Debt is down at Tynecastle but sky-high wage bill calls for further cutbacks in the summer

THE days of grand ambition are long gone. The garbled rambles are a thing of the past.

Vladimir Romanov may have begun life as Hearts' majority shareholder by sharing his dreams of Champions League glory, but for some time now he has harboured aims more modest and mundane. At his behest, senior figures at Tynecastle have stressed the need to develop young players rather than buying big names, and to chip away at a debt which had grown out of all scale with the club's size.

The more worrying the global economic outlook became, the more that policy made sense. And Hearts began to back up their words with actions such as slowly but surely cutting down on the size of their squad.

Most importantly, in the year which ended on 31 July 2008 – the period for which the club issued its annual accounts yesterday – the financial picture was improved by player transfers and a debt-for-equity issue. Craig Gordon went to Sunderland and Roman Bednar joined West Bromwich Albion for a combined sum of just under £10 million. The debt-for-equity agreement between the club and its parent company Ukio Bankas Investment Group (Ubig) raised £12m.

This total of £22m is close to two-thirds of the club's debt as it stood at the end of the previous year: £36.249m. And, with a far tighter grip on expenditure supposedly being taken, it was reasonable to expect the £22m to have a massive effect on the closing debt.

Instead, that debt, as disclosed yesterday in the accounts, is now £30.477m. That is indeed smaller than it was, allowing Hearts to claim that their figures are moving in the right direction. "The club reported positive progress in its aim of returning to profitability over the mid to long term," read a statement on Hearts' official website, www.hearts.fc.co.uk.

But record transfers are not achieved every year. Nor, however benevolent Ubig might be, are debt-for-equity transfers. It was reasonable to expect those two events to knock a far bigger dent in the club's closing debt than they did.

Of course, some unexpected expenditure can occur, and it would be naive to presume that the full £22m would come off Hearts' debt. But it also seems reasonable to have hoped that it would have had more effect on the bottom line than it has.

Granted, last season was a poor one for Hearts: they finished eighth in the SPL, and turnover was down as a result. But the fall was little more than £1m.

Staff costs and other operating costs remain far too high. And the number of employees has actually gone up.

The result is a club which relies, more than ever, on the continuing goodwill of its parent company. In that respect, the note on page 13 of the report, under the heading "Going concern", will be of reassurance at least to Hearts supporters. The note reads: "The directors have received written confirmation from the directors of Ubig that it will provide sufficient funding to enable the company to meet its liabilities as they fall due in the foreseeable future."

All well and good. But that is the very minimum required. If you have a debt of £30m you absolutely need your parent company to keep providing its backing. Lose that and the trapdoor opens beneath your feet.

It has been maintained by some that there is no danger of such a fate befalling Hearts; that Romanov and Ubig will continue to provide for the club, like doting parents with a spendthrift son. And, despite repeated suggestions over the past year and a bit that Romanov has lost at least some of his enthusiasm for Hearts, every indication is that Ubig wants to keep hold of the club. But desire is not the same as capacity. What you want is not always possible.

As part of their auditing of Hearts' accounts, the Edinburgh firm Johnston Carmichael sought to obtain evidence that Ubig was able to meet its commitments. It did not receive all the evidence it required, and therefore included an important caveat in its report.

"Information that may have enabled us to conclude as to whether Ubig is able to meet its commitment to provide to enable the company to meet its liabilities . . . . was not made available to us," it states on page 6. "Had this information been available, we might have formed a different opinion."

There is no suggestion that Ubig cannot meet its commitments: just that, for whatever reason, it did not offer evidence of its ability to do so. If you have absolute trust in Romanov and his associates, you will be untroubled by that. Those of a more sceptical bent, on the other hand, may wonder why Ubig did not provide the figures to back up its words of support.

There is no doubting Hearts' aim of growing as a club and cutting back on their debts. "Despite the current challenging economic climate, the club views the outlook with cautious optimism based on a continued focus on increasing efficiency by lowering costs, improving results on the field and attracting further commercial partnerships," a spokesman said.

Results on the field have certainly improved since the period dealt with by the report, and the positive impact made by Csaba Laszlo since he took over as manager last summer is duly noted. The sale of Christophe Berra to Wolves is noted there too, and that will make a positive contribution to the next set of figures.

But it's hard to see the improvement in results and income making a huge difference to a club so deep in the red. Indeed, it is difficult to see any means by which Hearts could trade their way out of debt – short, of course, of realising that apparently abandoned dream of claiming the Champions League trophy itself.

The auditors said: "The evidence available to us was limited because information that may have enabled us to conclude whether Ubig is able to meet its financial commitment to provide sufficient funding to enable the company to meet its liabilities as they fall due for the foreseeable future was not made available to us."

Johnston Carmichael's statement to the accounts added: "We have not obtained all the information and explanations that we considered necessary for the purpose of our audit."

Hearts claim such matters are merely due to a lack of obligation on behalf of Ubig to supply audited accounts. Club officials are similarly relaxed regarding an ongoing investigation being carried out by HM Revenue and Customs, which they say is routine and close to conclusion. The debt for equity swap, the report claims, will lead to a £600,000 reduction in interest payments in the present year. In 2008, a total of £2.25m was paid out in interest, a £400,000 rise from the previous term.

Plans remain afoot to redevelop Tynecastle, say Hearts, despite such exorbitant outgoings. When the plan was first announced it was estimated the redevelopment would cost £50m. The club are hopeful of work beginning next year and having a new main stand completed by the onset of the 2011/12 season. Despite what had initially been regarded as a short-term arrangement, Ukio Bankas will continue their shirt sponsorship of Hearts next season, therefore taking it into a fourth year.

A report in Lithuania, meanwhile, claims the Hearts winger Saulius Mikoliunas is engaged in a wage dispute with the club and is attempting to cancel his contract. Mikoliunas has returned to his home country for a break and has said he will not return unless paid money owed to him.

"If they don't pay up I of course won't return to Edinburgh," Mikoliunas told Futbolas. "At this point it all depends on Mr Romanov. I haven't thought yet where I will play next."

Serjegus Fedotovas, a Lithuania-based Hearts director, responded: "The player failed to win a place in the first team. He also got involved with bad reputation agents, was unmotivated, and did not want to play. Taking into consideration that he seldom plays he's not useful for the club and that about covers it."