Final Results
Celtic PLC
11 August 2000
PRELIMINARY RESULTS FOR THE YEAR ENDED 30 JUNE 2000
SUMMARY OF THE RESULTS
* Profit from operations before exceptional operating expenses of £4.68m
(1999: £6.75m)
* Loss on ordinary activities after taxation of £5.98m (1999: £550,000
profit)
* Turnover increased by 14% to £38.58m (1999: £33.84m) despite a
disappointing year in terms of footballing performance
* Significant increases in revenues from merchandising of 46.7% and
multimedia and communications of 46.3%
* Substantial investment in the development of the core professional
football operation led to operating expenses up by 25.2% to £33.90m,
predominantly due to an increase in labour costs
* A gross investment of £14.72m was made in strengthening the first team
squad; new extended contracts awarded to key players
* Active participation in discussions to restructure the economics of
European football
* Appointment of Martin O'Neill as football manager
* Since the year end £10.36m invested in acquiring Sutton and Valgaeren
Commenting on the results Brian Quinn, Chairman, said:
'Last year's results emphasised that our commercial success is directly and
immediately related to football success. The Board is focused on the
development of our football activities with the aim of exploiting our strong
brand to expand further our non-football revenues, notably in the field of
multimedia and communications. At the same time Celtic appreciates the need
to maintain strict control of football costs which continue to cause concern
throughout the football industry.
We are delighted to have acquired the services of Martin O'Neill who is one
of the outstanding managers in the British game and who is turning his
attention to strengthening the football squad. He is particularly keen to
pursue our youth development programme. Your Board will support him fully
in this.
The changing financial situation in the European football industry is having
a profound impact at the micro level in Scotland. Celtic will continue, as a
matter of priority, to be actively involved in discussions which address
this fundamental issue.'
For further information contact:
Allan MacDonald, Chief Executive
Eric Riley, Financial Director Tel 0141 551 4276
Luisa Winnett, Gavin Anderson & Company Tel 020 7457 2345
FINANCIAL RESULTS
Turnover increased by 14.0% to £38.58m continuing the upward trend of
previous years, despite a disappointing year in terms of footballing
performance. As last year, 26 home matches were played in the season.
Significant increases in revenues were achieved in multimedia and
communications (46.3%) and merchandising (46.7%). Revenues from professional
football also reported growth of 2.0% over 1999 levels.
Operating expenses rose by 25.2% to £33.90m, predominantly due to increased
labour costs. Profit from operations before exceptional operating expenses
was £4.68m compared to £6.75m last year.
Exceptional operating expenses of £1.63m in respect of termination payments
and provisions re former employees were incurred. The net loss for the year
after exceptional costs, amortisation of intangible fixed assets, loss on
disposal of intangible fixed assets, interest and tax amounted to £5.98m in
comparison to a profit of £550,000 in 1999. A preference dividend of
£599,000 falls to be paid, which provides a retained loss for the year of
£6.58m (1999: £17,000 profit).
CHAIRMAN'S STATEMENT
This year fell substantially short of our aspirations on and off the field,
and also significantly below what shareholders and supporters have a right
to expect. The Board is fully conscious of this and has considered the
reasons and the proper response at length.
It is absolutely clear from the year just ended that commercial success is
directly and immediately related to football success. In both spheres last
year was, in the words of the pundits, a year of two halves: until the end
of 1999 the team competed well in domestic competitions. Early departure
from the UEFA Cup was disappointing but could be explained partly by the
serious injury to Henrik Larsson. Financial performance was also fairly
satisfactory.
However the second half of the year was plainly unsatisfactory. The lack of
depth in playing resources began to tell and defeat in the Scottish Cup led
to a palpable drop in confidence among both coaching and playing staff. The
team rallied to win the CIS League Cup for the second time in three years,
but fell away badly in the later stages of the Premier League.
The effect on our business was swift and painful. Match attendances
suffered, matchday ticket sales declined sharply and turnover generally
dropped away. In football, revenues are directly related to performance on
the field while costs are fixed at a level determined by the market. The
most challenging aspect to our cost base is the control of labour costs
especially football labour costs: in the current year our total labour
costs, which represent 52% of turnover, increased by 39% to £20.17m.
Nevertheless our labour costs continue to compare favourably with our
competitors north and south of the border.
The Board has recognised that a major effort has to be devoted to bolstering
the football operation. We have acquired the services of Martin O'Neill, one
of the outstanding managers in the British game. Martin is turning his
attention to strengthening the football squad and the Board will give him
full support in this. Martin is particularly keen to pursue our youth
development programme, details of which are contained in the Chief
Executive's report.
All this costs money. Nothing in football comes cheaply, especially
acquiring and paying players. Transfer fees command the headlines, but
salaries and bonuses are at least equally demanding. Whilst further
increases in labour costs are an unavoidable consequence of the strategy to
pursue football success, they will continue to be carefully controlled
through our budgeting, reporting and control framework with the aim that the
total operational costs of the Club's professional football operation be
wholly funded by income from the paid attendance at Celtic Park.
Going forward, we will therefore have to explore ways of generating
additional income from ticket sales. At present we provide season and match
day tickets at prices which, for almost all categories, are cheap by
comparison with other British clubs which are our competitors for players
and coaching staff. It is no coincidence that these clubs tend to attract
the top-quality players. I believe that our supporters will recognise that
enhancing the quality of our squad will justify a higher contribution from
them in the form of ticket revenues.
In the medium to long term our approach is to support the development of our
football activities by exploiting our strong brand in various ways, and by
expanding our non-football revenues. Meantime we have increased our
borrowings to help finance current demands; but they are carefully and
continuously monitored by the Board and management, who also constantly
review the possibility of alternative funding initiatives whether through
the value of Celtic's multimedia and communications operation or otherwise.
We will never put the club's future at risk by neglecting the management of
our finances. The Company remains strong financially with good prospects of
developing our business base and enhancing shareholder value.
Finally, I believe it is becoming accepted that the Scottish football
structure is not succeeding in its present form. We face the prospect of a
steady downward spiral in which both the strongest and the weakest Scottish
club sides will see a deterioration in their ability to supply attractive
and competitive football. It cannot be healthy for the domestic competitions
to be dominated by a very few teams, while our top clubs enjoy only limited
success in Europe. The European pie gets bigger year by year but is shared
between a diminishing number of teams from a select few countries, while the
smaller countries and clubs scramble for the crumbs.
Celtic is part of the Scottish football scene. We will not abandon it and
leave our fellow clubs to manage by themselves. That said, we must continue
to be involved in discussions which could result in the reorganisation of
the European football environment and lead to greater stability for Scottish
clubs, large and small. We owe nothing less to both our shareholders and
supporters and to Scottish football generally.
Fergus McCann resigned as a director of Celtic in October 1999. This
followed five years as Chairman and Managing Director, a period in which he
was the driving force in revitalising the Club, overseeing the redevelopment
of Celtic Park and ensuring a solid financial foundation from which to
progress. Fergus McCann's contribution to the rebirth of Celtic was
monumental and he will forever be a key part of Celtic's history. Frank
O'Callaghan resigned as non-executive Chairman on 1 June 2000. Frank worked
extremely hard over the term of his appointment and assisted greatly with
the widening of Celtic's shareholder base at the time of the disposal of
Fergus McCann's majority shareholding. On behalf of my fellow directors,
shareholders and supporters, I would like to record officially my thanks to
both Fergus and Frank for their significant contribution.
Brian Quinn CBE
Chairman
EXTRACTS FROM THE CHIEF EXECUTIVE'S REVIEW
The Company's overall trading performance during the financial year ended 30
June 2000 was disappointing with profit from operations at £4.68m in
comparison to £6.75m last year. Nonetheless, a 14% increase in turnover was
achieved, largely via strong growth in multimedia and merchandising.
Significantly, substantial investment continued in the development of the
core professional football operation as the key business priority. This
investment inevitably brought with it increases in football operating
expenses, increased levels of player amortisation and exceptional costs
associated with addressing football management requirements. In years
preceding, significant investments in the physical assets of the business
were necessary both to meet mandatory requirements and to expand the
capacity of the stadium.
The business was reorganised during the course of the year in accordance
with a broad strategic plan. Five business operations were introduced with
the Professional Football operation at the core. The other operations are
Youth Development, Multimedia and Communications, Merchandising and Stadium
Enterprises. Each business operation has a planning, performance, revenue
and cost dimension. The reorganisation provides focus on development
planning, clear management accountability and improved financial control.
DIVISIONAL ANALYSIS
Division Turnover 2000 Increase/(decrease)
£000's on 1999
Professional football 19,809 2.0%
Multimedia & communications 9,228 46.3%
Merchandising 5,650 46.7%
Stadium enterprises 2,803 (10.2)%
Youth development 1,089 (3.9)%
TOTAL 38,579 14.0%
PROFESSIONAL FOOTBALL
Review
Last year the Club embarked upon a long-term strategy to re-establish Celtic
as a major football force in Europe. In pursuit of this aim, first team
capital expenditure totalled £14.72 million and actions were also taken to
retain and extend the contracts of players capable of making valuable
contributions to the success of the Club during future seasons.
Investment in football management is seen as the other major contributor to
achievement of the strategy. In this regard, a new football management
structure was created within which the roles of Director of Football
Operations and Head Coach were defined as the key ones. A new management
team was recruited into these respective posts and set about the task of
starting to bridge the gap between Celtic and its domestic and European
competitors. The results were disappointing. Nonetheless, the policy of
creating a strong football management in order to achieve playing success is
fundamentally correct.
Professional football labour costs rose to £15.17 million over the financial
year. This level of expenditure remains well below the proportion of
turnover spent on football staff remuneration by other major British clubs
and well within the professional football revenues of £19.81 million.
The highlight of the season was winning the CIS League Cup. The Club again
qualified for the UEFA Cup competition for the season 2000/01 although
overall league performance did not meet expectations.
Martin O'Neill was appointed Football Manager with responsibility for all
football matters on 1st June 2000. The recruitment of an individual of such
high stature within the game is clear evidence that short-term difficulties
will not deflect Celtic from its footballing ambitions.
Celtic again sold substantially more season tickets (53,397) than any other
British club. All categories of season ticket sales, match day ticket sales
and the sale of match day corporate and executive hospitality facilities are
the principal sources of revenue from the professional football operation.
Despite a reduction in home attendances, aggregate revenue of £19.81 million
from these sources was 2.0% higher than the previous financial year.
Outlook
It is clear, both from a 'top down' and 'bottom up' review of the status of
the Club's professional football operation, that further substantial
investment and higher levels of expenditure on player acquisition and
remuneration and on coaching, training and scouting facilities, resources
and personnel are essential.
In particular, the Club must maintain the forward momentum that it has
initiated over the past year with respect to bridging the major gap which
exists between the capital value of Celtic's first team squad and those of
other leading clubs in the United Kingdom and elsewhere in Europe.
In order to meet the full running cost of the professional football
operation from income directly related to professional football activities,
higher season and match day ticket revenues are needed to fund a successful
team. The season and match day ticket prices currently charged by Celtic for
'Standard', 'Family', 'Corporate' and 'Executive' seats are very
substantially lower than those charged by other major British clubs. Whilst
it is intended to continue to set ticket prices at levels which take account
of the financial means of the various categories of supporters of the Club,
it is proposed to effect price increases across all season ticket categories
commencing in the 2001/02 season.
Celtic has been fully engaged and is well positioned to benefit from the
creation of a new European football environment offering the prospect of
more attractive matches. The Club will continue to play a progressive and
constructive role, within the established football governance institutions
of which it is a member, in relation to current and proposed initiatives to
reform the structure of European competition.
YOUTH DEVELOPMENT
Review
The under 18 team won its respective Scottish League Championship and eleven
youth players made their first team debut in season 1999/00. The youth
players also gained substantial recognition at international level. Twenty
one players under 21 years of age made their youth international debut.
Outlook
In recognition of the central importance of continued investment in an
effective youth development programme, medium term plans are being
progressed for the establishment of a Youth Academy. The Company's
commitment to this is demonstrated by the Board approving the acquisition of
and allocation of funds for an appropriately sized site in the East side of
Glasgow. Specific sites have been short-listed and a final selection
process is now underway. The planned Academy would contain coaching and
training facilities to the standard of our top European competitors.
MULTIMEDIA AND COMMUNICATIONS
Review
This business operation encompasses broadcasting, publishing, sponsorship
and advertising activities. The combined turnover in the year was £9.23
million, reflecting a 46.3% increase over the equivalent figure of £6.31
million in the previous year of trading. This reflects a greater realisation
of the inherent value of the Company's Intellectual Property and an improved
appreciation of the strength of the Celtic brand.
Broadcasting and publishing revenues rose by 25.0% to £5.33 million. The
increase was achieved by securing greater value for the Club's involvement
in European competition, from a substantial growth in SPL overseas
television rights sales and through the introduction of beambacks. The lack
of on-field success reduced the number of televised appearances in
comparison to the previous season, with a concomitant reduction in domestic
league and cup revenues.
Sponsorship and advertising revenues grew by 90.9% to £3.90 million. Revenue
from the first year of Celtic's four-year deal with shirt sponsor ntl and
the renewal for a further five years of a 25-year association with kit
sponsor, Umbro were the major contributors to this growth. The first
Internet advertising revenues were achieved during the period.
During the year, the only significant cost increase was related to
investment in broadcast capability with the introduction of a home match-day
programme, away match beambacks and audio webcasts.
Outlook
The addition by the SPL of a new 6 game live package with the BBC and a new
2-year contract for the sale of SPL international rights will generate more
league funds for overall distribution. Additional success in the main
domestic cup competitions would increase Celtic's share of existing funds.
In the European arena, further progress in the UEFA Cup would build on the
impressive broadcast revenue growth from last year. The two Champions League
qualification slots now available to SPL clubs from season 2001/02 will
provide enhanced revenue opportunities for Scottish clubs.
Celtic is an active participant in discussions over the size and structure
of the new SPL television contract due for renewal in season 2002/03.
Opportunities for growth here lie in a revenue distribution that more
accurately reflects league performance, supporter base and media appeal and
in the creation of new rights windows such as Pay Per View. PPV will offer a
means of increasing live match availability to Celtic supporters.
The Celtic brand has a broad national and international appeal and new media
channels such as the Internet, mobile telephony, interactive and on-demand
television and digital audio broadcasts provide the Company with an
opportunity effectively to reach and target its audiences.
In the coming year more new media based information, entertainment and e-
commerce services will be developed. An agreement has been reached with the
SPL for all league matches to use live commentary feed from its radio
broadcast partners within Celtic's matchday audio webcast programme. Other
services such as exclusive interviews or player features, real time
information bulletins and live streaming will also be offered. In the medium
term, Celtic looks forward to the technical development of increased
broadband capability coupled with the potential availability of more
Internet match transmission rights.
The main short-term sources of new media revenue are most likely to be on-
line advertising or sponsorship. In the longer term the Company expects
significant direct consumer entertainment sales and Affinity Partnership
revenues in combination with high quality brand name business to consumer
companies.
The Company's policy is to self-finance its content generation as far as
practicable and to embrace partnerships in non-core competence areas. Areas
of potential partnership include distribution, marketing and technical
services such as hosting, networking and live video streaming. In
partnering, the Company will seek to protect at all times the long-term
inherent value of its Intellectual Property.
MERCHANDISING
Review
Merchandising revenues continued the strong growth trend of recent years,
against the industry norm. Total revenues of £5.65 million in the year
reflect a 46.7% increase over the previous period's figure of £3.85 million.
The fledgling e-commerce business exceeded expectations by more than
tripling revenues from the previous period. An increase in the range of
licensed Celtic products ensured a significant rise in royalty revenues.
Outlook
The merchandising operations development strategy encompasses football
specific brand development, non-football Celtic brand development, the
improved penetration of international markets, improvements to ordering and
distribution and the continuation of the outlet expansion programme. In many
of these areas the Internet will play a progressively increasing role.
Non-football Celtic related brand development, targeting the Celtic
Diaspora, will now be undertaken with the aim of extending beyond the
traditional football fan market. This year, the introduction of an
associated range of non-football Celtic branded products will supplement the
football branded leisurewear range.
STADIUM ENTERPRISES
Review
This business area contains revenues generated both on a match day and at
other times of the week which were down on 1999 levels by £320,000 (10.2%).
Match day catering achieved an increase in spend per head in the year,
following implementation of a business process review. This improvement
counteracted the effects of a 17.6% decline in match attendance towards the
end of the season. Despite this shortfall in attendance, overall match day
catering revenues for the year matched the previous year's figure of £1.47
million.
Outlook
The main short-term objective is to drive up the non-matchday sales and
where practical, to increase margin whilst maintaining service levels. To
achieve this goal, Celtic outsourced its catering operation to Sodexho, an
international event caterer.
The key to unlocking future revenue streams within this business operation
lies in increasing utilisation of stadium space and in improving the
surrounding environment, making Celtic Park and its environs an enjoyable
and entertaining place to visit. A detailed plan has been prepared to
achieve this aim.
CONCLUSION
In summary, the challenge for Celtic in the new Millennium is as follows: to
develop and sustain the core professional football operation at an
affordable level in order to improve the Club's competitiveness in the
domestic and European football arenas; to increase continually the quantity
and quality of home-grown football talent via progressive and effective
youth development facilities and resources; and to grow the related
businesses of multimedia and communications, merchandising and stadium
enterprises, generating strong revenue streams and margins in each of these
activities in order to fund ongoing investment requirements and increase
shareholder value. These aims are inextricably linked. Football investment
at both youth and senior level requires substantial funding support from
successful ancillary businesses and these businesses require a successful
team in order to achieve their full potential. The Company clearly
recognises this strategic imperative and has structured its organisation and
developed its business plans accordingly.
Allan MacDonald OBE
Chief Executive
Celtic plc
GROUP PROFIT AND LOSS ACCOUNT
YEAR ENDED 30 JUNE 2000
2000 1999
£000 £000
TURNOVER (note 2) 38,579 33,840
OPERATING EXPENSES (33,903) (27,086)
------- -------
PROFIT FROM OPERATIONS 4,676 6,754
EXCEPTIONAL OPERATING EXPENSES (1,629) -
------- -------
PROFIT FROM OPERATIONS
AFTER EXCEPTIONAL
OPERATING EXPENSES 3,047 6,754
AMORTISATION OF
INTANGIBLE FIXED ASSETS (7,203) (6,088)
NET (LOSS)/GAIN ON SALE
OF INTANGIBLE FIXED ASSETS (981) 347
------- -------
OPERATING (LOSS)/PROFIT (5,137) 1,013
INTEREST PAYABLE AND SIMILAR CHARGES (848) (463)
------- ------
(LOSS)/PROFIT ON
ORDINARY ACTIVITIES BEFORE TAXATION (5,985) 550
TAX ON ORDINARY ACTIVITIES - -
----- -----
(LOSS)/PROFIT FOR THE YEAR (5,985) 550
PREFERENCE DIVIDEND (note 3) (599) (533)
----- -----
RETAINED (LOSS)/PROFIT
FOR THE YEAR (6,584) 17
----- -----
(LOSS)/EARNINGS PER
ORDINARY SHARE (note 4) (22.60p) 0.06p
DILUTED (LOSS)/EARNINGS
PER SHARE (note 4) (12.57p) 1.16p
All amounts relate to continuing operations.
There were no gains or losses recognised in 2000 other than the loss for the
year.
Celtic plc
GROUP BALANCE SHEET
30 JUNE 2000
2000 1999
£000 £000 £000 £000
FIXED ASSETS
Tangible assets 46,753 43,773
Intangible assets 19,039 13,538
----- -----
65,792 57,311
CURRENT ASSETS
Stocks 956 532
Debtors 4,065 3,556
Cash at bank and in hand 1,175 1,645
----- -----
6,196 5,733
----- -----
CREDITORS - Amounts
falling due within
one year (12,315) (7,148)
Income deferred less
than one year (8,333) (8,525)
----- -----
(20,648) (15,673)
------ ------
NET CURRENT LIABILITIES (14,452) (9,940)
----- ------
TOTAL ASSETS LESS
CURRENT LIABILITIES 51,340 47,371
CREDITORS - Amounts
falling due after
more than one year (15,172) (4,779)
------ -----
NET ASSETS 36,168 42,592
----- -----
CAPITAL AND RESERVES
Called up share
capital (includes non-equity) 11,392 11,390
Share premium 17,519 17,361
Profit and loss account 7,257 13,841
----- -----
SHAREHOLDERS' FUNDS 36,168 42,592
----- -----
Celtic plc
GROUP CASH FLOW STATEMENT
YEAR ENDED 30 JUNE 2000
2000 1999
£000 £000
RECONCILIATION OF OPERATING PROFIT
TO NET CASH INFLOW FROM OPERATING ACTIVITIES
Operating (loss)/profit (5,137) 1,013
Depreciation 1,128 974
Amortisation of intangible
fixed assets 7,203 6,088
Net loss/(gain) on sale of
intangible fixed assets 981 (347)
Grants release (1) (1)
Increase in stocks (424) (37)
Decrease/(increase) in debtors 102 (1,520)
Increase in creditors 1,270 1,707
----- -----
Net cash inflow from operating activities 5,122 7,877
----- -----
CASH FLOW STATEMENT
Net cash inflow from operating activities 5,122 7,877
Returns on investments and servicing
of finance (1,381) (996)
Taxation paid - (139)
Capital expenditure and financial investment (12,961) (8,250)
----- -----
Cash outflow before financing (9,220) (1,508)
Financing 8,750 4,909
----- -----
(Decrease)/increase in cash (470) 3,401
----- -----
RECONCILIATION OF NET CASH FLOW TO
MOVEMENT IN NET DEBT
(Decrease)/increase in cash
in the period (470) 3,401
Cash inflow from increase in debt (8,590) (4,909)
----- -----
Change in net debt resulting from
cash flows (9,060) (1,508)
Non-cash movement - new
hire purchase agreement (1,768) -
----- -----
Movement in net debt in the period (10,828) (1,508)
Net debt at 1 July (3,677) (2,169)
----- -----
Net debt at 30 June (note 5) (14,505) (3,677)
----- -----
NOTES TO THE PRELIMINARY RESULTS
1 The financial information set out above was approved by the directors
on 10th August 2000 and does not constitute the Company's statutory
accounts for the years ended 30 June 2000 or 1999. The auditors' opinion
on the 1999 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 1999 have been filed and those for 2000 will be
delivered to the Registrar of Companies in due course.
2 Turnover
Turnover comprised:
2000 1999
£000 £000
Professional football 19,809 19,426
Multimedia and communications 9,228 6,307
Merchandising 5,650 3,851
Stadium enterprises 2,803 3,123
Youth development 1,089 1,133
38,579 33,840
3 The preference dividend of £599,000 (1999 - £532,800) reflects the
dividend of 6% (inclusive of tax credit) payable on 31 August 2000 to
those preference shareholders on the register at 11 August 2000.
4 Earnings Per Share
Earnings per share has been calculated by dividing the loss for
the period by the weighted average number of ordinary shares (29.14
million) in issue during the year. Diluted earnings per share has been
calculated by dividing the loss for the period by the total weighted
average number of ordinary and preference shares (total 47.64 million)
in issue during the year ended 30 June 2000 assuming the exercise of
all outstanding share purchase options.
5 At 30 June 2000, the Company's net debt was £14.5m which was well
within the unsecured bank facility agreed in May 2000 comprising of
overdraft of £10.5m together with term loans of £21m, of which £6.4m is
repayable in equal quarterly instalments from October 2009 until April
2019 and £14.6m is repayable in July 2019.
6 Copies of the Preliminary Results can be obtained from the Company's
Registered Office at Celtic Park, Glasgow, G40 3RE. Telephone Number
0141 556 2611.