Liverpool FC’s Auditors Issue Warnings
Liverpool’s auditors have issued a warning about the club’s ability to meet soaring interest payments. The club’s latest accounts revealed that Liverpool FC paid £36.5m in interest on their debts in the financial year ending 31 July 2008. Auditors KPMG warned of a ‘material uncertainty which may cast significant doubt upon the group’s ability to continue as a going concern.’ It is realised inside the club that not enough money is being generated to cover the interest payments of Kop Football (Holdings) Ltd., the club’s holding company. This is in spite of the announcement of a record turnover of £159.1m and a pre-tax profit of £30.2m. Even so, the club’s net debt – not including that of the holding company – almost doubled from £43.9m to £86m. Kop Football (Holdings) Ltd. made a pre-tax loss of £40.9m, with its net debt rising to £299.5m. It has not helped that the club’s American owners made a poor call on the direction of interest rates, entering into fixed agreements between 4.3 per cent and 6 per cent as the Bank of England cut its rate to a record low of 0.5 per cent. The cost of exiting these hedging agreements would total £30.6m, prompting KPMG to describe them as ‘potentially onerous contracts’.
The accountants’ warnings come as Tom Hicks and George Gillett Jr. continue to look for outside investment and, in the more immediate future, to renegotiate their existing £350m loan. The Americans have until July 24 to refinance their credit deals with Royal Bank of Scotland and Wachovia. They are hopeful of securing at least a six month extension which would give them breathing space. Liverpool sources have trying to play down the KPMG comments, dismissing them as ‘unduly alarmist’ or seeking to explain them away as a standard statement when a company is negotiating a refinancing package. Nevertheless, the implications could be serious. Uefa, which runs the Champions League, demands that clubs provide detailed financial forecasts before it will issue them with a licence to compete in its competition. Hicks and Gillet are under growing pressure to sell the club, having failed to raise the finance to build a new stadium, which is vital to their plan for long-term growth.
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