First things first, delaying the publication of reports signed off on 29th October 2021 for a full five months is totally unacceptable from a transparency and accountability perspective. I am aware the directors were within their legal rights to delay publication up to 31st March 2022, but to what benefit?

To what purpose does this serve the club, build relationships and trust with minority shareholders, fans and commercial partners?

Along with the abolition of the requirement to hold ordinary shareholder meetings it is another example of the tone deaf manner in which this club, the purported “People’s club” is run.

On to the accounts themselves, bearing in mind that this reflects events twenty one to nine months ago, thereby not including the significant event of last summer.

Given the nature of the previous year’s losses, £138.9 million in 2019/20 & £111.8 million in 2018/19 and the anticipated losses for 2020/21 it is reasonable to examine in the first instance, the director’s comments re the business being a going concern.

The business is totally dependent upon Moshiri’s financial support

The impact of Covid, the loss of income combined with the continued increase in costs plus the additional financial commitments of Bramley-Moore, means that the club is wholly dependent upon Moshiri’s willingness and ability to keep funding.

Moshiri has had to commit another £242 milion, £97 million of which was provided in the period 2020/21 and a further commitment of £145 million to be drawn down when required in this financial year.

Assuming all is drawn down in this financial year that takes Moshiri’s financial commitment to £592 million since his arrival on 2016 (before taking into account his share purchases from previous shareholders). Does it reflect ambition? yes. Does it reflect the appalling manner in which the club has been run? Another yes. The question remains, why does he persist with this appalling management team having committed so much money to see a hugely loss making club on the cusp of falling out of the Premier League whilst building a brand new stadium?

Profit and Loss Account

Following on from the previous two year £100 million plus losses, the profit and loss account shows a final loss for the year of £120.9 million.

Turnover increased to £193 million but was influenced by two contrasting factors. Broadcast income rose to a record £146.4 million as a result of the revenues (£23.5 million) from the delayed conclusion of the 2019/20 season. Matchday revenue fell as expected, from £11.9 million to £0.2 million.

Sponsorship income fell as the £30 million one-off naming rights deal from the previous year disappeared from the accounts. Taking into account the one-off payment received previously, commercial revenue improved by £0.6 million year on year.

Unfortunately, wages increased from £164.8 million to a record level of £182.6 million. Operating costs reduced as a reflection on cost savings and the reduced costs associated with playing games behind closed doors.

Costs relating to Bramley-Moore no longer feature in the profit and loss account as they are now considered a capital cost given the increased certainty of the project being completed.

As with the previous year the club has decided to write down the book value of the playing squad by £15.3 million (2019/20 – £26.3 million) and increased the provision for onerous contracts to £7.2 million (2019/20 – £4.4 million)

As a result, before player and management trading, the club showed an operating loss of £29.1 million, an improvement of £14 million on the previous year as a result of the higher broadcasting revenues.

Amortisation, much loved by accounting and non-accounting fans fell from £99.2 million to £81.2 million.

No compensation was payable in 2020/21 to former or leaving members of the coaching staff.

Profit on player trading fell from £40.5 million to £13.2 million. This reflects the difficult market conditions but also reflects the difficulty Everton have had in moving on players who frankly are on career high contracts and don’t represent value to would-be suitors.

Interest costs on external debt rose to £8.5 million.

Despite the club making great play out of the impact of Covid on our losses (more below) the underlying loss taking into account the direct impact of Covid rose from £72.5 million in 2019/20 to £106.1million in 2020/21.

So how are all these losses paid for? (Cashflow)

Cash can be generated from day to day operating activities, from investing activities (player trading, shareholder equity injections) and from financing activities (borrowings).

In 2020/21 normal operating activities before movements in working capital saw negative cashflow of £22 million. After the change in balances of creditors and debtors the negative cash flow from operations increased to £63 million.

Cash from investing activities saw £48 million inflow from player disposals, £115 million outflow from player acquisitions and a further £22 million on fixed assets (predominantly Bramley-Moore). In addition the club received a further £99.75 million from Farhad Moshiri. Investing activities therefore contributed £10.66 million in cash.

Financing contributed a net £66.4 million arising from a new loan from Rights and Media funding of £90 million (part of a £100 million facility provided by Rights and Media), and the repayment of the previous loan (£18.75 million) and interest payments of £4.8 million.

As a result of the above, cash in the bank rose by £13 million to £70 million as at 30 June 2021.

Director’s remuneration

Everton’s four person board received £4.2 million (2019/20 – £3.5 million). The highest paid director (assumed to be Brands) received £2.04 million.

Borrowings

Aside from shareholder loans, Everton had a £100 million 5 year facility with Rights and Media Funding and had utilised approximately £90 million of that plus a £30 million CLBILS facility with the club’s bankers Metro Bank.

Share capital and reserves

At the time of the accounts, £102 million of ordinary shares (now £135 million), a negative profit and loss reserve (accumulated losses) and at the time a £250 million shareholder loan from BlueSky Capital, a company controlled by Farhad Moshiri.

As a result shareholder funds stood at £49.75 million (2019/20 £70.9 million)

Post balance sheet events

BlueSky Capital provided a further £97 million of shareholder loans treated as equity.

Regarding Bramley-Moore, Everton Stadium Development Limited entered a contract with Laing O’Rourke for the completion of enabling work at Bramley-Moore. The value of this contract is £77.8 million.

Much has been asked about what would happen if Everton did not complete the stadium development (perhaps because of relegation or lack of funding). The club retained the right to terminate the enabling works contract at will subject to the payment of reasonable demolition costs. I’m assuming though we are beyond that point in the development now.

What is clear is that the long term funding package of private placement debt is not in place and there is no suggestion in the accounts of it occuring in the short term. It is clear that the stadium is being funded by existing debt facilities and Farhad Moshiri.

Summary

The club is caught in a perfect storm of underperformance on and off the pitch whilst funding capital projects, having too big a cost base and having little idea as to how to grow its commercial income.

From a financial perspective the club is entirely dependent on Moshiri’s willingness and ability to keep funding extraordinary losses.

From a regulatory perspective, ie profitability and sustainability, the club is suggesting such is the level of Covid related contributions to losses (£170 million in two years) that the club remains compliant with the Premier League. The club has confirmed as reported here that discussions have been ongoing for a considerable period of time with the Premier League. I will address this in a separate article. It is remarkable that Everton have attributed such losses when compared to how other clubs have presented the impact of Covid in their accounts.

The warning signs for the club are there for everyone to see. We have an individual who is prepared to fund these losses, but equally the same individual must be held responsible for allowing the existing board and management teams to perform in such an unsatisfactory manner.

We are a shadow of the club Moshiri inherited despite his financial backing. He has to address this through bringing a competent board to run the club without his involvement. A continuation of a deteriorating performance can only result in non compliant losses and probable relegation despite the progress at Bramley-Moore.

This set of accounts can bring no comfort to any Evertonian and should bring no satisfaction to Moshiri