by John Pelling, Financial Director

Clearly, season 2007-08 was notable for the memorable events on the pitch on May 3. Analysis of the club's accounts, however, shows that that success came at a price.

The club continues to operate at a significant loss and relies on the Chairman to bridge the gap in finance between this loss and any money recouped from player sales.

Missing out on the cup runs of the previous season meant that trading income was reduced from £9.2m to £7.6m.

Analysis of trading income shows that gate income, which includes season ticket sales and cup receipts, fell from £5.6m to £4.6m.

The average league gate was only slightly down at 19,948 against 20,617 in the 2006/07 season which is testament to the core of support that the club continues to have in the region.

Commercial income from sponsorships, match-day hospitality, League distributions and merchandise sales totalled £3m against £3.6m the previous year.

Within the umbrella of commercial Income the club continued to sell £1.1m of match-day hospitality, events and catering.

Revenue from TV, radio and internet reduced from £1m to £750k directly as a result of not having a televised cup run. Income from sponsorship, royalties and advertising was maintained at £500k while income from merchandising, including sales over the internet and by mail order, reduced from £900k in 2006-07 to £700k in 2007-08.

This is the expected trend in a year when the less popular 'away' kit is replaced as opposed to a year in which red kit is replaced.

Possibly the most striking feature of this year's trading results is that staff costs exceeded trading income by £100k. This was in spite of staff costs being reduced by £600k compared to the previous year. In essence, this reflects the ultimate success that the first team enjoyed last year as events of May 3 triggered promotion bonuses for players and staff.

The club's ethos has been to structure contracts in order to reward success as far as possible - these bonuses were always known to be the outcome of playing success.

The club continued to repay Nottingham City Council under the terms of the loan agreed with them in 2004. In 2007-08 the amount repaid increased to £660k in accordance with that agreement and the balance outstanding at May 31 2008 was £3.6m.

The purchase of players and fixed assets of £2.8m includes the incoming transfers of Chris Cohen and Arron Davies in 2007 and Robert Earnshaw, whose transfer was sealed in May 2008 and therefore the cashflow from this transaction has to be accounted for in this set of accounts.

£200k of stadium improvements effected in 2007-08 attracted grants from the Football Foundation. This reduced the cost to the business of projects like the new seats in the lower Brian Clough stand, upgraded CCTV and fire alarm systems and the new fence behind the Trend End Stand.

The total cash deficit in the year was £6.7m compared to £4.2m in season 2006-07. This was, as ever, financed by a combination of player sales and loans from our Chairman.

In season 2007-08 £800k of cash was realised from player disposals. This was principally cash received from the sell-on clauses from both Marlon Harewood and Marlon King. Further money is due to be received from these sources in the current season.

Chairman's loans for the year totalled £6.6m. It is fair to say that staff costs could not be maintained at over 100 per cent of trading income nor could player purchases of the significance noted above be possible without this source of funding.

The terms of the Chairman's loans are that interest accrues at a variable rate based on banks' own lending rates but this does not represent a cash cost to the business as both the loans and the interest that is accrued on them are repayable together in the future. The interest and principal on the loans are repayable on May 31 2011.

The total amount shown as owing to the Chairman is £40.2m. Other than the amount owed to Nottingham City Council referred to above, this is the only significant debt that the club has on its balance sheet.

Our return to the Championship will mean that most categories of income and expenditure can be expected to increase. Season ticket sales have increased from 10,800 in 2007-08 to 12,600 this year and, on top of that, the take up of seasonal packages through the corporate department have also increased.

The club will earn more money from central distributions from the Football League as most of the Football League's income is distributed to clubs based on their league status. As a result, we can expect that revenue from TV, radio and internet will rise from £750k in 2007-08 to in excess of £2m in 2008-09.

This current season has also seen the launch of a new red kit which, along with the promotion to the Championship, will enhance merchandise turnover.

All of these enhancements to turnover will be welcome by the business as costs will also be increasing following promotion.

Financially, the club is in a much stronger position than many other clubs in The Football League. The Board would hope that in the foreseeable future this financial strength can be used to our competitive advantage now that we have been re-promoted back to the Championship.

Summary of 07/08 Accounts - Cashflows