BSH: Accounts Analysis

Birmingham Sports Holdings published their interim accounts for the six months ending December 2022 on Tuesday afternoon. As expected, the Hong Kong listed company have posted another loss, but while the accounts are unaudited there are a few bits we can take from it that tell us more about the state Birmingham City is in right now.


The BSH accounts can be viewed at the following link.

Before I go any further, as always I must remind people that I am not an accountant and that this blog does not constitute anything like investment advice.

Blues Losing Money

The big thing I took from these accounts is that it’s clear that Blues are still losing a lot of money.

While the club accounts for the year ending June 2022 aren’t due out for another month as per Companies House, there is enough information in these unaudited accounts to get an idea of how much money Blues are losing.

This is thanks to an agreement Oriental Rainbow Investments made back in 2020 when they bought a 21.64% stake in Blues.

The basis of this agreement was that if Blues made a loss in the Championship, then ORI had to pay the money BSH lost back to them.

On the first page of the accounts, we can see that BSH received HK$83.382M in compensation.

We know from that profit / loss agreement that the compensation makes up 75% of the total loss made by the club.

Therefore, using simple mathematics we can multiply the compensation figure by 1.33 to find the original loss amount.

This sum gives us HK$111.176M – which at the current exchange rate is around £11.772M.

That means in just six months, Blues lost £11,772,000about £450k per week.

To me, this just shows what a precarious position Blues are still in. Although the wage bill did drop a bit this year, the club is still losing money hand over fist.

Compare this to the revenues shown from the football segment on page nine – HK$93.953M or £9.951M – and it appears apparent that the club is absolutely not self-sufficient.

The Listing Stranglehold.

As I’ve discussed before, one of the biggest things that binds Birmingham Sports Holdings and Blues together is how much of BSH’s business Blues makes up.

The entire BSH group of companies made only HK$108.946M in revenues between July and December last year.

This means that Blues still account for 86.24% of BSH’s revenues, continuing to make it impossible for BSH to sell Blues in one go and retain the HKSE main board listing.

However, I don’t think it’s just this that binds the two together.

In the six months to December 2022, BSH lost HK$56.168M.

This figure is marginally higher than it was for the corresponding period in 2021, but it’s not horrific in comparison to previous years.

That loss figure would have been more than doubled had BSH not been able to put that they had received HK$83.382M in compensation from ORI.

While I am ignorant in how corporate finance works, I am intrigued as to how ORI “compensates” BSH these losses.

On page six of these accounts, there is a section talking of the borrowings that BSH has taken out.

Among other loan facilities, BSH have a HK$300M revolving loan facility with ORI. I imagine that this like a credit card account in that the money is there if needed to be used, rather than a lump sum like a loan.

My suspicion is that to pay chunks of this money owed to this loan facility off, BSH tells ORI that they will take the money owed in “compensation” from their loan balance.

For example, if BSH owed HK$100M and they were due to receiveHK$83.382M in compensation, then they’d tell ORI “Okay, the balance is now HK$16.618M and we’ll call the compensation quits”.

This would then allow BSH to borrow more money from ORI.

That little transaction would then make it easy to keep money coming in without worrying about having to pay it back.

That profit / loss agreement is due to come to an end at the end of this season, which could be a reason why ORI and BSH are now contemplating a sale of the club.

The EFL Charges

The accounts also mentions the EFL charges into alleged breaches of Regulations concerning the aborted Maxco takeover bid.

As confirmed in the previous voluntary announcement made by the listed company, BSH confirm once again that:

None of the Company and the Directors are charged by the EFL. The Company will keep the Shareholders and potential investors informed of any further material developments in connection with the above matters by way of further announcements in accordance with the Listing Rules as and when appropriate.

While no names have been announced with respect to individual charges, I’ve now heard from two separate sources that one of the people charged is Vong Pech.

Pech is of course not only owner of Oriental Rainbow Investments, but also a major shareholder in BSH and by virtue of these two shareholdings has the largest official financial interest in the club.

I’ve done my best to reach out to Pech for a comment on this, but as of yet I’ve heard nothing.

I’ve also heard some rumour from Hong Kong that despite the voluntary announcement made by BSH, the HKSE have taken an interest in the proceedings and that they may push BSH into making further voluntary announcements to keep shareholders and investors advised.

If there is anything to take from these accounts, then I think the most important thing is to appreciate the delicate situation both Blues and BSH are in.

Despite having cut things back, Blues are clearly still in a financial mire. The end of some hefty contracts at the end of this season will help, but it’s obvious the club needs to keep the wage budget low and bring in some extra regular income if it is to be self-sufficient.

Likewise, I think there is pressure building on BSH.

When I made complaints to the stock exchange last year regarding the lack of information about the Maxco takeover bid BSH was providing to shareholders, BSH managed to brush off the exchange.

However now with a regulatory body having made an investigation and bringing official charges against the club, the landscape has changed. I think BSH will have to be a bit more forthcoming in providing information with regards to the control of their major asset.

I can only imagine how that pressure will ratchet up if and when the club are charged in connection with the Wang Yaohui investigation.

It won’t be pleasant, but that pressure will, in my opinion, open an opportunity for a brave investor to create a buyer-friendly deal.