I have received some dignified criticism that I only focus on matters financial at Ibrox.
The Churchillian challenge is that I should examine what is happening across the City at my own club.
With that in mind, I contacted my rugger chap in the Square Mile rugger.
By way of assistance, I furnished him a copy of the recent accounts from the Champions.
Here is what he sent to me:
“I have been asked by Phil to do a review of the accounts of Celtic PLC “Celtic” for the year ended 30 June 2016.
When I carry out a review of accounts, normally I start at the end of the accounts and selectively work my way through what I consider to be the next most important areas.
I will lay out my report based on the respective areas that I review.
Why do I look at the backend of the accounts first?
Normally this will highlight areas of the business that may be critical to the future, for example, contingent liabilities, or matters that occur after the year end, which may also have a large bearing on the future of the company. It is amazing how many times this review highlights a red light in terms of an investable proposition.
Next, I look closely at the report of the auditors. Clearly, I am expecting a clean report with no qualifications at all. In the event that the auditor refuses to express a view, this, in my opinion, renders the accounts useless. Where there is an emphasis of matter opinion by the auditors then clearly the extent of this emphasis will determine how serious the situation may be, and if the accounts are qualified on a going concern basis, then quite frankly another red light appears.
The third area that I consider is a strategic review of operations where it is possible to look at a financial summary of the main business units.
The fourth area is a review of the accounts themselves, in particular looking at the supporting notes.
I will also look at the working capital of the business; this comprises a review of cash flow together with looking at current assets and current liabilities. This should identify if there are any likely potential problems in the short term financing needs of a business.
Finally, I will look closely at any notes that are highlighted in the account that are worthy of closer scrutiny.
A lot of people start at page one and work their way through. My issue with this is that there is a lot of marketing commentary and self-congratulations at the front end of the accounts. I prefer to look at potential problem areas before giving the accounts a clean bill of health.
A review of the back end of the accounts.
The first thing that pops out is that there are no contingent liabilities or legal issues outstanding, so that is reassuring. Events that took place after the year end represents player trading. It highlights that the purchase of 5 players, including Sinclair, Dembélé, and Gamboa, cost £6.3m. However, the sale of Fisher and Johansen yielded £2.4m. In net terms, this has cost Celtic a little under £4m. This does not appear to be significant in financial terms.
The conclusion here is that this seems positive for Celtic and definitely no red lights.
“2 Auditors Report
The first thing to note here is that the auditors are BDO LLP. In auditing firms, there is a recognised “top four” in terms of size, KPMG, Deloitte, EY, and PWC. BDO is in a small group immediately below this size. They are considered to be a sizeable, professional firm who audit a number of companies that are quoted on the main and aim markets. Unsurprisingly Celtic have no qualifications, whatsoever.
“3. Strategic review of Operations.
Celtic’s business is split into 3 main areas.
Football and stadium operations. This includes all revenues and costs in relation to all football operations, ticket office, stadium and youth development
Merchandising. This is made up by all retail, wholesale and mail order activities.
- Multimedia and other Commercial operations. This is effectively all other revenue generating departments.
Total revenues were flat compared to last year at £52m, and Celtic reported a small pre-tax profit of £0.6m versus a loss of £3.9m last year. The results were boosted by the profit on sales of players and in particular Van Dijk. Gains on sale of players almost doubled to £12.6m compared to last year and amortisations of players contracts were almost £5m versus £7.3m. In a nutshell, in the absence of champions league revenues, Celtic need to sell players in order to provide the investment in the infrastructure of the football club, including player and youth development.
I could go into the minutiae of each division’s contribution, but it is largely similar to last year. Suffice to say that the contribution of merchandising and multimedia are required to offset the substantial loss in the football operations. I understand that this has been the stated policy of the club for a number of years. Develop and sell players and reinvest in the infrastructure.
“4. Review of the accounts.
As highlighted above, Celtic made a small profit on flat revenues, assisted by the profit on disposal of players. The balance sheet shows fixed assets to be valued at £55m, in line with last year with capital expenditure of less than £2m. Intangible assets which are largely player registrations as I understand it are valued at just under £10m, and monies receivable in more than 12 months, suspect it is sponsorship monies is £4m.
Regarding intangible assets, namely players, Celtic spent £11m during the financial year, in line with the previous year. Celtic analyse the value of players contracts above £1m, included as intangible assets and they now have 3 players with between 2 and 3 years left on contracts versus 1 last year. I interpret this as having greater control over the more valuable assets of the club. It also appears that Celtic had impairment costs (write off of contracts) of £1m this year versus almost zero last year.
In order to assess working capital, I look at cash flow and an examination of current assets, current liabilities and some other areas.
Celtic had net cash at the year-end of £3.6m vs. £4.7m last year. Excluding deferred income (sponsorship money and season ticket monies received in advance) Celtic had positive net working capital of over £13m at the end of the year. However, Celtic’s net cash balance is helped enormously by receiving almost £20m deferred income this year, against £13m last year from season ticket monies and sponsorship, so clearly this has had a very positive effect on year-end balances. I am informed that as a consequence of qualifying for the Champions League, there is a distinct possibility that revenues and sponsorship monies will increase substantially by the end of the financial year.
“Review of notes in the accounts
Player trading remains a pivotal element to the financial model of Celtic, and this can have considerable effect on the trading results. This information can be found under the analysis of intangible assets. In Summary, Celtic add about £9m each year, incur a charge during the contracts of £5m this year,£7.3m last year, so there is the possibility that this can change the financial outcome considerably. However, if the value of the squad improves year on year, the profit and loss account should benefit accordingly.
In conclusion, in my opinion, Celtic is in rude financial health!”
Dear reader, you can consume the preceding as you see fit.
I am not qualified to confirm or deny any of the above.
However, what I did do (go to someone appropriately qualified and ask for their professional opinion) appears to be beyond even award winning stenographers.
My lay understanding of the analysis is that Celtic are in an excellent financial place after a disappointing season on the field of play apropos European football.
Of course, as the Champions of Scotland are back in Champions League action tomorrow night, it is worth noting that the accounts for next year will be much better.
Now anyone who can spin that as a negative Celtic story for their dignified demographic deserves an award!