Kent County Cricket Club Ltd Releases 2011 Financial Results

Kent County Cricket Club Limited has today announced a post tax profit of £379,718 for the year ending 31 October 2011.

The Treasurer’s Report from the Annual Report is published in full below:

HONORARY TREASURER’S REPORT

Year ending 31 October 2011

After several years of losses, it is pleasing to be able to report profits at both the operating and bottom lines of the accounts. Equally important is that, as the St Lawrence Ground was transformed, the Club spent more money during this year than any other in the Club’s history. As Members will know, construction projects present significant risks, through over-runs of both costs and time. Delivery of this phase of the redevelopment means that a major risk exposure is now behind us.

Due to the materiality of the redevelopment, a separate report, dealing with what has been spent and achieved, appears elsewhere in this document. The redevelopment has already had an impact on our financial performance and hopefully over time will deliver the aspirations that were laid out at the very beginning.

Whilst our figures are better this year, difficult times lie ahead, with no shortage of very pessimistic predictions being made for 2012 and beyond. The UK’s economic climate seems to be deteriorating again and it must be highly likely that with household disposable incomes being reduced and corporate profitability under pressure, the game will suffer. We will not be immune from the difficulties present in the wider world, which will impact Members, supporters and sponsors.

The coming year will also present specific challenges that will impact revenues significantly and the most worrying aspect is trying to quantify the likely extent. Not only are our home T20 games being reduced from eight to five, but the tournament is directly up against the European Football Championships, which will provide a month of attractive and cost free evening television viewing and ensure that cricket struggles for media coverage until July. Already we have seen one of our attractive Friday night T20 fixtures moved to a Sunday afternoon, due to a clash with one of England’s matches. There is additionally the effect of the Olympics to factor in, which is clearly uncharted territory for all.

The First Class Counties (‘FCCs’) also depend hugely on the proceeds of media rights sales. New deals have recently been announced for satellite, terrestrial and radio rights and given these deals run from 2014 to 2018 (2019 for the radio deal), six years of certainty over our major revenue source is very welcome.

Cash flow remains of vital importance to the Club. The accumulated losses of recent years (nearly £3 million since 1999, after excluding one off items such as the sales of land and the Chevalier Taylor painting) mean that our position remains very tight, despite this year’s better results. During these years, the Club funded the deficits with asset sales, life membership subscriptions, using up the Club’s reserves and taking out substantial loans and a large overdraft. Whilst the redevelopment has given us breathing space, the previous situation still exists and the Club’s resources need to be rebuilt.

Our Executives and the Committee remain extremely vigilant on our cash flow and continue to monitor our cost base and focus on income generation. In light of the above, no Member should be under the illusion that this year’s profits are indicative that we are living in times of plenty.

Turning to the accounts in detail, our income increased by over £1 million or 23%. Subscription income was down by £78,000, although direct comparison is not really appropriate, given the reconfiguration of the membership offering in 2011. Specifically, the abolition of Harris Room membership displaced income into both our commercial and catering figures as part of the Team Kent offering. Also, the new lower priced ticket packages, Championship Plus, Spitfire and Six Pack, attracted over 200 Members who did not renew their membership, as the new offerings better suited their requirements. Whilst the new packages did cost us revenue, satisfaction with the cost and make-up of our packages improved dramatically in the survey completed by Members and supporters at the end of the 2011 season. The Club’s view is that offering packages which are perceived to be relevant and attractive is the best way to arrest the decline in Membership revenues.

To put our decline in perspective, figures from all 18 FCCs show that 10% of membership numbers have been lost to the game, together with nearly £500,000 of annual income, in the five years to 2010.

Match receipts increased by £64,000. Our T20 attendances increased considerably contributing over £75,000 of additional revenue. Crowds and receipts for 40 over cricket showed virtually no change between 2010 and 2011. The major disappointment was our County Championship receipts. Whilst 4,000 fewer spectators attended our eight home games, lower ticket prices meant that our yield per spectator dropped by over £5, leading to a drop in revenue of £61,000. Several factors were at play, including the state of the St Lawrence Ground for the first three fixtures due to the redevelopment, the first two days of Tunbridge Wells Week being a Sunday and a Bank Holiday, disappointing on-field results, as well as the 25% cut in gate prices from 2010.

The first two adverse factors will not exist in 2012 and our on-field fortunes will hopefully improve. Increasing admission prices for our two Festival fixtures, which produce about 55% of our non-Member Championship attendance, should help to restore some of the revenue lost. The balance of the receipts difference derives mainly from the increased revenue from the tourist game with India. The Club absorbed the 2.5% VAT increase on gate receipts and memberships taken out after 4th January 2011, which further depressed revenue. It is worth noting that in 2011, 90% of all tickets purchased were printed at home, thus saving considerable amounts of postage cost and staff time.

Income from the ECB increased during the year by £786,000 to over £2.6 million. The main increment (£500,000) resulted from an increase to our fee payments, through having improved our facilities with the installation of floodlights.

The other major ECB item was a special fee payment under a scheme called Technical Specification for Facilities 2 (‘TSF2’). This scheme was put together to drive ‘game raising’ amongst counties in several areas, which included spectator experience, player facilities, media accommodation and match security. It followed TSF1, which operated between 1998 and 2006. Three levels of compliance were possible – ‘model’, ‘material’ and ‘non’.

After inspection visits and audits, we were deemed to be model compliant and therefore received the maximum payment of £300,000. Only nine counties attained this status and members will appreciate the achievement in securing this payment. Failure to achieve one of the scheme criteria would have reduced the amount to £200,000 for material compliance, with two failures bringing non compliant status and no payment. The major issue that we had to rectify to secure the maximum payment was to increase the area of the dressing rooms, which before the redevelopment were deemed too small.

The receipt of £800,000 of new money from the ECB was down to the improvement of our facilities. Without it, it is entirely possible that we would have received nothing. Tribute should be paid to those responsible for other important aspects that ensured this desirable outcome, such as our stewards and match security team. It is heartening to know that the St Lawrence Ground is now deemed to meet the highest quality threshold set by the ECB in providing for players, spectators and the media. This contrasts markedly with the ECB’s 2006 view that ‘the ground is tired and facilities need substantial investment’.

Our overall ‘player related’ ECB payments were slightly greater than last year, reflecting the younger composition of the teams that we fielded. The ECB assumes each year that all counties will field the maximum of five young players in each eligible game and distributes any amount not taken up equally between all 18 counties at the end of the season. This latter amount was smaller in 2011, as counties fielded sides that attracted higher fee payments, which meant our overall increase was smaller than might have been expected.

It should also be noted that we continue to receive payments in respect of players raised in Kent who have subsequently moved to other counties.

Given that this year the ECB provides nearly 50% of our income, it is worth reminding Members of the canard that is aired periodically about our income from this source. The lazy analysis is to see the ECB as a governing body handing out money munificently to keep a dying county structure alive. This is entirely false. The ECB is an association established by its members, namely the counties, both first class and minor. It is there to govern and co-ordinate the game and bargain collectively on our behalf, much as the Premier League does for its football clubs. The vast majority of the money that the ECB generates derives from the international and first class games and as the England team is made up of players from the counties, we are effectively receiving a dividend, not a hand out.

The Sports Centre and Physiotherapy Clinic surpluses were slightly down, probably due to economic factors. There was a small deficit on catering, which was entirely due to the ground being virtually unusable for events during the winter as the ground was a building site. The catering operation performed well during the latter part of the season and recovered much of the lost ground from the first six months.

There were two metrics that bode well for the future. Prior to this season, the record for bar takings in a day at Canterbury was around £9,000. On the first day that the Les Ames Stand bar was open for the T20 game against Middlesex, the takings were £21,000. The record was extended to £26,000 at the India game, although the particular circumstances of a full house having nothing to do for several hours are unlikely to be repeated in the near future! Additionally, the reworking of the Harris Room offerings saw occupancy rates rise from just over 30% to just under 60%, leading to turnover increasing by 30%.

Our marketing income rose considerably by over £200,000 or nearly 40% to over £700,000 and our commercial team deserve huge credit. When expenses were deducted, the marketing surplus also increased by £200,000, of which £30,000 was contras. This better performance was largely due to a £195,000 increase in sponsorship, which was nearly a 130% increase. It is clear from discussions with new sponsors that the redevelopment has encouraged them to become involved, as it symbolises the progress we are making. On the expenses side, non administration salaries remained level. We incurred £82,000 of costs in respect of the redevelopment that because of their nature needed to be written off in the profit and loss account, rather than being added to fixed assets. We reduced cricket costs (player salaries, coach salaries and match expenses) by £122,000, a 6% saving on last year’s all time record of over £2 million. The issue of whether cricket has adequate resources to compete is an issue that generated a great deal of Member comment during the season. A significant investment was made in overseas players for the T20 tournament and the latter part of the season, enabling us to have eight players with international experience available.

The debate about the adequacy of resources needs to be informed by understanding our position relative to the other counties. Whilst, we only get comparisons with our seventeen competitors in arrears, our playing costs for 2010 were the 8th highest. This placed us above the County Champions (Nottinghamshire) and also the ECB 40 winners (Warwickshire) in resources committed. It is likely that we may have slipped one or two places in 2011, but we are far from the least resourced county. Whilst our finances are tight currently, the Committee never forgets that our purpose is to channel as much money as we can to cricket. What must be avoided is spending that puts the long term survival of the Club at risk – that is our basic stewardship obligation. The Committee continues to try and manage these conflicting responsibilities – not an easy task.

Due to the redevelopment work undertaken, our depreciation charge has increased by £87,000 to £225,000.

This amount will increase further next year to around £300,000, when we have a full year of floodlight depreciation. Depreciation is a charge to reflect the notional cost (ie no cash is involved) of the use of fixed assets during an accounting period. A decision has needed to be made as to whether in the medium term, the Club targets an operating profit before or after depreciation. To do the former, would necessitate budgeting to generate £300,000 from our normal activities, which would affect our cricket budget considerably.

It therefore seems appropriate to target a measure called ‘EBITDA’ (earnings before interest, taxes, depreciation, and amortisation) from 2011/12, whilst keeping a close eye on short and medium term cash flow. We have generated an additional £160,000 of notional expenses by doing the redevelopment and it seems foolhardy to damage our on-field performance for the sake of a cash-less accounting charge. The only change that Members will notice is that depreciation will move below the operating profit line next year – in all other aspects the accounts will remain the same. However given the size of the additional depreciation charge, Members should reconcile themselves to bottom line losses for the foreseeable future. For comparison purposes, the EBITDA figures for 2009/10 and 2010/11 would have been a deficit of £449,000 and earnings of £418,000.

Administration salaries increased by £4,000 or 2%. Our overall administration cost increased by £50,000, of which £30,000 was contras. Of the remainder, part of this related to higher professional fees for our very complicated tax affairs and other redevelopment issues.

Other income was down £33,000 due to lower contributions from Leander Sports and Leisure in respect of the ground at Beckenham. The Committee still believes fervently that this facility is of huge strategic importance to the Club, given how many Kent cricketers emerge from the Metropolitan London Boroughs. The grant of planning permission for a multi million pounds expansion of the facilities is an exciting prospect, but the Club will only proceed if a sensible financial basis can be established.

The interest payable of £199,000 was principally the amount due on the Canterbury City Council loan of £4 million, together with some lease interest.

Members will recall that the best estimate last year was that we would have corporation tax to pay of £450,000 in 2021 for the gains on the two parcels of land disposed of. This estimate was principally predicated on how we proposed to re-invest the sale proceeds. Following some extremely detailed and complex work, for which our advisers, Reeves and Co LLP, deserve enormous credit, it is now estimated that the liability in 2021 will be only £83,000. We can therefore release £367,000 of the tax provision made last year. Whilst all of the calculations are subject to agreement with the tax authorities, this is an outstanding outcome considering that we realised £5.7 million.

As in 2008/09 and 2009/10, we have had a revaluation of land and buildings, undertaken by Strutt & Parker LLP. Members will recall that over £7.2 million was added to our tangible fixed assets in the balance sheet in the 2008/09 accounts, based solely on the value of land. This amount came down by £2.3 million in 2009/10 as we disposed of land and started re-investing. At the end of this year, our tangible fixed assets have increased from £8.78 million to £11.45 million.

Members should note that this year our overall net asset value has reduced by just over £1.6 million, as there is not a direct increase in value for every pound spent. During the redevelopment, money has been spent that has not added asset value, but the objective has been to provide a ground fit for Members, players, spectators and the media, as well as for revenue generation, not to build the Club’s balance sheet. The particular areas where there is not necessarily a match between revenue spent and value created are the re-engineering of utilities to the ground, telecommunications and media cabling, trenching and ducting, enabling works and the new roads and pavements running from both the Nackington Road and Bat & Ball entrances.

Turning to other balance sheet issues, we have successfully reduced the shop stock by a further £30,000 over the year, which has contributed to an overall stock reduction of £14,000. Debtors have reduced by over £2.7 million, due to last year’s figure being hugely inflated by an outstanding amount from the land sales.

Our overall level of creditors is down by £470,000 over the year. The majority of our indebtedness is to Canterbury City Council. Our trade creditors are up significantly as a result of initial work on the new building.

Other creditors includes the loan of £250,000 from our Chairman, George Kennedy CBE. As ever, the Club is extremely grateful to him for his considerable commitment. The outstanding amount of tax is due to the VAT payable on substantial CB payments just before the year end.

Since the year end, the Club has secured a further loan of £1.5 million from Canterbury City Council to finance the new building. We are very grateful for their support. This additional finance is matched by the acquisition of an asset of similar value and so the net asset value of the Club is not diminished. To enable commencement of the building, Mr Kennedy advanced a further loan of £500,000, which will be repaid from the Canterbury City Council loan. Neither of Mr Kennedy’s loans has attracted arrangement fees, thus saving the Club considerable sums.

It should be noted that the Club has no loans currently with either our bankers or the ECB. The ECB amounts shown in creditors are normal fee payments paid to counties in advance.

In recent years, we have held meetings before the AGM with Members who wished to get a more detailed understanding of the Club’s finances. We are very happy to do this again and any member interested should contact Alison Davies at the Club.

We remain very grateful to all our sponsors whose support makes a huge difference to the Club’s finances.

Finally, I would like to thank the Executive Team, who devote a huge amount of time and apply great diligence to the Club’s financial affairs.

Simon Philip

Honorary Treasurer

February 2012

The Annual General Meeting will be held at the St Lawrence Ground, Canterbury on Tuesday 27 March, commencing at 7pm. Details have been mailed to members and they are encouraged to attend.

For a copy of the report and accountsclick here.