For those of you who would like to view the accounts for yourself, the stock exchange announcement is visible at this link.
I also would like to caveat this article with a reminder that I am not an accountant, I have had no financial training and that any investor should do their own research prior to trading in the shares of ZO Future Group.
As ZFG’s only connection to Blues is they remain 51% shareholders, I’m going to concentrate on the important figures rather than try to do some kind of full analysis.
Headline Figures
After the summer of transfer spending Blues have had, there has been much discourse from fans of rival teams about how Blues can possibly afford to spend as much money as they have.
The more sensible fans of other teams out there have questioned how Blues can break even, bearing in mind the barren years of before; while the more copium-addicted types have sworn up and down Blues are going to get busted again for breaking financial fair play rules.
With this in mind, I think the most important figures to look for are in relation to revenue; how much money the club brings in.
Thanks to the regulations Hong Kong have for their main board listed companies, ZFG have to show how each component of the group of companies does in relation to revenue, expenditure and profit/loss.
On page seven of the report, there is confirmation of what we all knew has happened at Blues; that revenue has shot up in the last twelve months.
One of the most obvious reasons for that was the completion of repairs to the lower part of the ground, which when coupled with the general feelgood factor ensured the club has had much bigger attendances.
Matchday receipts were at HK$61.087M last year (about £5.851M), which represents a rise to 171% of the figure for the previous year (HK$36.042M).
Commercial revenue is much higher too, standing at HK$59.140M (about £5.665M), which is 124% of the previous season’s total.
While the accounts warn investors that a drop to League One will come with a drop in revenues, the evidence we’ve seen so far shows that does not all seem the case and I have a hope the revenues for this season will be above the HK$239.763M (£22.965M) level they are given as for last season.
Indeed, I believe the plan will be to push those revenues closer to the £30M mark which will help ensure the sustainability of the club as per the metrics I laid out in a previous piece.
The other big figure I like to look at from accounts is staff costs, as we know a key metric for any club is the wage / revenue ratio.
Unfortunately, staff costs are not segmented in the same way and as such I don’t think it’s possible to properly judge how Blues are managing on that front.
One figure that is properly segmented is the amount of profit Blues made from player trading. This is shown on the opening page of the accounts announcement and shows that a profit was made of HK$151.737M (£14.535M).
This money would include the sales of Tahith Chong and Kevin Long as well as the sell on received from the transfer of Jude Bellingham to Real Madrid from Borussia Dortmund; however it won’t include the money received from the sale of Jobe Bellingham to Sunderland as that occurred in the previous financial period.
The final important figure I take from these accounts is on page 20, and shows the amount of money ZFG owe to Shelby Companies Limited, which is the investment vehicle Knighthead used to buy its shares in the club.
As at June 30, 2024 there was an amount outstanding of HK$210.832M (£20.194M) owed to SCL, which should demonstrate the amount of money that Knighthead have already sunk into the club.
So what does this all mean?
Sustainability and the Present
The most important thing I take from these accounts is that the figures that matter to the long term health of the club are trending in the right direction.
If Blues are to be successful then the club has to generate more revenue; there are no two ways about it.
However, it’s important that Blues do not rely on one revenue stream above all others as this can become a huge problem if something happens to kibosh that revenue stream.
Last year, Blues did what they needed to do to get the matchday receipts on track.
Getting the stadium fully reopened meant that the club could sell another 9,000 or so tickets every game, and then potentially the same number of additional season tickets in the close season.
This has resulted in a massive increase in matchday ticket revenue.
This year has been all about commercial revenue.
Last year it didn’t go up by that much and I suspect that would have been due to the time needed to end less profitable deals like the ones with Elior for the catering and Just Sport for the kit, along with the time needed to build relationships with bigger commercial players.
This season we’ve already seen a new kit deal with Nike, an extension of the Undefeated shirt sponsor deal as well as a deal with Delta Airlines as shirt sleeve sponsor.
I suspect these won’t be the last sponsorship deals we’ll hear about – and it’s these kinds of deals which should push the commercial revenue into a healthier position, and in turn boosting the sustainability of the club.
The one key metric we can’t be sure about is the wage to turnover ratio, as we will not have anything accurate on wages until the club accounts come out in the spring.
I’m less worried about that though than I have been in the past; if only for the simple reason that relegation to League One will have had an automatic effect on the contracts of many players who have remained at the club.
I’m also under the impression that Blues have been somewhat careful in the wages that they have offered to players now, with promises of better wages as and when the club is promoted back to the Championship (and potentially higher).
However, there is one more burning question – how much longer will ZFG have anything to do with Blues at all?
The Future
Unfortunately, my crystal ball is in for a service right now and as such I know I have to be very careful about trying to make any predictions for the future for ZFG and Blues.
On the face of it, it doesn’t feel like ZFG will be able to let go of Blues any time soon.
ZFG were unable to sell Blues in one big chunk because of the amount of revenue Blues contributed compared to the other segments of the group, and that doesn’t appear to have changed much.
We can see from the segment analysis that ZFG have barely received any revenue from their new electric car and truck business, while the Cambodian properties continue to only bring in a small amount of cash and the Japanese healthcare business has now been completely sold off.
And there has never been any timetable set out in stone to say how long it will be before Knighthead are allowed to purchase the remainder of the club.
However, despite all this I’m more hopeful than ever that ZFG will be forced to let go of Blues sooner rather than later.
Part of the reason for this is the sheer amount of money that is already owed to Shelby Companies Limited (and by extension, to Knighthead).
In the past as Birmingham Sports Holdings have been able to pay off big fat loans by converting them to shares; as we saw with loans made to the company by investment vehicles like Dragon Villa Limited.
This time, they’re not going to be able to do that.
There is no way that Knighthead are going to want any ownership at all in a failing listed Hong Kong company.
Therefore, in my admitted uneducated opinion, I think the only way out will be for ZFG to swap the money that is owed to Knighthead for their shares in the club.
I can remember Tom Wagner talking about the deal in a Bloomberg video when the takeover was first done, and I can also remember him saying that the loan SCL was making is the leverage to force them to sell the remainder.
While I can only speculate as to the timeframe that would happen, I think I would be disappointed if a sale wasn’t forced by the end of the 2025/26 financial year; and I would hope it could be done sooner.
How ZFG get that past the Hong Kong Stock Exchange is their problem, and one I can honestly say I don’t care about.
While we don’t have all the figures about BCFC from these accounts, we should absolutely take heart that things are on the up.
Furthermore, these accounts provide a bit more evidence that the fears of Blues crashing through financial rules into oblivion are unfounded.
In the past I’ve looked at accounts to try and rationalise an explanation for what is happening at the club.
It makes me pleased beyond belief that this time, it’s nothing more than an exercise in curiosity and confirmation.