FINANCIAL STATEMENT
Leicester City plc has announced a pre-tax profit of £1 million for the year ended July 31 2000
The club’s Worthington Club success helped to increase turnover by 9% but increased costs in player salaries and bonuses, due in part to the success of the team, had an adverse effect City’s trading performance at the operating level.
Leicester City plc’s operating expenditure for the year increased by 17% to £28.7 million with the majority of the rise attributable to staff costs which increased by a total of 28% to £20.4 million.
Sir Rodney Walker, chairman of Leicester City plc, said: ‘Off the field the year proved to be an eventful one with two Extraordinary General Meetings being held but I am pleased to report that changes implemented to the management structure, together with boardroom unity, media developments, continued football success and the hard work of all our loyal employees have assisted us in making a great deal of positive progress since the much publicised internal problems of last year.’
Steve Kind, chief operating officer of Leicester City plc, said: ‘I am pleased to report an increase in turnover of 9 per cent to £26 million but note that continued upward pressure on our football cost base during the year, due in part to the success of the team, has had an adverse effect on our trading performance at the operating level before accounting for player registrations.
‘The Group is pleased to announce a profit before interest and tax of £1 million (1999: £6.2 million loss) after generating £8 million net from the sale of players and charging £4.7 million for player amortisation.’
During the year the club has invested £14 million on improving the playing squad.
Leicester City plc highlight the fact that they have secured many of their best players on improved contracts which means none of the current first team squad have contracts which end before June 30 2002 – a move that has impacted on costs.
Match receipts have seen a small increase from £4.92 million to £5.07 million although the club points out that increased television coverage of the team has had an adverse impact on attendance through the turnstile.
Television and media related income increased from the £6.75 million last time to £8.54 million although this figure is set for a dramatic rise if the club is part of the Premier League next season when the new BskyB television deal comes into operation.
Leicester City plc recorded a 6 per cent fall in commercial activities turnover from £7.42 million to £6.95 million.
The club is looking to exploit new commercial opportunities in the coming year, working with recently appointed media and commercial agents Premium TV, and especially in relation to the proposed development of its new stadium.
Although conference and banqueting turnover shows a fall from £2.63 million to £2.42 million the contribution from this area has grown rapidly and the club is confident that growth will be recorded in the future.
The board of Leicester City plc has recommended a final dividend of 0.4 pence per ordinary share, which together with the interim dividend of 0.3 pence per share give a total for the year of 0.7 pence per ordinary share for the year.
PRELIMINARY ANNOUNCEMENT
Preliminary Results for the Year Ended 31 July 2000
HIGHLIGHTS
PROSPECTS
Sir Rodney Walker – Chairman of Leicester City Plc, said:
‘The Board, senior executives and Football Manager work closely together in order to strive for success both on and off the field of play. We are supported by professional, committed and dedicated employees. Together with the support of our loyal fan base, the local community and our shareholders, the Board believes that the Club can continue to compete successfully in the Premier League and has every confidence for the future of the Group.’
Enquiries:
Steve Kind,
Chief Operating Officer & Finance Director
Mark Fenoughty,
Director of Finance
Paul Mace,
Director of Media and Communications
Leicester City Plc, Tel: 0116 291 5098, 0116 222 8540
LEICESTER CITY PLC CHAIRMAN’S REPORT FOR THE YEAR ENDED 31 JULY 2000
Introduction
I am pleased to announce our results for the year ended 31 July 2000, a year which was one of the most successful on the field of play in the Club’s history. Off the field, the year proved to be an eventful one with two Extraordinary General Meetings being held but I am pleased to report that changes implemented to the management structure, together with boardroom unity, media developments, continued football success and the hard work of our loyal employees have assisted us in making a great deal of positive progress since the much publicised internal problems of late last year.
Financial Results
I am pleased to report an increase in turnover of 9% to £26.0m but note that continued upward pressure on our football cost base during the year, due in part to the success of the team, has had an adverse effect on our trading performance at the operating level before accounting for player registrations. The Group is pleased to announce a profit before interest and tax of £1.0m (1999: £6.2m loss) after generating £8.0m net from the sale of players and charging £4.7m for player amortisation.
Football
The 1999/2000 season proved to be a memorable one with the Club accumulating 55 points and finishing in eighth place in the FA Premier League, our fourth consecutive top ten finish. It is worth highlighting that only five other clubs have achieved consecutive top ten places in the Premier League over the last four seasons, being Manchester United, Arsenal, Chelsea, Liverpool and Aston Villa. The Club also won the Worthington League Cup Final at Wembley which ensured qualification for the UEFA Cup.
The Club made an excellent start to the 1999/2000 campaign, achieving a consistent top six place until mid-December 1999. During the months of December and January, when faced with a severely depleted squad due primarily to an extensive injury list, the Club failed to win a single league match. However, despite playing resources being stretched to the limit, we battled through numerous rounds of both major domestic cup competitions, including dramatic penalty shoot-out victories over Leeds and Fulham in the Worthington Cup and Arsenal in the FA Cup. We were eliminated from the FA Cup at Chelsea in the fifth round but reached the Worthington Cup Final in February after defeating Aston Villa over two legs in the semi-final. Two goals from Club Captain Matt Elliott secured victory at Wembley in the final against Tranmere Rovers, thereby qualifying the Club for European competition for the 2000/2001 season.
Our league form improved in the latter part of the season, and excellent away victories at Newcastle, Southampton and Liverpool assisted a rapid climb back up the table to finish in eighth place, a highly creditable performance. I wish to place on record the Board’s congratulations and gratitude to the team and former management and coaching staff, together with all the Football Club operations, headed by the Football Club Chairman, John Elsom, for their achievements during last season.
Football Management and Playing Squad
In late May of this year, despite considerable efforts made by the Football Club Board to retain his services, Martin O’Neill left to join Glasgow Celtic Football Club, shortly followed by other members of his backroom staff. On behalf of everyone connected with the Club, I would like to thank Martin for his tremendous achievements during his four and a half years at the Club, and we wish him well for the future.
The Football Club Board acted swiftly to appoint a new Manager and were delighted to appoint Peter Taylor on 12 June 2000. Peter’s achievements in the game, as an International player, former England U-21 Manager and highly regarded coach are well documented. Peter has settled in quickly at the Club and
under his stewardship, the Club is currently placed in fourth position in the Premier League, having headed the top division in English football earlier in the season for the first time since 1963.
During the last financial year, a considerable amount of strengthening both in quality and depth to the professional playing squad was undertaken. Our policy of recruiting young British players has continued and has assisted in maintaining and developing a tremendous team spirit within the squad which is the envy of many of our competitors. Our transfer fee record has been surpassed three times during the year with the acquisitions of England U-21 International Darren Eadie, Gary Rowett, and Nigerian International Ade Akinbiyi. The first team squad has been further strengthened with the signings during the year of Phil Gilchrist, Scotland International Callum Davidson, England U-21 International Trevor Benjamin and goalkeeper Simon Royce. During the year, the Club transferred the registration of Emile Heskey to Liverpool for a club record fee and lost the services of Pegguy Arphexad and Theo Zagorakis under the Bosman Ruling. The playing squad has been further supplemented by the purchase of England U-21 International Richard Cresswell since the financial year end.
In relation to player contracts, none of our current professional first team squad players have contracts which end before 30 June 2002. During the summer we were delighted to retain the services of Matt Elliott, Muzzy Izzet, Neil Lennon and Gerry Taggart on extended contracts, all of whom have been central to our success over recent seasons.
Youth Academy
During summer 2000, the Board approved the re-structuring of our Youth Academy operation. Youth development remains an important strategic and operational goal of the Club and we were delighted to appoint Alan Hill, formerly in charge of youth operations at Leeds United, as our new Youth Academy Director in July of this year.
In total, five players who have come through our youth ranks made first team debut appearances last season. The long term focus of our Academy operations will be concentrated on the recruitment of promising young players, and their subsequent footballing and educational development. The Club is currently exploring the possibility of relocating its Academy operations to a new site in order to fully meet the criteria imposed by the Football Association for Youth Academy status. It is anticipated that an announcement on this issue will be made in the near future.
The Academy is central to our strategy of establishing Leicester City within the leading group of Premier League Clubs. We are reliant, to a certain extent, on home grown talent and cannot consistently compete with the larger clubs for top International players. However, our strategy may change if the proposed reform to the transfer system does not properly address compensation for players who graduate through the Youth Academy. The commitment of shareholders funds to develop young players who could then move to a higher profile club for minimal compensation would be poor business practice and it is imperative that the Youth Academy system, the lifeblood of our national game, is preserved.
Business Operations
The overall performance of the business operation was disappointing during the year with profits falling by 6% compared to the previous year. Performance was adversely affected by the internal problems at the Club. However, I believe that the business operations management team has been strengthened, and the re-structuring of the cost base together with the future exploitation of agency and commercial rights with Premium TV should provide a sound foundation for future growth in net contribution to the Club’s business operations.
Community
The Club has continued to operate a dedicated Community Department during the year which has undertaken a comprehensive range of initiatives. The hard work was recognised locally when the Club was placed first in the ‘Contribution to the Community’ category in the Leicester Business Awards. The Board continues to place a priority on our relationship with the local community and we maintain proactive lines of communication with local residents and minority groups. Many of the initiatives previously undertaken by the Club are now included within the Premier League Club Charter with which we have already complied.
Boardroom and Management Structure
The Boardroom problems of the Company have been well documented and were finally resolved during December 1999. Since Football Club Chairman John Elsom and myself resumed our places in the Boardroom following the Extraordinary General Meeting on 22 December 1999, a number of changes to the composition of the Board and senior management team have followed. Greg Clarke, former Chief Executive of Cable and Wireless Communications Plc and Martin George were appointed as non-executive Directors, joining Bill Shooter who was appointed at last year’s AGM. We were delighted to appoint Steve Kind as Chief Operating Officer in the summer in addition to his role as Finance Director to both the Plc and Football Club.
Stadium
The Board is acutely aware of the current restrictions from the capacity and standard of facilities in the Filbert Street stadium, and has been consistently working towards the aim of enhancing stadium capacity and spectator facilities.
The decision was taken upon the unequivocal advice from our team of professional advisors to withdraw from the Bede Island South planning inquiry in January 2000. A series of meetings have been held with authorities, professional advisers and developers in order to identify a site that is available on commercially acceptable terms and that can be developed swiftly.
I am delighted to report that the Company has entered into an agreement with Powergen UK Plc to acquire 22 acres of land at Freemans Wharf, Leicester. The intention is to build a new stadium with a capacity of 32,000 and extensive hospitality facilities to exploit further matchday and non-matchday commercial opportunities. There is also the potential to develop part of the site for leisure development that is in accordance with the local plan and will reduce the net cost of the site. Before the acquisition proceeds, the Company will be submitting a planning application, seeking shareholder approval and undertaking detailed due diligence to be satisfied that the site has been properly decontaminated by Powergen. The Company can withdraw from the agreement for any reason up to 28 February 2001. The Company intends to submit a formal planning application to the Local Authority within the next few weeks.
NTL Media Alliance
On 8 June 2000, the Board announced the signing of a £12.5m media partnership with NTL which consists of a convertible loan of £11.5m and an agency rights fee of £1m. NTL’s wholly owned subsidiary, Premium TV, were appointed as the Club’s exclusive agent for maximising the value of certain media and commercial rights. Premium TV and the Company have also established a joint venture for the exploitation of certain internet and other e-commerce rights. I explained the reasons for the alliance in the circular sent to shareholders in June. I believe that this partnership highlights the new Board’s determination to deliver value to both supporters and shareholders and illustrates the Club’s ambitions and standing within the Premier League.
Sector Developments
The transfer system relating to players’ registrations in Europe is currently the subject of a detailed review by the European Commission. The outcome of this challenge on the payment and receipt of transfer fees for players under contract to clubs is uncertain, but could have a significant effect upon football finances in the future. Until the outcome is known, it is difficult to form an immediate judgement of the potential impact on the Company.
In June of this year, the Premier League completed a complex process of negotiation for its live and highlights television packages from 2001 to 2004. The award of the new contracts to BSkyB for the sixty six game live rights and highlights packages to ITV will generate substantial increases in broadcasting revenues for Premier League Club’s from the 2001/02 season onwards. In addition, further contractual arrangements for pay per view rights, overseas television rights, radio, video on demand, e-commerce and internet rights are due to be negotiated later this year. Clearly, with enhanced and widening broadcast based revenue streams available, it is imperative that the Club continues to consolidate its status within the Premier League.
Dividend
The Board are pleased to recommend a final dividend of 0.4 pence per ordinary share, which together with the interim dividend of 0.3 pence per share gives a total of 0.7 pence per ordinary share for the year.
Prospects
Under the guidance of our Football Manager, Peter Taylor, the Club has made an excellent start to the 2000/01 Premier League season, accumulating nineteen points from eleven league matches. We believe that the foundation provided in the early part of the season, following the strengthening of the professional playing squad in the summer, augurs well for the future.
The new Premier League three year broadcasting contract from the 2001/02 season, worth a minimum of £1.3 billion, will have a considerable positive impact on future media revenues. However, the benefit of future earnings will be largely determined by our ability to control our future wage costs. The Group is also well placed to exploit future internet, e-commerce and other media related opportunities and we look forward to developing our relationship and off field business activities with our new media partners, Premium TV.
Central to our continued success will be a new stadium. We hope to increase and enhance the facilities for all our customers on a matchday and maximise the opportunities to generate income on non-matchdays. We sold 35,000 tickets for the Worthington Cup Final this year and we are excited by the challenge in converting all of those supporters into users of what will be a flagship development for the city of Leicester.
It is encouraging to report that within the football sector, our share price has out-performed the majority of other quoted football clubs since the turn of the year. However, your Board are determined to continue to employ strategies to further increase shareholder value.
The Board, senior executives and the Football Manager work closely together in order to strive for success both on and off the field of play. We are supported by professional, committed and dedicated employees. Together with the support of our loyal fan base, the local community and our shareholders, the Board believes that the Club can continue to compete successfully in the Premier League and has every confidence for the future of the Group.
Sir Rodney Walker
Chairman
November 2000
FINANCIAL OVERVIEW
The Group’s results for the year ended 31 July 2000 report a profit on ordinary activities before tax of £0.6m (1999: £6.2m loss). The increase in turnover of 9% from £23.8m to £26.0m was predominantly due to increased gate receipts and media income, both of which were driven by the Club’s successful league and cup performances, which culminated in attaining eighth position in the FA Premier League and winning the Worthington League Cup at Wembley in February 2000.
The Group has reported an operating loss before player registrations of £2.3m (1999 reclassified: £2.3m loss). The costs of amortisation of player registrations have increased by £0.5m to £4.7m for the year, reflecting the investment during the year in the professional playing squad. The sale of Emile Heskey to Liverpool Football Club in March 2000 was chiefly responsible for a net £8.0m surplus on disposal of player registrations for the year (1999: £0.3m profit).
Gate Receipts
Home league gate income increased by 3% to £5.1m (1999: £4.9m) for the year, despite a reduction in home League crowds of 3% during the Premiership campaign, with an average home league attendance of 19,825 (1999: 20,417). The substantial increase in the number of home televised league matches and the number of home cup matches staged between the scheduled league matches adversely affected home crowds.
Gate receipts from cup matches increased from £2.7m to £2.9m, reflecting two excellent domestic cup campaigns. In total, match income contributed 31% (1999: 32%) of total turnover for the year.
Television and Media Related
Television and media related income increased by 26% to £11.1m (1999: £8.8m). The growth was generated from the annual increase in the existing BSkyB contract, considerable live television and media coverage generated by the Club’s on-field success and a finishing position of eighth place in the FA Premier League. The Club received a merit award payment of £2.6m, an increase of 27% compared to the previous season. Five of the Club’s league fixtures were screened for live transmission, compared to four fixtures in the previous season. In total, the Club made 13 appearances for live transmission for both league and cup fixtures (1999: seven).
Retail and Merchandising
In last year’s financial review, I reported upon the stagnating football retail and merchandise market. In the year to July 2000, our own retail operation reported a marginal reduction in turnover to £1.5m, in a year which included sales from a new third kit. The previous year included sales from the launch of a new home and away kit, and the launch of a new first team kit for the 2000/01 season should have a favourable impact on retail and merchandising results in the financial year to 31 July 2001.
We continue to control the manufacturing process of our football kit rather than engage a well known sports company. This has the benefits of controlling quality and selling price and minimising stockholding costs. The agreement with Le Coq Sportif provides the Club with additional revenue and an improved selection of leisurewear. The benefits arising from this strategy will continue to be monitored.
Conference, Banqueting and Catering
Although we have reported a marginal fall in turnover during the year to £2.4m, our Catering Operations generated substantially improved net contribution. Under new internal management, this important operation to the Club has been re-structured with the emphasis on reducing its cost base whilst maintaining service and quality. The Club continues to seek to develop and enhance new external revenue streams from one of the premier conference and banqueting venues in the East Midlands.
Sponsorship, Executive Suites and Advertising
Turnover from this department fell by 6% from £3.3m to £3.1m. It has become increasingly evident that new improved facilities are required to meet our matchday customers needs and the announcement of progress on the new stadium project will be encouraging to this department. The recent announcement of the media partnership with Premium TV will assist in the sourcing of major sponsorship and advertising contracts.
OPERATING COSTS
The Group’s operating expenditure for the year, excluding player registrations and the exceptional charge, increased by 17% to £28.7m (1999 reclassified: £24.5m). The majority of the rise is attributable to staff costs which increased in total by 28% to £20.4m.
The most challenging aspect to our cost base continues to be control over player wage costs. In the year to
31 July 2000, total player wage costs including bonus and contract payments increased from £9.6m to £13.3m, an increase of 38%. The increase includes improved and extended contracts for a number of players and substantial Worthington Cup and UEFA Cup qualification bonus payments. The Board is committed to restricting both player wage costs and total staff costs within set parameters for future years.
Following the restructuring of the Board in late December 1999, a thorough review of the Club’s cost base, and in particular staffing levels was undertaken, resulting in cut-backs in a number of areas across the Club. It is envisaged that the restructuring of football, commercial and administration operations will result in cost savings on previous years in a number of areas.
PLAYER TRADING
The Club continued to improve the quality and depth of the professional playing squad during the financial year. The acquisitions of Darren Eadie, Phil Gilchrist, Gary Rowett, Ade Akinbiyi, Trevor Benjamin, Callum Davidson and Simon Royce were made at a combined cost of £13.8m with additional costs contingent upon appearances. The major sale during the year related to England International Emile Heskey to Liverpool in March 2000. The net player transfer investment for the financial year was £5.8m (1999: £7.2m). The application of FRS10 resulted in a player amortisation charge of £4.7m (1999: £4.2m) and a balance sheet intangible asset carrying value of £17.1m at 31 July 2000 (1999: £8.1m), representing the amortised cost of player registrations.
Since the financial year end, the Club has acquired the registration of England Under-21 International Richard Cresswell from Sheffield Wednesday for a fee of £0.8m.
EXCEPTIONAL ITEMS
During the year, the previous Football Manager Martin O’Neill moved to Glasgow Celtic Football Club, with the Club receiving a compensation payment of £1.25m which has been disclosed as exceptional other operating income. A number of changes to the football management and coaching staff followed and the costs of redundancy have been treated as an exceptional item, together with the costs of redundancy and restructuring from cost cutting procedures employed in the second half of the year.
Mothballing costs of the Bede Island South project, incurred before the Club withdrew from the planning inquiry in January 2000, together with costs incurred in identifying a new site have been treated as an exceptional item and totalled £0.5m in the year.
A detailed review of the cost base of the Company together with a re-organisation of the football coaching staff structure led to a number of redundancy costs which have been treated as exceptional.
BALANCE SHEET
During the year, the net asset position of the Group improved from £6.8m to £7.1m as at 31 July 2000. The amortised cost of player registrations increased to £17.1m from £8.1m, reflecting the considerable investment made in the professional playing squad during the year. It is worth highlighting that the first tranche of the interest free loan from NTL Inc is included within creditors falling due within one year. This loan will automatically convert into equity on the Club receiving the second tranche of the loan of £5.45m on 3 July 2001 which will then further strengthen the Group balance sheet.
DIVIDEND
An interim dividend of 0.3 pence per share was paid on 16 June 2000 and the Board have proposed a final dividend of 0.4 pence per share. The shares become ex-dividend on 20 November 2000 and the final dividend will be paid on 29 December 2000 to shareholders on the register at 24 November 2000.
SUMMARY
The results for the year to 31 July 2000 demonstrated that the Club was able to maintain a first team squad of established and sought after Premier League players and, through the sale of Emile Heskey, improve the overall strength of the squad. The last year has continued to see dynamic and accelerating change for Premier League Clubs, the majority of which has financial implications. Although currently we do not enjoy the level of resources available to a considerable number of competing member clubs, your Board will continue to strive for success both on and off the field of play whilst working within the resources available to us.
Steve Kind FCCA
Chief Operating Officer and Finance Director
November 2000
Enquiries:
Steve Kind,
Chief Operating Officer & Finance Director
Mark Fenoughty,
Director of Finance
Paul Mace,
Director of Media and Communications
Leicester City Plc, Tel: 0116 291 5098, 0116 222 8540
http://www.lcfc.co.uk