The annual accounts of Rangers International Football Club (RIFC) were strategically dropped into the mainstream on Friday after close of business.
The full thing can be accessed here.
I’m not an accountant and do not claim to have any special abilities when it comes to analysing a set of figures.
However, I do know a few folk with that professional background.
My go to guy on these matters is Rugger Chap.
He has no dog in the Glasgow soccer feud and he doesn’t care if any club in Glasgow is in rude financial health or is toppling on the precipice of insolvency.
Numbers are his trade and I’m happy to go with his take on the most recent set of accounts for Rangers International Football Club (RIFC).
RIFC is the company that was set up by Charles of Normandy in late 2012.
RIFC was then floated on the Alternative Investment Market (AIM).
RIFC wholly owns the club that Charlie created.
His baby was originally christened ‘Sevco Scotland Limited’, but the big handed man from Yorkshire cheekily changed the nipper’s name to ‘The Rangers Football Club’ shortly after it was born.
However, for those in Planet Fitba who are thirled to the facts it will always be Sevco.
Mr David Cunningham King is the new man in the Big House and little Sevco is now a four year old.
Of course, the stenographers will tell The People what they’re told to tell them.
By such sorcery Craig Whyte was trumpeted as a billionaire in the Daily Radar.
For the avoidance of doubt dear reader I don’t take press releases at face value.
Moroever, when it comes to a set of accounts I get an independent expert to go over them for me.
So here is what my guy thought of them:
Borderline Plausible, but troubles have not gone away.
When I was asked to carry out a review of the accounts of Rangers International Football Club, (RIFC), late on in Friday, my first reaction was that only companies which are imparting bad news via profit warnings, or missing forecasts, or some big issues, release their accounts when everyone finishes work for the weekend. In reading these accounts, my suspicions were confirmed. RIFC has some extreme financial challenges ahead, and despite claims that Rangers football club, (Rangers), requires £3.75 financing to complete the football season, what appears very clear to me is that this club seems to stumble from one year to the next, that, latterly it has relied exclusively on directors and other related parties to survive. A very substantial investment is required for this club to have a stable future. Cumulative losses since RIFC was formed in 2012 are in excess of £18m. This has been funded by supporters in the first instance, but latterly, it is directors and related parties that have propped up the company. It is difficult to predict how long this can continue.
There are lots of details that can be commented on regarding RIFC accounts, but I will try to draw out the main points under the following sections.
- A review of the back end of accounts, selectively looking at some notes to the accounts.
- Auditor’s report
- Strategic review of operations
- Review of accounts, including liquidity and financing issues.
A review of back end of accounts.
I looked at last year’s accounts to check if any contingent liabilities have disappeared and then look for new inclusions. Last year, RIFC referred to a dispute with SPFL which indicated a potential cost of £250k plus interest and costs. This has disappeared, but RIFC paid this during the 2016 financial year, and this amounted to over £280k. This is included in the income statement.
Since the year end RIFC acquired 11 players at a cost of £3m. RIFC has also committed to spending £0.6m on stadium improvements, although there was no expenditure incurred during the year. It was also noted that in October 2016, RIFC received £2.9m of funding from directors and related parties, but this is a subject that I will elaborate on, later in the report. It is critical.
On contingent liabilities, there is a repeat of a number of issues that were raised last year, so I will not revisit these items again, however, on new items, there are a few interesting points. Rangers are making a claim against Rangers Retail Limited (RRL), for £1m in respect of breaches of Intellectual property rights, although RIFC separately questions the viability of this business and have written down the value of this investment. RIFC has been served a claim by Sports Direct International, (SDI), together with Dave King, Paul Murray, and RRL. This will be heard in London at the beginning of December. The extent of this claim has not been quantified, but RIFC believes that it will not exceed £1m. RIFC, clearly have not made any provision in the accounts. RIFC are also raising a civil action against former directors in connection with stadium sponsorship agreement. RIFC are making a claim for £4.1m. A date for this hearing has not yet been set.
In looking at the auditor’s report, it looks like Groundhog Day.
There is an emphasis of matter point raised by Campbell Dallas, and this is as a GOING CONCERN. The auditors refer to the note 1 to the accounts and once again, this is critically dependent on raising additional finance, although the amount required by directors is an increase to £4m compared with last year. It is worthwhile highlighting some of the key assumptions that the Directors have used in arriving at this sum.
Rangers will participate in European competition in 2017.
No cash inflow from RRL.
Significant increase in season ticket sales, match day revenues, sponsorship, and commercial income.
Continued overhead cost reduction measures (although this contradicts the statement of Dave King in his chairman’s report)
Payroll costs are reflecting appropriate squad size and composition, (separately there is a reference of 40% uplift in the player budget). Some confusion and inconsistency here.
Strategic review of operations.
Conservative amounts generated from player sales (Implies that there will be net financial disposals to come in January).
There are some statements and details here which do not seem to be backed up in the numbers.
Dave King says that staff levels are returning to more appropriate levels and that Rangers are investing heavily in staff and infrastructure and will continue to do so.
There was no Capex [Capital Expenditure] during 2016, and regarding going concern status, the assumptions are geared to containing costs. Somewhat inconsistent.
Season ticket sales increased from 37k in 2015/16 and now had more than 42k in the current season. Average season ticket price increased from £237 per ticket to £255. Overall revenues increased by c £6m with season ticket representing half of this increase and the Petrofac Cup contributing over £1m.
On operating expenses, these fell by £1.6m to £24.2m; however staff costs were flat, but legal and professional fees were reduced by just under £1m. Excluding legal fees, costs were essentially flat. RIFC wrote down the value of investment in RRL by £0.5m (noncash cost), and the directors are concerned about its future viability. RIFC continue to make an impairment provision on their properties of £786k each year.
Review of accounts and financing issues.
One of the most interesting aspects of the accounts is the substantial change in deferred income. This has increased from £6.5m last year to £15.9m at the end of June 2016.
What is deferred income? In simple terms, this is the commitment that Rangers receive for season tickets and sponsorship monies before the season starts. A substantial proportion of money has been banked but it relates to the next financial year. Clearly, the promotion to the premier league and increased prices has given Rangers a substantial financial boost, but in looking at the going concern comment, RIFC has needed a cash injection of £2.9m in October 2016, whereas this additional funding was not necessary until January in the last financial period.
On the issue of financing, the directors have revised down the total requirement from £4m to £3.75m because of the success in reaching the semi-final of the League Cup. £2.9m was obtained in October, and a further £0.85m will be required in March 2017.Dave King through his company New Oasis Asset Ltd is providing this sum. With bullish comments such as investment in the football squad, infrastructure and returning staff levels to a satisfactory level, this leaves an awful lot to trusting the Director’s comments.
On the subject of continuing financial support to RIFC, the board has received undertakings from certain investors that they have the means and authority and will provide financial support to RIFC. The board acknowledges that had these assurances not been secured then a material uncertainty would exist which may cast doubt over the group’s ability to continue as a going concern. I am sure that the directors have furnished sufficient documentary evidence to the auditors Campbell Dallas to back up this assertion. Going further, the directors have said that financial support will be made available to more than cover any projected shortfall. I am sure that this proof is well documented.
Who is providing this additional finance?
The group is split into three main categories. New Oasis Asset Management, a company controlled by Dave King is owed £3.7m, and he will contribute a further £0.8m in March. Some of this debt was due to be repaid by December 2015, but this is now extended to December 2017.The Director’s, Bennett Park and Murray are owed £2.5m, some of which was also due to be repaid by December 2015. This is now due by December 2017.Other related party loans and new investors, Taylor, Letham, Andrew Ross, Barry Scott and Scott Murdoch are owed £3.8m of which £2.4m was granted during the year. So in total £10m is owed, albeit £8.9m is recorded on the balance sheet.
This is due to an accounting standard which discounts the debt to factor in an implied interest rate to assess fair value. The real debt repayable is £10m at June 2016 but assuming directors’ forecasts are accurate; some £14 will be due by the end of March.
These accounts are detailed and present a lot of information which requires careful reading.
I could write a lot more on this subject, but believe that the main issues are addressed.
I am looking purely at the accounts and do not consider issues such as further legal costs, repair costs of the stadium and other items, but the conclusion is very clear. In my opinion, RIFC is a financially distressed company whose debt is rising, and repayment dates are being pushed out.
I am not in position to judge the resale value of the playing squad as this could provide some funding relief, but fundamentally this company will remain vulnerable, because of its lack of credit facilities, until, in my opinion, an investment of approximately £30million is made.
Ok, so that was his take on them. The Holding Company Vehicle remains a loss-making business without a credit line from a bank. I think it is fair to say that they are currently limping on in a hand-mouth existence and kept afloat by Director’s loans. Until that £30m miraculously appears then that isn’t likely to change anytime soon.
Have a good Sunday.