Thread by @SwissRamble

Southampton’s 2017/18 financial results covered a season when they finished 17th in the Premier League and reached the FA Cup semi-finals, much worse than previous season (8th place in PL, competed in the Europa League and got to the EFL Cup final). Some thoughts follow #SaintsFC

Although #SaintsFC directors described the season as “disappointing”, they were “pleased to report another year of positive financial performance.” This was the first season under the ownership of Lander Sports (UK), controlled by Chinese businessman Jisheng Gao.

#SaintsFC pre-tax profit fell from £42m to £35m, as revenue dropped 16% (£30m) to £153m, due to the poor performance on the pitch, though this was largely offset by profit on player sales increasing by £27m to £69m. Profit after tax was down from £34m to £29m.

#SaintsFC £30m revenue fall was driven by broadcasting’s £26m (18%) decrease from £143m to £117m, mainly due to lower Premier League position and no Europa League money. Match day was down £3.2m (14%) to £19.2m, while commercial was £0.5m (3%) lower at £16.4m.

#SaintsFC wage bill was slightly (1%) higher at £113m, but player amortisation/impairment rose £8m (27%) to £37m. There was no repeat of 2016/17 £1.8m charge for onerous contracts, while other expenses were £1m (4%) lower at £33m and interest payable was down £1.7m to £0.5m.

#SaintsFC £35m profit is actually 4th highest to date in 17/18 Premier League, only behind #LFC £125m, #AFC £70m & #CFC £67m. MD Toby Steel said, “We continue to be self-sustaining”, which is not to be sneezed at considering large losses at Watford £32m, #SCFC £30m & #EFC £13m.

However, Steele noted #SaintsFC profit was boosted by “a much better year in terms of player trading” with £69m profit on sales, due to the “significant” transfer of Virgil van Dijk to #LFC & Jay Rodriguez to WBA (“book value pretty much written-down, so fee almost all profit”).

In fact, #SaintsFC £69m profit on player sales is actually the 7th highest ever made by an English club, though a fair way behind #LFC record £124m (Coutinho to Barcelona). Southampton have 3 of the top 20 profits from this activity, including £44m in 2014/15 and £42m in 2016/17.

Clearly, player sales has become a key part of the #SaintsFC business model. In the last 4 years, they made a hefty £184m profit from this activity with only #CFC £272m & #LFC £260m ahead of them. For more context, #AFC, #MCFC & #MUFC only made £158m, £108m and £43m respectively.

#SaintsFC made a small £7m loss in their first season after promotion to the Premier League in 2012/13, but since then they have delivered £126m of profits in the last five years. Between 2005/06 and 2011/12, they reported (smallish) losses in the Championship and League One.

From 2014 onwards #SaintsFC have made a lot of money from player sales, averaging £43m a year, mainly selling to Liverpool (van Dijk, Lallana, Lovren, Lambert, Clyne & Mané) and Man Utd (Shaw & Schneiderlin). Next year will include Gabbiadini to Sampdoria and Tadic to Ajax.

#SaintsFC EBITDA (Earnings Before Interest, Tax, Depreciation & Amortisation), which can be considered as a proxy for cash operating profit, as it strips out player sales and exceptional items, slumped from £35m to £6, though this has improved from £(16)m in the Championship.

Following the decline in #SaintsFC EBITDA to £6m, this is now one of the smallest in the Premier League, only ahead of Stoke City £4m of the clubs that have published 2017/18 accounts. For some more perspective, #BHAFC £36m is six times as much.

Although #SaintsFC revenue was impacted by the absence of Europa League money, the 2017/18 revenue of £153m was the only the second time the club has posted an income over £150m and is £28m (23%) higher than the £124m two years ago. TV accounts for 77% of total revenue.

#SaintsFC £153m is the 11th highest revenue in the Premier League, sandwiched between #LCFC £159m & #CPFC £150m. The gap to the Big Six is enormous, as they are £226m below 6th placed #THFC £379m. MD Steele described last year’s Europa League and EFL Cup run as “one-off income”.

#SaintsFC had the 23rd highest revenue in the world in 2017/18, just 2 places below Napoli in the Deloitte Money League, though they have dropped 5 places from 18th the previous season, highlighting the importance of European qualification (and huge reliance on TV money).

#SaintsFC TV money from the Premier League decreased £15m from £122m to £107m, largely due to a lower merit payment, as Steel explained: “the move in league position from 8th to 17th lost us a significant amount of turnover.”

Of course, if #SaintsFC are relegated, their TV money would fall considerably from last season’s £107m to around £45m in the first year in the Championship, including a £41m parachute payment, though this would still be a lot higher than the £8m most clubs receive in that league.

The previous year #SaintsFC received €15m (£13m) from the Europa League, the fifth highest in the competition, even though they did not progress past the group stage, as they benefited from the UK TV pool, which is much larger than other countries.

#SaintsFC match day revenue fell £3.2m (14%) from £22.4m to £19.2m, as they had 6 fewer home games, due to no Europa League and less progress in the domestic cup competitions. Nevertheless, still the 9th highest in the Premier League, only behind the Big Six, West Ham and #NUFC.

#SaintsFC average attendance was slightly lower at 30,794, which is 11th highest in top flight, around same level as #LCFC & #BHAFC. Despite price reductions for some tickets in last 2 years with others frozen, Steele has admitted there is room for improvement in the strategy.

#SaintsFC commercial income was down £0.5m (3%) to £16.4m, comprising commercial £14.9m & other £1.5m. This is much lower than the elite clubs, e.g. about a sixth of #THFC £103m. This revenue stream is only up £1.5m (10%) in last 2 years, accounting for just 11% of total revenue.

Virgin Media signed a 3-year shirt sponsor deal with #SaintsFC in 2016, extended to also cover sleeve sponsorship in 2017/18, with deal reportedly worth £6m. They also have a 7-year kit supplier partnership with Under Armour, which started in 2016/17.

#SaintsFC wage bill slightly increased by £1m to £113m, mainly due to contract renewals, offsetting lower bonuses. Player remuneration dropped from £87m to £85m, while total employees rose from 380 to 429. Wages to turnover rose from 62%, to 74% due to the revenue reduction.

#SaintsFC £113m wage bill is 9th highest in Premier League, just behind #LCFC £119m. Steele’s view: “Our league position didn’t justify those wages. We were paying a wage bill significantly higher than a 17th place finish.” Mark Hughes sacking will mean £6m compensation in 18/19.

The increase in #SaintsFC wages to turnover ratio to 74% means that this is the 3rd highest (worst) in the Premier League of clubs that have reported to date, only below #EFC 77% and #LCFC 75%. This is by no means terrible, but it is above UEFA’s recommended 70% maximum limit.

#SaintsFC player amortisation, the annual charge to expense transfer fees, rose by a third (£9m) to £37m, though there was no repeat of the previous season’s impairment charge of £1.4m that reduced the value of certain players. This has grown from £3m in the Championship in 2012.

Despite the increase, #SaintsFC player amortisation of £37m is around mid-table in the Premier League, just below Watford £38m. For some perspective, it is around a quarter of big-spending #MUFC £138m and #MCFC £134m.

#SaintsFC splashed out £86m on player purchases in 17/18 (including Carrillo, Lemina, Hoedt and Bednarek), which was £34m more than the £52m spent the previous season. Only lower than the Big Six (except #THFC who are a special case), and #LCFC, but less than half of #EFC £215m.

On a cash basis, #SaintsFC have averaged £10m annual net sales in last 3 seasons, compared to net spend of £24m in the previous 3 seasons. This is mainly due to average sales significantly increasing from £13m to £69m, while average gross spend rose from £36m to £59m.

#SaintsFC gross debt was around the same level at £37m, comprising £20.5m drawn from £35m working capital facility (fully repaid after the accounts) and £16.8m UBS bank loan repayable in 3 equal instalments. The £20m shareholder loan was cleared with £19m converted to equity.

#SaintsFC £37m gross debt is one of the lowest in the PL (Steele: “It’s really healthy”), though they also owe £74m transfer fees with £35m due from other clubs. In addition, there are £19m contingent liabilities potentially payable, mainly dependent on player appearances.

#SaintsFC paid £1.2m interest in 2017/18, which was nowhere near the highest in the Premier League, though many clubs pay nothing, as the owners provide their clubs with interest-free loans. The working capital facility has a 4.25% interest rate, while the bank loan is at 0.466%.

#SaintsFC net funds (cash balance less gross debt) improved from £3m to £20m, as cash increased from £41m to £57m, only below #MUFC £242m and #AFC 231m in 2017/18. However, club explained this was due to the timing of transfer fee payables, which were made after year-end.

#SaintsFC had negative cash from operations (£12m) for the first time since 2012, when they were last in the Championship. They spent £4m on capital expenditure, £1m interest and £0.4m tax. Took out a £20m loan and had £14m (net) player sales, so cash balance increased by £17m.

No owner funding for #SaintsFC in the last 3 years, which is a big change. Instead, generated £39m from operations and £30m from (net) player sales, while adding £6m external loans. Repaid £13m owner loans, had £12m capex and £7m interest payments. Cash balance increased by £43m.

MD Toby Steele said, “If we want to buy players, we can; if we want to invest in infrastructure, we can”, but there is no commitment to the final phase of the Staplewood academy development or St Mary’s refurbishment, presumably due to nervousness about possible relegation.

#SaintsFC have again delivered a strong set of financials, albeit helped by significant player sales, but this season’s relegation struggle, leading to the replacement of manager Mark Hughes with Ralph Hasenhüttl in December, suggests that the balance is not quite right.