PRELIMINARY RESULTS FOR THE YEAR ENDED 31 JULY 2000
FINANCIAL AND OPERATIONAL HIGHLIGHTS
- Turnover increased to £45.1m (1999: £44.7m)
- Operating costs increased by 17% to £44.3m (1999:£37.8m). Net of exceptional costs, underlying increase was 11%
- Operating profit before player trading was £0.8m (1999: £6.9m)
- Player trading significantly impacted by £9.8m reduction in player trading profit and £4.1m charge for permanent diminution in value of players
- Strong cash position at year end £17.5m (1999: £5.9m)
- Final dividend increased from 1.16p per share to 2.04 p per share
- Increased stadium capacity to 52,000 – project finished on time and within budget
- Strategic alliance with NTL signed in December 1999
John Fender, Chairman, commented:
‘The last year has seen a number of significant developments across the business, the financial and other benefits of which will better enable Newcastle United to take advantage of the opportunities ahead. The stadium redevelopment has been completed on time and within budget, a strategic media alliance has been formed with NTL, a strong management team is in place and, most importantly, the football team is playing with increased confidence.’
‘With the support of our magnificent fans, we believe that Newcastle United has an exciting future and has the potential to compete at the very highest level.’
Chairman’s Statement
Newcastle United PLC 16th October 2000
Introduction
The last year has seen a number of significant developments across the business. The stadium redevelopment has been completed on time and within budget, a strategic media alliance has been formed with NTL, a strong management team is in place and, most importantly, the football team is playing with increased confidence.
Our fortunes on the field improved dramatically during the season following Bobby Robson’s appointment in September 1999. After a difficult start the team finished 11th in the Premier League and reached the semi-finals of the F.A. Cup for the third year running.
Financial
Turnover increased to £45.1m (1999: £44.7m), reflecting the net effect of a fall in match revenues, a decrease in branded product sales and increased TV revenues. During the year revenues were undoubtedly affected by the negative impact of our decision to ask a number of fans to move to alternative seats.
Match revenues decreased from £20.7m to £19.7m due to fewer FA Cup and Worthington Cup games being played at St James’ Park compared with the previous year together with the operation of a reduced ticket pricing policy for cup games. Television revenue increased by 45% to £13.1m (1999: £9.0m), principally reflecting the effect of the TV contract secured for the broadcasting rights for our UEFA Cup games.
Sponsorship revenue at £8.2m (1999: £9.0m), was adversely affected by league position related terms in one of our sponsorship agreements. Branded products sales totalled £4.2m (1999: £6.0m), reflecting the difficult market for leisure products. The level of sales of Branded Products has improved significantly following the successful launch of the new change strip in July 2000. Over 12,500 shirts have been sold through our outlets since the launch date; the best since 1997 when the Club finished as runners-up in the Premiership and qualified for the UEFA Champions League.
Operating profit before player trading was £0.8m (1999: £6.9m) as operating costs rose £6.5m to £44.3m, an increase of 17%. Exclusion of a number of exceptional operating costs from current and previous years figures result in an underlying cost increase of £4.2m (11%).
During the year the amortisation of acquired player registrations increased by 5% to £15.4m (1999: £14.6m). Overall the cost of player trading increased more than threefold to £19.9m (1999: £5.5 m). The main reasons for this difference being a greatly reduced profit on disposal of player registrations and a permanent diminution in net book values of certain squad members of £4.1m.
Football management and playing squad
Performance on the field continues to be a key driver of the business and during the last twelve months we have made significant progress. Under Bobby Robson’s management, the team moved from bottom of the Premiership table in September 1999 to finish in a creditable eleventh position. We also reached the semi-finals of the FA Cup, having been runners-up in this competition in the previous two years. Our progress has continued into the current season with the team currently well placed in the Premier League.
We are delighted that Bobby Robson has committed himself to the Club by signing a new one-year rolling contract. Bobby has also given the Club invaluable advice about the structure and operation of football matters on an on-going basis.
Significant work has been undertaken to review our squad requirements for the longer term, resulting in the sale of a number of players who did not feature in our plans. We are particularly pleased that our investment in youth in recent years is now reaping rewards, with several young players graduating to the first team squad. Brian Kerr, Stephen Caldwell, Jamie Coppinger and Folushowala Amoebi have all made first team debuts this season.
We are effectively managing our players’ wage bill in a number of ways. We have recently renegotiated new, longer contracts for a number of key senior players whose contracts were due to expire in or before June 2002. Supporting the senior squad there is a strong base of talented young players in development. This has reduced the age profile of the squad to an average of 23 years. The majority of the players sold in recent months were relatively high earners and, as a consequence, the players’ wage costs have been significantly reduced going forward.
Player acquisitions comprised: Christian Bassedas, Daniel Cordone, Carl Cort, Kevin Gallacher and Diego Gavilan with the acquisition of Lomana LuaLua and Clarence Acuña post year end.
During the year player disposals comprised: Andreas Andersson, Franc Dumas, Silvio Maric, Lionel Perez, Alessandro Pistone and Paul Robinson with further sales post year-end of Duncan Ferguson, Steve Howey, and Temuri Ketsbaia.
Following a challenge mounted by the European Commission on the payment of transfer fees in professional football we are entering a period of uncertainty over the future of the existing system. The FA Premier League is seeking to have the status quo maintained, a view which the Board supports.
Only when the outcome of this issue is known will the Board be in a position to make an informed judgement on the impact of any ruling and, in particular, of whether any adjustment will be required to the carrying value of player registrations.
Stadium redevelopment
We greeted the current season with a magnificent 52,000 seat stadium, one of the finest in Europe and the second largest Premier League ground. This was completed on time and within budget. All available season tickets (41,300) were sold this summer within four weeks of going on sale, as we satisfied more fans from the waiting list. In accordance with a promise made at the commencement of the overall project we have retained 2,500 seats across the range of prices which are available on a match-by-match basis for all supporters.
On average over 51,000 supporters have attended each of our home Premiership games so far this season; an increase of 41% compared to last season’s average. The attendance for the first fixture of the current season against Derby County was 51,327, our highest attendance for almost 25 years.
to the excellent match day facilities, the redeveloped St James’ Park boasts an impressive range of business and leisure facilities. Available seven days a week, these include:
The redeveloped St James’ Park will provide in excess of 1,000 car park spaces around the stadium. Working closely with the City Council, the car parks are also to be used for general city centre parking.
The stadium redevelopment required a number of fans to select alternative seats. We would like to thank the overwhelming majority of the fans affected who took up our offer of a new seat. That we were not able to reach agreement with all the fans affected is a matter of regret to the Board.
The stadium project was a tremendous achievement and the Board expresses its thanks to Russell Jones and all the staff for their work on this project over the last two years.
Stadium redevelopment funding
The balance sheet reflects an increase in long term creditors relating to the completion of the stadium funding project. In September 1999 the Club repaid the outstanding balance of £14.7m on the Barclays Bank stadium redevelopment loan and cancelled the facility.
The facility was replaced by a successful private placement of £55m fixed interest senior notes securitised on future income from ticket sales and corporate hospitality receipts. The securitisation has a weighted average fixed interest rate of 7.43% and is repayable in equal annual instalments from 2001 to 2016.
Board and management changes
In April 2000 we were delighted to announce the appointment of David Stonehouse as Chief Executive. Following his appointment David and the rest of the Board have given careful consideration to the management team appropriate to drive the business forward.
Les Wheatley resigned as Finance Director in April to take up a similar position at Liverpool F.C. Given the needs of the business and David Stonehouse’s own background as a Chartered Accountant, former partner of Price Waterhouse and finance director of quoted companies; a replacement Finance Director has not been appointed. Ken Slater, who has vast knowledge of the Club’s finances as its Chief Accountant has taken the role of Financial Controller and is responsible for day to day control of financial matters.
Freddie Fletcher stepped down as Executive Chairman in June 2000 and resigned his non-executive role within the Board the following month. I was delighted to accept the role of Non-Executive Chairman of the Company.
In July 2000 Michael Winskell who was a part-time Executive Director and Company Secretary also resigned. Russell Cushing, who already held the position of Company Secretary of our Football Club for almost 30 years agreed to assume the same role for the Company.
Within the evaluation of roles of management the Board has felt it appropriate to re-define the role of Freddy Shepherd. As Chairman of the Football Club, Freddy provides active and important input to football matters within the business. The Board feels such input is of sufficient significance as to be considered part-time executive as opposed to non-executive. Similarly Russell Jones’ contribution is far wider than Property Director and he is also considered to be a part-time Executive Director. These changes, coupled with a number of other changes already implemented and planned at management levels, provides the Board with confidence that the business is to be managed by people of appropriate skills and experience.
Strategic media alliance
In December 1999 we announced that we had entered into a Media Alliance with Premium TV, a wholly owned subsidiary of NTL. During an initial five year term Premium TV will act as exclusive agent in relation to Newcastle United’s media rights and certain other commercial rights and will have the exclusive right to run any Newcastle United television channel, web-site and internet related activities on terms to be agreed.
The Board believes that the TV and internet opportunities provide significant scope for value creation in future years and will be seeking to maximise this value to shareholders. These, combined with the strength of the Newcastle United brand, place the Company in a strong position.
NTL also became Newcastle United’s main sponsor for a period of five years from the start of the 2000/2001 season. Premium TV provided Newcastle United with an interest free loan facility of £25m, repayable after five years by the issue of ordinary shares in the Company. The first tranche of £10m was paid following the approval by shareholders of the media alliance, in January 2000. The remaining £15m is due from Premium TV on the first anniversary of the initial payment.
Broadcasting rights
New contracts for the centrally held TV rights for live, recorded and Pay Per View Premier League games were recently announced by the FA Premier League. These new agreements become effective from the 2001/02 season and provide the Premier League with £1.6 billion over the next 3 years. From the date they come into force, the new TV contracts will, annually, more than double the TV revenues available to the Premier League for distribution.
Shareholding changes
In December 1999 Cameron Hall Developments Limited sold 25.2%. of Newcastle United PLC’s share capital to Wynyard (Guernsey) Limited, a trust run by independent trustees for the benefit of the Hall family. In addition, Cameron Hall Developments Ltd sold 4,729,260 shares and Douglas Hall 570,740 shares (the whole of his direct holding) to Premium TV at a price of 111.7p per share, representing 3.3%. and 0.4%. of the existing share capital of the Company. As a result of these share purchases, Premium TV’s immediate shareholding in Newcastle United PLC increased to approximately 9.8% and the Cameron Hall Developments Limited shareholding reduced to 22.6%.
Rewarding our stakeholders
In line with the majority of businesses in the football sector, the anticipated investment growth when the company floated in 1997 has not occurred for Newcastle United PLC. This is despite confirmed television revenues for the Premier League over the next three years, completion of our stadium redevelopment, which will improve underlying cash trends, new media opportunities, and an upturn in the team’s fortunes.
Last year we asked shareholders to consider a scrip dividend alternative in lieu of a cash dividend. We thank those shareholders who accepted our offer at a time when the Company was investing heavily in the new stadium and keen to conserve cash.
The Board is pleased to announce its intention to reward both supporters and shareholders, recognising the value of their continued support. Firstly, following the modest price increase in season ticket prices for 2000 / 2001 (2.3%), the Board has decided to freeze all season ticket and package prices next season. Secondly, we are recommending an increase in the final dividend payable to shareholders from 1.16p to 2.04p per share.
Additionally, to demonstrate its confidence in the future cash generating capability of the Company, it is the Board’s intention to provide shareholders with an appropriate level of return on their investment going forward, with the Board looking favourably, where possible, at further dividend growth in future years.
Our employees have also been affected by our continued investment in the Club. They have responded effectively and loyally as always. We thank them for their hard work and support.
Working for our community
Once again I am very pleased to report the continued success of all of our community initiatives. Not only have our existing programmes gone from strength to strength but we have also made the bold step of implementing strategies that we believe will lead to us being universally recognised for our community activities.
Our ‘Football In The Community Scheme’ continues to work with the region’s schools and I am very pleased to report that a video prepared to showcase the important work we undertake in the community has been distributed to all Members of Parliament and the Club’s sponsors in order to highlight our efforts. I mentioned earlier that we are already implementing strategies that we envisage will play a major part in the lives of both our younger and older fans. These include the development of a purpose built ‘state-of-the-art’ learning centre in the heart of the Milburn Stand. In a unique partnership with the City Council and the Department for Education and Employment we are providing a learning environment that will accommodate about 1,000 pupils from our city schools and up to 500 adults to access information technology and online learning each week.
Newcastle Breweries Limited
I take this opportunity, on behalf of the Board, to thank Newcastle Breweries for their support as the Club’s main sponsor over the last 20 years. We look forward to continuing our association with the brewery in their new role as the Club’s founder sponsor.
Outlook
The past year has provided a great number of challenges for the Company, and I believe that we can look to the future with considerable optimism. After eight years of redevelopment costing £75 million, we now have a stadium which meets the aspirations of the Club and its supporters.
We have in Bobby Robson, a manager of enormous experience who is laying the foundations for long-term success for Newcastle United. Changes in the playing squad have resulted in a better balanced and more motivated squad, delivering much improved performances on the pitch.
The new Premier League TV deal will come into effect at the start of the 2001/2002 season and will provide significant additional financial benefits for all Premier League Clubs.
With the support of our magnificent fans, we believe that Newcastle United has an exciting future and has the potential to compete at the very highest level.
John Fender
Chairman – 16 October 2000
Enquires:
John Fender,
Non-executive Chairman,
– 0191 201 8542
David Stonehouse,
Chief Executive
– 0191 201 8646
Ken Slater,
Financial Controller;
David Dishon,
Investor Relations Manager Newcastle United;
Jonathan Glass,
Simon Sporborg,
– 020 7404 5959