Rangers Annual Report -2010

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Chairman’s Statement

 

 

I am very pleased to present the Rangers Football Club Annual Report against a backdrop of

success for the Club.

To win our 26th League Cup was outstanding but to secure our second successive Clydesdale

Bank Premier League title at this juncture was not only a tremendous achievement but one of

paramount importance to the welfare of the Club. I would like to extend my congratulations to

Walter Smith, Ally McCoist, Kenny McDowall and the playing squad for their efforts.

The result of that success was qualification for the UEFA Champions League this year, the net

revenues from which will, in turn, provide us with greater financial stability. One of the immediate

benefits of this was the commitment by Walter to manage the team for another season and Ally

and Kenny agreeing to new contracts.

The benefit of participating in the UEFA Champions League in Season 2009/10 is clear with our

turnover increasing by �£16.6m to �£56.3m. This, together with measures taken on reducing our

cost base, resulted in an increase in operating profit of Ã?£22.4m to Ã?£5.1m from last year’s loss

of �£17.3m.

Retained profit for the year amounted to �£4.2m, an increase of �£16.9m on last year. The current

year incorporates a �£0.5m gain on sale of player registrations compared with a gain of �£6.2m in

the prior year.

In terms of debt, our net cash inflow in the year amounted to �£4.0m. As I highlighted last year we still had �£9.2m payable in terms of historic player

transfers. The cash flow in the current year reflects payments of �£8.0m on these prior year acquisitions, and resulted in our year end debt in relation to

the term loan and overdraft facility with Lloyds Banking Group of �£22.3m. Total debt at 30 June 2010, incorporating finance leases and other loans,

amounted to �£27.1m.

A balance has to be struck between debt reduction and remaining competitive on the playing front. To this end, we agreed a business plan with Lloyds

Banking Group in recent months, and whilst we continue to look for new investment, this has enabled an allocation of funding for new players, while

at the same time retaining the nucleus of the squad that has served us so well in the past two seasons.

The financial results and the team’s success have assisted in stabilising the business and strengthening our balance sheet. Some caution must be

exercised, however, given the effect of the recession on our core revenue streams and the implications to Scottish football of the country’s European

ranking. Challenges therefore still remain but I am confident that the management team under the guidance of Martin Bain can continue to enhance

the company’s financial performance whilst maintaining our team’s competitive edge on the field.

Every Rangers fan, myself included, knows only too well the issues we have faced in recent times given our debt levels and the distraction of ownership

speculation. However, we are now in a position to look forward more constructively and positively as we make every effort to achieve continued success

for this great football club.

As I did last year, it is my intention to deliver a “Chairman’s Address” at the AGM on 18 October 2010, when I will update our shareholders and

supporters on major developments pertaining to the Club and provide further insight into issues of concern and interest to all of our patrons.

 

 

More Info:

 

http://www.rangers.co.uk/staticFiles/f6/56/0,,5~153334,00.pdf

 

http://www.rangers.co.uk/page/annualreport/0,,5,00.html

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FINANCIAL RESULTS

As highlighted in my report last year, the effect of the economic downturn and the focus on the

level of debt within the Club resulted in the Board imposing greater financial disciplines to ensure

the long term sustainability of the Club. The continuing attention on cost reduction and revenue

enhancing initiatives together with our participation in the 2009/10 UEFA Champions League and

qualification for the group stages of the 2010/11 UEFA Champions League, have resulted in the

Club surpassing initial objectives and being on a more sound financial footing than last year.

Cost control and revenue generating initiatives continue to be key challenges for all SPL clubs in

light of decreased broadcasting rights, the impact of the recession on core revenue streams and

Scotland’s ranking in European competition. Balanced measures have been, and will continue to

be taken at the Club to reduce any negative impact, while maintaining our competitive edge on

the pitch, to ensure long term financial stability.

Bank debt levels as at 30 June 2010 under our Term Loan and overdraft facilities improved by

�£3.7m to �£22.3m reflecting the net income earned from Champions League participation, offset

by the outlay of �£8.0m in the year on historic player transfers and a decrease in advance season

ticket sales for the forthcoming season.

The Group’s turnover at Ã?£56.3m and operating profit of Ã?£5.1m increased by Ã?£16.6m and Ã?£22.4m

respectively on last year, benefitting from Champions League income and a reducing cost base.

Gate receipts and hospitality sales increased by �£1.6m to �£25.8m due to the additional games in the season. In total 54 matches were played in all

competitions in 2009/10 as against 49 in the prior year. The three home European ties made up the majority of the increase in revenue, although this

was slightly offset by the exit at the quarter final stage from the Active Nation Scottish Cup. While the number of season tickets reduced due to the

impact of the recession by 2,801 to 40,306, the improved mix of adult versus concession tickets and increased matchday income meant that the

decrease was not as pronounced in revenue terms.

Hospitality sales were affected by the economic downturn, with seasonal occupancy levels dropping to 56% (2009 - 66%), with occupancy for SPL matches

averaging 86% (2009 - 90%). Challenges remain in the key revenue streams of ticketing and hospitality for the current season given the state of the economy.

Income from sponsorship and advertising increased by 4% to �£2.9m in a difficult market. The Carling agreement came to a close in May 2010, and has

been replaced by a three year sponsorship deal with Tennent’s from 2010/11.

As has been well documented, the demise of Setanta in the summer of 2009 has had a major impact on broadcasting revenues in Scotland. While the

new BSkyB and ESPN contract with the Scottish Premier League is welcomed, the financial impact on the Club’s income is highlighted in the Ã?£1.4m

reduction in broadcasting revenue to Ã?£3.8m. This reduction includes a decrease in income from domestic cup competition and the Club’s TV channel.

In August 2009 the new media offering http://www.rangersTV.tv was launched. This offers live broadcasts and archive material to be viewed on demand and

at the year end had 23,000 registered users.

Commercial income increased by �£16.1m to �£21.7m as a result of participation bonuses and market pool related income from the UEFA Champions

League group phase, together with improved revenue from publishing. The market pool element from UEFA was enhanced given we were the sole

Scottish representative in the group stages. Although we have secured direct qualification into the 2010/11 Champions League group phase, a

cautionary note should be made for the 2011/12 season, when, due to the Scottish co-efficient in European competitions, the winners of the Scottish

Premier League may have up to three qualifying rounds to negotiate before entering the lucrative group stages.

The guaranteed net royalty receipts from JJB Sports plc of �£3.0m together with the annual amortisation of the initial 2006 payment of �£14.5m are

included within the commercial turnover figures.

Other operating income principally comprising events and catering income increased by 8% to �£2.0m due to our participation in Europe.

Net operating expenses decreased by �£4.4m to �£43.9m reflecting the reduced salary levels and efficiencies introduced in the year. Total payroll costs

as a percentage of turnover reduced to 50% (2009 - 77%) as a result of the �£2.5m decrease in salary costs and the improvement in turnover.

Despite the cost to service the European campaign and the launch of the new media platform, http://www.rangersTV.tv, other operating charges also decreased

by �£1.1m to �£13.6m.

 

With player amortisation costs decreasing by �£1.5m to �£7.3m, reflecting the disposals from the squad, operating profit increased by �£22.4m from a loss

of �£17.3m to a profit of �£5.1m.

The gain on disposal of player registrations, including Barry Ferguson, Charlie Adam and Pedro Mendes, was �£5.7m less than the prior year at �£0.5m.

Interest costs of �£1.4m, reflecting the reduction in debt and lack of activity in the transfer market, resulted in a profit before tax of �£4.2m, an increase

of Ã?£18.3m on last year’s loss.

As there are sufficient tax losses brought forward from prior years to negate the current year’s taxable profit, the tax charge was nil as against a credit

of �£1.4m due to Group relief in the prior year.

The retained profit for the year to 30 June 2010 amounted to �£4.2m, an overall increase of �£16.9m on the prior year loss of �£12.7m.

FIXED ASSETS

The cost of player registrations in the year amounted to �£0.4m (2009 - �£11.8m), reflecting only contract extensions. The net book value of player

registrations at 30 June 2010 stood at �£10.9m (2009 - �£20.2m).

FUNDING

Total net debt at 30 June 2010, including our bank facilities, finance lease and other loans, amounted to �£27.1m, a reduction of �£4.0m on the prior year

resulting in a debt to equity (gearing) ratio of 38% (2009 - 47%), and headroom on existing facilities of �£11.7m.

The cash outflow of Ã?£8.0m relating to historic transfers, together with the cost to service debt, diluted the impact of cash receipts from the Club’s

participation in the 2009/10 Champions League.

The term loan, repayable over 19 years, stands at �£19m following the scheduled repayments during the year, with the �£15m revolving credit facility

reviewed annually in November. The �£15m swap arrangement entered into with the Bank of Scotland in March 2008 remains in place at a fixed rate of

4.67% until at least March 2011.

Last year a rigorous plan was embarked upon to reduce costs and debt levels. Cost reductions and on-field success has resulted in these targets being

surpassed both in terms of profit and debt reduction. This, coupled with securing direct qualification for the 2010/11 Champions League group stages,

has resulted in the Club being in a more stable position financially than twelve months ago.

The Club is now in direct contact with Lloyds Banking Group, with more constructive dialogue and an improved understanding from both parties of the

current issues and future objectives. A level of investment has been agreed for the playing squad within a revised business plan, but the future has to

be viewed with a degree of caution given the current Scottish co-efficient for European competition. A balance has to be struck on remaining

competitive, whilst reducing our dependency on debt funding and thereby ensuring the longer term sustainability of the Club.

OTHER MATTERS

In May 2010 UEFA approved the Financial Fair Play Regulations. This means that the Club’s financial position and ultimately European participation will

be assessed on a series of different indicators and requirements. A phased implementation of the regulations will take place over the next three years,

culminating in a ‘break-even requirement,’ being a balance between expenditure, in particular salaries and transfer fees, and income generated. These

requirements will be closely monitored to ensure compliance.

On the basis of expert tax advice, the Club is defending a query raised by HMRC into the operation of the Murray Group Management Limited Remuneration

Trust, established to provide incentives to certain employees and other service providers. This is part of an ongoing tax enquiry scheduled to be heard by

a tax tribunal before the end of the year. It would therefore be inappropriate to comment further on matters pending the outcome of this tribunal.

In conjunction with Glasgow City Council and Glasgow Housing Association, a number of options are currently being explored regarding the potential

development and regeneration of land adjacent to Ibrox stadium. The wider community will be involved and consulted in the planning process once

specifics on mixed use and financial returns have been agreed between the main parties.