Celtic Financials – Annual Report 2000

(note

Final Results

RNS Number:3193P 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

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	Division 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

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 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: 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

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

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 £000	1999 £000
TURNOVER (note 2)	38,579	33,840
OPERATING EXPENSES	(33,903)	(27,086)
PROFIT FROM OPERATIONS	4,676	6,754
EXCEPTIONAL OPERATING EXPENSES (note 2a)	(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	(5985)	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 £000	1999 £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	47,471
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 £000	1999 £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 £000	1999 £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

2a The exceptional operating expenses were due to paying off the contracts of John Barnes, Eric Black and Terry MsDermott following their sacking after the debacle of Inverness Caledonian Thistle.

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.