DHST review of DHFC related financial accounts

Appraisal of Dulwich Hamlet Football Club Ltd abbreviated accounts for the year ended 30 September 2016

In line with objective 3 of our 2016-18 objectives, the Supporters’ Trust is here to ensure that Dulwich Hamlet Football Club is a transparent and well run football club. In order to prepare the club for fan ownership it is vital that we scrutinise any publically available financial information and continue to push for any information that is not readily available to support the understanding of this public information.

On 29th June 2017, Dulwich Hamlet Football Club Ltd filed abbreviated accounts with companies house for the year ended 30 September 2017. The company is within its rights to file abbreviated accounts since it satisfies at least two of the required criteria, namely a turnover of less than £10.2m, £5.1m or less on the balance sheet or 50 employees or less.

A set of abbreviated financial statements need only disclose a Balance Sheet and notes to the Balance Sheet. The accounts were filed on time, and do not require an audit.

With the above in mind, we were able to perform a limited review of the financial statements, noting the following key features:

Fixed Assets

There doesn’t appear to have been any fixed asset investment in plant and machinery through this entity during the period. Without full knowledge of the breakdown of assets held by the company, it is difficult to say whether the assumed useful economic life of 20 years for these assets is generous or realistic.

Current Assets  (Debtors £17.6k, Cash £12.6k)

Debtors and cash have both increased from the prior period. Without any requirement to disclose any further information on these balances, there is little to be gained from this.

Creditors < 1 Year (£493k)

It is creditors and retained losses where the most significant movements are noted. £173k has been added to the current creditor balance, due to be repaid within one year, with £147k being the increase in retained losses in the period. Again, without further clarity on what the balance is comprised then there is little to be gained from this movement, other than to say that the continued losses of this entity are increasing the level of debt being owed to another party. The terms to which this debt is held and the likelihood of it being called for repayment are unknown, but given that it resides in ‘current creditors’ it is a fair assumption that the debt could be repayable on demand.

Going Concern

Having said the above, the accounts have been prepared under the going concern basis, which considers that the entity will continue to exist under the support of its directors and creditors.

Questions

With the limited information available, there are a few key questions that need to be taken away from the review of this set of accounts:

1.   What is attributing to the increased debt/further losses during the period?

2.   Who is this debt owed to, and what are the formal terms of this debt?

3.   Given that we are shareholders in the company, should we not be receiving full accounts, rather than the abbreviated set filed at Companies House? When can these be made available to us?

DHST will follow up on these outstanding questions in due course.


Update: May 2017

Further to this DHST has reviewed the financial statements of Healey Development Solutions (Dulwich) Limited, the company responsible for bar operations at Champion Hill.

Appraisal of Healey Development Solutions (Dulwich) Limited accounts for the period 7 January 2016 to 31 Decemver 2016.

The accounts were signed by Peter Bennison as director, and the company filed full unabbreviated accounts, which allows for some further depth of analysis than the abbreviated set it is obliged to file at companies house.

The company was incorporated in January 2016, filing a shortened period to 31st December 2016.

Profit & Loss

The profit and loss account shows turnover of £242k, cost of sales of £70k, admin expenses of £235k, and therefore a net loss of £63k.

Somewhat unusually the company has decided to fil the accompanying detailed profit and loss account, which is not required by law.

Turnover £242k

This is represented by£180k of sales income (presumably bar takings), and £62k of other income (presumably hire income).  It would be interesting to see if any of this ‘other income’ is derived from DHFC Ltd in the form of rental of the bar space, or other management fee income.

Cost of sales £70k

Bar supplies represents 86% of the cost of sales total.  With the remainder comprising ‘bar equipment’.  What this represents is unexplained, as you would anticipate that bar equipment is either capital, or part of bar supplies (i.e. plastic disposables).  Security costs also represent £3,300 of cost of sales.  It’s unusual to see this sitting in cost of sales, as it is not a direct cost of the sales from the bar, but once again perhaps this is attributable to the ‘other income’ being potentially rental of the facility.

Sundry expenses represent 6% of cost of sales at £4k.  It is unknown what these could relate to.

Employment costs £87k

Employment costs are comprised 92% permanent employment and temporary labour.  Recruitment costs are £6,860, which seems high given the nature of employment in the bar.  Staff welfare represents less than 1% of employment costs which is likely attributable to staff drinks/parties/other small gifts and benefits.

Premises Costs £47k

Premises costs are comprised water rates £14k, Light heat and power £33k, and insurance £494.

As the operator of solely the bar operations, light heat and power at £33k and water at £14k may be considered quite high, however we do not have further details of whether these are estimated bills, managed by an external/internal agent, and whether it truly represents the bar unit alone and the practicalities of apportioning the rates between facilities.  In light of this it is difficult to assess whether this is a true representation of the running costs of the bar facility.

General administrative expenses £96k

By far the largest expense in this general admin expenses category is the cleaning cost of £40,832.  It is inexplicable what this bill could relate to, and clearly is not a fair representation of the likely ongoing cleaning costs of the facility.

Repairs and maintenance at £27k, are the next highest cost in the category.  Once again it is difficult to see the tangible effect of this spend, and difficult to tell whether this is a genuine reflection of the state of repair of the facility, or inflated repair costs imparted onto the entity by related parties to the entity, or simply a poor tendering process.

Legal & Professional Fees – £12k

It’s unclear why this entity is bearing any legal and professional fees given its sole responsibility is the management of the bar operations.

Sundry expenses £8k

Once again – a catchall grouping that sheds little light on what the money actually represents.

The remaining admin expenses are comparatively incidental as compared to those explored above.

Balance Sheet

Fixed Assets – £6k.

The company acquired £6.5k of fixed assets in the year.  This could be in relation to the outside bar equipment and build.

Stocks – £394k

The stock value in the balance sheet is noted as ‘Work In Progress’.  This is vague at best.  As a bar turning over £240k p.a. you would certainly not expect a stock holding of more than twice turnover at the end of the year.  This therefore begs the question – what else is being categorised as ‘stock’.

Debtors – £108k

Part of the solution to the high stock value is the £16k balance in debtors that is ‘Amounts owed by group undertakings and undertakings in which the company has a participating interest’.  Given that there are no investments held in the company, then it could be possible that the stocks value includes an investment in a subsidiary.  This would be clarified by the required statement in the directors’ report stating the principle activities of the company (this is absent).  £89,300 relates to other debtors which is unexplained.

Cash at bank – £36k

There is no further information to comment any further on this balance

Creditors – £608k

The vast majority of this is £607k of ‘other creditors’.  This is almost certainly linked to the significant balance sitting in stocks, whereby the company must have been loaned cash to invest in something else.  A method of cash distribution throughout the ‘group’ of companies.  How this is working however is unclear from the disclosures in the accounts.

There are £88k of trade creditors, which seems incredibly unlikely on the basis of a year’s worth of bar supplies being £60k.  Taking into account all likely P&L cost accounts that will carry credit terms, suggests an average payment terms of 160 days which seems incredibly unlikely for a company with this lack of credit history and net liability position.

Summary

There is little certainty to take away from this set of financial statements, and they somewhat create more questions than they answer.  Most pressingly:

  • Is the margin of 71% typical of the industry, and what of this is distorted by the unrealistically high closing stock value?
  • What makes up the closing stock figure?
  • What are the principle activities of the company to warrant a closing stock figure in excess of £300k?
  • Who is indebted to Healey Development Solutions (Dulwich) Ltd, and who do they owe money to?
  • What are the terms on any money owed to/from Healey?
  • What is contributing to the out of proportion cleaning costs
  • What is ‘other income’ of £60k?
  • What undertakings does Healey have in other entities (as alluded to by the Debtors Note).
  • What is the basis of apportionment of light, heat and power into this entity.
  • Is the entity being unfairly impinged by crippling management and other charges in order to portray an unsustainable picture of the bar operations?