An analysis of the Rangers Accounts


RANGERS have released their annual accounts this week which will lead to deep scrutiny from all aspects of the media. While it may seem at times on Twitter and blogs that everyone and his granny is a financial and legal expert, I am sure this is not the case. This article is an attempt to simplify the information published and put it into more basic terms.

Firstly, the warning. Although people were saying “wait until the annual accounts are published – they will reveal everything”, that is not the case. The accounts disclose only what is required by the Companies Act and financial regulations. If I make any assumptions in trying to explain items, I will say so. It is possible that the accounts will raise more questions than they will answer.

What period do the accounts cover?

They cover the 13 month period from May 2012 to June 2013, the period since the assets and trade were acquired from the administrators of the old company.

What business(es) are included in the accounts? 

The accounts show information for the holding company (Rangers International Football Club Plc) and for the group. As such, it includes the financial information for Rangers Football Club Ltd (which operates the club) and Garrion Security Services Ltd (formerly Rangers Security Services Ltd) which are both fully owned, and Rangers Retail Ltd (51% owned). Rangers also own 100% of Rangers Media Ltd but that company has not started to trade. I think it is safe to say that the security services side will be fairly minor and won’t impact much on the group accounts.

Layout of the Accounts

The accounts follow a traditional format – there is a lengthy Board report and Business Review, followed by the Auditors’ Report, then the main accounting statements – the Income Statement, Balance Sheet and Cash Flow Statement. These are followed by the Notes to the Accounts (page 28 on) which provide supporting information and required disclosures.

Consolidated Income Statement (Page 22)

This is more commonly known as the Profit and Loss Account and summaries the income and expenditure that relates to the period being reported on. As such any season ticket income for 2013/14 or other income which relates to future periods is not included.

The accounts show that Rangers generated £19.1 million in the year of which £13.2M came from gate receipts and hospitality. The remainder of the income came from sponsorship, advertising, retail sales, broadcasting, and other activities.

The operating expenses for the year totalled £33.7M. That total doesn’t include one-off expenditure that is not expected to recur in the future. It is made up of staff costs of £17.9M, general operating costs of £13.3M (covering the running costs of the business – everything from upkeep and maintenance, heat and light, telephones, etc). Back in June 2010, the general operating costs were £13.5M, so while this set of accounts is for a 13 month period, we could say that pro-rata, these charges have dropped by about 10% on the 2019/10 year.

We then have some other, separately categorised items. One is a credit to the account for the ‘release of negative goodwill’ of £20.4M. Basically, when the company purchased the assets from the administrators for £5.5M, the value of these assets was considered to be fairly stated at £27.2M, thereby producing an immediate gain of £20.4M.

Going the opposite way, further exceptional costs of £4.2M were incurred, including £2.7M in repaying the old company’s football debt, £599k on the investigation into Craig Whyte’s claims, plus costs incurred in the acquisition and in the IPO issue.

Along with some other items, the end result is a £1.192M surplus for the period. Eliminating the one-off non-recurring income and expenses though, there was a loss for the period of £15M.

Consolidated Balance Sheet (page 24)

The balance sheet summarises the position at the year-end date (30 June 2013). It is split into sections: Fixed Assets (the property, equipment, the brand and the player registrations), Current Assets (the trade assets such as stock, debtors and cash), Current Liabilities (amounts to be paid or income to be earned in the next year), and Non-Current Liabilities (the portion of liabilities that will require to be paid in more than a year’s time).

The fixed assets are stated at £65M. Within this figure, the properties were included at a revalued amount of £42.5M, the equipment at a cost (less depreciation) of £4M, the player contracts (signing-on fees, agents fees, etc, which are written off annually over the period of the contract) £2.4M and the Brand itself has been valued at £16.1M.

The current assets of £16.5M include £11.2M in the bank and £5.2M in debtors. Of that £5.2M, £2.4M relates to money to be collected from season tickets for 2013/14 which were sold up to 30 June.

The Current Liabilities figure of £15.1M is slightly misleading as it includes £8.1M of income which has been earned in advance. From information elsewhere in the accounts, it would appear that £6.9M of this is season ticket renewals, the rest sponsorship, advertising etc in advance. The remaining liabilities are a mix of creditors and finance leases, with £1.8M due to HMRC re PAYE and VAT at the year-end date.

So, at 30 June, £6.9M of season tickets had been sold, £2.4M was to be collected under payment plans, and £4.5M had been received in cash and formed part of the £11.2M cash balance.

The Non Current Liabilities of £9.3M look to include £950k of finance lease payments in relation to the refurbishment of the food outlets, £315k in payments to terminate player contracts, and £7.8M in future tax liabilities that may emerge (but only if properties are disposed of at their revalued amounts).

Overall, the balance sheet shows that Rangers had net assets of £57M of which £11.2M was in cash.

Consolidated Statement of Cash Flows (page 27)

So where has the cash gone? Firstly, the revenue generated in the year from day-to-day operations wasn’t enough to meet the day-to-day costs and the cash needed to fund this shortfall was £7.6M.
In addition to the operating revenue coming in through the business, £29.79M was received in cash from the proceeds of shares, both initially and through the later IPO issue. A further £1.05M was received from the sale of player contracts. That’s a total of £30.84M.

That money has been used up as follows:
To fund the day-to-day operational cash shortfall £7.56M
To acquire the assets from the administrators £6.75M
To purchase property and equipment £3.27M
To purchase players’ contracts £1.33M
To make finance lease payments £0.5M
Interest charges incurred £0.23M

That leaves the balance of £11.2M in the bank.

That is a shortened summary of the main financial statements in the accounts, but what else is of interest in the accounts?

Auditors’ Report (page 20)

The auditors have issued an unqualified audit report. That means that, among other things, they are satisfied that the accounts give a true and fair view and they have also satisfied themselves that the projections that they have seen are robust enough for them to agree that the company remains a going concern for the next 12 months. That is 12 months from the date of signing the audit report (not 12 months from the year-end).

They have referred to a potential liability arising from legal claims made by Craig Whyte and Aidan Earley, stating that the outcome of these claims cannot be determined at this stage.

Auditors Fees

The auditors have charged £90,000 for the audit of the group but have also charged £594,000 or other work in respect of the flotation, investigation and tax advice.

Staff Costs

Staff costs in the 13 months were £17.9 million, with Brian Stockbridge stating in his report that First Team players’ wages were £7.8M. He also states that the First Team wages/Turnover ratio was 43% which would make the wages £8.2M. It is unclear how many players out of the playing staff of 50 are considered to be first team players. However, if I assume a First Team squad of 25 and 13 months’ wages of £7.8M, then the average weekly salary works out at £5,500.

Directors Remuneration

Directors received £1.6M in the 13 months. That included £933K for Charles Green and £409K for Brian Stockbridge. Craig Mather’s appointment was late in the year (30 April) so his salary of £58,557 would be for 2 months (equivalent to an annual salary of £351,342).

As a comparison, the Celtic accounts showed the Celtic directors receiving £1.4M for the 2011/12 year. Their main director, Peter Lawwell, earned £999K with Eric Riley, finance director, earning £221K.

Remuneration of key management for Rangers is shown, with Imran Ahmad earning £303K while at the club and Ally McCoist earning £826K. Ahmad also received a £50K arrangement fee on a £200K loan he provided to the club in May 2012.

IPO Money

Much has been written about the funds raised through the IPO share issue. It is impossible to isolate this item, but the way the money has been used is detailed in the Cash Flow notes above.

Other items

There are other items within the accounts that merit a mention. £5.7M of costs have been written off against the Share Premium account (note 23) with the narrative ‘Costs incurred in relation to fundraising’ but it is unclear how this significant figure has been incurred.

Comparison with Interim Figures

Rangers previously released interim figures for the 7 months to 31 December 2012. These figures showed revenue of £9.5M and operating expenses of £16.6M. We can therefore identify that in the final 6 months, Rangers’ revenue was £9.6M and the operating expenses were £17.1M. There can obviously be factors affecting this, but it contradicts the explanations that costs are being reduced and brought under control.

This has been a summary of the position reflected in the accounts. I will leave it to others to draw their conclusions on the strength of the financial position. For my own part, I would hesitate to comment without seeing the projections for future trading which will, of course, not be made public.

Arnold Black is a Chartered Accountant and lifelong Rangers fan.

Photograph courtesy of the creative commons licence, by _gee_