Vladimir Romanov to cut Hearts debt by £10m

• Vladimir Romanov: Cost-cutting

The plan will be put to shareholders at an extraordinary general meeting at Tynecastle on Thursday 11 November. Given Ukio Bankas Investment Group (Ubig) controls 95.07 per cent of the existing ordinary shares, it appears certain to be approved. If approval is forthcoming, the scheme will have the additional benefit of removing up to £500,000 in annual interest payments on the debt. That benefit, combined with continuing moves to cut the wage bill and other costs, will also help Hearts edge closer to making a profit.

The cost-cutting was initiated three years ago when club owner Vladimir Romanov, who has a controlling interest in Ubig, decreed that the era of extravagant spending on players had to end. It has become all the more necessary recently, as Uefa's new Financial Fair Play regulations will soon bar from European competition those clubs which consistently spend beyond their means.

Hearts still have a long way to go before they can comply with those regulations, which will take into account figures from next season. But, from appearing hopelessly adrift in a sea of debt, the Tynecastle club have now proved they are moving in the right direction. If and when the debt-for-equity swap is made, their overall indebtedness will go below that of Rangers, declared at this month's annual general meeting to be £27.1m.

Even after the removal of £10m, the size of the debt emphasises the extent to which Hearts are dependent on the continued goodwill of Romanov and profitability of Ubig. The club believes, however, that wiping such a large sum off the bottom line proves Romanov's long-term commitment.

The conversion of £10m into shares to be held by Ubig will only technically increase the control exercised by Romanov and decrease the power of other shareholders. For some time now, motions proposed by the club's board at annual general meetings have met with at most token resistance from minority shareholders, and provided the club keeps up the progress made towards breaking even, that resistance is likely to diminish further, especially if results on the park continue to offer hope.

The move to improve "operational efficiencies" began in the summer of 2007. In the two years from then until July 2009, Hearts cut their operating costs by 44 per cent - a saving of £4.3m. Over the same two-year period the wage bill fell by 18 per cent.

In the 15 months since, the process has if anything accelerated, with salary costs and other expenses coming down sharply.

The departure in the summer of high earners such as Jose Goncalves, Laryea Kingston, Christian Nade and Michael Stewart will be reflected in the next set of accounts.

Jim Jefferies, who returned as manager at the start of the year after Hearts and Csaba Laszlo parted company, has succeeded in improving results despite the increased restrictions on his budget. Indeed, the removal of some high earners has arguably had a positive effect on the team's morale, and despite injuries to key players such as Lee Wallace and Andrew Driver in the early part of this season, the club are currently well placed to challenge for a European spot.

Hearts made a debt-for-equity swap in the summer of 2008, when £12m was taken off the debt and converted into ordinary shares priced 35 pence each. The scheme being proposed this morning was first mooted at the annual general meeting in May of this year.

Taken from the Scotsman