Cycling Australia is $1.6 million in debt – but how bad is the situation really?

The 2015 Cycling Australia (CA) Annual Report was released earlier this month and contained some troubling words from the auditors. In this piece we go into the numbers to assess CA’s financial health and consider whether the situation is as dire for the national body as a first glance would suggest. The following article was written for CyclingTips by a certified Chartered Accountant who has asked not to be named as he is a government employee.

There was a brief flurry of excitement among financially-inclined Australian cyclists last week when Nick Bensley, best known for unofficially breaking the masters hour record, posted the following tweet:

From the Cycling Australia 2015 Annual Report: pic.twitter.com/q4AqDavv4m

— Nick B (@N_Bens) November 24, 2015

The highlighted passage from the Cycling Australia 2015 Annual Report suggests auditors are not convinced beyond reasonable doubt that CA will continue to function as a solvent company and be able to pay its bills on time for the next 12 months. So what’s the problem?

CA owes a lot more money than it owns at the moment. It has 34% more debts expected to fall due in the next 12 months than it has assets which can be used in that period (such as cash and accounts receivable). This is also a longer term problem, with CA owing $1.6 million more in total than it has in assets.

That sounds dramatic, but this isn’t a new problem. In fact, the same sentence was in the 2014 annual report, but CA was in a worse financial position then. In both cases the directors have asserted that the company will continue to be able to pay their debts on time for the next 12 months. A year after the 2014 annual report they appear to be right.

So what’s happened in the past year or so? In 2014 CA forgave $1.2 million of bad debts, which significantly eroded the organisation’s asset base – they only had $2.8 million in assets at the end of 2012-13, so 43% of these were wiped out. At the same time, payables due in the next 12 months rose from $445,000 to $2.9 million in a year, without a commensurate increase in assets.

The end result was a $1.8 million loss, which compounded the $570,000 loss in 2013. This took the member’s equity — essentially the net asset position — from positive $600,000 in 2012 to negative $1.8 million in 2014 — just two years.

So CA has bled lots of money and is in a terrible situation, right? In a word: no.

The annual position has improved from a $1.8 million loss last year to a $180,000 profit this year. This was done primarily by taking out a loan from the Australian Sports Commission and cycling state bodies for $2 million, which has allowed them to pay off their trade debts and instead have between five to seven years to pay the money back.

Revenue has increased in two years from $14.7 million to $19.3 million, primarily on the back of event promotion, and due to the bad debts being cleaned out last year expenses are down 5% from $20.3 million to $19.2 million. Cycling Australia also managed to turn a profit from events this year — a modest $200,000 but better than the bare break-even of the previous year.

There are still problems for Cycling Australia to face, but they are not insurmountable. Elite race memberships are down 9% on last year and down 26% on three years ago which continues a trend since at least 2011 (down almost 40%). Rider numbers are up 2,500 on last year, but this is mostly through recognition of three-month licenses (1,500) and ride licenses (780), meaning the growth in race licenses has mostly flatlined. This might be due to the massive price rises in licence fees, with elite licenses having significantly increased in cost over the last four years while providing riders with no additional benefit.

CA’s financial position is also bolstered by $1.5 million cash in the bank, but the ‘unexpended grants’ liability — money received as a grant for a specific purpose but not yet spent — grew to $1.1 million. If the money is not spent for that purpose, CA will have to pay it back to the grantor.

Finally, despite making a profit this year CA is still $1.6 million in the red. It still has a $2 million loan to repay on top of that, which may prove difficult while generating further profits. Given that most of the cash CA receives comes in the form of grants for specific purposes, this may prove to be challenging to some degree without further slugging members (particularly elite riders) for higher fees.

Diversifying into event management and promotion is a way to generate money, as seen by the new National Gran Fondo Championships, and CA is smart for using the existing infrastructure to make good money for minimal additional cost.

In summary, while the situation is far from perfect there is definitely a light at the end of the tunnel. For the final word on the immediate future, here’s the CA board of directors in the 2015 Annual Report:

“In the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.”

With their experience and knowledge, I do not disagree.

[ct_highlight_box_start]Click through to the Cycling Australia website to download any annual report since 2010.[ct_highlight_box_end]