Thread by @SwissRamble

Preston North End’s 2017/18 financial results covered a season when they finished in an impressive 7th place in the Championship , just missing out on the play-offs. Alex Neil replaced Simon Grayson as manager in July 2017. Some thoughts in the following thread #pnefc

#pnefc made £2.6m profit before tax compared to a £0.4m loss the prior season, even though revenue fell very slightly (1%) to £13.3m. In contrast, profit on player sales increased £7.5m to £9.7m. Profit after tax up from £0.9m to £2.6m, as there was a £1.3m tax credit in 2016/17.

#pnefc £0.2m revenue decrease was due to falls in both match day, £0.3m (8%) to £3.4m, and commercial, £0.2m (6%) to £2.8m. This was partially offset by a £0.3m (5%) rise in broadcasting, due to a higher solidarity payment.

#pnefc costs grew following investment in the squad, as the wage bill increased by £1.6m (12%) to £15.0m and player amortisation rose by £0.6m (46%) to £2.0m. However, other expenses were cut by 21% (£0.9m) to £3.3m. There was no repeat of the 2016/17 £3.1m interest waiver.

#pnefc £3m profit is the 3rd best reported to date in the 2017/18 Championship, though a long way below #hcafc £24m & #NCFC £18m, which is a fine achievement, as most clubs in this division lose money (3 clubs had losses just under £40m: Cardiff £39m, QPR £38m & #BCFC £37m).

However, it is worth noting that #pnefc figures were boosted by £10m profit on player sales, largely Jordan Hugill to West Ham. If this is excluded, would have made a £7m loss. Clubs relegated from the Premier League had large profits from this activity: #NCFC £48m & #HCAFC £31m.

The directors stated, “In common with many football clubs in the Championship, #pnefc is likely to incur future losses and net cash outflows.” Annual losses are usually around £5m, funded by the owner, Trevor Hemings. Any differences are due to once-off factors or player sales.

So #pnefc £13m profit in 2014 was due to a £18.7m loan waiver, while the smaller than usual £0.4m loss in 2017 was down to a £3.1m interest waiver. Back in 2011 the large £18m loss was driven by £8.8m goodwill impairment as the new company was set up.

As a rule, #pnefc have made very little money from player sales (only £4.4m in total in the 7 years up to 2017), but they made more than twice as much in 2018 alone from the Hugill transfer. Greg Cunningham’s move to Cardiff City will be included in the 2018/19 accounts.

#pnefc underlying business loses money, as shown by their EBITDA (Earnings Before Interest, Depreciation and Amortisation), which strips out profit on player sales and non-cash items. This has been consistently negative, though the club has restricted the losses to around £4m.

In fairness, very few Championship clubs manage to generate positive EBITDA (only #NCFC £9m, #HCAFC £8m, #Boro £7m & Burton Albion £0.4m to date in 2017/18) and #pnefc £(4)m is among the better results. As a comparison, #BCFC reported an awful £(30)m.

#pnefc revenue has grown by £6.0m (82%) from £7.3m to £13.3m in the 3 years since promotion from League One in 2015. Almost all of this is due to higher TV money in the Championship (£5.7m) with a small £0.3m increase in commercial. Match day has actually dropped by £0.1m.

Despite the growth, #pnefc £13m revenue is 3rd lowest in the Championship, only above Burton Albion and Brentford. To show how much the club has outperformed, this is around 20% of clubs with parachute payments (#Boro £62m, #NCFC £62m). Top club without parachutes was #LUFC £34m.

Championship revenue is hugely influenced by Premier League parachute payments with 8 clubs benefiting in 2017/18, led by #Boro, #HCAFC & #SAFC £42m, followed by #AVFC & #NCFC £34m, then #CardiffCity, #FFC & #QPR £17m. This makes life really difficult for clubs like #pnefc.

#pnefc TV income rose £0.3m (5%) to £7.1m, including PL solidarity payment £4.5m and £2.3m EFL central distribution. The huge amounts received in the top flight (£150m for 1st place, £95m for 20th) help explain why so many Championship owners spend big in pursuit of that prize.

#pnefc match day revenue fell 8% (£0.3m) to £3.4m, despite average attendance increasing from 12,611 to 13,776, as there were 3 fewer home games at Deepdale. This is the 2nd lowest in the Championship, only ahead of Burton Albion, and less than a third of Aston Villa’s £11m.

#pnefc attendances have been steadily rising. In fact, the 2017/18 average of 13,776 is around 50% (4,500) higher than the recent low in League One five years ago of 9,324.

However, #pnefc 13,776 attendance was only the 20th highest in the Championship, a long way below clubs like #AVFC 32,097 and #LUFC 31,525. New price bandings were introduced in 2017/18, including free/cheap tickets for young fans. Ticket prices were frozen in 2018/19.

Commercial income fell £0.2m (6%) to £2.8m, unsurprisingly one of the lowest in the division. Few Championship clubs generate big money commercially, though the highest earners (#LUFC £16m and #NCFC £13m) are significantly higher.

For the 2018/19 season 32Red have replaced Tempobet as #pnefc shirt sponsor in a two-year deal (with the option of a third year), while the kit supplier deal with Nike was extended by three years in July 2016.

#pnefc wage bill rose by 12% (£1.6m) to £15.0m, which means these have almost doubled from £7.8m in League One in 2015. Growth is likely to continue per club advisor Peter Ridsdale, “We have renewed 7 player contracts this summer, some of whom received a significant increase.”

Nevertheless, #pnefc £15m wage bill remains one of the smallest in the Championship, only above Brentford, Millwall, Barnsley and Burton Albion. To underline the scale of the challenge, it is only around a third of #Boro £49m, Cardiff City £48m and #NCFC £42m.

#pnefc wages to turnover ratio rose from 100% to 113%, “as the club has contracted a squad with wages which are high in comparison to its revenue.” However, this is far from unusual in the Championship as half the clubs have ratios above 100% with #bcfc “leading the way” at 202%.

#pnefc player amortisation, the annual charge to write-down transfer fees over the life of a player’s contract, increased from £1.4m to £2.0m. This has risen from just £0.2m in the last season in League One in 2015.

Despite the growth, #pnefc player amortisation of £2m is one of the smallest in the Championship. To place this into context, big-spending #Boro and #AVFC £24m amortisation is 12 times as much.

#pnefc spent £5.4m on players in 17/18 (including Rudd, Moult & Bodin), which is high by their standards (more than the previous 5 seasons combined). However, still one of the lowest in the Championship. Most clubs that have reported spent £12-17m, while #Boro splashed out £66m.

As might be expected, #pnefc gross spend on players has increased in the 3 years following promotion from League One with the annual average rising from £0.3m to £2.7m. The growth in net spend is smaller, as sales have also increased from £0.5m to £1.9m.

#pnefc gross debt increased by £5.6m from £30.8m to £36.4m, almost entirely (£36.3m) owed to owner Trevor Hemmings via his company Grovemoor Ltd. The loan is interest-free with no fixed repayment date. Preston also owe £1.5m in transfer fees, but are owed £7.7m from other clubs.

#pnefc £36m debt is not that large for the Championship, and is considerably lower than some clubs, e.g. #Boro £101m, #ITFC £89m and Cardiff £74m. That said, the debt would be a lot higher if the owner had not waived £18.7m and converted £15.4m into equity in 2014.

Although debt is often high in the Championship, most of it is provided by owners who charge little or no interest, e.g. #pnefc made no interest payments in 2017/18, while the highest was #HCAFC with only £3.1m. The club has not needed bank loans since 2012.

#pnefc lost £4.1m from operating activities in 17/18, then spent £1.1m (net) on player purchases & £2.2m capex, including £1.5m on land for new training ground at Ingol. This was largely covered by Hemmings putting in £5.7m & he has added a further £4.1m since these accounts.

Since Hemmings bought #pnefc in 2010, he has put in £38m and also took on the £6m overdraft. Another £7m of funding has come from tax losses in group companies. Two-thirds of the £50m available cash has been used to cover losses with only £2m spent on player purchases (net).

As Ridsdale said, “The owner is putting in anywhere between 5 and 7 million pounds a year just for us to survive.” The auditors noted a “material uncertainty” relating to this support with the club’s cash flow forecast showing he would probably have to inject £6.7m this year.

Fortunately, Hemmings has been described by a club spokesman as “a highly committed shareholder who has supported the club throughout his adult life” and there is little sign of that (financial) support coming to an end.

#pnefc are fine in terms of FFP. Their £2m losses over the three-year monitoring period are well below the £39m limit, even before the allowable exclusions of academy, community & infrastructure (estimated at £2m a year), though the EFL would also deduct the £3m interest waiver.

In the #pnefc company structure Deepdale PNE Holdings Ltd owns Preston North End Ltd, which in turn owns The Preston North End Football Club Ltd. Figures are very similar, but the holding company shows the debt to the owner, while subsidiary is funded via share capital increases.

#pnefc is the very definition of a club punching above its weight, though it does still require owner support. Ridsdale concluded, “We manage within the parameters that are set. We have to be smarter than most. We are looking to progress every year within our financial means”.