Celtic Financials – Annual Report 2002

Celtic Finances – 2002

Finance – Reports
Final Results

RNS Number:6427Z Celtic PLC 07 August 2002 7 August 2002 CELTIC plc PRELIMINARY RESULTS FOR THE YEAR ENDED 30 JUNE 2002 HIGHLIGHTS OF THE RESULTS * Winners of the Scottish Premier League. * Profit from operations of £5.37m (2001: £0.87m). * Loss on ordinary activities before taxation of £2.97m (2001: £11.19m). * Turnover increased by 35.4% to £56.89m (2001: £42.01m) with increases in all major revenue streams. * £14.62m spent on player acquisitions in the year including signing of 5 new players. * Operating expenses increased to £51.52m (up by 25.2%) predominantly due to increases in labour costs including the award of contract extensions to key players. * Year-end debt £16.47m (2001: £29.62m). * Gross proceeds of £22.52m raised from the issue in July 2001 of Convertible Preferred Ordinary Shares. For further information contact: Ian McLeod, Celtic plc Tel:[….]

Keith Brookbank, Gavin Anderson & Co CHAIRMAN’S STATEMENT The year just ended presented a succession of challenges for Celtic, on and off the football field. To a significant extent, I believe we met these challenges, recording successes in both spheres. The financial environment for football deteriorated further during the period. The pressures on media companies in the current subdued phase of the economic cycle made it clear that income to football companies world-wide from this source seemed certain to decline in the near future. Existing contractual commitments have effectively locked players‘ wages into an upward trend as the major element of expense; and many clubs both in Scotland and England have experienced serious financial difficulties as a result. A process of adjustment to the changed conditions has commenced but, undoubtedly, there is more to come. Until this process has run its course, the share prices of quoted football clubs can be expected to remain depressed. The situation in Scotland differs from that in England and other leading European countries in two important respects: first, Scottish Premier League clubs’ income from media contracts generally represents a smaller proportion of their total revenues than their counterparts elsewhere; secondly, the expiry of the existing contracts at the close of last season gave Scottish clubs less time to adjust to the changing media climate. In these circumstances it is hardly surprising that tensions arose within the Scottish Premier League, throwing doubt on the future of the competition. Nor should it be surprising against this background, that Celtic explored suggestions that they might consider joining the Nationwide Football League along with Rangers. In the event, this possibility did not develop beyond an exploratory stage. I believe the factors which prompted us to explore such possibilities will not disappear; and we will continue to be receptive to structural change, while maintaining our stance of not abandoning Scottish football. How these objectives are reconciled is, of course, a challenge. We believe it can be done, with goodwill on all sides. On the field, Celtic won the Scottish Premier League for the second successive season, the first time we had achieved this in 20 years. The Championship was won with only one loss in 38 games, with a record number of points and in front of an average home league attendance of over 58,000 spectators. We reached the semi-final and final of the Scottish League and Scottish FA cups respectively. Our first ever participation in the UEFA Champions’ League was exciting and promising, winning all of our home games and only narrowly failing to proceed to the second stage. Particular mention must be made of Martin O’Neill’s exceptional contribution to our football success. We will make every effort to renew his contract. The financial benefits arising from our successes domestically and in Europe allowed us to improve significantly our financial performance in a number of ways. Turnover rose by over one-third and multi-media revenues by almost two thirds in comparison to the previous year. Profit from operations rose from under £1 million in 2000/2001 to over £5 million in the year just ended; the loss before taxation was reduced from over £11 million to under £3 million; net assets, benefiting from the successful share issue last summer, rose from £30 million to just over £47 million and net debt fell from around #30 million to £16.5 million. Further investment was made in the playing squad, and expenditure on player remuneration and youth development increased by over 25%. Football labour costs at 49.2% of total turnover continue to be well below the average of the sector. Nevertheless we recognise the need to control our player costs going forward. Looking ahead, we believe we can maintain the progress in carrying forward the strategy for the club determined by the Board two years ago. Success in domestic competition remains fundamental and we hope that participation in the Champions’ League would allow us to continue the work of strengthening our football infrastructure, our business base and our finances. Finally, my thanks go to our supporters and to our footballers for a successful and exciting year. Celtic is a unique football family with aspirations to match our traditions. CHIEF EXECUTIVE’S REVIEW Introduction The on field performance of Celtic continued successfully during the course of last year. Domestically, we reached the semi final of the League Cup, the final of the Scottish Cup and most importantly, gained 103 points in the Scottish Premier League, retaining the Championship as a result. The retention of the title was greatly assisted by the team’s form at Celtic Park, where we remained undefeated in all our League games. Success has been particularly important this year, as it provides us with the only Scottish opportunity to qualify and subsequently participate in the group stages of the UEFA Champions’ League. Such participation motivates the team, stimulates the support and provides the Club with much needed incremental income. Last year’s performance was very encouraging, remaining undefeated at Celtic Park in the first group stage of the Champions’ League and narrowly missing qualification for the second group stage. We were also unfortunate in our UEFA Cup tie with Valencia, losing on penalties to a side who had competed in the previous two Champions’ League finals. Financial Performance Integral to Celtic’s strategy has been the belief that success on the football field will drive turnover improvements in all other areas of the Company. This belief has been borne out by the results for the full year. Turnover rose substantially to £56.89m; an increase of 35.4% on the previous year. The buoyant turnover performance resulted in an encouraging increase in profit from operations to £5.37m against a figure of only £0.87m for the previous financial year. The reported loss before tax is £2.97m, which is also a significant improvement on the previous year, where an £11.19m loss before tax was declared. Further financial improvement has also been seen in the reduction of Celtic’s indebtedness. As at 1 July 2001, the net debt at Celtic was almost £30m. This was within the structure of our financial arrangements but was nonetheless higher than was desirable. During the financial year, we have managed our debt position carefully and at 30 June 2002, it stood at £16.47m, a year on year reduction of 44%. Our financial management has therefore made strong progress in a high cost, high inflation market. Football Investment In order to maintain our on field success, we have continued to invest in the first team squad. Five new players were acquired, namely Balde, Guppy, Sylla, Hartson and latterly Fernandez. The gross investment cost this year in the acquisition of players equates to £12.11m. A further £2.50m investment was made in follow-up capital payments due against players acquired in previous years. It is also important to recognise that the trend in football following the Bosman ruling is to re-negotiate and extend contracts to players important to the team in order that we retain players of calibre. Consistent with this approach, the Club successfully concluded contract extension discussions with ten key players including Agathe, Crainey, Lambert, Larsson, Mjallby and Petta, all of whom are important contributors to the first team squad. Our strong football investment policy has contributed to a rise in overall labour costs of 26.4% to £32.74m. This represents 57.6% of turnover, which confirms the intent of the Celtic Board to retain a controlled ratio between wage cost and total income. Nonetheless, the ability to field a competitive side and retain control on costs remains a constant challenge. This situation is symptomatic of the increased level of investment undertaken in recent years in relation to both increases in player pay and the transfer fees paid to acquire calibre players. The latter investment cost is written down in equal proportion throughout the length of individual players’ contracts and has a substantial impact in eroding profit from operations generated in the year. Football Operations For the commencement of season 2001/2002, Celtic applied an average season ticket price rise of 20%. Whilst prices had remained static for the previous two seasons, such a position could not be maintained if we were to continue our player investment strategy. It was recognised that this placed significant additional burden on our supporters and to their credit, they renewed tickets in line with the previous year with a total of 53,457 supporters purchasing season tickets. We are grateful for their continued support. Our Champions’ League games provided further opportunity to grow ticket sales and the combination of the ticket price rise and Champions’ League participation, led to a 27.8% overall increase in football revenue to £27.72m. It was recognised that supporters had to pay a substantial premium to renew their domestic season ticket. As a result, ticket prices for the qualifying tie and those for the first group stage of the Champions’ League were priced competitively and a discount was offered if a supporter elected to purchase a ticket package to incorporate all three Champions’ League home games. This approach resulted in a virtual sell-out for each of the three home matches. Youth Development Youth Development is an important part of Celtic’s strategy for the future with 45 professional players up to the age of 21 under contract. 12 Under-21 players played for the first team, 5 of them competitively within domestic competition, gaining almost 60 appearances amongst them. Our strength in depth was further evidenced by winning the SPL Under-21 trophy as well as the League Championship and also coming runner up in the Under-18 League. However, we are still looking to improve further in this area. We have recruited John Stephenson, formerly Head of Youth Development at Preston North End, to support Tommy Burns in improving our scouting and coaching network. The number of Celtic scouts has been trebled in the last twelve months and is set to grow further. Our training facilities at Barrowfield have been enhanced with the addition of two further training pitches with further plans to improve the building infrastructure. We also have Celtic Youth teams at U-12, U-13, U-14 and U-15, selected throughout the country with a view to developing their skills and assessing their potential as future professionals. A number of new coaching appointments were made during the year to improve management within this area. It has been important for Celtic to develop and improve its Youth Development infrastructure and this has been the priority for this financial year. Options for a purpose-built Training Academy are currently being considered. Youth Development is a sizeable investment for the Club and a significant contribution to its cost emanates from Celtic Development Pools donations. Celtic Pools has over 1,000 agents collecting weekly contributions from 38,000 supporters. Both the Pools and the half-time draw are the most successful football schemes of their kind throughout Great Britain, which is a very positive result in a market now dominated by the National Lottery. Stadium Development Included in the total season ticket sales are almost 3,000 corporate hospitality purchases. Celtic Park provides matchday catering in twelve different lounges and dining facilities in addition to a series of corporate boxes. A further dining facility (“Number 7”) for the premium end of the market was added during the course of the financial year. Standards of service and quality of catering have been a constant source of attention. Improvements have been made and it is our intention to maintain an appropriate standard in each of these areas. There are further plans to improve levels of food service within concourse catering and focus will also be placed on increasing non-matchday sales to grow income further. We have also invested in an extensive refurbishment programme within a number of existing corporate facilities in order to improve standards of presentation. Multi Media Multi media income grew by 63.7% to #16.22m. Champions’ League participation provided an opportunity for Celtic to significantly increase its media income through our share of the UEFA TV pool. This was a most welcome contribution to income but regrettably the level of income is not solely based on success within the competition but is driven by population size and TV audience within the home country. As a result, Olympique Lyonnais earned triple the income from the TV pool in comparison to Celtic despite achieving the same number of league points within the competition. It is hoped that through the newly established UEFA Club Forum, there will be an opportunity to challenge this arrangement. Our investment in new media continues with daily internet transmissions to supporters from our website. We have also launched a text messaging service providing supporters with the opportunity to receive game updates and news bulletins direct to their mobile phone. We continue to experiment with live game production and transmission on the Celtic website with a total of six games being transmitted during the course of the season. Celtic has also gained close to 200,000 registered users of the website in over 200 countries, indicating the scale and potential income source from an international supporter base. Research will continue this year to identify this potential more closely. This aspect of our fan base provides Celtic with a further potential income opportunity, provided new media rights are retained by the Club. Merchandising Merchandising grew by 30% within the year to £10.0m, predominantly driven by replica strip sales. The stores benefited from continued strong sales of the home top launched the previous year and the replacement away top launched last September. Internet and mail order sales reached almost £1m with room for further growth. However, we recognise that we need to continue to improve ease of website navigation and a new distribution facility at Celtic Park has also been developed to improve customer delivery times and the efficiency of store replenishment. We also opened a new store in Edinburgh last November. A further store in Sauchiehall Street, Glasgow, opened in early July 2002, extending the total number of stores to nine. New product ranges within the stores are also introduced regularly in order to grow sales of fashion items and casual wear. This has proved very successful with strong growth in both ladies and childrenswear during the year. As part of our Brand Management plan, we also published and co-wrote the recent Lubo Moravcik biography, which to date has sold over 5,000 copies. Summary Since the Bosman ruling, transfer fees and player pay has seen substantial growth. Football clubs have seen very high cost inflation particularly if they wish to compete in European competition. Media income has helped reduce the impact of these cost rises but as the advertising and media market hardens, it has become increasingly difficult to rely on media income to continue as a guaranteed and growing source of revenue. Celtic has therefore been faced with a rising cost base but has been successful in maintaining control over these costs, whilst still delivering on-field success. The hardening of the media market was felt severely by the SPL during the course of the season, which included a feasibility study on the development of an independent pay television channel for Scottish football. It was appropriate to assess the potential of such a venture but the final analysis indicated high risk both to subscription levels expected and potential liabilities. The resultant rejection of the concept has led to deep divisions within the SPL, which unfortunately remain unresolved. Celtic has a responsibility to Scottish football but we also have a duty to our shareholders and our supporters to act in the interests of Celtic Football Club. To this end, we retain an open mind to discussions on structural change within Europe and recognise that the problems facing Scottish football are felt similarly in other smaller European countries also. We remain optimistic that structural change will occur providing a more level playing field for football competition within Europe and further opportunities for the growth and future success of Celtic as a result. People I have great confidence in our team here at Celtic. At every level and in every area of this Club we are fortunate to have deeply committed individuals who work above and beyond the call of duty to ensure our continuing success. This was one of the first things, which impressed me when I joined Celtic and has continued to encourage me to think that, while we must always strive to improve and adapt to an ever-changing marketplace, we already have a strong foundation in our workforce. I would like to thank all the members of the Celtic team, both on and off the field for their individual contribution to the Club’s performance. GROUP PROFIT & LOSS ACCOUNT 2002 2001 Notes #000 #000 TURNOVER 2 56,892 42,007 OPERATING EXPENSES (51,522) (41,136) PROFIT FROM OPERATIONS 5,370 871 AMORTISATION OF INTANGIBLE FIXED ASSETS (8,814) (9,604) IMPAIRMENT OF INTANGIBLE FIXED ASSETS – (4,892) NET GAIN ON DISPOSAL OF INTANGIBLE FIXED ASSETS 1,474 4,260 OPERATING LOSS (1,970) (9,365) LOSS ON DISPOSAL OF TANGIBLE FIXED ASSETS (107) – INTEREST PAYABLE AND SIMILAR CHARGES (897) (1,825) LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (2,974) (11,190) TAX ON ORDINARY ACTIVITIES (65) 3,067 LOSS FOR THE YEAR (3,039) (8,123) DIVIDENDS 3 (1,301) (599) LOSS FOR THE YEAR TRANSFERRED TO RESERVES (4,340) (8,722) LOSS PER ORDINARY SHARE 4 (14.26p) (29.82p) DILUTED LOSS PER SHARE (4.80p) (17.04p) All amounts relate to continuing operations. There were no gains or losses recognised in 2002 other than the loss for the year. GROUP BALANCE SHEET 2002 2001 Notes #000 #000 #000 #000 FIXED ASSETS Tangible assets 48,266 46,664 Intangible assets 25,895 24,106 ——– ——– 74,161 70,770 CURRENT ASSETS Stocks 1,258 1,228 Deferred tax asset 5,615 5,680 Debtors 4,532 4,579 Cash at bank and in hand 533 87 ——— ——- 11,938 11,574 ===== ===== CREDITORS – Amounts falling due within one year (12,607) (20,066) Income deferred less than one year (8,682) (10,447) ——— ——— (21,289) (30,513) ===== ===== NET CURRENT LIABILITIES (9,351) (18,939) ——— ——— TOTAL ASSETS LESS CURRENT LIABILITIES 64,810 51,831 CREDITORS – Amounts falling due after more than one year (17,375) (21,772) ——— ——— NET ASSETS 47,435 30,059 ——— ——— CAPITAL AND RESERVES Called up share capital (includes non-equity) 29,405 11,392 Share premium 21,222 17,519 Profit and loss account (3,192) 1,148 ——— ——— SHAREHOLDERS’ FUNDS 5 47,435 30,059 ——— ——— Approved by the Board on 6 August 2002 GROUP CASH FLOW STATEMENT 2002 2001 #000 #000 RECONCILIATION OF OPERATING LOSS TO NET CASH INFLOW FROM OPERATING ACTIVITIES Operating loss (1,970) (9,365) Depreciation 1,051 1,128 Amortisation of intangible fixed assets 8,814 9,604 Impairment of intangible fixed assets – 4,892 Net gain on disposal of intangible fixed assets (1,474) (4,260) Grants release (1) (1) Increase in stocks (30) (272) Decrease/(increase) in debtors 774 (809) Increase in creditors 359 1,385 ——– ——- Net cash inflow from operating activities 7,523 2,302 CASH FLOW STATEMENT Net cash inflow from operating activities 7,523 2,302 Returns on investments and servicing of finance (note 7) (2,296) (2,424) Capital expenditure and financial investment (note 7) (14,591) (14,998) ——– ——– Cash outflow before financing (9,364) (15,120) Financing (note 7) 17,133 6,709 ——– ——– Increase/(decrease) in cash 7,769 (8,411) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT (Note 6) Increase/(decrease) in cash in the period 7,769 (8,411) Cash outflow/(inflow) from decrease /(increase) in debt 5,383 (6,709) ——– ——– Change in net debt resulting from cash flows 13,152 (15,120) ——– ——– Movement in net debt in the period 13,152 (15,120) Net debt at 1 July (29,625) (14,505) ——– ——– Net debt at 30 June (16,473) (29,625) ——– ——– NOTES TO THE ACCOUNTS 1. ACCOUNTING POLICIES Details of the main accounting policies adopted by the Group are consistent with last year. 2. TURNOVER Turnover in respect of the five business operations comprised: 2002 2001 #000 #000 Professional football 27,715 21,681 Multimedia and communications 16,216 9,904 Merchandising 10,001 7,718 Stadium enterprises 1,684 1,478 Youth development 1,276 1,226 —— ——- 56,892 42,007 —— —— 3. DIVIDENDS The non-equity dividend of #1,300,645 (2001: #599,400) comprises the dividend of 6% (inclusive of tax credit) of #557,632 (2001: #599,400) payable on 31 August 2002 to those holders of Convertible Cumulative Preference Shares on the share register at 9 August 2002, together with the amount due in respect of the Convertible Preferred Ordinary Shares fixed dividend of 4% (inclusive of tax credit) of £743,013 (2001: £Nil) which is payable on 31 August 2004. 4. LOSS PER SHARE The loss per share has been calculated by dividing the loss for the period of £4.34m (2001: #8.72m) by the weighted average number of Ordinary Shares of 30.43 million (2001: 29.25 million) in issue during the year. The diluted loss per share has been calculated by dividing the loss for the period of £3.04m (2001: £8.12m) by the total weighted average number of Ordinary, Convertible Cumulative Preference and Convertible Preferred Ordinary Shares of 63.30 million (2001: 47.75 million) in issue during the year ended 30 June 2002, assuming the exercise of all outstanding share purchase options. 5. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS Group 2002 2001 #000 #000 At 1 July – as reported 30,059 36,168 Prior year adjustment – 2,613 ——— ——— At 1 July – as restated 30,059 38,781 Movements in year: Retained loss for the year (4,340) (8,722) Share capital issued in the year 18,013 – Share premium arising in the year 3,703 – ——— ——— 17,376 (8,722) ——— ——— At 30 June 47,435 30,059 ——— ——— At 30 June 2002 Non-Equity Shareholders’ Funds, defined in accordance with FRS4, amounted to £29.10m (2001: #11.10m). This relates to the Convertible Preferred Ordinary Shares, the Convertible Cumulative Preference Shares and the Deferred Shares. 6. ANALYSIS OF NET DEBT Other At Non-Cash At 1 July 2001 Cash Flow Movements 30 June 2002 £000 £000 £000 £000 Cash at bank and in hand 87 446 – 533 Overdrafts (7,323) 7,323 – – ——– ——– ——— ——– (7,236) 7,769 – 533 Debt due within 1 year (209) 27 (27) (209) Debt due after 1 year (21,029) 5,000 27 (16,002) Hire purchase creditor (1,151) 356 – (795) ——– —— ——- ——- (22,389) 5,383 – (17,006) ====== ===== ===== ====== Net debt (29,625) 13,152 – (16,473) 7. ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT 2002 2001 £000 £000 Returns on investments and servicing of finance Preference dividend paid (599) (599) Interest paid (831) (1,759) Interest element of hire purchase payments (66) (66) Issue costs of non-equity shares (800) – ——– ——— Net cash outflow from returns on investments and (2,296) (2,424) servicing of finance Capital expenditure and financial investment Payments to acquire tangible fixed assets (2,229) (1,070) Payments to acquire intangible fixed assets (14,615) (20,783) Proceeds from sales of intangible fixed assets 2,253 6,855 ——– ——– Net cash outflow from capital expenditure and (14,591) (14,998) financial investment Financing Loans received – 7,000 Loan instalments paid (5,027) (27) Capital element of hire purchase payments (356) (264) Issue of share capital 22,516 – —— ——– Net cash inflow from financing 17,133 6,709 —— —— 8. ANNUAL REPORT & ACCOUNTS Copies of the annual report & accounts will be sent to all shareholders in due course. The financial information set out above was approved by the directors on 6 August 2002 and does not constitute the Company’s statutory accounts for the years ended 30 June 2002 or 30 June 2001. The auditors’ opinion on the 2001 statutory accounts is unqualified and does not include a statement under Section 237 (2) or (3) of the Companies Act 1985. The statutory accounts for 2001 have been filed and those for 2002 will be delivered to the Registrar of Companies in due course.