossly disproportionate distribution of income maybe unfair but it is what it is, it requires different action, different solutions. Your Board remain responsible and determined to deliver you, our Shareholders, and all our supporters, a permanent solution to our economic constraints&..and we will. I ask for your help and support&.. and for your input and advice.
Before closing, I just wanted to cover a three final points. (1) The value of the Community Trust, (2) Resolutions 8 and 9, and (3) Our prospects for this season.
The value to this club of our Community Trust is highlighted at times like this when things are not going so well for the First Team. The work of our Trust positions the Club at the very heart of our local community, interacting in all sorts of different ways. I don't want to repeat the sections on pages 5 and 6 of the Chairman's Report but I hope all shareholders have had a chance to digest the contents. First Team fortunes are the main driver of support through the turnstiles. However, the long-term relationship developed through schools and extra-curricular courses with large numbers of children and their families has a major bearing on the development and loyalty of our fan base. When I look back to 1995-96, we had average crowds of 12,000 with 3,000 season ticket holders. It is not a coincidence but rather a direct effect of our continued investment in the community that we enjoy today's level of support. The investment in the stadium and facilities have also been an advantage in this respect.
Secondly, resolutions 8 & 9: following a helpful suggestion from the Supporters' Trust we did send out a copy of our press release on the back of my covering letter with the Annual Report and Accounts. This was in an effort just to help understanding although it did not contain a detailed explanation of what these resolutions are.
What are resolutions 8 & 9 all about?
Company law provides that, unless they are authorised to do so by the shareholders, the directors may not issue further shares in the Company. Resolution 8 therefore provides a general authority to the directors to allot shares without having to refer back to members on every single occasion. It is essentially a renewal of the authority which was granted at the last AGM, although the number of shares which the board will be granted authority to issue is smaller than last year.
The law also provides that, unless they are authorised to do otherwise by shareholders, the directors may only offer new shares for cash to existing shareholders pro rata to their respective holdings. In order to give flexibility, it is usual for the directors of public companies to ask the members for a general authority to allot shares without offering them pro rata to shareholders. This is the purpose of Resolution 9.
The Board has, in the past, undertaken that it would not in normal circumstances issue to a single party, whether or not already a shareholder, shares representing more than fifteen per cent. of the Company's share capital (when aggregated with any shares already held by that person), without seeking specific authority from shareholders. That undertaking is now enshrined in Resolution 9, the figure contained in the Resolution being equivalent to fifteen per cent. of the Company's share capital following conversion of loan notes.
If the Company were quoted on the Stock Exchange, it would be subject to guidelines established by institutional shareholder groups which limit the power sought under Resolution 9 to a smaller proportion of the unissued share capital than we are seeking. However, the potential for issuing further convertible loan notes, as I have referred to above, leads your directors to conclude that the power we are seeking is appropriate to enable us to take up any such opportunities that arise, within the overall limit of fifteen per cent: since loan notes may not be issued without an authority to issue the associated shares on conversion.
I should stress, as I did last year, that in the Board's view it is to the benefit of the Company to obtain the greatest flexibility possible in these matters.
The authority given by both resolutions will only be in force until the next AGM when, in the usual course, the board are likely to ask for it to be renewed.
I hope this explanation is helpful. As I said earlier, the Board does need some flexibility but over and above these powers in Resolutions 8 and 9, nothing fundamental can change without us coming back to you, the shareholders, and that is the way it should be.
So what are the prospects this season?
Clearly, life is a lot harder, but we must all believe in our strengths. In terms of the players and coaches we afford, we should reasonably expect to be in the top half of the table and I still believe we will be, hopefully pushing towards the Play-Offs. The Board's plan for this season was that a competitive squad together with our other key assets like a top manager and some emerging talent from the Academy would add up to a team that could challenge, albeit probably not as strong as last season. So, let's make no bones about it, we are disappointed with results on the pitch this season. Early in the season, Joe Royle felt that his top 13 or 14 players would be a match for anyone in this Division but we have been struck with an appalling injury curse, coupled with 4 sending offs, only one of which was probably justified. So the Manager has rarely had his top team, however, there were signs of improvement in the games preceding the Reading match and again at Cardiff when we witnessed a spirited display. That must be the minimum from hereon in, starting on Saturday. Recognising that players have most often to lift crowds, and not always vice versa, I do hope that Portman Road will be lifted on Saturday and again on Saturday week. We need to rediscover the home crowd as our extra man, so that the players will once again relish the opportunity to play at home.
Not that I have any personal bearing on how the team play, but in 10 years as Chairman, 8 of them in this Division, we have never finished lower than seventh in the table and in 6 out of 8 of those years, in the Play-Offs.
Talk of our demise in the local paper yesterday is a little early, as best as I can establish, in 4 of those 8 years, we have held AGMs while in 15th place in the table (as we are now) - or lower - and yet still recovered to finish strongly&. 7th or above. No matter how hard it may appear today, we must try to do so again, but if this year is one of consolidation and not of play offs for which we can certainly aim, then so be it. Of course, our task is made harder by the loss of two regular first team players, Parkin and McEveley, for most of the season and the whole season respectively but we have to remain positive and get on with what we've got.
Looking forward, the most important thing is to have a team that all supporters, especially season ticket holders and sponsors, can look forward to and be excited by. This morning's paper mentioned a supporter who is leaving us for Colchester and wondered how many more may follow suit. It is everyone's right, of course, although personally I have never felt any club loyalty to be such a transferable commodity. Nevertheless, my point is this. We are 'in transition' but we are solvent, and as you have heard from me tonight, we are doing everything possible to restore First Team fortunes and I am confident we will. But the Club needs your support. It is not about me, or Directors, or Managers or players, it is your Club. Talk of mass exodus by Season Ticket holders would be self-fulfilling. It would be a sure fire way of severely damaging the club we love. So please, when you hear people talking that way, encourage them to stay. As I have explained tonight, we have a strategy and there are promising signs. The combination of new equity and successful discussions with lenders is designed to enable us to invest in new players and coupled with emerging young talent it will all add up to a brighter future.
At times like this, we have to pull out all the stops and perform to the maximum of our ability. It is time to reinforce the fact that everyone who works and plays for this special Club must be sure that we are doing the most we can to add value, to make a difference. We have to regain that spring in our step, and outwardly exhibit our spirit and our desire to win. We need to wear that attitude on our sleeves. If we all do that, believe in each other and hold each other accountable - then our results and prospects will improve. No football club wins all the time, like you, I wish we did but with the right attitude and our most powerful asset of all, your backing, we will come out of this trough and climb the table. And I ask you for that support now.
Oh dear!
