Rugger Guy and the RIFC 2022 accounts

Well, it’s definitely the end of an era.

This is the last analysis of accounts on Planet Fitba by Rugger Guy.

I’m humbled and embarrassed that he has put so much into this stuff over the years.

So, usual caveat, dear reader, what is in italics below is the expert analysis of a chap at the top of his game.

I am merely the publisher.

Phil, as per your request, I have carried out a review of the accounts of Rangers International Football Club “RIFC” for the year ending 30 June 2022. At first glance, looking at the headlines, the results appear to show a dramatic improvement in comparison to previous years. As I have repeated on many occasions, the success of Celtic football club plc has been based on a sustainable player trading model, coupled with success in European competitions. RIFC in the current year’s results are beneficiaries of both these items, however I would still be wary of the prospects of sustainability here, as with a weak balance sheet, it takes several years of successful trading in order to be financially secure.

As is always the case in reviewing RIFC accounts, the devil lies in the detail, and there are a  large number of items here that the readers should be made aware. In my final report, I will break with tradition and essentially start at  the back of the accounts. I will comment on some of these issues and then comment on the more traditional areas of the income statement, balance sheet and cash flow.

 

Headline results and items of note.

Revenues increased from £47.7m to £86.8m an increase of over 80%. Operating profit of £5.8m compares with a loss of £21.7m. The post-tax loss for the year was £900k, which compares with a loss of £24m last year. It is important that the reader is aware of some large items which affects the reported headline numbers.

RIFC made a profit of £11.2m  on player sales versus £1.7m last year.

RIFC received compensation of £4.25m for Mr Gerrard and staff on their departure. This is included correctly in other income.

RIFC had litigation costs of £9.5m, of which £8.25m relates to Sports Direct, the reported charge in the income statement was reduced by £3.4m for a notional interest credit. However, the monies liable for payment is £9.5m, and it appears that only £1.5m was repaid during the year. The accounting treatment is correct, but the true cash cost is £9.5m, not the reported figure of  £6.1m, and this flatters the reported headline numbers.

Cashflow is always the true indicator of financial strength. In the year ended 30 June 2022, Parks of Hamilton paid in advance  £5m in respect of future commercial arrangements. A further £4.3m was raised in new equity, and a further net increase of £9.1m in new loans was received from investors.

In summary, good financial progress, but several substantial challenges remain.

Post Balance sheet events.

RIFC signed 10 players for £15m and sold 6 players, including Bassey and Aribo and sent 7 players on loan with total receivables of £19.9m. This will provide a very useful profit on player trading in the next set of accounts. RIFC  has committed just under £10m capital investment in the next year on building and stadium improvements.

Funding. RIFC  has introduced, post-year end, a revolving credit facility with existing lenders, primarily two directors, J Bennett and J Woldhart. In addition, during the year,   further net loans of £7m, resulting in just over £12m owed to both directors, are in place. Interest is being charged at 6% per annum, and there will be quarterly repayments made until 31 July 2028. A standard charge over Edmiston House is in place. RIFC has a new bank loan of £1.4m and a cash loan exceeding £3m to the Premier Division Support Fund.

All of these funding provisions, together with player sales highlighted earlier and European champions league participation, has, in my opinion, resulted in the auditors not requiring an emphasis on going concern basis qualification. I think that this may be the first time in my reporting. In addition, Mr Park, the Chairman, has indicated his confidence in producing a net profit in the year to June 2023. Given the visibility of European income, profit on player trading and season ticket sales together with commercial incomes guaranteed, this is highly likely and will be the first time ever since incorporation in 2012.

Income Statement

The main items to highlight are as follows.

Revenue increased from £47.7m to £86.8m, an increase of over £39m.

The main reasons for this were the benefits arising from the ending of covid restrictions, the success in Europe and more home matches. Gate receipts increased by £24m. UEFA prize money and solidarity payments of £17.3m represented an increase of just over £6m. Commercial partnership income increased by £2.5m, and retail revenues by £4m were the principal contributors to this.

Operating expenditure increased from £64.0m to £85.6m, an increase of some £22m. The prime increases were overheads, match day costs and policing, which were £28.4m, almost double the previous year. Player wages were £37.8m, up by £4.3m.

Amortisation of player contracts were £11.8m, an increase of just over £1m.

Profit on disposal of players was £11.2m, an increase of some £9.5m on last year and another major contributor to the improved financial performance.

Nonrecurring costs, primarily legal costs of £8.25m to Sports direct and a further £1.25m on other issues, less an adjustment of £3.4m for notional interest, gave a total in the income statement of £6.1m. However, as I indicated earlier, the real cash cost is £9.5m . There is no commentary in the accounts regarding any ongoing relationship with Sports Direct.

Other operating income of £5.25m benefitted from a £4.25 settlement from the departure of Mr Gerrard and his staff.

In summary, a post-tax loss of £900k pre-tax loss of £2.2m compares with over £24m  loss last year is a significant improvement, and this is likely to improve in the current year for the reasons I highlighted earlier.

 

Balance Sheet

The main items to highlight here are as follows.

Some £6m was spent on buildings and fixtures and fittings in the current year. In addition,  a further capital commitment of £9.6m was made at the year-end for Edmiston house, the training ground and stadium improvements.

Working capital still shows a deficiency of some £19m, almost half of last year’s deficit. In simple terms, working capital shows current assets less current liabilities, a big contributor to the cash flow outlook. Consequently, challenges remain. One item within current liabilities remains high, in my opinion. Social security and other taxes outstanding is £9.5m versus £7.7m in 2021. Staff costs were £55m in 2022. This implies, on very generous assumptions, that four, five or even more than that months are outstanding. Looking at the value of players on the balance sheet (intangible assets), this has dropped by £7m in the year to £30.7m. Eight players whose value exceeds £0.5m represent 73% of the total value, and the average remaining portion of the contract is less than 2 years. RIFC  has spent £15m on new players post the year-end, so clearly hopes to have boosted the value of this base.

Player trading shows payables of £7m and receivables of £8.6m.

Looking at the share capital of RIFC is interesting. When RIFC was formed in 2012, it had 65m shares in issue. It now has 432m shares, yes, 432 m shares. Some 367m shares have been issued at prices from 20p to considerably higher prices. The proceeds have exceeded £90m and have gone toward financing the trading losses ( exceeding £100m) and providing necessary working capital. RIFC  have survived only on the basis primarily of directors’ loans (largely converted to equity) and to a lesser extent by supporters buying shares to prop up the company.  A sustainable player trading model has been needed for a long time, and only time will tell if the management and directors possess the skills to succeed.

Loans and cash. Loans at the year-end gross were £17.9m (adjusted for notional interest), which compares with £13.4m last year. Investor loans were £12.1m, bank loans (a new facility) of £1.4m, and the balance is from Premier Division Support Fund. As a  positive,  cash balances were £13.1m against £3.2m last year.

In conclusion, although net cash balances are still negative, this is a substantial improvement from last year.

Cash flow.

Cash flow still remains a big challenge to RIFC. The closing balance of £13.1m is almost £10m better than last year. However, RIFC spent £7m on capital expenditure and  £10m on player purchases less sales. The financing came from share issues of £4m and loan receipts of £9m, together with positive cash flows from operations. 

 

Summary

Operating performances were very strong in the year, aided by player trading, the ending of restrictions on covid and European success.

RIFC has made substantial commitments on capital expenditure and player purchases and will post a large profit on player trading in the 2022/23 year.

Liquidity and a weak balance sheet are still big challenges going forward. A sustained successful player trading model coupled with European success will rebuild and strengthen finances and the balance sheet. Should this not occur, the £100m spent so far by directors and supporters in propping up the finances may result in this being needed again, although European financial fair play rules may well add to the constraint.

 

So, there it is.

I hope that you enjoyed that from my egg-chasing English buddy.

That’s his last offering here.

When he told me tonight how long he had worked on the 64-page document, I  shifted uneasily in my chair.

Especially as I’m aware of his current workload.

Dear reader, compare and contrast the foregoing with what the Daily Radar considered to be adequate reporting on the story.

They really should stick to fantasising about billionaires.