Final Results - Year Ended 31 May 2009
Arsenal Holdings plc Results for the year ended 31 May 2009
ARSENAL CONFIRMS RECORD PROFIT AND SIGNIFICANT PROGRESS ON HIGHBURY SQUARE
PROJECT
* Group turnover increased to £313.3 million (2008 - £223.0 million)
reflecting income generated from cup competitions and property sales.
* Match day revenue was increased to £100.1 million (2008 - £94.6 million),
mainly as a result of progress to the UEFA Champions League and FA Cup
semi-finals.
* Operating profits (before depreciation and player trading) in the football
business were £62.7 million (2008 - £59.6 million).
* The completion of sale of 208 (2007 - Nil) private apartments at Highbury
Square contributed £88.0 million of revenue (2008 - £15.2 million) and
boosted the operating profit from property activities to £7.8 million (2008
- Nil).
* Profit after tax of £35.2 million (2008 - £25.7 million) was a record for
the Group.
* Since the end of the financial year there have been a number of further
positive developments in relation to the Group's Highbury Square project.
* Of the 655 private apartments in the development, sales have now completed
on 445 units with a cumulative sales revenue value of £172.4 million.
* The balance on the bank loan used to fund the project has been
substantially reduced to £47 million and agreement has been reached to
refinance the loan and extend its term to December 2010.
Commenting on the results for the year, Peter Hill-Wood, non-executive
Chairman, said:
"The Group's profits have now risen in each of the three years in which
Emirates Stadium has been our home. This is excellent news although I should
perhaps stress that making and reporting profits is not in itself the primary
objective for the directors. First and foremost we are supporters of this great
football club and, as such, our main goal will always be the achievement of
success for Arsenal on the field. The Group's profitability is important
because it is a by-product of running the Club as a solvent and successful
business, which in turn allows us to maximise the level of investment in the
playing staff and in the future development of the Club."
Ivan Gazidis, Chief Executive, said:
"Clearly, the Club already has a first class stadium, an excellent world-wide
reputation and outstanding core support. Football is a hugely competitive and
fast moving business and we must ensure that Arsenal is not just keeping pace
but setting the pace, both on and off the field. The Club is superbly
positioned for the future and I am tremendously excited about the opportunities
we have ahead of us."
Arsenal Holdings plc
Chairman's report
I am pleased to open my report by confirming another year of strong financial
results. The annual accounts show an after tax profit of £35.2 million (2008 -
£25.7 million) and this represents a record level of annual retained profit for
the Group.
The Group's profits have now risen in each of the three years in which Emirates
Stadium has been our home. This is excellent news although I should perhaps
stress that making and reporting profits is not in itself the primary objective
for the directors. First and foremost we are supporters of this great football
club and, as such, our main goal will always be the achievement of success for
Arsenal on the field. The Group's profitability is important because it is a
by-product of running the Club as a solvent and successful business, which in
turn allows us to maximise the level of investment in the playing staff and in
the future development of the Club.
The 2008/09 season was not without footballing success although the first team
finished it without a trophy. In the Premier League a strong unbeaten run of 21
games ultimately carried us into a respectable fourth place finish. In
addition, we reached the semi-finals of both the UEFA Champions League, for
only the second time in the Club's history, and the FA Cup. Disappointingly,
the team were unable to advance further in either of these competitions.
Whilst honours eluded the Club at first team level, there was considerable
success elsewhere with the Under 18s team notably winning a League and FA Cup
double. Arsène Wenger already has a wealth of young players developing in the
first team squad and it is exciting to see another group of hugely talented
players coming through at the next level down. There was more silverware for
Arsenal Ladies too, as they completed a domestic treble of League, League Cup
and FA Cup.
Earlier this year we were pleased to announce that Highbury Square had won the
prestigious `Special Jury Award' at MIPIM, which is the annual property world
equivalent of the Oscars. We have always been confident of the outstanding
quality and unique character of the Highbury Square project and, consequently,
I am delighted to report that there have been a number of significant and
positive developments over the summer months. These developments are covered in
more detail in the Chief Executive's Report and the Financial Review, but the
key message is that approaching 70 per cent of the 655 private apartments at
Highbury Square have now completed sale and the related bank loan has been
reduced from £137 million to £47 million. We believe that the development has
outperformed the market and is now on a secure footing which should allow us to
maximise our final return.
Ivan Gazidis joined the Group as Chief Executive Officer on 1 January 2009 from
Major League Soccer in the USA, where he was deputy commissioner. Ivan came to
the Club with an excellent knowledge of the football industry and he has
quickly transferred this to the specifics of Arsenal, the Premier League and
the European stage.
During the year there were a number of changes in the major shareholdings in
the Group with both Kroenke Sports Enterprises and Red and White Securities
taking their stakes beyond the 25 per cent level.
The Board continues to have a regular dialogue with each of the Group's major
shareholders and, in recent months, this dialogue has prompted an analysis
around the question of whether there should be a fundraising for the Group
through a rights issue. This is a complex subject, reflecting the two aspects
of the Group's business and the related financing arrangements. Now that we
have resolved any issues linked to the financing of Highbury Square, in the
final analysis I believe it distils down to a decision about whether it
isappropriate to raise money from shareholders to purchase the registrations
and pay the wages of footballers. This is not something that Arsenal has ever
done previously in its history and it would be at odds with our ethos of
running the Club as a business which is self-sustaining and pays its own way in
the world.
The new season started with a headline grabbing 6-1 away win at Goodison Park
and, although our opening schedule had some difficult fixtures, the team has
produced some excellent performances. Following a reasonably comfortable 5-1
aggregate victory against Celtic in the play off round we have now reached the
Group Stage of the UEFA Champions League for a 12th consecutive year - this is
an outstanding record and places the Club within a small and elite group of top
European clubs. We expect the level of competition both domestically and in
Europe to be very high. Despite two disappointing results in Manchester, we
remain optimistic and excited by the Club's prospects for the 2009/10 campaign.
We recognised the fact that many of our supporters have been affected by the
difficult economic climate and accordingly we took the decision to recognise
their commitment by once again freezing all admission prices for the 2009/10
season. Subsequently, the level of season ticket renewals has been excellent
for which I would like to thank our loyal fans and congratulate the members of
our box office team, who have worked so hard both in planning for and carrying
through the renewals process.
Although transfer activity in the summer window was limited I can assure
supporters that this followed lengthy discussions with Arsène Wenger and
reflected Arsène's assessment of the player resources, both within the existing
squad and available on the transfer market, rather than any necessity or
financial constraint. Our two key acquisitions this year, Andrey Arshavin and
Thomas Vermaelen, have proved very successful and Arsène has the resources to
bring more players in, if he believes doing so will add to the quality which we
already have in the squad.
The year saw the departure from the board of Arsenal Holdings plc of Lady Nina
Bracewell-Smith and Richard Carr and once again I would like to record our
thanks to them for their contribution to the Group over many years. Richard
remains a director of Arsenal Football Club plc and he continues to be closely
involved with our youth development programme.
In closing, I would like to thank my fellow directors, our management team and
our entire staff for all of their hard work and dedication over the last year.
I would also like to thank all of our professional advisers and, in particular,
pay tribute to our Highbury Square project team for the support they have
provided.
Finally, thank you for the fantastic support given to the Club by all of our
shareholders, supporters, sponsors and commercial partners. I look forward to
welcoming you all again to Emirates Stadium over the course of the new season.
P D Hill-Wood
Chairman
25 September 2009
Arsenal Holdings plc
Chief Executive's report
I am delighted and proud to be presenting my first report to shareholders as
Chief Executive.
I have invested a fair proportion of my first nine months with the Group in
conducting a thorough and wide-ranging assessment of the organisation and its
position on both the domestic and global football stages. I am very encouraged
by much that I have found. We have many excellent people and in a number of
areas our operational standards and practices already define best practice. We
are in a strong position financially and our business model is widely
respected.
The economic background is clearly difficult but the impact of the recession on
the results of our core football business for 2008/09 was limited. Many of the
key aspects of our income were protected by virtue of the contractual
arrangements in place before the start of the season but I also believe that
the outstanding loyalty of the Club's supporters has played an important role.
Operationally, we dealt seamlessly with additional home fixtures associated
with last season's cup runs and additional events including the Brazil versus
Italy international friendly and the Capital Radio Summertime Ball. Over 50,000
music fans attended the Capital event, which was the second ever concert at
Emirates Stadium, and enjoyed sixteen acts from the UK and the US including
Lionel Ritchie, Leona Lewis, Dizzee Rascal and Blue. Discussions are already
well advanced for next year's concert schedule.
The UK property market has been particularly affected by the economic downturn
and our major development project at Highbury Square has reached its final
stages during a period where the market conditions have been extremely
challenging.
By the close of the 2008/09 financial year we had completed the sale of 208 of
the 655 private apartments at Highbury Square. Completions were much slower
than was predicted in our original development plan as a consequence of the
difficult conditions in the property and mortgage finance markets. This has had
a direct impact on the repayments made against the £137 million bank facility
used in part-funding the construction works. The sales completed contributed
some £88 million of revenue and £10 million of operating profits within the
Group's results for the year and, after funding the balance of the construction
costs, allowed the bank loan to be reduced to £124 million.
Since the end of the financial year, some of the hard work we have put in on
Highbury Square has begun to yield positive results.
First, the completion of all the remaining construction works and the central
gardens has meant that apartment owners can fully enjoy living in an award
winning building complex rather than a work in progress. The official opening
ceremony for Highbury Square was held on 24 September 2009 with Arsène Wenger
and a number of the players in attendance. Secondly, following lengthy
negotiations, the position of a number of key bulk purchase contracts for units
at Highbury Square has been fully resolved and, in addition, the rate of
private sales completions has noticeably picked up. Finally, again after many
months of negotiation, we have reached agreement for an extension of the term
of the Highbury Square loan facility on terms which we consider to be
reasonable and appropriate.
Following on from these developments, the number of private apartment sales
completions has now risen to 445 with a cumulative sales revenue value of £172
million and the bank loan has been substantially reduced, to £47 million.
Although we still have to obtain completions or re-sell some 210 flats, the
in-fill plots around the site and certain commercial elements within the
development, we are now confident that any remaining risk associated with the
project has been minimised. Clearly the ultimate amount of the Group's profits
from Highbury Square will remain uncertain until the remaining sales are
concluded but we believe the development is now on a secure footing which
should allow us to maximise our final return.
Turning to the Group's other long running property development project, at
Queensland Road, I am pleased to confirm that planning permission was finally
granted on 30 July 2009. The redevelopment permitted includes the
realignment of the road and the construction of one new building to the south
of the road up to six storeys high, comprising 213 residential units for use as
affordable housing together with an area of commercial space. A
second building will be constructed to the north of the road, incorporating
five towers providing ten to fifteen floors of residential accommodation above
a plinth of mainly commercial space. This building will include 516 residential
units, an indoor sports centre to be operated by the Club, which will include
local community use, and 179 car parking spaces. The residential units in the
two towers to the west of the site will be used as affordable housing with the
remainder for use as private market housing. We are already at an advanced
stage of negotiations with Newlon Housing Trust with regard to the sale of all
of the affordable housing and the site clearance works at Queensland Road.
On the Field
The team produced some exciting and stylish football during the course of the
2008/09 season, in particular over the second half of the season when the
momentum of an impressive 21 match unbeaten run in the Premier League helped to
secure a fourth placed Premier League finish which at one stage of the season
looked in doubt.
That fourth position in the Premier League with 72 points, meant the Club
achieved 2009/10 UEFA Champions League participation for a 12th consecutive
season, a record which is matched only by Real Madrid and Manchester United.
In the UEFA Champions League strong performances in the knock-out rounds
produced wins over AS Roma and Villarreal as Arsenal progressed to the
semi-finals of the competition for only the second time in the Club's history.
Reaching the same stage in the FA Cup meant Arsenal's first visit to the new
Wembley Stadium. Unfortunately, the team was unable to convert the
opportunities provided by these semi-final appearances and exited both
competitions at this stage. In the Carling Cup Arsène Wenger once again
deployed many of the Club's younger players in progressing to the
quarter-finals.
Away from the first team, everyone associated with the Club was delighted by
the success achieved by the youth team and by Arsenal Ladies in the 2008/09
season.
The Under-18s team completed a fantastic season by securing a league and cup
double. Steve Bould's team won the FA Premier Academy League title and beat
Liverpool over two legs in the FA Youth Cup Final. The first leg of the final
was played at Emirates Stadium in front of a crowd of more than 33,000. This is
a great achievement and congratulations go to all the players, coaches and
staff in the Youth Development department. It is truly exciting to see such a
talented group of young players coming through together.
Once again we must offer our congratulations to the Arsenal Ladies who were
victorious in the FA Women's Premier League and both their League and FA Cups.
The League win was achieved in dramatic fashion, with a win over Everton in the
very last game of the league season. The continued success of Arsenal Ladies
was a fitting tribute to Vic Akers, in his last year as the Ladies' manager.
Vic had been manager of our ladies team for more than 20 years, in which time
the team has won over 30 major honours, a truly fantastic achievement.
Players
During the close season, the Club welcomed another exciting new player to its
first team squad.
Belgian international defender Thomas Vermaelen joined Arsenal on a long-term
contract from Dutch Eredivisie side Ajax, where he was club captain in the 2008
/09 season. The 23 year-old, who is predominantly a central defender, has
experience in both the UEFA Cup and UEFA Champions League including two
appearances for Ajax against Arsenal in the Group Stage of the 2005/06
Champions League. During his time with Ajax, the club won the Dutch League
Championship in 2003/04, the Dutch National Cup on two occasions (in 2006 and
2007) and the Dutch Super Cup twice (in 2006 and 2007). Thomas made his full
international debut for Belgium in March 2006 and he has gone on to establish
himself as a regular in his country's set-up.
The Club extends a warm welcome to Thomas, together with all the new `First
Year Scholars' joining our Youth Development programme this summer. We wish
them all the best of luck during their Arsenal careers.
Our main focus over the summer months has been the retention of key members of
the squad. We are delighted to have signed new long term contracts with Robin
van Persie, Theo Walcott, Kieran Gibbs, Jack Wilshere, Lukasz Fabianski, Aaron
Ramsey, Denilson and Nicklas Bendtner.
The summer saw the departure of three first team squad players.
Emmanuel Adebayor left the Club to join Manchester City. Adebayor joined
Arsenal from AS Monaco in January 2006 and made a total of 142 appearances for
the Club scoring 62 times. He was our leading goal-scorer in the 2007/08
season, scoring 30 goals in all competitions during the campaign, which earned
him a place in the PFA Premier League Team of the Year. During the 2008/09
season, Adebayor scored 16 goals from his 37 appearances, including six from
nine appearances in the UEFA Champions League.
Kolo Toure, who was in the final year of his contract with the Club, also
departed for Manchester City. Toure joined Arsenal in February 2002 and made a
total of 326 appearances for the Club. He was a regular in the first team over
the past seven seasons. During his time with Arsenal, Kolo won the FA Cup
twice, in 2003 and 2005, and he was an important member of the `Invincibles'
squad which won the 2003/04 Premier League without losing a single game.
The third first team squad player to leave the Club during the close season was
Amaury Bischoff who was released at the end of his contract with the Club.
We wish Kolo, Emmanuel and Amaury well for their future careers and thank them
all for the contribution they made to Arsenal Football Club.
Commercial Partners
The Club is fortunate to have the support of a number of blue chip companies
and we continued to develop our commercial partner programme during the 2008/09
season.
The Club is delighted to have recently renewed its long-standing partnership
with O2, the UK's leading mobile operator, for a further three seasons. This
relationship extends back to the 2002/03 season and during that time O2 has
been a key partner of the Club. As part of the new agreement, O2 will be
providing specific offers for Arsenal supporters across its portfolio of
services.
The Club welcomed Citroen as its official car partner for the 2008/09 season.
The relationship incorporates a selection of rights including a link with
Arsenal's charity of the season. Citroen developed a bespoke `Ultimate Fan's
Car', which was raffled in aid of the Teenage Cancer Trust, raising in excess
of £12,000.
Despite the difficult economic climate, the Arsenal retail business proved to
be robust, whilst E-commerce revenues showed growth in a static market. The
Club has established an objective to expand its shop base and there will be two
new Arsenal retail outlets opening inside the M25 in 2009/10.
Internationally, the Club continues to develop its merchandising business. BEC
Tero, the Club's Thai partner, has continued to increase the number of outlets
trading official Arsenal merchandise in Bangkok. Additionally, Arsenal has
partnered with BEC Tero to enter the Chinese market. By the end of 2009, there
will be two flagship stores and up to 50 concessions selling official Arsenal
merchandise across 10 major cities in China. The Club has also partnered with
the International Business Group in Bahrain to open a store and set up an
Internet shopping service for customers in the Gulf States.
The 2008/09 season was the first in which the Club managed its licensing
programme in-house. Licence revenue grew by over 30%, which fully justified the
decision, and this area is expected to continue to expand and increase its
contribution.
The Club's domestic and international soccer schools business has also moved
forward. There are now 19 Arsenal soccer schools operating across the world,
with several more planned. A notable achievement is the development of a new
soccer school project in Dubai, where Arsenal has partnered with Emirates to
operate a soccer school at their venue - The Sevens. This school will open in
autumn 2009 and run a mix of courses for children, as well as community
programmes.
Football training activities have also developed in other areas. A pilot soccer
camp will be run in Denver USA, in conjunction with Kroenke Sports Enterprise,
and the results will be evaluated to determine next steps in this territory.
Also, Arsenal partnered with Saudi-based mobile telephone operator Mobily to
run a two week soccer camp in London in July 2009. Twenty five boys were
trained by Arsenal coaches in what could become a bigger partnership and a
commercial opportunity.
As a consequence of Setanta Sports going into administration, we had to
withdraw Arsenal TV from the Sky platform. Over the next few months we will
need to re-evaluate the most appropriate distribution platform and business
model for Arsenal TV going forward. Whilst this evaluation takes place we have
decided to continue to produce and develop a full schedule of quality
programming for Arsenal TV which will be available to Arsenal supporters
on-line via tv.arsenal.com.
The international rights for Arsenal TV for the period 2010-2013 have recently
been awarded to sports rights specialist MP & Silva. Despite the global
economic situation, there will be a significant increase in fees which
demonstrates both the growing appeal of football and Arsenal on the world
stage.
Arsenalisation
We have commenced a programme of works to `Arsenalise' Emirates Stadium. The
objective is to bring the Club's rich heritage to life in and around the
stadium and to make Emirates Stadium feel more like home to all our supporters.
The initial programme comprises four key aspects, all of which have been
developed in partnership with supporters' groups:
* The `Victory through Harmony' team huddle features 32 of our greatest
players creating a dramatic and imposing `wrap' around the eight cores of
the stadium;
* Branding throughout the lower concourse and featuring a timeline of the
Club's greatest moments;
* The Highbury Shrine featuring a team shot of every player who played at our
old home; and
* Armoury Square which provides fans the opportunity to personalise their own
part of Emirates Stadium.
All these elements reinforce our commitment to provide our supporters with the
very best environment to watch the team play. The Club will continue to
actively seek feedback from its supporters and other visitors to Emirates
Stadium and, in conjunction with our partners Delaware North and Cleanevent UK,
strive to ensure a continually improving overall customer experience of the
Club. There are a number of further "Arsenalisation" projects which, due to the
constraints of planning and delivery lead times, we will look to progress in
2010.
Charity of the Season
Teenage Cancer Trust became Arsenal's nominated Charity of the Season for the
2008/09 campaign, taking over from TreeHouse. The partnership with Teenage
Cancer Trust, a charity devoted to improving the lives of teenagers and young
adults with cancer, has been another huge success. Led by our `Be a Gooner. Be
a Giver' campaign, a record-breaking fundraising total for the Club of more
than £532,000 was collected for the charity.
Prospects
From a financial perspective the 2009/10 year has already started strongly,
boosted by the sales completions at Highbury Square and the player sales which
I have referred to above. Property activities, at both Highbury Square and
Queensland Road, will continue to be a significant feature over the next twelve
months.
On the field the new season has got off to a mixed start. The successful
progress through to the Group Stage of the UEFA Champions League is important
from both a football and monetary perspective. Promising performances in the
Premier League have not always translated into results but have given us cause
for optimism. We now look forward to supporting the team, as it challenges for
silverware, throughout the course of the season.
Clearly, the Club already has a first class stadium, an excellent world-wide
reputation and outstanding core support. Football is a hugely competitive and
fast moving business and we must ensure that Arsenal is not just keeping pace
but setting the pace, both on and off the field. With that in mind, over the
next months we will be formulating, and then beginning the process of
implementing, a vision and comprehensive plan for the next phase of the Club's
development as a world class sports organisation. The Club is superbly
positioned for the future and I am tremendously excited about the opportunities
we have ahead of us.
I E Gazidis
Chief Executive Officer
Arsenal Holdings plc
Financial Review
The Group achieved an after tax profit for the year of £35.2 million (2008 - £
25.7 million). This is the highest annual retained profit in the Group's
history and, against a difficult economic background, it represents an
excellent result.
Group turnover rose to £313.3 million (2008 - £223.0 million) and operating
profit before player trading and depreciation, which is a key measure of our
financial performance, exceeded £70 million (2008 - £59.6 million).
2009 2008
£m £m
Group turnover 313.3 223.0
----- -----
Operating profit before depreciation and 70.5 59.6
player trading
Player trading 2.9 5.2
Depreciation (11.7) (11.6)
Joint venture 0.4 0.5
Net finance charges (16.6) (17.0)
----- -----
Profit before tax 45.5 36.7
----- -----
The growth in turnover and profit in our football business was largely
attributable to the team's performance in the Cup competitions which resulted
in additional revenues from broadcasting and an additional four home fixtures
played. Sales of 208 apartments at Highbury Square were completed in the year
and contributed £88 million of revenue and a little over £8 million of profit
toward the pre-tax results of the Group's property segment.
The results of the football and property development segments are considered in
more detail later in this review.
In terms of the Group's balance sheet I would like to draw attention to three
particular aspects. Firstly, the carrying value of intangible assets (player
registrations) has increased to £68.4 million (2008 - £55.7 million) following
expenditure in the year on new players and contract extensions of £41.3
million. Secondly, the carrying value of property development stocks has fallen
to £167.0 million (2008 - £188.0 million) as the costs relating to Highbury
Square apartments are transferred to the profit and loss account on completion
of sale. Finally, mainly as a result of loan repayments on our Highbury Square
facility, the Group's overall net debt has decreased from £318.1 million to £
297.7 million.
Segmental Operating Results
2009 2008
£m £m
Football
Turnover 225.1 207.7
Operating profit* 62.7 59.6
Profit before tax 39.9 39.7
Property development
Turnover 88.3 15.3
Operating profit* 7.8 -
Profit / (loss) before tax 5.6 (3.0)
Group
Turnover 313.3 223.0
Operating profit* 70.5 59.6
Profit before tax 45.5 36.7
*= operating profit before depreciation and
player trading costs
Football Segment
The football business increased its turnover to £225.1 million (2008 - £207.7
million).
The main contribution to this increase was the gate income from four additional
home fixtures - the UEFA Champions League semi-final and three FA Cup ties -
and UEFA Champions League broadcasting revenue.
Gate income represented 44% of our total football revenues and was derived from
32 first team home fixtures. The average attendance of 59,453 (2008 - 59,720)
was impacted by the fact that three of the home FA Cup ties featured
Championship opponents. Notably, overall gate and match day revenue exceeded £
100 million for the first time; the total for the year was £100.1 million (2008
- £94.6 million).
In addition to competitive first team fixtures we staged a second successful
Emirates Cup weekend and one international friendly - Brazil versus Italy.
However, there was no concert income in the year; revenue from Capital Radio's
Summertime Ball in June will be included in next year's results.
Broadcasting revenues increased to £73.2 million (2008 - £68.4 million). The
Club received a slightly lower level of Premier League live coverage this
season but this was outweighed by the additional Champions League distributions
associated with progressing to the semi final, one round further than the
previous year. Champions League revenues are distributed by UEFA in € and,
accordingly, the weakness in sterling worked in our favour.
The retail and commercial revenue lines were perhaps the areas where the Club
had its greatest sensitivity to the recessionary climate. However, performance
in both areas has proved to be robust with revenues actually showing modest
increases - retail turnover for the year was £13.8 million (2008 - £13.1
million) and commercial income amounted to £34.2 million (2008 - £31.3
million).
Wage costs rose to £104.0 million (2008 - £101.3 million) representing 46.2% of
football segment revenues (2008 - 48.8%) and this continues to fall within our
target range. There continues to be significant upward pressure on players'
wage expectations and the activities of other clubs in the market and the
introduction of the 50% income tax rate from April 2010 mean this looks set to
continue. The Board remains firmly committed to backing Arsène Wenger's
judgement in determining the composition of the playing squad and the level of
contract terms required to secure the long-term commitment of both new and
existing players.
A proper assessment of the Club's level of player investment needs to be based
on overall expenditure on players rather than on a separate consideration of
the levels of wage and transfer expenditure. We do not separately disclose the
amount of the total wage bill which is represented by players but the table
below provides an indication of the levels of investment.
2009 2008
£m £m
Total wages 104.0 101.3
Additions to intangible assets (player 41.3 27.5
registrations)
Profit on sale of player registrations (23.2) (26.5)
Net expenditure 122.1 102.3
Other operating costs rose to £55.4 million (2008 - £46.6 million) and there
are a number of reasons for this, including:
* Retail costs - reflecting tightening margins
* Utility costs
* Direct costs of event staging including fees paid to Emirates Cup
participating clubs and increased number of home fixtures
* Exchange losses on € denominated transfer payable provisions
Taking into account all of these changes in revenue and operating costs the
operating profit (before player trading and depreciation) from football
increased to £62.7 million (2008 - £59.6 million).
Property Segment
The Chief Executive has already provided (see above) a detailed update on the
contribution made by Highbury Square to the results for the 2008/09 financial
year and on the further significant progress which has been made over the
subsequent months.
In terms of the results for the year, revenue of £88 million from Highbury
Square sales completions provided a contribution to segmental operating profit
of £10.2 million. However, we set against this profit a further impairment
write-down against the carrying value of the Queensland Road site such that the
overall segmental operating profit was £7.8 million.
Although we now have planning permission at Queensland Road it is appropriate
to continue to carry the site on the basis of the most recent professional
valuation until such time as the sale arrangements for the site become more
certain. The additional expenses incurred in the year, mainly in connection
with the complex planning application process, took our costs for the site
above this £24 million valuation and therefore resulted in an impairment
charge.
The original repayment date for the £137 million Highbury Square bank loan was
the end of April 2010. Over the last ten months we have been in negotiation
with our syndicate banks for an appropriate extension to the term of the loan
to reflect the delays occurring in sales completions and probable requirements
for rescission of a number of the original sales contracts. We have worked
closely with the banks during this period and I would like to thank them for
the constructive and supportive approach that they have taken throughout. There
were a number of moving parts to our negotiations - in particular, the status
of certain bulk purchases, the completion of construction works and the East
Stand (which had originally been marketed and largely pre-sold to the Club's
own contact list) - and it served the interests of both lenders and borrower to
allow as many as possible of these aspects to be resolved before agreeing the
terms of the loan amendment.
I am pleased to confirm that we have now agreed terms to refinance the loan
with Barclays Bank plc. The term of the new loan is December 2010 and the
margin will be 2.5%, previously the margin was on two loan tranches with one at
1.3% and one at 1.7%. The balance on the Highbury Square loan was £123.6
million as at 31 May 2009 and it has subsequently been reduced to £47.1 million
- all repayments have been made from the sales proceeds at Highbury Square.
Player Trading
The sale of player registrations generated a profit of £23.2 million (2008 - £
26.5 million) which, together with fees of £3.6 million from the loan of
players, meant that overall result from player trading was a surplus of £2.9
million (2008 - £5.2 million).
The main contributions to the disposal profit came from the sales of Alexander
Hleb and Justin Hoyte and the sell-on shares receivable in connection with
moves by former players David Bentley and Lassana Diarra.
The Board's policy continues to be that all proceeds from player sale
transactions are made available to Arsène Wenger for re-investment back into
the development of the team.
Finance Charges
The net interest charge for the year was £16.6 million (2008 - £17.0 million).
Some £14.8 million of this charge relates to the long-term stadium financing
bonds and this interest, which is at a fixed rate, together with the annual
capital repayment of £5.3 million gives a total debt service cost for the bonds
of £20.1 million. This is effectively the annual "mortgage" payment required on
the stadium financing and it was covered at a very comfortable margin of more
than three times by the operating profits before depreciation and player
trading in the football business segment.
Interest costs of £5.5 million which were directly attributable to the Group's
property development projects at Highbury Square and Queensland Road have been
capitalised into property stocks.
Interest receivable on the Group's cash reserves amounted to £2.7 million (2008
- £4.0 million) and this was adversely affected by the reduction in base rates
during the year.
Cash Flow and Treasury
There is a strong element of seasonality to the Club's cash flows with the
renewal of season tickets in May reflected in the year-end cash and bank
balance. Debt service reserve deposits of £32.3 million are also included in
the total cash position although, being part of the security for the Group's
listed bonds, the use of these deposits is restricted.
That said, the cash and bank balances in hand of £99.6 million (2008 - £93.3
million) clearly represents a very satisfactory position.
The Group's activities were strongly cash positive for the year and the cash
generated from operations was used as follows:
£m
Cash from operations 62.3
------
Net expenditure on player transfers (12.3)
Payment of taxation (7.6)
Investment in fixed assets (3.0)
------
Net interest payments (17.7)
Debt repayment - property (10.0)
Debt repayment - football (5.3)
------
(33.0)
------
Increase in year-end cash 6.4
------
The level of the Group's net debt at the 2007/08 year end was always expected
to represent a peak and over the course of the year this net debt has been
reduced from £318.1 million, to £297.7 million. The main change in net debt was
a pay down of the Highbury Square loan balance from £134.2 million to £123.6
million. Net debt will further reduce over the course of 2009/10 as payments
are made against the Group's property loans - as referred to above the Highbury
Square loan has, subsequent to the year end, been substantially further reduced
to £47 million.
The main components of net debt are shown in the table below (the details for
term and margin on the property loans reflect the revised terms of the Highbury
Square loan agreed since the financial year end).
Emirates Stadium Financing Property Development Financing Debenture Loans Cash Reserves
£m £m £m £m
Start of year (250.2) (139.3) (26.1) 93.3
Movement in year 5.3 9.7 (0.3) 6.3
---------- ---------- ---------- ----------
End of year (244.9) (129.6) (26.4) 99.6
---------- ---------- ---------- ----------
Term 20-22 yrs 1-2 years 19-133 yrs N/A
Fixed rate 5.3% N/A 0 - 2.75% N/A
Variable rate N/A Libor + margin - N/A
Margin - 2 - 2.5% - -
Guarantee fee 0.5% - 0.65% - - N/A
The largest part of the Group's debt is £244.9 million of long-term bonds with
fixed rates of interest which have been in place since the refinancing exercise
completed in the summer of 2006. A repayment of £5.3 million was made during
the year in accordance with the terms of the bonds.
The Group's property development financing consists of the Highbury Square loan
facility which has been referred to above, and a small loan being used for the
Queensland Road development of which £6.0 million had been drawn by the end of
the year (2008 - £5.2 million). The interest swaps which were in place to fix
the rate of the Highbury Square loan expired during the year and subsequently
interest charges are being paid at a variable rate, so benefitting from the
current low level of base rate.
The Group has recently agreed to an extension of the term of its Highbury
Square development loan. The Group's other bank facilities are not currently
due for renewal, however, the Group has held a discussion with its bankers
about these other facilities and no matters have been drawn to its attention to
suggest that renewal may not be forthcoming on acceptable terms. The Group's
forecasts and projections, taking account of reasonably possible changes in
trading performance, show that the Group should be able to operate within the
level of its current financial resources and bank facilities. The directors
have a reasonable expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future and the financial
statements continue to be prepared on the going concern basis.
The bank facilities which the Group has used to fund the Highbury Square
development are ring-fenced from and non-recourse to the financing of the
football segment of the business. The use of property profits which may be
transferred to the football segment is not determined until such time as those
profits are realised and transferred in cash to the Club - accordingly, there
is no current commitment to use any such profits and cash anywhere within the
Group at any specific time for any specific purpose.
Profit after tax
The tax charge for the period was £10.3 million (2008 - £10.9 million). The
effective rate of tax at 22.3 % includes the benefit of adjustments required to
the calculation of taxable profits on the Highbury Square project. These
adjustments reflect the transfer of the stadium from fixed assets to trading
stock in 2006 at its then market value and the roll-over of the capital gain
which arose on that transaction.
The retained profit for the year was £35.2 million (2008 - £25.7 million).
Outlook
The renewals of general admission and Club Tier season tickets have once again
been at the maximum level. The Emirates Cup has again proved to be a great
commercial success and although attendances, at this third staging of the
tournament, were a little lower than previous years this was balanced by lower
fees payable to the participating clubs.
The sales of Emmanuel Adebayor and Kolo Toure to Manchester City will make a
significant contribution to the profits to be reported on the sale of player
registrations.
Legal completions of 237 apartments at Highbury Square with a sales value of
some £84 million have already been booked for 2009/10. With construction work
complete and fully paid for, the proceeds of further sales completions will
directly reduce the remaining outstanding balance on the Highbury Square loan.
Clearly, given the above, the Group has made a strong start to the new
financial year. However, conditions remain very tough and uncertain for our
property business and this will likely continue to impact both of our main
property development projects over the next year. Whilst the impact of the
recession on our football business has so far been limited the full commercial
and financial impact may be still ahead of us. There are undoubtedly challenges
ahead but the Group starts the 2009/10 year very well placed to deal with them,
in a very robust financial position with a high level of cash reserves and
comfortable levels of debt.
S W Wisely
Group Chief Accountant
Arsenal Holdings plc
Consolidated profit and loss account
For the year ended 31 May 2009
2009 2008
Note Operations Player Total Operations Player Total
excluding trading £'000 excluding trading £'000
player £'000 player £'000
trading trading
£'000 £'000
Turnover of the group 312,305 3,589 315,894 224,541 472 225,013
including its share of
joint ventures
Share of turnover of (2,555) - (2,555) (2,043) - (2,043)
joint venture
---------- ---------- ---------- ---------- ---------- ----------
Group turnover 3 309,750 3,589 313,339 222,498 472 222,970
Operating expenses (250,950) (23,876) (274,826) (174,480) (21,757) (196,237)
---------- ---------- ---------- ---------- ---------- ----------
Operating profit/(loss) 58,800 (20,287) 38,513 48,018 (21,285) 26,733
Share of joint venture 455 - 455 469 - 469
operating result
Profit on disposal of - 23,177 23,177 - 26,458 26,458
player registrations
---------- ---------- ---------- ---------- ---------- ----------
Profit on ordinary 59,255 2,890 62,145 48,487 5,173 53,660
activities before
finance charges
---------- ---------- ---------- ---------- ---------- ----------
Net finance charges (16,633) (16,992)
---------- ----------
Profit on ordinary 45,512 36,668
activities before
taxation
Taxation (10,282) (10,942)
---------- ----------
Profit after taxation 35,230 25,726
retained for the
financial year
---------- ----------
Earnings per share
Basic and diluted 4 £566.24 £413.49
---------- ----------
Player trading consists primarily of the amortisation of the costs of acquiring
player registrations, any impairment charges and profit on disposal of player
registrations.
All trading resulted from continuing operations.
There are no recognised gains or losses in the current or previous year other
than those recorded in the consolidated profit and loss account and,
accordingly, no statement of total recognised gains and losses is presented.
Arsenal Holdings plc
Consolidated balance sheet
At 31 May 2009
2009 2008
£'000 £'000
Fixed assets
Tangible fixed assets 440,369 449,517
Intangible fixed assets 68,446 55,665
Investments 730 406
---------- ----------
509,545 505,588
Current assets
Stock - development properties 167,007 187,964
Stock - retail merchandise 1,751 1,218
Debtors - due within one year 45,981 32,340
- due after one year 9,508 13,939
Cash at bank and in hand 99,617 93,264
---------- ----------
323,864 328,725
Creditors: amounts falling due within one year (314,096) (334,252)
---------- ----------
Net current (liabilities)/assets 9,768 (5,527)
---------- ----------
Total assets less current liabilities 519,313 500,061
Creditors: amounts falling due after more than one (292,748) (310,203)
year
Provisions for liabilities and charges (32,235) (30,758)
---------- ----------
Net assets 194,330 159,100
---------- ----------
Capital and reserves
Called up share capital 62 62
Share premium 29,997 29,997
Merger reserve 26,699 26,699
Profit and loss account 137,572 102,342
---------- ----------
Shareholders' funds 194,330 159,100
---------- ----------
Arsenal Holdings plc
Consolidated cash flow statement
For the year ended 31 May 2009
2009 2008
£'000 £'000
Net cash inflow/(outflow) from operating activities 62,305 (21,013)
Player registrations (12,335) 4,010
Returns on investment and servicing of finance (17,689) (19,655)
Taxation (7,622) (4,177)
Capital expenditure (2,950) (6,944)
---------- ----------
Net cash inflow/(outflow) before financing 21,709 (47,779)
Financing (15,356) 67,186
---------- ----------
Increase in cash in the year 6,353 19,407
---------- ----------
Reconciliation of operating profit to net cash inflow/ 2009 2008
(outflow) from operating activities £'000 £'000
Operating profit 38,513 26,733
Amortisation of player registrations 23,876 21,757
Profit on disposal of tangible fixed assets (42) (19)
Depreciation 11,682 11,555
Decrease/(increase) in stock 25,940 (82,958)
Increase in debtors (4,680) (1,172)
Increase in creditors (32,984) 3,091
---------- ----------
Net cash inflow/(outflow) from operating activities 62,305 (21,013)
---------- ----------
Analysis of changes in net debt At 1 June Non cash Cash flows At 31 May
2008 changes 2009
£000 £000 £000 £000
Cash at bank and in hand 31,601 - 22,498 54,099
Short-term deposits 61,663 - (16,145) 45,518
---------- ---------- ---------- ----------
93,264 - 6,353 99,617
Debt due within one year (bank (142,835) - 8,733 (134,102)
and other loans/bonds)
Debt due after more than one year (242,726) (996) 6,621 (237,101)
(bank loans/bonds)
Debt due after more than one year (25,776) (320) 2 (26,094)
(debentures)
---------- ---------- ---------- ----------
Net debt (318,073) (1,316) 21,709 (297,680)
---------- ---------- ---------- ----------
Non cash changes represent £1,276,000 in respect of the amortisation of costs
of raising finance, £320,000 in respect of rolled up, unpaid debenture interest
and £280,000 in respect of amortisation of the premium on certain of the
Group's interest rate swaps.
Arsenal Holdings plc
Notes to preliminary results
For the year ended 31 May 2009
1. The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 May 2008 or 2009, but is derived from
those accounts. Statutory accounts for 2008 have been delivered to the
Registrar of Companies and those for 2009 will be delivered following the
company's annual general meeting. The auditors have reported on those accounts;
their reports were unqualified, did not draw attention to any matters by way of
emphasis without qualifying their report and did not contain statements under
s498(2) or (3) Companies Act 2006 or equivalent preceding legislation.
2. Segmental analysis
Class of business:- Football
2009 2008
£'000 £'000
Turnover 225,052 207,723
---------- ----------
Segment operating profit 30,751 26,719
Share of operating profit of joint venture 455 469
Profit on disposal of player registrations 23,177 26,458
Net finance charges (14,449) (13,947)
---------- ----------
Profit/(loss) on ordinary activities before 39,934 39,699
taxation
---------- ----------
Segment net assets/ (liabilities) 188,101 162,138
---------- ----------
Class of business:- Property development
2009 2008
£'000 £'000
Turnover 88,287 15,247
---------- ----------
Segment operating profit 7,762 14
Net finance charges (2,184) (3,045)
---------- ----------
Profit/(loss) on ordinary activities before taxation 5,578 (3,031)
---------- ----------
Segment net assets/ (liabilities) 6,229 (3,038)
---------- ----------
Class of business:-
Group
2009 2008
£'000 £'000
Turnover 313,339 222,970
---------- ----------
Segment operating profit 38,513 26,733
Share of operating profit of joint venture 455 469
Profit on disposal of player registrations 23,177 26,458
Net finance charges (16,633) (16,992)
---------- ----------
Profit/(loss) on ordinary activities before 45,512 36,668
taxation
---------- ----------
Segment net assets/ (liabilities) 194,330 159,100
---------- ----------
3. Turnover
Turnover, all of which originates in the UK, 2009 2008
comprises the following: £'000
£'000
Gate and other match day revenues 100,086 94,580
Broadcasting 73,239 68,360
Retail 13,858 13,052
Commercial 34,280 31,259
Property development 88,287 15,247
Player trading 3,589 472
---------- ----------
313,339 222,970
---------- ----------
4. Earnings per share
Earnings per share (basic and diluted) are based on the weighted average number
of ordinary shares of the Company in issue - 62,217 shares (2008 - 62,217
shares).
5. Reconciliation of movement in shareholders' funds
2009 2008
£'000 £'000
Profit for the year 35,230 25,726
Opening shareholders' funds 159,100 133,374
---------- ----------
Closing shareholders' funds 194,330 159,100
---------- ----------
6. Annual General Meeting
The annual general meeting will be held at Emirates Stadium, London, N7, on
Thursday 22 October 2009 at 11.30 am. The full statement of accounts and annual
report will be posted to shareholders on 29 September 2009.
Monday, 20th May 2024
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