Celtic Plc Interim Results 2005

Published on Saturday 30th July, 2005 by Celtic Trust

Comments on Interim Results for 6 months to 31 December 2005

Financial Highlights

Successful issue of 50 million new Ordinary Shares, raising £14.55M net. Significant changes to the reporting of non-equity share capital, debt & non-equity dividends following the implementation of FRS 25, requiring the restatement of prior period comparatives. Group turnover decreased by 15% to £33M (2004: £38.98M) Operating expenses reduced by 4.2% to £29.54M (£30.84M) Profit from operations of £3.5M (£8.15M) Loss before tax of £0.96M (2004 Profit of £1.55M) Period end bank debt of £8.74M (£17.38M) Investment of £6.55M (2004: £1.99M) in acquisition of intangible fixed assets (i.e. player acquisitions)

 

Summary

The new share issue proceeds have substantially improved the Capital & Reserves, something which was much needed in view of the fact that net assets of £38.8M as at June 2000 had reduced to £16.2M by 2005 and this despite a capital injection of £22M net from the 2001 share issue. Shareholders funds are now £25.35M. (See also the following point.) A new Financial Reporting Standard-FRS 25- was adopted in the period. This means that the Group's Preference Shares and Convertible Preferred Ordinary Shares, previously defined as equity, were reclassified as a combination of debt and equity: and non-equity dividends treated as interest. As a result, net assets are £4.8M lower, net debt is £4.6M higher and interest charges are £374,000 higher than would have been reported prior to the adoption of this new standard. This explains why, even after the introduction of £14.55M of new capital, the net asset position has improved by (only) some £9M. On the income side of the business, the impact of the premature exit from Europe has cost around £9.4M, with total revenue decreased by 15%, from £38.9M, in the 6 months to December 2004, to £33.M. Ticket sales were down by £3.9M and income from multimedia and communications were lower by £5.5M. On a more positive note, and partly compensating, it is encouraging to see the substantial increase of some 48% in Merchandising, as a result of the new Nike deal. Income here grew from £6.5M for the same period in 2004, to £9.6M and Peter Lawwell is to be congratulated on the success of this new deal. We will see the real benefit of this when the team again competes successfully in Europe. Operating costs were down by 4.2%, mainly as a result of a reduction of around £3M in player wages. Nevertheless, at 89.4% of turnover, these costs are still high and it would be interesting to know what the objective is in this crucial area. By way of comparison, the best performance here was in 1999 when operating costs represented 80% of turnover. It should be acknowledged that cost control is now a prime target and the Board is aiming at bringing these down to a more sustainable level. It could be argued, of course, that this is a bit late, bearing in mind the very lucrative player contracts agreed during the final year of the O'Neill era, which saw staff costs increase to 60% of turnover. The interim accounts do not give this level of detail within operating expenses so it is not possible to see the staff costs in the most recent half year. However, the departure of Sutton and, perhaps Agathe, should impact in the second half of the year. Amortisation charges are well down from £5.2M at December 2004, to £3.4M. This may be as low as it gets but it certainly helps the P & L (although not the cash flow). The impact of all of the aforementioned is, of course, seen in lower profitability, with profits from operations being reduced from £8.1M to £3.5M. After all charges, including amortisation and interest, there is a retained loss of £961,000 compared to a profit of £1.5M during the same period in 2004. In summary, the substantial damage caused by non-participation in European competition has been minimised by the value of the Nike deal and by lower player costs, including amortisation. Reduction in bank debt is significant, being reduced from circa £19.5M in recent years, to a net figure of £8.6M. Obviously this is, primarily, because of the proceeds-£14.5M net-from the new share issue. Presumably this level of bank indebtedness will increase as funds are spent on the development of the Lennox Castle training facility. Details on this development are still sparse and it will be interesting to ascertain more detailed estimated costs. However, some £5M of the proceeds from the recent share issue are to be used to 'retire debt' so one can assume that there will be some permanent reduction in bank debt over the next few years. In short, these interim results do show the Group in a stronger financial position, largely because of the new share issue, the new Nike deal and from a measure of reduction in player costs. The ambition must be to achieve real profitability from operations, rather than continue to go to shareholders for new capital. Resumption of participation in Europe and the Nike deal will be significant in achieving this aim. As ever, it's a delicate balance between investment in the football squad, sufficient to achieve on-field success, and prudent management of costs. Unfortunately, entry to The Premiership looks unlikely, within the current climate, although the writer would certainly continue to support Dermot Desmond's efforts in this regard.

 
 

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