Statement from Stuart Walker

Stu Walker or Flowerman as he is otherwise known has resigned from his position on the CM board. Here is his resignation letter…

Resignation Statement from Stuart Walker CM Board Member

For some years I worked in credit control. People think that this area of accounting is all about debt collecting but it isn’t; it’s all about understanding human nature. What you learn very quickly is that people all conform to certain personality types. One of these types is the “constant debtor”. This person repeatedly gets him/herself into unsustainable debt, generally through over optimism. The person will then take drastic measures to get themselves out of the situation they are in, typically selling their house or going for an IVA or similar arrangement. What always amazes new credit controllers is that these people very rarely learn from their mistakes. After a short period they again get themselves into further debt, optimistically believing that they will be able to get out of their hopeless situation. Often this type of debtor will take on debt to clear debt such as loading credit cards to pay the mortgage and then churning the cards to other companies in an effort to stave off payment. The constant debtor never checks the interest rate or the small print because he/she never actually believes anything bad will happen yet it invariably does. The rise and rise of debt consolidation companies such as Ocean finance et al proves the rule.

The business isn’t profitable.

It is clear that in the past we have been unable to make a profit due to high interest charges on unsustainable debt. Since S&L the highest interest bearing debt has gone and to a large extent this has been substituted for rent or exchanged for shares. This is a good thing; however the exercise was only valuable if in the short honeymoon period the club returned to break-even status so as to not incur further debt.

It is now clear that this has not happened; the P&L is largely unchanged. This means that the underlying cause of the club’s problems is unchanged. The club can increase the amount of working capital it has but if the P&L continues in the same vein then working capital becomes ultimately irrelevant. Eventually the club will run out of cash again. The only question is how soon.

The club now has two choices. It either fixes the underlying loss situation or it sells off more assets to paper over the cracks. The club has decided to do the latter. The question is if the club raises this cash what will it do with it?

There is no point in paying off debt. The debt we have is largely low interest. The “Budget” shows an interest charge of only £50k. This means that better use could be made of the capital than simply paying off a low cost loan. The only reason we could have for paying off a debt is if we have aggressive creditors. We shouldn’t have aggressive creditors because they were all settled from the proceeds of selling off the ground weren’t they?

At the moment the Budget shows an expected interest charge of £50k. For a business of this turnover this is a manageable amount and the interest rate on the largest part of it is relatively good at 6% .There are though two issues with the “Budget”. Firstly the interest shown is £50k, however the loan notes alone total £1.2m at 6% interest. That would suggest interest of £72k on this item alone. We have been told that the club has an overdraft facility with Barclays and presumably this isn’t a 0% charge? This means that either the club is expecting not to pay all its interest due or that it isn’t producing realistic budgets. Secondly the “Budget” shows the rent payable as below EBITDA. The only possible reason this treatment would be acceptable would be if the rent was exceptional; and it’s not. The plans going forward give even more cause for concern. The plan expressed by Peter is that once planning permission has been obtained a new loan will be taken out on the security of the land. This does three things; it increases the interest charge on the P&L thus making the club less profitable, It gives the club an extra monthly cash call which again at the moment it can’t afford and thirdly it relegates the security of the loan note holders when they were expressly told they would have the security over the east stand land.

iven that the club didn’t make good use of the honeymoon period after S&L there is no reason to suggest that it will make good use of the capital raised other than to run the expenses. This is effectively the corporate version of living off a credit card – expensive and ultimately unsustainable.

Essentially continuing down this track will leave the club again in debt and needing either the sanctuary of another CVA, an incoming buyer or at the worst liquidation.

The current plan is also to recruit a new Financial Controller. The club has let a number of staff go and it is still unprofitable. Taking on a new member of staff again increases the losses. I am firmly of the opinion that you get what you pay for. A good financial controller would be expensive. The money spent would in my mind be worthwhile if it wasn’t for one thing. It is clear that any employee giving bad news is viewed at best with suspicion and at worst with hostility. This issue makes the employment of a new, talented financial controller a pointless extravagance.

It appears that the club runs only limited management accounts. It would seem that it is not possible to tell exactly how much it makes from Sodexho, Lindleys or the shop. The club does not run any form of accounting for opportunity cost thus making it impossible to tell the true cost of the concert.

Attitude

The club runs at a loss and has done for some time.

AFCB accepts this situation and indeed the whole planning procedure is designed to cope with this. Peter often sites the fact that no clubs make a profit in the lower divisions as a reason why the club continues to lose money and has to sell off assets. However it is not true to say that clubs in lower divisions inevitably lose money. I asked Dr Stephen Hope of Roehampton University about his work on football club finances and he said “…it is an exaggeration to say that it is not possible to run a club profitably”.In fact he goes on to give specific examples of clubs that published accounts in 2005/06 showing a profit, including our playoff final opponents Lincoln City who “…made a profit for the third year in succession”

If we accept that football clubs can make a profit or at the very least break even what can and should be done? Given that the club is apparently in a low cost debt situation then the best time for intelligent planning is now however we have seen little or no sign that there is a credible business plan in place other than the sale of assets or attracting new investors. If the club is either to bring in extra investment or cash then it should have a clear investment strategy to ensure that the ROCE meets a minimum to make the procedure worthwhile.

I have seen no sign that the club is interested in interacting in a mature way with the CM. The CM is largely sidelined. It is clear that the club are happy for us to paint the walls but not for us to decide what colour they should be. In fact it would be no exaggeration to say that if we point out that the walls need painting it is met with an aggressive response. I have seen no sign that the club is happy to answer difficult questions or engage in a meaningful way with members of the CM. Reports of fractious board meetings show that the CM Main Board members are treated with disrespect and disdain.

At the recent meeting I emailed Peter a list of questions. This list was made up of my points, items from other members of the CM and other fans such as Paul Frank and the chair of Playershare Nick Douch. Hardly a partisan crowd. From my notes of that evening Peter claimed at the end to have answered all of our questions however he in fact directly addressed none. The answers to 6 were made indirectly or due to further questioning. 6 questions answered out of 36.

People often suggest that if one asks difficult questions then an alternative should be offered. This of course is a fallacious argument. It is I suspect not an argument that may be put to the Auditors if they qualify the accounts for example, or to HMRC if they suggest somewhat forcefully that we should pay anything we might owe. But of course it is a challenge that those offering it know can never be taken up by any sane and sensible individual as so little full and complete information is available that the production of a useful and workable alternative is an impossibility.

The total forward planning in the club appears to be in the range of six months. I say appears because as a body the CM is given as little information as possible and then only grudgingly. Laurence Jones has made a difference to the club but only as far as he has been allowed to. The staff have been doing a marvellous job but can only work with the tools they are given.

I have not seen any indication that the club wants the fans to have any involvement in the running of the club save for shaking the odd bucket. This is a morally bankrupt position for “Europe’s first Community Club” and not one I am particularly fond of collaborating with.