Source - PRN

Arsenal Holdings plc                Results for the year ended 31 May 2016

ARSENAL ANNOUNCE FULL YEAR RESULTS

  • Group profit before tax was GBP2.9 million (2015 – GBP18.2 million).

  • Turnover from football increased to GBP350.6 million (2015 – GBP329.3 million) with strong growth in broadcasting supported by commercial activity.

  • Additional GBP15.8 million from broadcasting driven by UEFA Champions League, record level of Premier League live coverage and second place prize money.

  • Commercial growth led by an additional GBP5.0 million from secondary partnerships showing 40% year on year growth.

  • Continued significant investment in the squad is reflected in higher amortisation charges and higher wage costs.

  • Wage costs rose to GBP195.4 million (2015 – GBP192.3 million) and represented 55.7% (2015 – 58.4%) of football revenues. Year on year comparison is distorted by double charge for Champions league qualification bonuses in the prior year.

  • Amortisation charge on player registrations rose to GBP59.3 million (2015 – GBP54.4 million).

  • Profit on sale of player registrations amounted to GBP2.0 million which was significantly lower than the prior period comparative (2015 – GBP28.9 million).

  • Quiet year for the Group’s property business with a contribution to pre-tax profits of GBP2.0 million (2015 – GBP13.4 million).

  • The Group has no short-term debt and its cash balances, excluding the accounts designated as debt service reserves, amounted to GBP191.1 million (2015 - GBP193.1 million).

  • The liabilities for player acquisitions are in part payable in instalments and net transfer creditors amounted to GBP42.5 million (2015 – GBP65.6 million). Since the financial year end the Club has invested in the acquisition of new players at a total transfer in cost of more than £90 million.

  • Increased Premier League broadcasting revenues will apply from the start of the new season 2016/17.

  • First full year of reporting under FRS 102 and comparative figures have been restated.

Commenting on the results for the year, the Club’s Chairman, Sir Chips Keswick, said:

“We enjoyed a season of progress both on and off the pitch. Looking ahead, the new broadcast revenue has provided a further competitive stimulus to the Premier League, which was already the best and most closely contested league in world football. We know that the competition will be even tougher this season. Accordingly, we have made further significant investment into what was already a very competitive squad. As a result, we can and do look forward to the 2016/17 season with optimism and confidence.”

The Club’s Chief Executive Officer, Ivan Gazidis, said:

“We are in a strong position to continue moving forward at every level of the club. On the pitch we have an outstanding squad. Off the pitch we have developed our infrastructure across all aspects of our operations to ensure we have the right assets and skills to progress.

I am confident this progress, coupled with strong underlying values, will bring the success we all seek. Our ultimate ambition is clear: to win major trophies and make Arsenal fans at home and around the world proud of this great club.  Proud of our values, proud of the way we act and proud of our team.”

Arsenal Holdings plc
Chairman’s Statement

We enjoyed a season of progress both on and off the pitch. A second place finish in the Premier League clinched a 19th successive season in the UEFA Champions League and we are now all focussed on making a sustained challenge to go one step further in 2016/17.

The new broadcast revenue has provided a further competitive stimulus to the Premier League, which was already the best and most closely contested league in world football. We know that the competition will be even tougher this season. Accordingly, we have made further significant investment into what was already a very competitive squad. As a result, we can and do look forward to the 2016/17 season with optimism and confidence.

Midfielder Mohamed Elneny joined us in January, with Granit Xhaka, Lucas Perez and Shkodran   Mustafi joining us during the summer, along with Rob Holding, Takuma Asano and Kelechi Nwakali who are all talented young players for the future.

This is in line with our philosophy of investing significantly when appropriate players, who can improve the squad, are available, whilst continuing to identify and nurture players for the future. As Arsène has said many times, we are not afraid to spend substantial sums, but it is important that when we do, the money is used wisely.

The arrival of the new players provides extra depth to our squad and this has also been boosted by the emergence of two young players: Alex Iwobi, who has grown up through our own Academy, and Jeff Reine-Adelaide.

Following these additions to our squad, Jack Wilshere and Calum Chambers have joined Bournemouth and Middlesbrough respectively on season-long loans, while Serge Gnabry has joined Werder Bremen on a permanent transfer. We wish all three the best of luck at their new clubs during 2016/17.

Looking back to the 2015/16 season, although the men’s first team couldn’t make it three in a row, we did still make another memorable trip to Wembley in May, courtesy of Arsenal Ladies. They produced a wonderful performance to beat Chelsea and win the Women’s FA Cup for the 14th time. The team also lifted the FA Continental Cup and they continue to progress under manager Pedro Losa as the women’s game grows in popularity.

Off the pitch, we have continued to make significant investments in our London Colney training facilities and we are in the final phase of the redevelopment works at our Academy in Hale End. These are hugely important investments which, whilst not grabbing headlines, will help underpin our long-term future.

In addition, we have constructed a completely new pitch at the Emirates Stadium which is a remarkable piece of work by our ground staff given the briefness of the close season period.

Financials

You will read in the following pages that our revenues for the year ending 31 May 2016 rose to £353.5m. The main source of this increase was football revenue which was up £21 million year on year, £16 million of that was broadcast related and £3.7 million arose from  our commercial activities. The overall outcome being a  small profit before tax of £2.9 million.

Our cash reserves at the end of the year stood at £226.5 million and this figure will doubtless attract the usual speculation from fans and other commentators. That being the case, it is my duty to point out that after excluding debt service reserves and amounts owed to other clubs on past transfers the balance reduces to £149 million. This figure is in itself inflated, due to the seasonality of our cash flows, by advance sponsorship and season ticket receipts for the new season.

Against the underlying balance of available funds we have, as mentioned above , invested strongly in player acquisitions during the summer at a total transfer in cost of more than £90 million with additional significant commitments to player wages, agent’s fees and performance related contingencies to book on top of that.

Whilst we have spent strongly we have not over stretched. It would have been bad business practice not to have retained some small degree of flexibility to allow us to invest again in the right player and / or to maintain the current squad as and where we want to offer improved and extended contracts for key players. We make our investments on a prudent and reasoned basis which is something this Club does well and which is even more important in a competitively inflated marketplace. This approach has served us well and it will continue.

Making a difference

As a Club we recognise the power we have to transform people’s lives at home and abroad. The Arsenal Foundation, working with partners here and around the world, continues to thrive and its influence is growing. This is due, in large part, to significant financial contributions from our players, staff and fans. We are very appreciative of every donation and committed to ensuring that every pound is used to make a difference.

More recently the very entertaining Arsenal Legends v Milan Glorie match saw the Arsenal Foundation donate £1 million towards building pitches in Jordan, Somalia and here in North London. This was a first class achievement and we were delighted with the response from former players and all our fans who filled Emirates Stadium for a special day.

Our Arsenal in the Community team continues to deliver an outstanding programme in Islington and other nearby boroughs. The work is linked directly to the local areas of need and I am proud that we continue to have significant focus on this important work.

Thank you

I would like to thank our fans for their outstanding support. Emirates Stadium was sold out for most games last season and the support for the team on its travels is exceptional.

Finally, my thanks go to Stan Kroenke, for his continued support and guidance, and my fellow directors, our management team and entire staff for all their hard work and dedication. I would also like to recognise publicly the support from our commercial partners who make such important contributions both financially and in terms of helping build the Club’s name around the world.

We look forward with confidence. The Club is progressing across every aspect of its activities and we are optimistic of our future prospects.


Sir Chips Keswick
Chairman
30 September 2016

Arsenal Holdings plc
Chief Executive’s Report

This annual update gives me a chance to pause and reflect on the progress we have made on and off the pitch in recent times.

When I arrived at this great club in 2009 we were in a transitionary position. We had made the move from our old Highbury home to Emirates Stadium a few years earlier. Momentous though that was, it was clear that this was really only the first step in a change in scale as we aspired to establish ourselves fully as one of the leading clubs in Europe, competing both on and off the field with the biggest clubs in the world.

At the same time the football landscape was developing dramatically, with unprecedented levels of transfer and salary spending from some of our closest rivals at the top of the Premier League and in Europe. The new stadium brought increased revenue and expectation; but also a continuing need to adhere to the principles of financial responsibility which had given us both the means and market credibility to make the move from Highbury possible in the first place. It was clear that resting on our laurels during this period would have seen us left behind and so we recommitted again to moving the club forward. 

During the subsequent years we have worked tirelessly to build and develop the Club both on and off the field, across every aspect of its operations. Our main focus will always be on having the best possible players for the Arsenal first team but it is also vital to have first class infrastructure and support functions around the team and across the wider Group to underpin that and to make it sustainable over the longer term. In some areas all that has been required is a fine tuning of our already high standards, in others we have had to build capability from scratch. We have made substantial investments across the Club in areas such as our commercial and support functions, analytics, scouting, academy, medical and fitness support, as well as in our training ground facilities. In elite sport, playing in the most competitive league in the world, the margins between winning and losing are measured by fractions and everything we do is focused on moving us closer to the success we all want for the Club.

Thanks to huge efforts by everyone across the Club we have pushed the club forward but there is more to do. Finishing the Premier League in the top four 19 years in a row is a sign of remarkable consistency but that is not enough for us. We all want to win major trophies and that is what the hard work is about.

We now have the strongest squad we have had for many seasons. This has taken time and effort to construct and considerable investment. In the five seasons since Stan Kroenke became our majority shareholder we have invested some £350 million in transfer fees. This is coupled with an increase in our wage bill from £124 million to £195 million in the same period.

Our transfer policy has a simple and clear focus – to sign players who can add quality to our squad either immediately or in the medium term. I believe the players we have added this summer will deliver against that objective and help us move closer to our ambition of winning the Premier League. This summer we are delighted to have added Granit Xhaka, Shkodran Mustafi, Rob Holding and Lucas Perez to our first team squad.

Equally importantly we have continued to make significant investments to ensure we continue to sign talented young prospects and to bring young players through to the first team.

Last season saw Alex Iwobi, a young man who has been with our Academy since the age of eight, break into our first team squad and make an immediate impact. The sight of him playing and shining against Barcelona in the Nou Camp will remain one of my highlights of the season. To see a home grown talent performing at the elite level is testimony to all the hours of hard work by Alex, his family and the coaches and staff at Hale End. It is also testimony to our policy of investing in young talent and the confidence our manager has to give our young players the chance to succeed at the highest levels.

With continuing market escalation in transfer fees, it is vitally important that we continue to find and develop talent. In recent seasons, Alex, Hector Bellerin and Francis Coquelin have all broken into the first team and I am confident we will have more players coming through at our Academy. This remains a key part of our philosophy moving forwards and to that end we have further extended our scouting network and opened more development centres around London. We have also continued to invest significantly in acquiring top young talent and this summer we added Takuma Asano and Kelechi Nwakali both of whom we believe have potential for the future.

Work continues on the transformation of our Hale End Academy. This has involved a complete redevelopment of the site to create a state of the art environment for our players of the future. We are also redeveloping our training centre at London Colney.  These investments are substantial and will create an outstanding environment for our players to train and develop.

That investment in world-class facilities has been coupled with the recruitment of expert staff. Within our football operation we have welcomed 27 new coaches, analysts, fitness experts and support staff in the last year. This is all part of our relentless growth and transformation across the club and continuing ambition to keep us at the top of the game and make our fans proud.

The Arsenal Ladies

The Arsenal Ladies are an important part of our club. We were pioneers in the women’s game, setting up the team in 1987, and we have had unparalleled success in the intervening years. We are delighted that the women’s game has developed significantly in recent years with the birth of the Women’s Super League and increased investment from a number of competitor clubs. We are determined to respond to the increased competition.  This season has seen the Arsenal Ladies go full-time and move into bespoke new facilities at our London Colney training centre.

Last season was capped by a thrilling victory over Chelsea in the Women’s FA Cup Final. More than 30,000 fans were at Wembley as we won the trophy for a 14th time. It was a fantastic day for our club and one of the highlights of the season.

I have no doubt that women’s football will continue to grow in popularity and Arsenal Ladies will remain a leading force at the top of the game.

Business update

The financial results for the year, which are covered in more detail in the Financial Review section, show our turnover moved in excess of £350 million, driven by our football revenue increasing by some £21 million. This was as a result of having more games shown on television plus an increased share of prize money by virtue of our runners-up finish in the League and the start of the new Champions League broadcasting cycle. Our revenue from Commercial operations grew by a further £3.7 million with the key area of secondary commercial partnerships growing by some 40%.

Commercial Partnerships

We now have commercial partnerships in North America, South America, Europe, Africa, Asia and Australasia.  This demonstrates the worldwide interest from organisations to partner with Arsenal, as well as the global capability of our commercial operation to source and secure these partnership deals.

Over the course of this year new partnerships have been agreed with iRENA, Santa Rita, Star Lager (Nigerian Breweries), 12Bet and Tempobet and we have renewed our deals with Betfair and Markets.com.  This means that we currently have 30 partnerships. We continue to have a strong pipeline of potential partnerships to further enhance our commercial revenues.

Retail

Our partnership with PUMA continues to develop and this summer saw us launch new away and third kits at a star-studded event in Los Angeles attended by Arsenal fans. We continue to build our e-commerce and retail presence internationally to make it easier for supporters to buy merchandise from us wherever they live. Closer to home, our Finsbury Park store has undergone a refit while our Emirates Stadium tours attracted more than 220,000 visitors last year from all around the world. Many of them are now also visiting the Arsenal Museum which has undergone a modern facelift.

Arsenal Media Group

Our media group creates the platforms for us to drive strong reach and engagement with supporters around the world through digital and social media channels.  We have one of the biggest social media followings in sport.  By the year end we had 36.3 million Facebook followers and 7.5 million on Twitter, and these figures are growing daily. Our YouTube, Instagram, and Sina Weibo (China) channels also continue to thrive. We launched on Snapchat earlier in the year and this is working well in terms of reaching hundreds of thousands of younger fans.

Ticketing

We announced earlier in the year we will be keeping general admission ticket prices flat for both  2016/17 and 2017/18 seasons. This means that general admission season ticket prices will have been held for 9 of the 12 seasons at Emirates Stadium, with inflation-only increases in the three non-static years. Thanks to the categorisation of matches, we also offer 43,000 tickets across the season at £26 to watch top Premier League football in our world class London stadium. In addition, some 14,000 £10 tickets are available per season to 12-16 year olds within the Young Guns Enclosure and there are 26,000 tickets priced as low as £10 for each potential home League Cup fixture.

Our away support is fantastic and we have been strong supporters of the initiative to reduce the cost of away games. We went further than the £30 cap agreed by the Premier League, ensuring our fans will not have to pay more than £26 to attend our away Premier League matches. We also continue to provide subsidised travel to games when public transport is difficult due to match schedules.

Ticket Exchange and Ticket Transfer have been further enhanced, making it easier for season ticket holders unable to attend matches to sell or transfer their seats to other Arsenal supporters. Last season more than 85,000 tickets were processed through these platforms. For the 2016/17 season we have introduced a new cash back service, making it quicker for fans to get their money back after selling tickets through the Exchange.

Pre-season 2016/17

Our pre-season schedule started with a short trip to Lens in France. This was followed by a highly successful visit to the United States to play in the MLS All-Star match in San Jose. We then travelled to Los Angeles for a game against the Mexican side Chivas Guadalajara. We received a fantastic reception from our US fans. On a personal note it was great to meet up with many of my old colleagues from Major League Soccer. The value of the US broadcast rights sold by the Premier League increased significantly for the new cycle and this reflects ever growing support for our game in the States.  I am sure it will not be long before we play there again.

Due to player availability issues, driven by the European Championships, and our own major pitch renovation at Emirates Stadium, we were unable to hold our annual Emirates Cup competition and so the week before the season began we headed to Scandinavia for games in Norway and Sweden. This was a great opportunity for our passionate Scandinavian fans to see us in action and we came back following victories over Viking FK and Manchester City.  We look forward to welcoming back the Emirates Cup to our pre-season schedule next year.

Arsenal Foundation and Arsenal in the Community

We recognise that Arsenal can make a genuine difference to people’s lives and our commitment to the local and wider community remains a central part of what we stand for as a football club. 

Earlier this year the Arsenal Foundation and Save the Children combined to build football pitches in camps for internally displaced people in Iraq, giving boys and girls fleeing war a safe place to play and the chance to be children again. Arsenal Ladies captain Alex Scott visited the camp in March and found it a moving and inspirational experience. I am delighted that, thanks to the recent Legends match here at Emirates Stadium, The Arsenal Foundation is dedicating £1 million to support similar football projects in Jordan and Somalia, as well as nearer to home in North London.  We have also given our support to a range of local charitable causes during the year.

Arsenal in the Community’s ‘Arsenal Hub’ has been open for more than a year now, and is getting busier all the time. We now welcome around 1,000 individuals to the centre every week for sports and education activities.  As ever, our community team is working hard across the local area to provide support and guidance to young people who need it most.  

Thanks to the generous donations from our supporters, players, manager and partners, I am proud to say the Arsenal Foundation continues to go from strength to strength.

Looking ahead

We are in a strong position to continue moving forward at every level of the club. On the pitch we have an outstanding squad. Off the pitch we have developed our infrastructure across all aspects of our operations to ensure we have the right assets and skills to progress.

I am confident this progress, coupled with strong underlying values, will bring the success we all seek. Our ultimate ambition is clear: to win major trophies and make Arsenal fans at home and around the world proud of this great club.  Proud of our values, proud of the way we act and proud of our team.

Thank you for your support.


I E Gazidis
Chief Executive Officer
30 September 2016

Arsenal Holdings plc
Financial Review

The Group recorded a profit before tax for the 2015/16 year of £2.9 million as compared to a profit of £18.2 million (as restated) in the prior year.

The principal factors influencing this result were:

  • An increase of £15.8 million in revenue from broadcasting as a consequence of higher Champions League distributions (in the first year of a new three year UEFA revenue cycle), a record level of domestic live coverage for Premier League matches involving the Club and the merit award associated with our second place Premier League finish;
  • Further investment into our playing resources leading to a combined increase of £7.9 million in our wage bill and player amortisation costs;
  • Significantly lower profits from the sale of player registrations at £2.0 million (2015 - £28.9 million);
  • Reduced activity in the Group’s property development business, contributing only £2.0 million of pre-tax profits as against £13.4 million in the prior year; and
  • Less volatility in the market value of the Group’s interest rate swaps (which are now accounted for under the rules of FRS 102 – see below) with a consequent reduction in net finance charges (as restated) of £5.8 million.
2016

£m
2015
(restated)
£m
Group turnover 353.5 344.5
Operating profit before amortisation, depreciation and player trading 84.0 77.2
Player trading (see table below) (54.0) (25.6)
Amortisation of goodwill and depreciation (14.7) (15.0)
Joint venture 1.0 0.8
Net  finance charges (13.4) (19.2)
Profit before tax 2.9 18.2

Player Trading

Player trading consists of the profit from the sale of player registrations, the amortisation charge, including any impairment, on the cost of player registrations and fees charged for player loans.

2016
£m
2015
£m
Profit on disposal of player registrations 2.0 28.9
Amortisation of player registrations (59.2) (54.4)
Impairment of player registrations - (0.9)
Loan fees 3.2 0.8
Total Player Trading (54.0) (25.6)

There were no major sales in the period as the Club retained all of its key players going into the 2015/16 campaign.  A sell on percentage from former youth player, Benik Afobe’s transfer to Bournemouth was the main element of transfer profits of £2.0 million. Improved player retention is a direct consequence of the Club’s improved financial position over the last five years with a clear trend away from transfer profits as an essential component of the profit and loss account.

The increased amortisation charge is a direct result of continued investment into the Club’s playing resources at all levels. The acquisitions of Petr Cech, Mohamed Elneny and the extension of contract terms for certain existing players were the main components within £35.4 million of additions to the cost of player registrations.

The amortisation charge, being the mechanism by which the cost of player acquisitions is expensed to profit and loss over the term of a player’s contract, provides a direct indication of the level of underlying investment in transfers and again the trend over the last five years is progressive.

In cash terms the impact of this year’s acquisitions, together with instalments due on those prior year acquisitions payable on deferred terms, was partially offset by the collection of receivables on player sales (both current and previous) and by the credit terms agreed with the vendor clubs. For the second year running the net cash outflow on transfers established a new record level for the Club of £54.2 million (2015 - £46.2 million). With the level of transfer activity undertaken during this summer it is virtually certain that these figures will be eclipsed in the 2016/17 accounts.

Cash position

At the balance sheet date, the Group’s total cash and bank balances amounted to £226.5 million (2015 - £228.2 million), inclusive of debt service reserve balances of £35.4 million (2015 - £35.0 million). The Group’s overall net debt stood at £6.1 million (2015 - £10.5 million (as restated)).

Proper consideration of the Group’s cash balance must include allowance for the payments for the aforementioned transfers, as follows:

2016
£m
2015
£m
Bank balance excluding debt service 191.1 193.1
Net balance payable on transfers (42.5) (65.6)
148.6 127.5

In addition, our year end bank balance includes advance receipts, of primary sponsorship and season ticket sales, which represent working capital for the 2016/17 season. These advance receipts amounted to £100.6 million (2015 - £102.4 million).

Football Segment

2016

£m
2015
(restated)
£m
Turnover 350.6 329.3
Operating profit before depreciation and player trading 82.2 64.4
Player trading (54.0) (25.6)
Profit before tax 0.9 4.8

There were 27 home fixtures (19 Barclays Premier League, four UEFA Champions League and four FA Cup), the same number as in the prior year, with an average tickets sold per game of 59,834 (2015 – 59,930).  The mix of games (one Champions League game less) and no involvement in the FA Cup semi-finals meant that gate and match day revenue fell slightly to £99.9 million (2015 - £100.4 million).

Broadcasting revenues increased to £140.6 million (2015 - £124.8 million) for the reasons referred to at the start of this commentary. Our League form meant we attracted 27 live Premier League game facility fees (2015 – 25). Looking ahead the Premier League broadcasting revenues will be at a significant uplift for the three seasons commencing 2016/17 and Champions League revenues for 2016/17 will be boosted by our 30% share of the first market pool (following Premier League second place) and by a stronger Euro exchange rate.

Combined commercial and retail revenues for the year rose to £106.9 million (2015 – £103.3 million). This is a lower level of growth than that reported in the two previous years but this is not unexpected, given that both the primary partnership deals, with Emirates and Puma, are effectively mid-term. Encouragingly secondary partnership revenues rose, in a competitive marketplace, by 39.6% to £17.1 million.

Our payroll was the largest and most important area of cost. Wage costs for the year rose to £195.4 million (2015 - £192.3 million (as restated)), which was mainly attributable to increases in the cost of our football playing and support staff. As previously reported the wage cost for 2014/15 was inflated by two trigger events for Champions League qualification bonuses. There was a single trigger event in 2015/16.

The ratio of total wage bill to football revenues was reduced to 55.7% (2015 – 58.4%). We disclose this ratio as a benchmark which is widely used in the analysis of football finance although our own monitoring in this area is based on total player spend, a combination of wages plus transfer expenditure and related costs, on a rolling three year basis against projections for the available funds generated over that period by the Group’s business activities.

The Club was fully compliant with the Premier League’s wage cap / short term cost control regulations. In light of the strong correlation which exists between player wage expenditure and on-field success, a progressive wage bill, where growth is rational and responsible, should be regarded as a positive outcome.

Other operating costs, which include all the direct and indirect costs and overheads associated with the Club’s football operations and revenues, fell to £70.2 million (2015 -£72.1 million) and represented 20.0% of football revenues (2015 – 21.9%).

Property Segment

2016
£m
2015
£m
Turnover 2.9 15.2
Operating profit 1.7 13.0
Profit before tax 2.0 13.3

There was limited activity in the Group’s property business, with the only transactions of note being recognition of the final instalment of the Queensland Road overage payment, consequent to the developer’s sale of the remaining units, and the sale of our last flat at Highbury Square following the expiry of a tenancy on the unit.  The operating profit from property was £1.7 million (2015 - £13.0 million).

Of the two remaining development sites, we have carried out some preliminary construction works at Holloway Road whilst progressing the various complex negotiations and agreements which need to be concluded before a sale can be finalised. Unlocking the future sale value of the other development site, at Hornsey Road, requires viable planning consent and our discussions with the local authority continue.

Profit after Tax

Overall there is a tax charge of £1.2 million (2015 – £3.4 million (as restated)) on the pre-tax result for the period. This meant that the retained profit for the year was £1.6 million (2015 - £14.8 million (as restated)).

The tax deductibility of the amortisation charge on player registrations is partially restricted as a result of previous roll-over reliefs claimed on player sales. This means that our taxable profit is higher than our accounts pre-tax profit and this resulted in a corporation tax charge for the year of £5.6 million (2015 - £6.3 million). During the year the Group paid UK corporation tax of £8.3 million being the balance of the 2014/15 charge and due instalments on account of the 2015/16 liability.

The corporation tax charge has been partially offset by a deferred tax credit of £4.4 million (2015 - credit of £2.9 million (as restated)). This credit reflects the downward revaluation of the Group’s deferred tax liabilities in light of the lower future rates of corporation tax enacted by the government and expected to apply when the underlying tax deferrals unwind.

FRS 102

Throughout this commentary and the financial statements you will see various references to the figures for the prior year being restated. This is because 2015/16 is the first reporting period where our results have been compiled under the newly introduced Financial Reporting Standard 102 (FRS 102).  As is normal on adoption of a new set of accounting rules, the comparative numbers have been restated in order to maintain comparability.  The impact on the current period is relatively minor – pre-tax profits would have been some £1.0 million higher under the previous UK accounting rules. 

The most significant change on adoption of FRS 102 is that the interest rate swap, used to fix the interest rate on our floating rate stadium finance bonds, has to be included on the balance sheet at fair value (market value) with changes in fair value reported in the profit and loss of each period.  For the swap there was a significant increase in negative value last year as the financial markets anticipated that UK interest rates would remain lower and for longer than previously expected.  As a consequence, net finance costs appear reduced against the restated comparative period at £13.4 million (2015 - £19.2 million).  The volatility introduced by fair value accounting for the swap is not particularly helpful in understanding our results – in reality, we continue to pay and account for the underlying stadium bonds (our “mortgage” on the stadium) at the same fixed interest rate as last year.  If the stadium debt runs to its full maturity, this will continue to be the case.  The value of the swap will vary with market rates; however, at maturity, its fair value will be zero such that all the negative fair value of £24.4 million accounted for in this year’s balance sheet will have reversed with no cash flow impact.

Outlook

The Club has made significant investments since the year end both in terms of transfers and wage growth. These investments were determined purely on the basis of our football requirements but backed by a rational assessment of the financial impacts. This has always been the way we operate and is the reason that Arsenal remains in a strong financial position at the start of a new season

Stuart Wisely
Chief Financial Officer
30 September 2016

Arsenal Holdings plc
Consolidated profit and loss account
For the year ended 31 May 2016

2016 2015
(restated)




Note 
Operations excluding player trading
GBP’000


Player trading
GBP’000



Total
GBP’000
Operations excluding player trading
GBP’000


Player trading
GBP’000



Total
GBP’000
Turnover of the group including its share of joint ventures 353,318  3,230  356,548  346,498  805  347,303 
Share of turnover of joint venture (3,009) (3,009) (2,779) (2,779)
-------- -------- -------- -------- -------- --------
Group turnover 350,309 3,230  353,539 343,719  805  344,524 
Operating expenses (281,093) (59,257) (340,350) (281,446) (55,365) (336,811)
-------- -------- -------- -------- -------- --------
Operating profit/(loss) 69,216 (56,027) 13,189 62,273  (54,560) 7,713
Share of joint venture operating result 1,004 1,004  762  762 
Profit on disposal of player registrations - 2,047 2,047  28,944  28,944 
-------- -------- -------- -------- -------- --------
Profit/(loss) on ordinary activities before net finance charges 70,220 (53,980) 16,240  63,035  (25,616) 37,419 
-------- -------- -------- --------
Net finance charges (13,373) (19,227)
-------- --------
Profit on ordinary activities before taxation 2,867 18,192 
Taxation charge (1,218) (3,376)
-------- --------
Profit after taxation retained for the financial year 1,649 14,816 
-------- --------
Earnings per share
Basic and diluted 4 £26.50 £238.13 
-------- --------

Player trading consists primarily of loan fees receivable, the amortisation of the costs of acquiring player registrations, any impairment charges and profit on disposal of player registrations.  All trading resulted from continuing operations.

Arsenal Holdings plc
Consolidated balance sheet
At 31 May 2016

2016
 
GBP’000 
2015
(restated)
GBP’000
Fixed assets
Goodwill 666  1,082  
Tangible fixed assets 421,059  419,180 
Intangible fixed assets 146,005  171,658 
Investments 4,977  4,174 
---------- ----------
572,707  596,094 
Current assets
Stock - development properties 11,148  9,741 
Stock - retail merchandise 4,834  4,530 
Debtors   - due within one year 57,961  74,175 
                 - due after one year 4,404  6,658 
Cash and short-term deposits 226,459  228,167 
---------- ----------
304,806  323,271 
Creditors: amounts falling due within one year (239,945) (275,332)
---------- ----------
Net current assets 64,861  47,939 
---------- ----------
Total assets less current liabilities  637,568 644,033 
Creditors: amounts falling due after more than one year (265,460) (269,174)
Provisions for liabilities and charges (44,047) (49,548)
---------- ----------
Net assets 328,061 325,311 
---------- ----------
Capital and reserves
Called up share capital 62 62 
Share premium 29,997 29,997 
Merger reserve 26,699  26,699 
Hedging reserve - (1,092)
Profit and loss account 271,303  269,645 
---------- ----------
Shareholders’ funds 328,061  325,311 
---------- ----------

Arsenal Holdings plc
Consolidated cash flow statement
For the year ended 31 May 2016

2016 
GBP’000
2015 
GBP’000
Net cash inflow from operating activities 93,841 102,395
Taxation paid (8,331) (2,206)
Cash flow from investing activities
Interest received         746 863
Proceeds from sale of fixed assets 748 47
Purchase of fixed assets (14,232) (14,302)
Player registrations (54,190) (46,241)
---------- ----------
Net cash flow from investing activities (66,928) (59,633)
---------- ----------
Cash flow from financing activities
Interest paid (12,622) (12,993)
Repayment of debt (7,668) (7,274)
---------- ----------
Net cash flow from financing activities (20,290) (20,267)
---------- ----------
Net (decrease)/increase in cash and cash equivalents in the year (1,708) 20,289
Cash and cash equivalents at start of year 228,167 207,878
---------- ----------
Cash and cash equivalents at end of year 226,459 228,167
---------- ----------

   

Reconciliation of operating profit to net cash inflow from operating activities 2016  2015
(restated) 
GBP’000 GBP’000
Operating profit 13,189 7,713
Amortisation of player registrations 59,257 54,430
Impairment of player registrations - 935
Amortisation of goodwill 416 416
(Profit)/loss on disposal of tangible fixed assets (72) 273
Depreciation (net of grant amortisation) 14,258 14,618
---------- ----------
Operating cash flow before working capital 87,048 78,385
Decrease/(increase) in stock (1,711) 513
(Increase)/decrease in debtors 9,707 (4,983)
Increase in creditors (1,203) 28,480
---------- ----------
Net cash inflow from operating activities 93,841 102,395
---------- ----------

   

Analysis of changes in net debt At 1 June  2015
(restated) 
GBP’000 

Non cash  changes 
GBP’000 
Cash  flows 
GBP’000
At 31 May  2016 
GBP’000 
Cash at bank and in hand 108,614 - 9,008  117,622
Cash equivalents 119,553 - (10,716)  108,837
---------- ---------- ---------- ----------
228,167 - (1,708) 226,459
Debt due within one year (bonds) (7,119) (8,106) 7,668 (7,557)
Debt due after more than one year (bonds) (193,997) 7,556 - (186,441)
Derivative financial instruments (23,736) (675) - (24,411)
Debt due after more than one year (debentures) (13,808) (389) - (14,197)
---------- ---------- ---------- ----------
Net debt (10,493) (1,614) 5,960 (6,147)
---------- ---------- ---------- ----------

Non cash changes represent GBP550,000 in respect of the amortisation of costs of raising finance, GBP389,000 in respect of rolled up, unpaid debenture interest and GBP675,000 in respect of the change in fair value of the Group’s interest rate swaps.

Arsenal Holdings plc
Notes to preliminary results
For the year ended 31 May 2016

1. The financial information set out above does not constitute the company's statutory accounts for the years ended 31 May 2015 or 2016, but is derived from those accounts. Statutory accounts for 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered following the company's annual general meeting. The auditor has reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

The accounting policies applied by the Group are as set out in detail in the Annual Report for the year ended 31 May 2016.

The company has complied with the Guidance note 69.1 of the ISDX Growth Market – Rules for Issuers throughout the year ended 31 May 2016.

2. Segmental analysis

Class of business:- Football
2016
GBP’000
2015
(restated)
GBP’000
Turnover 350,623 329,337
---------- ----------
Segment operating profit/(loss) 11,537 (5,244)
Share of operating profit of joint venture 1,004 762
Profit on disposal of player registrations 2,047 28,944
Net finance charges (13,705) (19,625)
---------- ----------
Profit on ordinary activities before taxation 883 4,837 
---------- ----------
Segment net assets 274,572 273,823 
---------- ----------

   

Class of business:- Property
development
2016 
GBP’000 
2015
(restated)
GBP’000
Turnover 2,916 15,187 
---------- ----------
Segment operating profit 1,652  12,957 
Net finance charges 332 398
---------- ----------
Profit on ordinary activities before taxation 1,984  13,355
---------- ----------
Segment net assets 53,489  51,488 
---------- ----------

   

Class of business:- Group
2016
GBP’000
2015
(restated)
GBP’000
Turnover 353,539 344,524
---------- ----------
Segment operating profit 13,189 7,713
Share of operating profit of joint venture 1,004 762
Profit on disposal of player registrations 2,047 28,944
Net finance charges (13,373) (19,227)
---------- ----------
Profit on ordinary activities before taxation 2,867 18,192
---------- ----------
Segment net assets 328,061 325,311
---------- ----------

Operating profit from football before amortisation, depreciation and player trading amounted to GBP82.2 million (2015 – GBP64.4 million); being segment operating profit (as above) of GB11.5 million (2015 – loss of GBP5.2 million), adding back depreciation (net of grant amortisation) of GBP14.3 million (2015 - GBP14.6 million), amortisation of goodwill of GBP0.4 million (2015 – GBP0.4 million) and operating loss from player trading of GBP56.0 million (2015 – GBP54.6 million).

3. Turnover

Turnover, all of which originates in the UK, comprises the following: 2016
GBP’000
2015
GBP’000
Gate and other match day revenues 99,907 100,401
Broadcasting 140,579 124,844
Retail and licensing 24,626 24,685
Commercial 82,281 78,602
Property development 2,916 15,187
Player trading 3,230 805
---------- ----------
353,539 344,524
---------- ----------

4. Earnings per share

Earnings per share (basic and diluted) are based on the weighted average number of ordinary shares of the Company in issue being 62,217 shares (2015 - 62,217 shares).

5. Annual General Meeting

The annual general meeting will be held at Emirates Stadium, London, N7, on Monday 24 October 2016 at 11.30 am. The full statement of accounts and annual report will be posted to shareholders on 30 September 2016.

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