The directors present their report on the affairs of The Watford Association Football Club Limited ("the Company" or "the Club"), together with the financial statements for the year ended 30 June 202 2 .
Background
As at the year end, the Club's Board consists of three directors (as detailed in the Company information section on the first page), being the executive chairman and two independent non-executive directors.
The executive chairman has responsibility, in close liaison with other directors, for the day to day running and long term operation and running of the Club and refers to the Board in regard to significant decisions affecting all aspects of the Club.
Section 172(1) (A) to (F) of the Companies Act 2006 require Directors to explain how they considered the interests of key stakeholders when performing their duty to promote the success of the Company. This includes considering the interest of other stakeholders which will have an impact on the long-term success of the Company. The Board welcomes the direction of the UK Financial Reporting Council (the ‘FRC’). This S172 statement explains how Watford FC (WFC) Directors consider:
S172(1) (A) “The likely consequences of any decision in the long term”
The Directors understand the business and the evolving environment in which we operate, including from the footballing side, the challenges of identifying and scouting new talent. Based on WFC’s purpose to scout young talent and develop them into professional athletes by providing a clear path to first team football, the strategy set by the Board is intended to strengthen our position as a club with one of the strongest scouting networks globally.
The Directors recognise how our operations are viewed by different parts of society and that some decisions they take today may not align with all stakeholder interests . H owever , the Directors have taken the decisions they believe best support WFC’s strategic ambitions.
S172(1) (B) “The interests of the company’s employees”
The Directors recognise that WFC employees are fundamental and core to our business and delivery of our strategic ambitions. The success of our business depends on attracting, retaining and motivating employees. From ensuring that we remain a responsible employer, from pay and benefits to our health, safety and workplace environment, the Directors factor the implications of decisions on employees and the wider workforce, where relevant and feasible.
S172(1) (C) “The need to foster the company’s business relationships with suppliers, customers and others”
Delivering our strategy requires strong mutually beneficial relationships with suppliers, customers, governments, other football clubs and regulatory bodies. WFC seeks the promotion and application of certain general principles in such relationships. The Club continuously assesses the priorities related to customers and those with whom we do business.
S172(1) (D) “The impact of the company’s operations on the community and the environment”
This aspect is inherent in our strategic ambitions, most notably the Club has partnered with the local community in various projects including supporting the NHS, local schools and various charitable trusts. As such, the Board receives information on these topics to both provide relevant information for specific Board decisions.
S172(1) (E) “The desirability of the company maintaining a reputation for high standards of business conduct”
WFC aims to meet the world’s growing need to be environmentally and socially responsible. The Board periodically reviews and approves clear frameworks. This, complemented by the ways the Board is informed and monitors compliance with relevant governance standards help assure its decisions are taken and that WFC act in way s that promote high standards of business conduct.
S172(1) (F) “The need to act fairly as between members of the company”
After weighing up all relevant factors, the Directors consider which course of action best enables delivery of our strategy through the long-term, taking into consideration the impact on stakeholders.
Employee engagement
WFC has a number of effective workforce engagement mechanisms in place across the Club:
Employees are kept informed of performance and strategy through regular appraisals and performance reviews
The executive director s attend key business meetings throughout the year
Employee engagement surveys are undertaken covering the vast majority of the workforce, and the results are reported to the Board
2021/22 was a challenging year for the C lub as the C lub were promoted into the Premier League but were unable to retain Premier League status at the end of the season.
There are a number of potential risks and uncertainties which could have a material impact on the Company's long term performance. These risks and uncertainties are monitored by the Board on a regular basis.
Income
The Club derives its income from three principal sources: gate receipts, television and commercial relationships. All three sources of income are dependent on the performance of the 1st team and its appeal to football supporters. The performance of the first team is significantly influenced by the quality of the coaching staff and the players that the Club can attract in a highly competitive market on both domestic and European levels.
Expenditure
In order to attract talent, which will continue to improve the performances of the first team, the Club continually invests in the playing staff by way of both transfers and wages.
Regulatory environment
The Club is regulated by the rules of the FA, EPL, EFL, UEFA and FIFA. These regulations have a direct impact on the Club as they cover areas such as the division of centrally negotiated television deals and the operation of the transfer market. The Club has staff whose roles include ensuring that the Club monitors the evolution of the rules and ensures compliance with them.
Funding
Funds are provided by the Club's parent c ompany, Hornets Investment Limited. The Club reviews and updates its cash forecasts on a regular basis and keeps the owners aware of financial commitments going forwards.
The Board has considered the risks and uncertainties that face the business which are principally related to the costs and revenues involved in maintaining a playing squad and trading in players. It has also considered the financing requirements of the business that may result and these are referred to in note 1.2.
Corporation tax
In April 2017 the government made a change to the corporation tax legislation. This change restricts the amount of previously accumulated corporation tax losses that a company can utilise against its taxable profits in any one period. For the Club this means that corporation tax will be due in earlier periods than if the change in legislation had not taken place.
The Club's owners continue to be committed to new investment into the business t o ensure the quick promotion back to the Premier League. Investment continues in respect of playing staff and updating the facilities at the Stadium and the Club's Training Ground at London Colney. This strategy continues to be evident at the Vicarage Road Stadium as the Club continue to review options for further development of the S tadium in order to increase capacities in both hospitality and general seating areas. The Club has also maintained investment in its playing squad, in order to sustain performance and ensure promotion back to the Premier League .
|
2022 |
|
2021 |
|
£'000 |
|
as restated £'000 |
|
|
|
|
Turnover |
128,094 |
|
57,061 |
Wages and salary costs |
( 78,601 ) |
|
(6 5,69 6) |
Other operating expenses |
( 44,247 ) |
|
(27 ,660 ) |
Amortisation and impairment of player registrations |
(29,684) |
|
(35,930) |
Other operating income |
240 |
|
2,908 |
|
|
|
|
Operating loss |
(2 4,198) |
|
( 69,317 ) |
|
|
|
|
Profit on disposal of player registrations |
15,337 |
|
55,719 |
Net interest charges |
(7,2 69 ) |
|
(5,439) |
|
|
|
|
Profit/ (Loss) on ordinary activities before taxation |
( 16,130 ) |
|
( 19,037 ) |
|
|
|
|
Cash generated (absorbed) by operations |
( 5 , 0 91) |
|
( 43,523 ) |
|
|
|
|
Wages to revenue ratio |
6 1 % |
|
11 5 % |
League position |
19th |
|
2nd |
League |
Premier League |
|
Championship |
The loss for the year was £17.7m compared to a loss of £18.3m for the prior year. The gross loss for the year was £1.7m compared to £55.7m in the prior year and this is mainly due to the Club participating in the Premier League in 2021/22 which attracted higher broadcasting revenues.
Total turnover increased by £71.0m from £57.1m to £128.1m. This was mainly due to broadcasting income as the Club was entitled to full broadcasting revenues as opposed to the parachute payments as a relegated club in the prior year.
Salary costs have increased overall from £65.4m to £79m.
Other operating expenses have increased from £27.7m last year to £44.2m mainly due to a increase in football costs.
The Football Club made a profit on disposal of player registrations of £15.3m (2021: £55.7m) principally due to the sale of Hernandez Suarez and Hughes.
Intangible assets have decreased from £82.3m to £64.7m mainly due to player disposals during the year.
As in previous years, the financial performance of the Club is reflective of its position in the League and whether the Club is participating in the Premier League or the EFL; turnover increased overall this year due to participating in the Premier League as opposed to the EFL last year.
Promotion into the Premier League for the 2023/24 season is the goal we now set ourselves and the shareholders are committed to invest in the Club to support the goal to realise this ambition. The Club continues to enhance its value and performance on and off the pitch by investing in upgrades for both the Stadium and the training ground, along with strengthening the squad in an effort to increase commercial revenues and diversify the revenue streams.
On behalf of the board
The directors present their annual report and financial statements for the year ended 30 June 2022.
The results for the year are set out on page 14.
The Company recorded a loss before taxation of £16,130,000 (2021: £19,037,000).
The results for the year, together with a review of the Company's business performance for the year, its future prospects and its approach to financial risk management, are considered in the Strategic Report.
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The Company has in place Directors' and Officers' Liability Insurance with a third party.
Details of the post balance sheet events are set out in note 27 to the financial statements.
A resolution proposing that Myers Clark be reappointed as auditor of the Company will be put to a meeting of the Board of Directors.
Methodology follows best practice and is based on HM Government Environmental Reporting Guidelines March 2019. All emissions factors are taken from UK Government GHG Conversion Factors for Company Reporting, version 1.0, 2022 factors.
Scope 1 and Scope 2 consumption data (gas and electricity) taken from validated and verified Utility Suppliers invoices. Scope 1 and 3 (transport) data taken from internal tracking systems, and applicable emissions factors applied; Company fleet classed as scope 1 emissions as defined in HM Government Environmental Reporting Guidelines March 2019.
The table below summarises the GHG emissions for reporting year: 1st July 2021 to 30th June 2022
Energy Consumption (kWh) |
|
FY2 2 (Jul21-Jun22) |
Gas (Scope 1) |
|
2,944,959 |
Other Fuels (Scope 1) |
|
991,719 |
E lectricity (Scope 2) |
|
3,273,301 |
Transport Fuel (Scope 1 - Company Fleet) |
|
243,476 |
Total |
|
7,453,455 |
|
|
|
Emissions (tCO2e) |
|
|
Gas (Scope 1) |
|
538 |
Other Fuels (Scope 1) |
|
250 |
Electricity (Scope 2) |
|
633 |
Electricity (Scope 3) |
|
58 |
Transport Fuel (Scope 1 - Company Fleet) |
|
58 |
Transport Fuel (Scope 3 - Grey Fleet) |
|
49 |
Total (All Scopes) |
|
1,537 |
Due to the diverse range of services offered by Watford F.C, including ground maintenance, sale of merchandise and sports management, the intensity metric of tCO2e / £M turnover was chosen.
|
202 1 -202 2 |
2020-2021 |
Normalisation Metric: |
£ 128,000,000 |
£57,100,000 |
Intensity Ratio: (tCO2e/£M) |
12.01 |
28.76 |
Energy Efficiency Action Plan
1) Installation of energy monitoring system
2) Forming of a sustainabaility working group that includes review of energy usage
3) Board approval for solar panel
4) Board approval for CHP+
5) Commission of lighting survey
The directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future.Therefore they have continued to adopt the going concern basis in preparing the financial statements. Further details regarding the going concern basis can be found in the accounting policies in note 1 to the financial statements.
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit :
the information given in the strategic report and the directors' r eport for the financial year for which the financial statements are prepared is consistent with the financial statements ; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
As explained more fully in the directors' r esponsibilities s tatement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements , the directors are responsible for assessing the C ompany’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the C ompany or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements .
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below .
In identified and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we considered the following;
the nature of the industry and sector, control environment and business performance including the design of the remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
results of our enquiries of Management about their own identification and assessment of the risks of irregularities;
any matters we identified having obtained and review the company’s documentation of their policies and procedures relating to;
identifying, evaluating and complying with laws and regulation and whether they were aware of any instances of non-compliance;
detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
the matters discussed among the audit engagement team regarding how and where fraud might occur in the financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the company operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included those set out by football industry specific organisations including the Football Association (the FA), UEFA, FIFA, the English Football League (the EFL) and the English Premier League (the EPL) and those set out by the UK Companies Act and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance with which may be fundamental to the company’s ability to operate or to avoid a material penalty. These included the Employment law and the Health and Safety Act.
As a result of performing the above, we identified the principal risk as management bias in relation to accounting estimates, revenue recognition, journal entries and recognition of liabilities. Our procedures to respond to risks identified included the following:
testing the completeness of income from outside the accounting system to within;
agreeing the financial statement disclosure to supporting documentation;
making enquiries of management and the in-house legal team regarding actual and potential litigation and claims;
review of minutes from meetings of those charged with governance;
performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;
reviewing correspondence with HMRC, relevant regulators such as the FA, FIFA, UEFA, EFL and the EPL, and the company’s legal advisors;
review of post year end payments and invoices;
testing the appropriateness of journal entries and other adjustments and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business; and
challenging assumptions and judgements made by management in their significant accounting estimates.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any.
Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Other matters which we are required to address
As part of our audit of the 2022 financial statements, we also audited the adjustments described in Note 32 that were applied to amend the 2021 financial statements. In our opinion, such adjustments are appropriate and have been properly applied.
Use of our report
This report is made solely to the C ompany’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the C ompany’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the C ompany and the C ompany’s members as a body, for our audit work, for this report, or for the opinions we have formed.
The Watford Association Football Club Limited is a private c ompany limited by shares incorporated in England and Wales . The registered office is Vicarage Road Stadium, Watford, Herts, WD18 0ER.
The financial statements are prepared in sterling , which is the functional currency of the C ompany. Monetary a mounts in these financial statements are rounded to the nearest £'000.
The Watford Association Football Club Limited is a 99.7% owned subsidiary of Hornets Investment Limited. The results of the Club are included in the consolidated accounts of Hornets Investment Limited which are available at 38 Craven Street, London, WC2N 5NG.
Freehold land and assets in the course of construction are not depreciated. Assets with a Net Book Value of less than £1,000 are written off.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss .
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss , except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the Company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.
If an arrangement constitutes a financing transaction, the financial liability is measured at the present value of future payments discounted at a market rate of interest for a similar debt instrument.
Basic financial liabilities, including creditors , bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future paymen ts discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value th r ough profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.
Financial liabilities are derecognised when the C ompany’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the Company.
The Company enters into foreign exchange contracts in order to manage its exposure to foreign exchange risk.
The Company contributes to The Football League Limited Pension and Life Assurance Scheme for certain employees and also contributes to players' own pension plans, the assets of which are held separately from those of the Company in independently administered funds. Contributions payable are charged to the profit and loss account over the period to which they relate.
In addition the Company is making contributions in respect of its share of the deficit of the defined benefit section of The Football League Limited Pension and Life Assurance Scheme (the "Scheme"). A provision has been established for the Company's share of the deficit which exists in this section of the Scheme and this additional contribution is being charged to the profit and loss account over the remaining service life of those employees who are members of the Scheme.
Under the provisions of FRS 102 Section 28 the Scheme would be treated as a defined benefit multi- employer scheme. The s cheme's actuary has advised that the participating employer's share of the underlying assets and liabilities cannot be identified on a reasonable and consistent basis. Therefore in accordance with FRS 102 Section 28 the Scheme has been accounted for as if it were a defined contribution plan.
Capital grants are recognised at the fair value of the asset received when there is reasonable assurance that the grant conditions will be met and grants will be received.
Grants relating to an asset are recognised in income systematically over the asset's expected useful life. If part of such a grant is deferred it is recognised as deferred income rather than being deducted from the asset's carrying amount.
In the application of the Company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
The complex nature of the tax legislation under which the Company operates necessitates the use of estimates and assumptions in assessing the tax amounts provided in the financial statements. Actual tax payable may differ from the amounts provided.
Payments made to third parties in order to acquire a player's registration are initially capitalised at cost.
Creditors and provisions contain allowances for certain contingent amounts to players, agents and clubs which are based on management's best estimate of certain future events from information available to management at the reporting date, such as number of player appearances, and the amount that becomes payable as a result of this event. Actual future costs may differ from the amounts provided.
Intangible assets within the single cash generating (CGU) unit are reviewed for potential impairment as a whole using estimates of the future economic benefits attributable to them. Such estimates involve assumptions in relation to future ticket income, media and sponsorship revenue and on pitch performance. Intangible assets outside of the CGU are reviewed for impairment individually and assessed against management ' s best estimate of their value taking into account recent market movements and post balance sheet event s . Any estimates of future economic benefits made in relation to intangible assets may differ from benefits that ultimately arise, and materially affect, the recoverable value of the asset.
T
he Company has one main business segment, that of professional football operations. As a result, no additional business segment information is required to be provided. It operates in one geographical segment, the United Kingdom, and accordingly no additional geographical information is required to be provided.
Notwithstanding this, a voluntary analysis of the revenue streams is given below to assist with an understanding of the business
.
Revenue streams comprise:
Matchday - season and matchday tickets and corporate hospitality.
Media - television and broadcasting income, including distributions from the English Premier League broadcasting agreements, cup competitions and local radio.
Commercial - sponsorship income & merchandising.
Other - loan fee receivable and other sundry income.
Included within other income in 2021 is £2,500,000 which relates to amounts receivable for a business interruption insurance claim due to Covid-19.
There is £1,587,000 of impairment (2021: £2,539,000) included within the amortisation charge for the year.
The average monthly number of persons (including directors) employed by the Company during the year was:
Their aggregate remuneration comprised:
Investment income includes the following:
The actual charge/(credit) for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
In addition to the amount charged/(credited) to the profit and loss account, the following tax adjustment has been recognised directly in other comprehensive income:
Tax losses at 30 June 20 22 available for offset against future trading profits are in excess of £90 million (20 21: £ 85 million) .
The figure for cost of player registrations are historic cost figures for purchased players only. Accordingly, the net book amount of player registrations will not reflect, nor is it intended to reflect, the current market value of these players nor does it take any account of players developed through the Club's youth system.
The directors consider the value of intangible assets to be significantly greater than their book value.
The amortisation of players' registration costs is included within cost of sales in the profit and loss account.
There is £1,587,000 of impairment (2021: £2,539,000) included within the amortisation charge for the year.
The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts.
Capitalised under assets under construction are the improvement works being made to the Company's stadium and training ground facilities, which are to be transferred to the corresponding asset category on completion of the works.
The Company’s freehold land and buildings were revalued as at 30 June 2020 to a value of £92,040,000. The valuation was carried out by CBRE Ltd, independent external valuers, on a depreciated replacement cost basis in accordance with the current RICS Valuation – Global Standards (incorporating the International Valuation Standards) and the UK national supplement (the Red Book). In preparing their valuation CBRE have made various assumptions as to tenure, letting, taxation, town planning, and the condition and repair of buildings and sites – including ground and groundwater contamination, as is common with any Red Book valuation. At the balance sheet date the directors consider that the value of the freehold land and buildings is not materially different to the value in the accounts.
If revalued assets were stated on an historical cost basis rather than a depreciated replacement cost value basis, the total amounts included would have been as follows:
The estimated replacement cost of stocks does not materially differ from their balance sheet value.
Loans from group undertakings
Loans from group undertakings includes the following loans with the immediate parent company, Hornets Investment Limited:
A £40,794,000 loan, attracting an effective interest rate over the year of 2 . 95 %. The opening balance on this loan was £65,794,000 and during the year a repayment of £25,000,000 was made . The amount payable within one year is £nil (2021: £20,794,000). Total interest charged in the year is £1,403,000 (2021: £3,259,000). Unpaid interest at the year end amounted to £1,500,000 (2021: £1,475, 000 ).
An unsecured interest free loan of £1,020,000 (2021: £1,035,000). This is repayable on demand and is therefore due within one year.
A £2,250,000 loan, attracting interest of 4.5% per annum. The total amount is due in less than one year (2021: £2,250,000). Total interest charged in the year is £101,000 (2021: £101,000). Unpaid interest at the year end amounted to £228,000 (2021: £152,000).
A £1,000,000 loan, fully repayable in less than one year (2021: £1,000,000). The loan attracts interest of 4.5% per annum. Total interest charged in the year was £45,000 (2021: £45,000). Unpaid interest at the year end amounted to £373,000 (2021: £328,000).
A £1,600,000 loan, fully repayable in less than one year (2021: £1,600,000). The loan attracts interest of 6% per annum. Total interest charged during the year was £96,000 (2021: £96,000). Unpaid interest at the year end amounted to £532,000 (2021: £436,000).
Other loans
Other loans includes the following:
A secured loan from Watford FC's Community Sports & Education Trust of £319,000 (2021: £319,000), attracting interest of 1.5% above Barclays Bank base rate. The balance due in less than one year is £100,000 (2021: £50,000). The balance due in more than one year is £269,000 (2021: £269,000). The total interest charged for the year is £7,000 (2021: £7,000).
An unsecured directors loan of £965,000, attracting interest at 3% per annum was repaid during the year. Total interest charged in the year amounted to £32,000 (2021: £29,000).
A secured loan from an independent finance provider of £4,760,000 (2021: £9,521,000) attracting interest of 5.51%pa. The total amount is repayable within one year. Total interest charged for the year was £367,000 (2021: £307,000. A second secured loan from the same provider of £31,883,000 was repaid during the year. Total interest charged during the year was £1,005,000 (2021: £366,000). A third secured loan from the same provider of £2,000,000 was introduced during the year, of which £1,000,000 was repaid. The outstanding balance of £1,000,000 is due within one year. The interest charged in the year was £81,000. Total prepaid interest at the year end was £20,000. A fourth secured loan from the same provider of £1,000,000 was introduced during the year, of which £500,000 was repaid. The interest charged in the year was £47,000. Total prepaid interest at the year end was £8,000.
A secured loan from an independent finance provider of £16,757,000 (2021: £16,738,000). The movement in the loan value relates to foreign exchange. At the year end the total loan was repayable within one year, however since the end of the year the repayment terms have been extended so that the total amount is now due in more than one year. A secured loan of £6,940,000 from the same provider was repaid during the year. Total interest charged on the above two loans was £609,000 (2021: £289,000). The total interest prepaid at the year end was £432,000 (2021: £1,425,000). A secured loan of £50,000,000 from the same provider was introduced in November 2021 of which £21,017,000 is repayable within one year. Interest charged during the year was £2,714,000 with £762,000 unpaid at the year end. A further secured loan of £4,152,000 from the same provider was introduced in March 2022 of which £2,076,000 is payable after one year. Interest charged during the year was £58,000 and the total amount of interest prepaid was £203,000. Interest on the above loans is charged at market rates between 5.35% and 8.43%pa.
Security
Hornets Investment Limited hold a fixed and floating charge secured over all assets and undertakings of the C ompany.
An independent finance provider hold s a fixed and floating charge secured over all assets and undertakings of the C ompany .
The carrying amount of the total assets of the Company is £ 241,852,000 (2021: £246,671,000) and the carrying amount of the Vicarage Road Stadium is £83,235,000 (2021: £87,839,000).
Finance lease payments represent rentals payable by the Company for certain items of plant and machinery. The finance lease liabilities are secured by the asset held under the lease. The lease agreements includes fixed lease payments, and no restrictions are placed on the use of the asset.
At the year end the amount due in relation to the defined benefit scheme was reclassified from being a liability to being a provision. The movement in the year is shown in note 22.
The following are the major deferred tax liabilities and assets recognised by the Company and movements thereon:
The substantively enacted tax rate remains at 19% as at the balance sheet date. It was announced on 3rd March 2021 that the main rate of corporation tax will increase from 19% to 25% from 1st April 2023. The new rate was officially became law in the Finance Bill 2021 which received royal assent in June 2021. Deferred tax assets and liabilities have therefore been estimated using the new enacted rate of 25% (2021: 25%).
The value of the deferred tax asset is based on expected future profits, taking into account various assumptions including profits on disposal of player registrations.
The Club is not able to reliably estimate the amount of deferred tax asset and liability that will reverse in the next 12 month period.
Capital grants include a balance of £675 (2021: £675) relating to the grant received principally from the Football Stadium Improvement Fund, formerly the Football Trust, towards the cost of stadium re-development.
Also included is a grant received towards the cost of catering equipment. At the balance sheet date £240,000 (2021: £300,000) of this remains within deferred income.
Defined benefit scheme
|
2022 |
2021
|
|
£'000 |
£’000 |
Liability at start of the year |
472 |
80 |
Payments in year |
(84) |
(44) |
Increase in provision |
- |
436 |
Liability at end of year |
388 |
472 |
As one of a number of participating employers in the defined benefit scheme, the Company has only been advised of its share of the deficit of the Scheme and as such the Company has only recogni s ed their share as a liability.
As a result, the contributions paid to the scheme reduce the provision. The Company is unable to identify its share of underlying assets and liabilities within the Scheme on a consistent and reliable basis and therefore accounts for the Scheme as if it were a defined contribution scheme.
The most recent actuarial valuation of the Scheme was at August 202 0 and indicated that contributions required from the Company towards making good of the deficit was £533,592 at 1 September 2020 (the total deficit in the Scheme at this date was £ 27.5 million). The Company's share of the deficit is being paid over a period of five years and 10 months commencing September 2020.
Additional contributions are being charged to the profit and loss account over the remaining life of those employees who are members of the Scheme. The amount charged to the profit and loss account during the year was £nil (2021: £436,000).
The Ordinary 'A' shares rank pari-passu with the existing Ordinary shares. The shares have attached to them full voting rights, dividend and capital distribution (including on winding up). Any capital distribution shall be applied amongst the holders of the A ordinary shares and ordinary shares pari-passu as though the same constituted one class of shares pro rata to their numerical holdings notwithstanding they are of different nominal values. They do not confer any rights of redemption. Hornets Investment Limited own 99.7% of the Company's issued share capital.
Contingent liabilities and assets
The Company has liabilities under transfer agreements to pay additional sums dependent upon players' attainment and subsequent transfer value. The maximum that can be calculated and could be payable in respect of transfers made before 30 June 20 22 is £21,142,000 (20 21: £ 20,574,000 ). Since the year end £ 5,084,000 has become payable (20 21: £1,322,000 ) .
At 30 June 20 22, the Club had sums receivable from other clubs in respect of players, dependent upon the number of first team appearances or percentage sell-on clauses. Due to the uncertainty of receipt of these contingent assets, it is not practical to calculate the amount likely to be received. Since the year end £2,903,000 (2021: £1,838,000) has become due.
At the reporting end date the Company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
Amounts contracted for but not provided in the financial statements:
As outlined in note 2 4 , subsequent to the year end, sums have been receivable from other clubs in respect of a ppearance and sell-on clauses in respect of players previously sold. It is estimated that net income of at least £2,903,000 is to be reflected in the financial statement s for the current year. Since the year end various players' registration have been sold or terminated and in respect of those it is estimated that net income of £24,462,000 is to be reflected in the financial statement for the current year.
In addition, there has been £nil received in respect of players out on loan.
Since the year end there have been several new player registrations. The net payments to which the Club is committed in respect of those transactions is estimated to be £8,089,000.
Entities with control over the entity
The following transactions took place with Hornets Investment Limited, the Company's immediate parent company:
As at 30 June 2022 the Company owed a total of £46,664,000 (2021: £71,679,000) in loans and a total of £ 2, 785,000 (2021: £2,498,000) of unpaid interest to Hornets Investment Limited. Details of the loans are included in further detail in note 17.
During the year, management fees of £44,000 (2021: £94,000) were charged to the profit and loss account, payable to Hornets Investment Limited, the Company's immediate parent company.
During the year interest of £1,645,000 (2021: £3,513,000) was charged to the profit and loss accounts in relation to interest on loans from Hornets Investment Limited.
Key management personnel of the entity
Other than the directors there are no other members of key management. Directors' remuneration is reported in note 7.
Other related parties
The following transactions took place with Udinese Calcio SpA, a company under common control:
During the year, the Company was charged £278,000 (2021: £nil) by Udinese in respect of a transfer fee in relation to the purchase of player registrations and the Company charged Udinese £34,199,000 (2021: £26,049,000) in relation to the sale and future sale of player registrations. There is a balance of £24,775,000 (2021: £23,653,000) included in debtors and £37,571,000 (2021: £7,535,000) included in creditors at the balance sheet date relating to these transactions. The Company sent one (2021: two) player to Udinese on a temporary registration for a fee of £nil (2021: £nil).
The immediate parent company is Hornets Investment Limited, a company registered in England and Wales. Copies of the group accounts can be obtained from their registered office as follows, 38 Craven Street, London, England, WC2N 5NG .
The ultimate parent company and controlling party is Diversify Sport Investment S .a.r.l. , a company registered in Luxembourg. The sole shareholder and therefore the ultimate controlling party is Gino Pozzo.
The accounts for the 12 months ended 30 June 2021 have been corrected by way of a prior period adjustment. This related to the timing of recognition of a transaction. The impact of that adjustment is as follows:
In the profit and loss account for the 12 months ended 30 June 2021, expenditure of £2,691,000 has been removed as this should have been reported in a previous period.
In the balance sheet as at 30 June 2021 an additional creditor due in less than one year has been added of £2,715,000 and an additional creditor due in more than one year has been added of £2,561,000.
The retained loss brought forward as at 1 July 2021 has increased by £5,276,000.
The total impact will reverse in the next 12 months to 30 June 2023.