The directors present their report on the affairs of the Group, together with the financial statement for the year ended 30 June 2023. The Group consists of Hornets Investment Limited (the 'Company') who are the immediate parent company of Watford Association Football Club Limited (the 'Club') by virtue of their 99.7% shareholding.
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 Group. 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 the Group's 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 the club’s purpose to scout young talent and develop them into professional athletes by providing a clear path to 1st 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, however 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 the Group's 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. the Group seeks the promotion and application of certain general principles in such relationships. The Group 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”
The Group 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 the Group act in way 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
The Group 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 directors 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
The 2022/23 season saw the Club playing in the EFL Championship following relegation from the Premier League in 2021/22. During the year the Club implemented several cost saving initiatives and made efficiencies across the business.
The Group manages its cash and borrowing requirements in order to maximise interest income and minimise interest expense, whilst ensuring the company has sufficient liquid resources to meet the operating needs of the business.
The Group is exposed to fair value interest rate risk on any fixed borrowings and cash flow interest rate risk on any floating rate deposits, bank overdrafts and loans.
Investments and borrowings are made through bank and companies who must be approved by the Board. Debtors are monitored on an ongoing basis and provision is made for doubtful debts where necessary.
The Board regularly review the funding requirements of the business to ensure the company has the finance to continue as a going concern.
There are a number of potential risks and uncertainties which could have a material impact on the Group’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 first 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 companies within the Group. 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 to aid 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 Stadium in order to increase capacities in both hospitality and general seating areas.
The key information that the Club tracks is:
Turnover - £66.2m compared to £128.1m in 2022 Wages and salary costs - £48.7m compared to £78.6m in 2022 Wages to revenue ratio - 74% compared to 61% in 2022 Operating profit/(loss) - profit of £31m compared to £8.9m in 2022 League position - 11th (Championship) compared to 19th (Premier League) in 2022 |
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The Group's profit for the year was £24.4m compared to a loss of £17.7m for the prior year. The revenue for the year was £66m compared to £128m last year and this is primarily due to the Club participating in the Premier League in 2021/22 which attracted higher broadcasting revenues. Despite the considerable reduction in revenue, the Club generated a sizeable net profit of £24.6m which was mainly driven by a profit on disposal of player registrations.
Salary costs have decreased overall from £79m to £49m.
Other operating expenses have decreased from £44.2m last year to £24.6m mainly due to a decrease in football costs.
The Club made a profit on disposal of player registrations of £59.1m (2022: £15.3m).
Intangible assets have decreased from £64.7m to £37.8m 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 Championship; turnover decreased overall this year due to participating in the Championship as opposed to the Premier League last year.
Promotion into the Premier League for the 2024/25 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 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 2023.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The Group recorded a profit before taxation for the year of £23,960,779 (2022: a loss of £16,152,638).
No ordinary dividends were paid. The directors do not recommend payment of a final dividend.
The results for the year, together with a review of the Group's business performance for the year, its future prospects and its approach to financial risk management, are considered in the Strategic Report.
The Club has in place Directors' and Officers' Liability Insurance with a third party.
Within the bounds of commercial confidentiality, the Group endeavours to keep staff at all levels informed of matters that affect the progress of the Group and are of interest to them as employees.
The Group operates an equal opportunities policy. The aim of the policy is to ensure that there should be equal opportunity for all and this applies to external recruitment, internal appointments, terms of employment, conditions of service and opportunity for training and promotion regardless of gender, ethnic origin or disability.
Disabled persons are given full and fair consideration for all types of vacancy in as much as the opportunities available are constrained by the practical limitations of their disability. Should for whatever reason, an employee
of the Group become disabled whilst in employment, every step, where appropriate will be taken to assist with rehabilitation and suitable retraining.
The Group maintains its own health, safety and environmental policies covering all aspects of its operations. Regular meetings and inspections take place to ensure all legal requirements are adhered to and that the Group is responsive to the needs of its employees and the environment.
Details of post balance sheet events are set out in note 30 to the financial statements.
A resolution proposing that Myers Clark be reappointed as auditor of the group 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 1.1, 2022 factors. Scope 1 emissions (natural gas, diesel for stationery, combustion and transport fuel) are calculated from invoices. Scope 2 consumption data (electricity) was taken from an energy management system installed at all sites.
The table below summarises the GHG emissions for reporting year: 1st July 2022 to 30th June 2023:
Energy Consumption (kWh) |
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Gas (Scope 1) |
| 2,247,907 |
Other Fuels (Scope 1) |
| 923,638 |
Electricity (Scope 2) |
| 4,048,162 |
Transport Fuel (Scope 1 - Company Fleet) |
| 186,190 |
Total |
| 7,405,896 |
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Emissions (tCO2e) |
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Gas (Scope 1) |
| 411 |
Other Fuels (Scope 1) |
| 196 |
Electricity (Scope 2) |
| 838 |
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Transport Fuel (Scope 1 - Company Cars) |
| 45 |
Transport Fuel (Scope 3 - Grey Fleet) |
| - |
Total (All Scopes) |
| 1,490 |
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Due to the nature of the business, the most applicable normalisation parameter relating to carbon emissions is "turnover". Therefore the intensity ratio for Watford FCl is tonnes of CO2e per million GBP.
| 2022-2023 | 2021-2022 |
Normalisation Metric: | £63.5m | £128m |
Intensity Ratio: (tCO2e/£M) | 23.11 | 11.98 |
Energy Efficiency Action Plan
1) Installation of a solar array at the Club's training ground.
2) Installation of a combined heat and power plant at the Club's training ground.
3) Partial transition to electric powered lawnmowers at the Club's stadium.
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.
We have audited the financial statements of Hornets Investment Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 30 June 2023 which comprise the group profit and loss account, the group statement of comprehensive income, the group balance sheet, the company balance sheet, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our 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 group's and parent 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
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
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' report 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.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
As explained more fully in the directors' responsibilities statement, 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 parent company'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 parent company 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 group and the parent 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.
Use of our report
This report is made solely to the company’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 company’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 company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s loss for the year was £170,116 (2022 - £22,252 loss).
In the application of the group’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 Group 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 events. 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.
Hornets Investment Limited (“the company”) is a private company limited by shares domiciled and incorporated in England and Wales (Company Registration No. 08112624). The registered office is 38 Craven Street, London, WC2N 5NG.
The group consists of Hornets Investment Limited and its subsidiary, Watford Association Football Club.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The financial statements have been prepared under the historical cost convention, [modified to include the revaluation of freehold properties and to include investment properties and certain financial instruments at fair value]. The principal accounting policies adopted are set out below.
The company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements for parent company information presented within the consolidated financial statements:
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues: Interest income/expense and net gains/losses for financial instruments not measured at fair value; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income;
Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.
The Watford Association Football Club Limited is a 99.7% owned subsidiary of Hornets Investment Limited.
The parent company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented its own statement of comprehensive income in these financial statements. The loss after tax of the parent company was £170,116 (2022: Loss of £22,252).
The consolidated financial statements incorporate those of Hornets Investment Limited and all of its subsidiaries (ie entities that the group controls through its power to govern the financial and operating policies so as to obtain economic benefits). Subsidiaries acquired during the year are consolidated using the purchase method.
All financial statements are made up to 30 June 2023. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.
All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Watford Association Football Club Limited has been included in the group using the purchase method of accounting. Accordingly, the group profit and loss account and statement of cash flows include the results and cash flows include the results of Watford Association Football Club Limited for the 12 month period. The purchase consideration has been allocated to the assets and liabilities on the basis of fair value at the date of acquisition.
The Group made a profit for the year of £24,353,938 (2022: £17,721,883) and had net liabilities at 30th June 2023 of £13,171,623 (2022: liabilities of £37,660,899).
The subsidiary's income over the next twelve months, along with the continued support of the group's parent company, is sufficient to provide the necessary working capital for the group and therefore it is appropriate to continue to adopt the going concern basis in preparing the financial statements.
The Group's parent company has confirmed that they will not seek repayment of the balance outstanding to them of £53,273,937 (2022: £51,958,438) if to do so would jeopardise the group's ability to continue as a going concern. The group's owner is committed to new investment into the business in respect of playing staff and in order to update the facilities at the Stadium and the ultimate beneficial owner has entered into a financial commitment to financially support the group for the next 12 months.
Turnover represents income arising from sales to third parties and excludes transfer fees receivable (which are dealt with in the profit on disposal of players' registrations) and value added tax. Included in turnover are match day receipts and other match day income.
Season ticket and corporate hospitality income is recognised over the period of the football season as home matches are played.
Fixed elements of FA Premier League and Football League central broadcasting contracts are recognised over the period of the football season as league matches (home and away) are played.
Sponsorship contracts are recognised over the duration of the contract, either on a straight-line basis, or over the period of the football season, as appropriate, based on the terms of the contract.
Deferred revenue
Deferred revenue arises principally from the advance sale of season tickets, executive boxes and players' loan fees and is recognised as an income in the period to which it relates.
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 recognised in the profit and loss account.
Interests in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses. The investments are assessed for impairment at each reporting date and any impairment losses or reversals of impairment losses are recognised immediately in profit or loss
In the parent company financial statements, investments in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.
Interest income on debt securities, where applicable, is recognised in income using the effective interest method. Dividends on equity securities are recognised in income when receivable.
A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
At each reporting period end date, the company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
The Group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the group's balance sheet when the group becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
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 or , 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, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group 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 receipts discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in or in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.
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 though 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 group's contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group.
The Company enters into foreign exchange contracts in order to manage its exposure to foreign exchange risk.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to fair value at each reporting end date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
A derivative with a positive fair value is recognised as a financial asset, whereas a derivative with a negative fair value is recognised as a financial liability.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset if, and only if, there is a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.
The cost of any unused holiday entitlement is recognised in the period in which the employee's services are received. Termination benefits are recognised immediately as an expense when the group is demonstrably committed to terminate the employment of an employee or to provide termination benefits.
Signing on fees
Signing on fees are charged to the profit and loss account on a straight line basis over the period of the player's contract.
Rentals payable under operating leases, including any lease incentives received, are charged to income on a straight line basis over the term of the relevant lease.
Lease incentives are recognised in the profit and loss account on a straight-line basis over the term of the lease.
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.
The Group's accounting records are maintained in Pounds sterling. Monetary assets and liabilities denominated in foreign currencies are translated into Pounds sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of transaction. All differences are taken to the profit and loss account.
The 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.
Within amortisation is £1,831,000 of impairment (2022: £1,587,000) on intangible fixed assets.
The average monthly number of persons (including directors) employed by the group and company during the year was:
In addition to the above the Group employed an average of 94 (2022: 94) part-time match day staff during the year.
Their aggregate remuneration comprised:
The actual (credit)/charge for the year can be reconciled to the expected charge/(credit) for the year based on the profit or loss and the standard rate of tax as follows:
In addition to the amount charged to the profit and loss account, the following amounts relating to tax have been recognised directly in other comprehensive income:
Tax losses at 30 June 2023 available for offset against future trading profits are in excess of £75 million (2022: £99 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 net book 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 impairment of £1,831,000 (2022: £1,587,000), included within the amortisation charge for the year.
The above investment includes loans to the group undertaking, and have been provided to financially support the subsidiary and consist of the following:
A £40,793,973 loan, the effective interest rate of the loan over the year was 2.95%. The full amount is payable after one year. Total interest charged in the year is £1,019,849 (2022: £1,392,311). Unpaid interest at the year end amounted to £2,606,889 (2022: £1,587,040).
An unsecured loan of £1,064,290 (2022: £1,025,770) which is interest free and has no fixed repayment date.
A loan of £2,250,000 bearing interest of 4.5% per annum, of which the full balance is due to be repaid in more than one year. Total interest accrued in the year is £101,250 (2022: £101,250). Unpaid interest at the year end amounted to £329,063 (2022: £227,813).
A loan of £1,000,000 also bearing interest at 4.5% per annum and is repayable in less than one year. Total interest accrued in the year was £45,000 (2022: £45,000). Unpaid interest at the year end amounted to £418,408 (2022: £373,408).
A loan of £1,600,000 bearing interest of 6% per annum which is repayable in less than one year. Total interest accrued in the year was £96,000 (2022: £96,000). Unpaid interest at the year end amounted to £723,551 (2022: £627,551).
A £5,000,000 loan introduced during the year, attracting interest of 3.5% above Bank of England base rate. The amount due in less than 1 year is £2,500,000 with the balance due in more than 1 year. Total interest charged during the year was £122,000. Unpaid interest at the year end amounted to £122,000.
The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts.
The Club’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:
Capitalised under assets under construction were the improvement works being made to the Group's stadium and training ground facilities, which were transferred to the corresponding asset category on completion of the works.
Details of the company's subsidiaries at 30 June 2023 are as follows:
The estimated replacement cost of stocks does not materially differ from their balance sheet value.
Loans from group undertakings (Company)
The balance within loans from group undertakings includes a loans of £40,793,973, £4,400,000, £4,013,845 and £25,000 with the immediate parent company, Hornets Management S.a.r.l Limited, attracting interest of 2.5%, 2.5% and 4% per annum respectively. The full balances of all loans are due after more than one year. Total interest charged in the year for each respective loan is £1,019,850, £110,000, £160,554 and £96 (2022: £1,019,850, £110,000 and £160,554). Unpaid interest at the year end amounts to £2,680,862, £717,945, £642,216 and £96 (2022: £1,661,0113, £607,945 and £481,662) respectively.
Other loans (Company)
A loan of £5,000,000 from a director of the subsidiary was introduced during the year. The loan bears interest at 3.5% above Bank of England base rate. Total interest charged in the year is £122,000 with unpaid interest of £122,000 as at the year end.
Other loans (Group)
Other loans include the following:
A secured loan from Watford FC's Community Sports & Education Trust of £319,000 (2022: £319,000), attracting interest of 1.5% above Barclays Bank base rate. The balance due in less than one year is £150,000 (2022: £100,000). The balance due in more than one year is £169,000 (2022: £219,000). The total interest charged for the year is £7,000 (2022: £7,000).
Secured loans from an independent finance provider totalling £63,262,000 (2022: £77,169,000). The total amount repayable within one year is £54,014,000 (2022: £29,353,000) and the total amount repayable after one year is £9,248,000 (2022: £47,816,000). The total interest charged in the year was £5,336,000 (2022: £5,116,000) at market rates between 5.35% and 9.65%pa.
Security (Group)
An independent finance provider holds a fixed and floating charge secured over all assets and undertakings of the Club.
Transfer advances owed to an independent finance provider are secured by way of promissory notes with The Football League over future transfer fees receivable.
The carrying amount of the total assets of the Club is £223,862,000 (2022: £221,964,000) and the carrying amount of the Vicarage Road Stadium is £82,153,000 (2022: £83,518,000).
Finance lease payments represent rentals payable by the Club for certain items of plant and machinery. The finance lease liability is 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.
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
Capital grants include a balance of £675 (2022: £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 towards the cost of catering equipment. At the balance sheet date £180,000 (2022: £240,000) of this remains within deferred income.
The company has one class of ordinary shares. Ordinary shares have full rights in the company with respect to voting, dividend and capital distribution.
A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.
Defined benefit scheme
| 2023 | 2022 |
|
|
|
Liability at start of the year | 388,000 | 472,000 |
Payments in year | (88,000) | (84,000) |
Increase in provision | - | - |
Liability at end of year | 300,000 | 388,000 |
As one of a number of participating employers in the defined benefit scheme, the Club has only been advised of its share of the deficit of the Scheme and as such the Club has only recognised their share as a liability.
As a result, the contributions paid to the Scheme reduce the provision. The Club is unable to identify its share of the 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 2020 and indicated that contributions required from the Club towards making good the deficit was £533,592 at 1 September 2020 (the total deficit in the Scheme at this date was £27.5 million). The Club's share of the deficit is being paid over a period of five years and ten months commencing September 2020.
Contingent liabilities and assets - Group
The Club 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 2023 is £22,585,000 (2020: £21,142,000). Since the year end £962,000 has become payable (2022: £5,084,000).
At 30 June 2023, 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 £1,042,000 (2022: £2,903,000) has become due.
At the reporting end date the Group 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:
Group
As outlined in note 26, subsequent to the year end, sums have been receivable from other clubs in respect of appearance and sell-on clauses in respect of players previously sold. It is estimated that net income of at least £1,112,000 is to be reflected in the financial statements 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 £19,096,000 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 £3,448,000 (dependent upon certain exchange rates at the date of payment).
Entities with control over the entity (Company)
At the year end, the Company owed Hornets Management S.a.r.l, £49,207,818 in loans (2022: £49,207,818). Details of the loan is included in note 20. The company recognised £1,412,660 of interest expense during the year (2022: £1,290,404), and had interest of £4,163,280 (2022: £2,750,620) that was outstanding at the year end.
At the year end the Company was owed £nil (2022: £139,488) in relation to overpayments and expenses paid on behalf of Hornets Management S.a.r.l. The Companies are related through Hornets Management S.a.r.l being the immediate parent company.
Other related parties (Company)
During the year, the Company made payments of £4,300 (2022: £4,300) to Diversify Sport Investment S.a.r.l, in relation to professional fees. The companies are related through Diversify Sport Investment S.a.r.l, being the ultimate parent company.
Key management personnel of the entity (Group)
Other than the directors there are no other members of key management. Directors remuneration is reported in note 7.
Other related parties (Group)
During the year, the Club was charged £4,548,000 (2022: £278,000) in respect of the purchase of player registrations from Udinese Calcio SpA, a company under common control. The Club charged Udinese £27,587,000 (2022: £34,199,000) in relation to the sale of player registrations. There is a net amount owing to Udinese of £19,069,000 (2022: £12,796,000) at the balance sheet date. The Club sent no (2022: one) players to Udinese on a temporary registration for a fee of £nil (2022: £nil) and received two players (2022: none) from Udinese on temporary registrations.
The company's immediate parent is Hornets Management S.a.r.l, incorporated in Luxembourg.
The ultimate parent is Diversify Sport Investment S.a.r.l, incorporated in Luxembourg.
Hornets Investment Limited, is the highest company in the group to prepare group accounts.
The ultimate controlling party is Mr Gino Pozzo by virtue of his sole shareholding.