champions league exit partly to blame for poor half-year figures - quinn

The Celtic PLC half year figures were published in February. As a measure of how bullish the board were feeling about the numbers, the press release was given out at around 3.30 pm on a Friday afternoon. Here's a quick summary.

The board announced losses of £5.64m in the 6 months to Dec 31st. Turnover for the first 6 months was down from £36m to £30m. Total net debt rose from £16.5 million at 30th June last year to £24.2 million.

Not good figures as this is usually the profitable part of the financial year as it includes the season ticket cash.

Brian Quinn says this is due to failing to qualify for the Champions League. He adds that we would need to make it to the semi final of the Uefa cup to make up the revenue lost from the Champions League.

Basically, we are living beyond our means. Expenditure is greater than income. From what Quinn says expect cash strings to be tightened over the next few months. Petrov looks unlikely to get his wage increase. Board may view him as dispensable as his transfer would bring in cash, possibly £5-6m.

One outcome of these figures is that I'd guess the board will want to increase the cost of season tickets next season to bring in extra cash. I'd suggest that will lead to what economists call, 'The Law of Diminishing Returns.' Simply put, that means the cost of season tickets will increase but total cash from them will fall as less people can afford to buy them ie they are priced out of the market. What these figures emphasise is how important participation in the Champions League is to the club.

Where's our Jack Walker?

Celtic plc INTERIM RESULTS FOR THE SIX MONTHS TO 31 DECEMBER 2002
HIGHLIGHTS OF THE RESULTS

Commenting on the results, Brian Quinn, Chairman said: "The Company's performance during the first half of this financial year, both on and off the field, has been heavily influenced by European competition. In addition, we have been operating in a more challenging business environment, from which Celtic has not been immune. Nevertheless, and looking ahead to the second half of the Company's year, there are some signs from which we can take encouragement.

Since the half year-end, we have announced an attractive three year shirt sponsorship deal with Carling. We are still involved in 4 competitions, including the UEFA Cup and our Manager has agreed to a new contract and is now devoting all his attention and energies to delivering success in these competitions."

Celtic plc CHAIRMAN'S STATEMENT

The Company's performance during the first half of this financial year, both on and off the field, has been heavily influenced by European competition. In addition, we have been operating in a more challenging business environment for football clubs, from which Celtic has not been immune. Nevertheless, and looking ahead to the second half of the Company's year, there are some signs from which we can take encouragement.

This season we did not qualify to compete in the UEFA Champions' League, going out to Basle F.C. in the qualifying round. This had a very significant effect on revenues from football match-day tickets, from television and other multi-media and in our retail and catering operations. Income from ticket sales would have been lower but for the 10% increase in standard season ticket prices.

Some of the revenue shortfall was offset by our success to date in the UEFA Cup. Following victory over Suduva from Lithuania, Celtic beat Blackburn Rovers of the F.A. Premier League and Celta Vigo of the Spanish Primera Liga. These results against high quality opposition have enabled us to progress to a 4th round tie against Stuttgart of the Bundesliga later in February.

At home, Celtic is still very much in contention for the Scottish Premier League title, with a good prospect of competing successfully for our third successive championship; and we have progressed to the final and fourth round of the C.I.S. League Cup and Scottish F.A. Cup, respectively. In brief the team, strengthened by new signings, continues to perform well.

Since the end of the reporting period Martin O'Neill, who manages the team with great distinction, has agreed to a new one-year rolling contract. This is a most welcome development. I said in my Chairman's Statement for last year that we would make every effort to retain Martin, and the Board is pleased that we have been able to do so.

Financial performance in the half year has been mixed. Turnover fell to £30 million compared to £36 million a year ago, largely reflecting the loss of revenues from participation in the UEFA Champions' League. The great bulk of this reflected lower income from multi-media and communications and from match day tickets, but was to some extent recouped from UEFA Cup ties.

Positive contributions from new stores in Edinburgh and Glasgow helped mitigate a fall in turnover of 16% in our merchandising operations in a very difficult trading environment.

Operating expenses were broadly unchanged compared to last year. The ability of football clubs to bring costs into line with falling revenues is constrained in the current climate by the medium term nature of many players' contracts negotiated in earlier periods, which effectively locks in players' remuneration at a high level and indeed, in some cases at increasing levels. The weakness of the transfer market therefore, paradoxically, makes it very hard to reduce football costs in the short term. Nevertheless, the increase in Celtic's professional football player costs, which stand at 53.8% of turnover for the period, was negligible.

The enhancement of our youth development programme continues. We have significantly expanded and strengthened our scouting and coaching systems: the number of scouts has increased from 10 to 40, covering the whole of the U.K. and Ireland; and the number of development centres in Scotland has more than doubled, from 6 to 13, in less than 9 months. We are already seeing the results in the form of attracting and retaining young footballers of great promise.

We continue to pursue our objective of moving to fully equipped, purpose - built training facilities and are actively looking at options. Planning and financing such facilities takes time and money. We propose to choose carefully and wisely, while acknowledging that we have not been able to move as quickly as at one time we had hoped.

Profit from operations effectively broke even and was some £6.6 million lower than last year. Amortisation costs rose because of acquisitions of new players, producing an operating loss of just over £5 million and a pre-tax loss of £5.6 million - i.e. more than accounted for by the net revenue loss from involvement in European competition.

Net assets amounted at the end to the period to £41.8 million, compared with £54.9 million a year ago. Total net debt rose from £16.5 million at 30th June last year to £24.2 million, almost all of it medium - term in nature. The increase arises from trading losses, instalments on player acquisitions and capital expenditure.

Outlook Although the football sector is going through a period of financial pressures, the adjustment to which I referred in my last Chairman's Statement is now under way. Clubs are beginning to tackle their cost base and are no longer spending substantial sums in anticipation of buying success or avoiding failure. Celtic's position is no different and we will have to make a sustained effort to bring our costs down. Like every other club, the pace at which we can generate savings in the immediate future may be constrained, as mentioned above, but the trend is clear.

The dispute that threatened the future of the Scottish Premier League is now all but settled and this provides a stable basis on which to take the game at home forward.

Since the half - year end, we have announced an attractive three year shirt sponsorship deal with Carling. We are still involved in 4 competitions, including the UEFA Cup.

Our Manager has agreed to a new contract and is now devoting all his attention and energies to delivering success in these competitions.

Financial performance in the second half of this financial year will depend primarily on progress in the 4 competitions in which we are still involved. The established pattern of a stronger first half result may persist, although further progress in the UEFA Cup could conceivably alter that. It is estimated that we would have to go to the semi-final of that competition to compensate for failure to reach the first stage of the Champions' League. However, we are unlikely to recoup the losses of revenue from other sources.

We retain a huge, faithful support, which, as ever, is the lifeblood of our club. As a Board we shall continue to work to achieve our own 'double': football success and financial stability.

14 February 2003 Brian Quinn CBE

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