Celtic plc Annual Report Year Ended 30 June 2006 58380_Rep_Cover 3 5/9/06 15:15:57 CONTENTS Directors’ Report 11 Chairman’s Statement 1 Corporate Governance 15 Summary of the Results 2 Remuneration Report 19 Chief Executive’s Review 3 Statement of Directors’ Responsibilities 23 Financial Review 7 Five Year Record 23 58380_Rep_IFC_P26 2 10/9/06 11:27:13 Independent auditors' report to the members 24 Group Cash Flow Statement 30 Celtic Charity Fund 25 Notes to the Financial Statements 31 Group Profit and Loss Account 27 Notice of AGM and Notes 45 Group Balance Sheet 28 Explanatory Notes 46 Company Balance Sheet 29 Directors, Officers and Advisers 48 58380_Rep_IFC_P26 3 5/9/06 15:00:30 Chairman’s Statement Brian Quinn CBE 2005/2006 was, on the whole, a good year for Celtic plc and of thanks goes to Gordon Strachan, Garry Pendrey and for Celtic Football Club. Although our early departure from Tommy Burns whose contribution has involved combining European competition and from the Tennent’s Scottish Cup success on the fi eld with assembling and managing what is were disappointing, with substantial adverse effects on largely a new fi rst team squad. I also congratulate our fi rst income, we fought back in a manner that is typical of this team for being commended again this year by the SFA for Club and fi nished the year on a strongly positive note. achieving high standards of on-fi eld discipline. We also strengthened our fi nancial position and The under-19 and reserve teams won their leagues for the began the process of creating a modern purpose-built fourth and fi fth consecutive times, respectively. Celtic’s training facility at Lennoxtown. The football team is under-19 team also won the Scottish Youth Cup and an being rebuilt, as it has to if the successes of recent international tournament in Italy. These successes not seasons are to be maintained. In the week-to-week only contain signs of promise for the future but also excitement and uncertainty that characterise football, testify to the work done by the managers and support I believe it is crucial to have a clear idea of longer-term staff of the squads. objectives and a sense of direction that goes beyond the febrile environment of the modern game. Squad restructuring is an especially challenging task in today’s transfer market. The reduction in transfer fees Turnover of the group fell by 7.7%, very largely refl ecting evident several seasons ago, as clubs in the UK reordered the loss of gate receipts and TV income from European their fi nances, has been replaced with a market that in any competition. Celtic played 3 fewer home games last season other business sector would be considered overheated. and ticket sales were 15% lower as a result. Multimedia Likewise, salary packages for footballers are probably and communications were 28% lower. Despite this, with unprecedentedly high, not just for those of the highest operating expenses down by 7.6% - primarily wages and calibre, but also for many outside the elite category. The salaries for football staff – and merchandise sales higher main driver seems to be the substantially larger sums by a remarkable 42.5%, the company recorded a profi t from available to FA Premier League clubs from the recently operations of £3.74m. The loss before tax, at £4.22m, was agreed television contract. Many clubs are spending less than half the level of the preceding year. money now that will not be available for another year, creating echoes of the last boom and bust in football. The successful £15m share issue in December 2005 rebuilt the balance sheet, reducing bank debt at year end from Clubs are, however, better run today throughout the £19.3m to £9.1m and almost doubling net assets. We also UK and should avoid a repeat of the fi nancial problems increased investment in the acquisition of players from that arose a few years ago. But what is clear is that, £2.3m to £8.8m. despite the welcome increase in the value of the Bank of Scotland Premierleague TV contract, Celtic and other UK Accounting Standards have begun to converge with clubs in Scotland endeavouring to compete in European International Accounting Standards. As part of this competition fi nd themselves at a serious disadvantage. process Celtic has adopted paragraphs 1 to 50 of FRS25 This is compounded by the distribution model for UEFA the impact of which is to reclassify certain fi nancial Champions League revenues which favours the larger instruments from equity to debt. nations. This gives additional force to our policy of developing our own young players. Under FRS 25 the group’s Preference Shares and Convertible Preferred Ordinary Shares, previously defi ned I believe the new training ground at Lennoxtown will be as equity, were reclassifi ed as a combination of debt an important factor in this regard. We have secured the and equity; and non-equity dividends were in essence site and work in building the pitches, accommodation and re-classifi ed as interest. As a result, net assets were administration facilities has begun and is £3.8m lower, net debt £4.7m higher and interest charges proceeding according to plan. We hope the training £771,000 higher than would have been reported prior to complex will be completed and available for use at the the implementation of FRS 25. In our accounts we have beginning of next season. adjusted the prior periods’ fi gures for these differences in treatment to allow a meaningful comparison to be made. Evidence of the revival in Scottish football to which I looked forward two years ago grew during the season just ended. The football squad showed great resilience after a For the fi rst time in many years, the fi rst two positions diffi cult start to the season. Two long unbeaten runs in in the SPL were not occupied by the Old Firm; and the the Scottish Premier League from late August until late Tennent’s Scottish Cup Final was contested by Hearts and November, and from then until early April, returned the Gretna, a team from the Scottish Division II. As I said in my championship title to Celtic Park with the loss of only two statement accompanying our 2005 Interim Report, we see games. No club has won the SPL title earlier in the season, this as a healthy and welcome development. We do not nor with a bigger margin over its nearest competitor. The expect to lose domestic competitions and certainly do Club also won the CIS Insurance Cup for the 13th time to not like it when we do, but excitement and interest in the add to its 40th league championship. A very special note game is created when the established order is challenged. 1 58380_Rep_IFC_P26 4 5/9/06 15:00:33 I also welcome the signs of revival in We have always been serious about SUMMARY OF THE RESULTS the Scottish national side which has this. It costs Celtic a substantial Operational Highlights arrested the slide in performances and amount of money to monitor crowd has begun the job of recovering the behaviour in the form of additional • Winners of the Bank of team’s historic reputation for good, stewarding, policing and CCTV Scotland Premierleague winning football. cameras; but we consider it our duty to by 17 points do so and will continue these activities • Winners of the Our efforts to promote the Celtic in a way that eliminates discriminatory CIS Insurance Cup brand continue. The squad made behaviour, without removing the • 24 home matches played at training trips to Poland and the United passion and excitement that comes Celtic Park in the year States and played friendly matches in from following Celtic Football Club. (2005 : 27) Japan and England. The response by Celtic supporters, actual and potential, Our support is amongst the best in • Contract extensions has been remarkable and provides hard the world and I have no hesitation in awarded to Stilian Petrov, evidence that this policy is appreciated saying so every year. Average home Stephen McManus, Stanislav Varga, Neil Lennon by our fans everywhere. Of course attendance in our league games last and Shunsuke Nakamura these events also raise additional season was over 58,000, the second income for us, which seems sensible highest in the UK. Season ticket sales • Successful launch of new in the light of what is happening in of all kind exceeded 53,000, a level we playing kits under the new the television and transfer markets; expect to be maintained this season. kit agreement with NIKE we have to explore all means of Celtic supporters also account for over • Extension of Carling shirt maintaining the quality of the playing half of total attendance at many of our sponsorship contract and coaching staff. Allegations of SPL away matches. Our Club is always until 2010 greed or short-termism miss the point: in demand for friendly and testimonial • Construction of the any money generated by these games matches because of the numbers we training academy at is made available to the manager for bring. The Celtic diaspora has expanded Lennoxtown commenced players. All the benefi ts of our policy to as we have re-established ourselves spread the brand accrue to the football in European football in recent years. division, no-one else. As for exhausting Participation in the UEFA Champions Financial Highlights the players, they are professional League group stage this season will, I athletes, and the coaching staff are trust, add to the reputation of our Club.