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West Wales News Review — analysis with a sustainability slant

Archive for the category “Economy”

Scarlets Plunge Deeper into Debt

Directors Remain Optimistic

The disappointing financial repercussions of the Scarlets’ super-sized stadium at Trostre, Llanelli, threaten the capability of Scarlets Regional Ltd to continue as a going concern, in the view of auditors Broomfield & Alexander.

The accounts for the year to June 30th 2016 show a pre-tax loss of more than £1.5 million, 50% greater than the previous year’s loss of just over £1 million.

The directors have invested in players, and the Scarlets have played pretty well in the current season. They stand 5th in the Pro 12 at the time of writing, below Leinster, Ospreys, Munster and Ulster – but 5th is not 1st, and there is still a way to go.

Broomfield & Alexander point out that, at the end of June 2016, the company’s net current liabilities exceeded assets by £2.718 million. In their view, this indicated “the existence of a material uncertainty which may cast significant doubt about the company’s ability to continue as a going concern”.

The auditors also question the £9.394 million value of the stadium as reported in the accounts, the implication being that the valuation is too high and may be impossible to realise if Scarlets Regional runs out of money. The stadium, which opened in November 2008, cost £23 million to build.

Despite the Scarlets playing lively rugby, the average gate for Pro 12 home matches in 2015-16 was 7,353, including the 4,000 or so season ticket holders, although the stadium can seat 14,870. The wide expanses of empty seats show that the claim ‘build it and customers will come’, a refrain which has been heard inside Carmarthenshire County Council, is wide of the mark.

The Scarlets owe the county council £2.614 million, which is due for repayment in 2023. Total equity in the rugby company continues to fall and at June 30th 2016 was down to £2.640 million, against £3.826 million a year earlier and £4.169 million the year before that. The county council’s investment on behalf of the people of Carmarthenshire is looking uncertain, despite the fact that a top notch rugby side brings non-financial benefits such as sporting confidence and local pride.

The board of directors, who have dug deep into their pockets to keep the rugby region going, remain optimistic, according to the accounts. Chairman Nigel Short, of Penderyn Distillery, wrote of the board’s determination to “continue to invest in development of talent”, although this had led and could well lead again to the business making a loss.

The directors “have a reasonable expectation that the company has adequate resources to continue in operation for the foreseeable future”, they report in the accounts.

Those resources are likely to include more of their own money. Perhaps a lot more.

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PHS Disconnects Ammanford Contact Centre

See also the ‘Carmarthenshire Herald’, July 8th p.4

The July 15th closure of PHS Group’s contact centre in New Road, Ammanford, brings to an end 12 years of employment in the grant-aided building.

Built with space for 300 people, in the run-down to closure only 12 PHS staff, and 10 working for PHS spin-off Waterlogic, were employed at the site.

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PHS Group, which received grant aid for its Ammanford venture,  leaves after 12 years. 

Caerphilly-based PHS Group, which provides workplace services such as washroom equipment, waste bins, mats, plants, water coolers, workwear, crates and caretaking supplies, took over the centre in April 2004.

The attractive 14,000 sq ft building, in a landscaped setting, was constructed for tenants PHS by Carmarthenshire County Council and the since-axed Welsh Development Agency, thanks to grant aid from the Welsh Government in the form of Regional Selective Assistance.  The county council retains ownership of the building.

Cllr Meryl Gravell, leader of the county council at the time, was reported as saying “Carmarthenshire County Council is delighted that PHS has chosen Ammanford to expand its customer contact centre operations. PHS will create long-term, sustainable employment for Ammanford.”

PHS Group, owned between 2005 and 2015 by private equity group Charterhouse Capital Partners, laboured under an excessive load of debt and breached banking covenants. In October 2014 Charterhouse Capital Partners sold PHS to a new entity called PHS Bidco Ltd, which in turn is owned by PHS Group Investments Ltd. The most recent published accounts for PHS Group, covering the year to March 31st 2015, report “substantially” reduced debt totalling £678.5 million, of which £373.5 million is due for repayment in April 2020 and £305 million in October 2022.

The directors of PHS Group Investments Ltd opted to depart from the Companies Act 2006 and not to amortise (write down) ‘goodwill’ – intangibles such as brand reputation — because they believe the goodwill value has an infinite life. The accounts for 2014-15 say “If the goodwill were amortised over a 20-year period, the loss before tax for the period ended 31 March 2015 would be increased by £14,132,000 with a corresponding reduction in reserves and intangible assets. The cumulative amount that would have to be written off against reserves is £14,132,000.”

The PHS businesses reported turnover of £385.2m in 2014-15, 2% less than the previous year. In line with the parent company directors’ decision to reduce, on paper, the loss for the year, PHS Group revealed a pre-tax loss of £41.1m, far smaller than the £683m loss in 2013-14, and further reduced to £37.4m thanks to a £3.7m tax credit.

Despite the relative improvement in performance, PHS still faces a steep uphill climb to achieve sustained long-term profitability. The Ammanford closure may be part of the effort, but disappointing news for the employees.

Georgina Jones, communications manager for PHS Group, did not reveal the amount of grant aid received, but said: “We received regional assistance at the time and we have employed up to 150 people at the site for the last 12 years so this money was well spent. We are also keeping many jobs in south Wales for the future.”

The Waterlogic staff are moving to premises at Cross Hands, said Georgina. She added: “We offered redeployment to Caerphilly for all PHS employees in Ammanford, however not all have chosen to relocate. This means that we will be recruiting for these posts at our Caerphilly head office. We are helping those who have chosen not to relocate to find alternative employment.”

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Carmarthenshire County Council owns this smart building, empty after PHS Group’s departure on July 15th

PDR

Stadium Casts Long Shadow Over Scarlets’ Financial Outlook

With a lot of support from deep-pocketed directors, the Scarlets rugby region soldiers on. The accounts for Scarlets Regional Ltd to June 30th 2015, signed off in March 2016, reveal a net loss of £987,615 — nearly £1 million — and net liabilities of £4.543 million.

The Scarlets, currently fifth in the Guinness Pro 12 league of Irish, Welsh, Scottish and Italian clubs, is the best-performing Welsh club of the season, only two points behind fourth-placed Ulster, and the players and coaching staff have worked heroically to keep the squad at the pinnacle of Welsh rugby, but the stadium is, like gravity, continually pulling them back down the mountain.

The Parc y Scarlets stadium at Llanelli’s Pemberton Retail Park, seating 14,870 people, is valued in the accounts at just on £9.621 million. The auditors, Broomfield & Alexander, point out that: “The trading conditions referred to above [in their report], along with the other matters explained in the accounting policies to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the carrying value of the stadium. Were these key assumptions to which the accounting policies refer not realised, the result would be a requirement to reduce the carrying value of the stadium.”

The average gate in 2014-15, according to the chairman, Welsh Whisky Company’s Nigel Short, was 7,000. That’s less than half capacity, and less than 2012-13’s average of over 8,000, but not bad at all considering that the whole population of Llanelli town and the surrounding urban area is only around 45,000.

This begs the question: why was such a large, expensive stadium constructed, when filling even half of it with local paying customers would require one in six of the urban population – from babes in arms to centenarians – to buy tickets? The business plan was just too rose-tinted. And would anyone else be willing to pay £9.621 million for the stadium, on land which the Scarlets do not own?

The debts exceed even the optimistic £9.621 million valuation of the stadium. Scarlets Regional Ltd’s debts, repayable after more than a year, rose to £12.194 million from £12.037 million the previous year.

The crunch year will be 2023, when £2.614 million should be repaid to Carmarthenshire County Council (which also provided the land for the stadium, at a nominal rent for 150 years, and allowed the club to sell part of the site to pub chain Marstons for £850,000 and to keep all but £200,000 of it).

It’s hard to see where the money to repay the county council is to come from. Scarlets Regional’s turnover did rise almost 13% in 2014-15, to £8.977 million from £7.953 million the year before, and the loss for the year almost halved from £1.746 million to £987,615 – but it was still a loss, and to repay its debts in the crucial year, 2023, the company has either to generate profits exceeding £1.5 million for each year between 2016 and 2023, or raise the money on assets, essentially the stadium.

In January 2016, before the latest Scarlets Regional accounts were released, its formerly dormant subsidiary Llanelli RFC Ltd suddenly increased the director count from one, Huw Dewi Evans (to whom Scarlets Regional owes over £2.179 million) to six, four of whom – Huw Dewi Evans, Phillip John Morgan, Jonathan David Daniels and Richard Meurig Griffiths – are also directors of the parent company. The flurry of new directors suggests that a revitalised role for Llanelli RFC Ltd may be in the offing.

While Mr Evans has more money outstanding to Scarlets Regional than any other director, according to the 2014-15 accounts, Mr Timothy Philip Griffiths, chief executive of the Jersey-registered Cpaush Ltd and of 17 other companies in addition to Scarlets Regional, is owed nearly £1.003 million, Mr Granville Harold Wise £1.491 million, and real estate company Nednil Ltd, £2.117 million. Nednil’s chief executive Philip James Davies is also on the Scarlets Regional board. Three more directors have smaller loans to the company, ranging from £40,000 to £420,000.

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The Trostre steelworks,  put on the market by dumping-damaged Tata Steel Europe, are over the road from the Scarlets’ stadium. Trostre’s uncertain future is casting a shadow over the stadium — and over the whole of Llanelli.

Tata Steel Europe’s Trostre steelworks, close by the Scarlets’ home at Pemberton Retail Park, could well play a role in the future of this story. Tata has put its UK steel operations onto the dumping-deluged market, and the approximately 650 jobs at Trostre, home of tinplated steel, are by no means safe. If Trostre went, the economic impact on Llanelli would be horrible, and Scarlets Regional would not be able to escape the hurt.

Of course, the steel crisis might moderate, but even if Llanelli escapes an economic mauling, the Scarlets’ own stretched finances cast a long shadow over the club’s prospects.

 

 

 

 

Borrowings Look Unrepayable — More Closures Coming?

Shops closing, pubs shutting their doors, banks moving away: all too common in West Wales. For most people who are not the retired with final-salary pensions, disposable incomes are squeezed — and the extent of borrowing is at least partly to blame.

Consumer credit in the UK rose 12% in the two years to October 2015, to £177.078 billion.[i] If student loans are included, this colossal amount owed rises to over £250 billion – nearly £9,350 for each of the 26.8 million or so households.

This is not mortgages, or loans secured on property, but unsecured credit.

The total amount of loans outstanding to individuals, including mortgages and student loans, reached about £1.530 trillion, equivalent to over £57,000 for every household – very unequally distributed, of course.

Even if interest rates remain ultra-low, how much of this debt could be paid back? And should interest rates rise, how damaging would be the impact on households’ spending? Whether we like it or not, consumer spending is the pivot around which the whole economy spins.

PDR

[i] Bank of England Bankstats, table A5.2, November 30th 2015

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