RNS Number:6480S
Heart Of Midlothian PLC
28 November 2003
HEART OF MIDLOTHIAN plc
ANNOUNCEMENT OF PRELIMINARY RESULTS
FOR THE YEAR ENDED 31 JULY 2003
CHAIRMAN'S STATEMENT
In presenting our annual report and financial statements I am conscious that the
year in question ending in July seems a long time ago and that events in the
world of football move on at a fast pace.
Our last financial year and football season can be best summarised as continued
progress on all fronts. To finish third in the Bank of Scotland Premier League
is our best finish for a few seasons and resulted in the Club qualifying for a
UEFA Cup place. In a season when only the top three League clubs qualified for
European competition this is a significant achievement.
Whilst we have reported a loss on ordinary activities before interest of
#288,000, this is again a progression on the previous year and the 2002 loss of
#1,990,000. Football economics continue to be difficult and in particular media
revenues have been disappointing.
Structurally the Club has made progress in the construction of our Youth Academy
at Heriot-Watt University. Progress was, however, interrupted over the summer
with the insolvency of the contractor and the appointment of a replacement
company. Work has now recommenced and the Academy is scheduled to be complete in
the spring of 2004.
In terms of our search for a stadium to replace Tynecastle, a number of options
are under consideration and the Chief Executive will report more fully elsewhere
in his statement.
As Chairman, I believe it is important on behalf of all shareholders and
supporters to recognise the efforts of all coaching staff, players, management
and administration staff. In difficult times and with a reduction in staff
numbers, I am pleased that management and administration staff performed to a
high standard. Similarly Craig Levein, with a reduced budget, has achieved
progress in building not only a competitive first team squad but also a stronger
youth development structure.
The Board is committed to our strategy of simultaneously consolidating our
leading position in Scottish Football, whilst restoring the financial health of
the Club. Within this process we continue to consult with everyone concerned
with Heart of Midlothian Football Club.
Douglas A Smith
Chairman
28 November 2003
CHIEF EXECUTIVE'S STATEMENT
Financial results
During the year ended 31 July 2003, the Company incurred a loss on ordinary
activities before interest of #288,000 or 2.3p loss per share (2002 - loss of
#1,990,000 or 15.8p loss per share).
The year reported saw a continued reduction in revenue and further cost cutting
throughout the Company's operations. On the playing front we are operating with
a smaller First Team squad and in management and administration, further
redundancies took place across several departments.
The results reflect a continuation of the decline in broadcasting income,
although our commercial income saw growth and our gate income, despite lower
season ticket numbers, remained comparatively stable. Although the Club achieved
a semi-final place in the CIS League Cup we exited from the Tennent's Scottish
Cup on our first appearance in the third round.
The results include the sale of the transfer registration of Antti Niemi to
Southampton FC for a consideration of #2 million and a further consideration of
#180,000 in respect of the transfer of Gary Naysmith.
In the prior year the Board announced its intention to complete a hive down of
the trade and certain of the assets and liabilities of the Company to Heart of
Midlothian Football Club Limited, a subsidiary undertaking. This was not
completed due to a combination of cost implications and operational factors that
meant the Board believed it was no longer appropriate or of value to the future
strategy of the Company.
Dividend
The Board is not recommending a dividend for the year (2002 - #Nil).
Commercial strategy
As stated in last year's Report, our strategy is dominated by the need to take
the Company from a loss making situation into profit. In the year ended 31 July
2003, we have made significant progress in reducing our pre-tax losses from #2.7
million to #1.1 million.
As part of the strategy to move from loss to profit we have had to consider the
commercial viability of our stadium. Despite significant investment in the late
1990's to comply with the Lord Justice Taylor Report, we now have a stadium that
cannot meet the needs of the Company going forward. The UEFA Licensing and
Competition Rules in relation to pitch size are operational from Season 2004.
The Scottish Football Association has recently stated that we cannot rely on it
achieving derogation from the Regulations.
Financial analysis of our business, particularly in relation to commercial and
revenue generating facilities, highlights that, as currently configured our
stadium in Gorgie cannot match the income generation required for a Club such as
Hearts. The land values and the situation with regard to recent legislation is
such that it would be impossible from a planning perspective and prohibitive
from a cost perspective to replace our existing McLeod Street Stand. It would
not in any event provide a solution to the deficiency in the playing arena
dimensions.
As has been widely stated by the Company, we are examining options in respect of
a replacement for Tynecastle Stadium. This will allow us to realise the value of
land at Tynecastle assuming we obtain appropriate planning permission for
development and give the added benefit of substantial debt reduction that will
assist the Company in its strategy through lower ongoing financing charges. At
this stage the outcome of this review of options is uncertain and the
implications of this uncertainty are detailed further in Note 2 to the
preliminary announcement.
Along with fellow members of the Board I am committed to a detailed analysis of
the options and full communication to all shareholders and supporters to ensure
that all concerned with Heart of Midlothian are involved in the decision making
process. The decision on stadium relocation will be the most important we can
take, as it is our most valuable asset and we must ensure that we get it right.
We expect to be in a position to report considerable progress by the end of the
first quarter of 2004.
CHIEF EXECUTIVE'S STATEMENT - CONTINUED
The work on the construction of our Youth Academy in conjunction with
Heriot-Watt University is ongoing and is now scheduled for completion in the
spring of 2004. In May 2003, the construction company, Melville Dundas, went
into receivership and this has caused a delay of some months on the project. The
delay has not, however, exposed the Company to any further financial cost and
work is now well under way with the appointment of HBG Construction to complete
the project.
Business activities
In reviewing our business and commercial sponsorship activities, our involvement
with Reebok as kit sponsor and all:sports as jersey sponsor are showing in an
upturn in sales. Our relationships with both companies have been very positive
and they have assisted our operations with their own commercial expertise and
advice.
As we look forward there are indications that we could see improved broadcasting
revenues from Season 2004 as the SPL seeks to renew contracts from this period
on.
Our third place final League position helped us to achieve gate revenue
comparable with the previous year. Whilst we had fewer season tickets we had the
benefit of increased match day attendance. In the current season we have seen
improved season ticket numbers and attendances are holding up well compared to
previous seasons.
With our qualification for the UEFA Cup the Club achieved a second round
position in this tournament. This has improved our revenues in the current
season as we saw high levels of interest from our supporters to attend the
matches and welcome commercial interest in terms of media coverage, sponsorship
and corporate hospitality. The benefits of European participation are an
important element in achieving the commercial strategy. As a country, Scotland's
co-efficient rankings are close to achieving a further two UEFA Cup places in
the years ahead and we can play a significant part in this process. It will be
important for Hearts to be involved in European competition, particularly with
the prospect of a new style of UEFA Cup from Season 2004/05. This revised
competition format from Round 2 offers a group stage and will see improved
income generation from this format.
With the imminent completion of our Youth Academy our corporate objective is to
find a suitable long-term stadium solution. The realisation of these two goals
will see Hearts well placed to enjoy improved revenue and the delivery of our
commercial strategy.
Post balance sheet event
The SMG convertible loan stock agreed final conversion date of 11 October 2003
was extended by mutual agreement until 24 November 2003 to allow discussions to
take place between the Board of Heart of Midlothian plc and SMG plc. The agreed
outcome of those discussions between the parties was that conversion would not
take place. It has also been agreed that the accrued interest in relation to the
loan stock, currently #767,000, will be deferred for payment until the earlier
of 31 July 2004 or the realisation of the value of land at Tynecastle.
Chris Robinson
Chief Executive
28 November 2003
HEAD COACH'S STATEMENT
In reviewing Season 2002/03 my overall view is one of satisfaction at the level
of progress made.
The changes made last summer, which saw the departure of some good players who
had been at Tynecastle for a few seasons, and the arrival of some new faces who
were largely unknown to Hearts and Scottish Football supporters, were viewed in
some quarters with scepticism.
As the season unfolded, however, the sceptics were won over as the squad made
progress and we played some entertaining and exciting football. We made progress
to the semi-final of the CIS League Cup, but lost with a disappointing
performance against Rangers at Hampden. In the Tennent's Scottish Cup we
returned from the mid-season break in Portugal and lost to a spirited
performance from Falkirk in the third round.
Apart from that Cup defeat we acquitted ourselves well over the season. In the
SPL we finished strongly to achieve an automatic UEFA Cup slot from a third
place finish.
Whilst the financial constraints in football at present are obvious and it is no
different at Hearts, I am pleased that the Board have continued to commit to an
increased investment in our youth development. The quality of youngsters at all
levels and age groups is exceptional, and everyone is looking forward to
completion of our Youth Academy. This facility will be important if we are to
develop as a Club and compete in the future in a new financial climate.
Competing in the UEFA Cup has been a new challenge for myself and the coaching
staff at Hearts and we relished the opportunity to gain experience. Regular
exposure for Hearts to teams from Europe is required for the current squad to
develop and improve.
As First Team Coach I receive a great deal of support from all those working at
the Club and this is much appreciated. In particular I would like to thank the
players for their efforts last season and the backroom staff, my Assistant
Coaches Peter Houston and John McGlynn.
Craig Levein
Head Coach
28 November 2003
HEART OF MIDLOTHIAN PLC
PROFIT AND LOSS ACCOUNT
Year ended 31 July 2003
Operations
excluding
player Player 2003
Note trading trading Total 2002
#'000 #'000 #'000 #'000
TURNOVER 5,991 - 5,991 6,072
Staff costs (5,116) - (5,116) (5,688)
Depreciation and other (325) (260) (585) (1,017)
amounts written off
tangible and intangible
fixed assets, net of
grant release
Other operating (2,739) - (2,739) (2,849)
charges
(8,180) (260) (8,440) (9,554)
OPERATING LOSS (2,189) (260) (2,449) (3,482)
Gain on sale of players' - 2,161 2,161 1,492
registrations
(LOSS)/PROFIT ON (2,189) 1,901 (288) (1,990)
ORDINARY ACTIVITIES
BEFORE INTEREST
Interest payable and (807) (705)
similar charges
LOSS ON ORDINARY
ACTIVITIES
BEFORE TAXATION (1,095) (2,695)
Tax on loss on ordinary - -
activities
RETAINED LOSS FOR THE
FINANCIAL
YEAR (1,095) (2,695)
Basic and diluted loss 3 (8.7)p (21.3)p
per ordinary share
All of the activities of the Company are classified as continuing operations.
HEART OF MIDLOTHIAN PLC
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Year ended 31 July 2003
2003 2002
#'000 #'000
Loss for the financial year (1,095) (2,695)
Surplus arising on revaluation of fixed assets - 2,658
Impairment loss - (500)
Total recognised gains and losses in the year (1,095) (537)
HEART OF MIDLOTHIAN PLC
BALANCE SHEET
At 31 July 2003
2003 2002
#'000 #'000
FIXED ASSETS
Intangible assets 472 723
Tangible assets 14,867 13,692
15,339 14,415
CURRENT ASSETS
Stock 285 183
Debtors
- due within one year 1,614 1,588
- due after one year 1,195 823
3,094 2,594
Other creditors (8,666) (6,722)
Convertible loan stock (767) -
(9,433) (6,722)
NET CURRENT LIABILITIES (6,339) (4,128)
TOTAL ASSETS LESS CURRENT LIABILITIES 9,000 10,287
Other creditors (8,806) (8,446)
Convertible loan stock (4,418) (4,970)
(13,224) (13,416)
NET LIABILITIES (4,224) (3,129)
CAPITAL AND RESERVES
Called up share capital 1,263 1,263
Share premium account 3,119 3,133
Revaluation reserve 3,048 3,122
Profit and loss account - deficit (11,654) (10,647)
EQUITY SHAREHOLDERS' DEFICIT (4,224) (3,129)
HEART OF MIDLOTHIAN PLC
CASH FLOW STATEMENT
Year ended 31 July 2003
2003 2002
#'000 #'000
Net cash outflow from operating activities (2,648) (4,846)
Returns on investments and servicing of finance (592) (489)
Capital expenditure and financial investment 645 1,019
Cash outflow before use of financing (2,595) (4,316)
Financing 2,774 6,790
Increase in cash in the year 179 2,474
RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES
2003 2002
#'000 #'000
Operating loss (2,449) (3,482)
Depreciation 361 293
Amortisation 260 760
Increase in stocks (102) -
Increase in debtors (398) (448)
Decrease in creditors (320) (1,969)
Net cash outflow from operating activities (2,648) (4,846)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2003 2002
#'000 #'000
Increase in cash in the year 179 2,474
Cash outflow from movement in debt and hire purchase (2,774) (6,790)
financing
Change in net debt resulting from cash flows (2,595) (4,316)
New finance lease and hire purchase agreements (29) (19)
Amortisation of finance costs (14) (14)
Interest accrual capitalised into debt (201) (202)
(2,839) (4,551)
Opening net debt (14,789) (10,238)
Closing net debt (17,628) (14,789)
NOTES
1. FINANCIAL INFORMATION
The financial information contained in this preliminary announcement does not
constitute statutory accounts for the years ended 31 July 2003 or 2002, but is
derived from those accounts. The statutory accounts for the year ended 31 July
2002 have been filed with the Registrar of Companies and those for 2003 will be
delivered following the Company's Annual General Meeting. The auditors' reports
on those accounts were unqualified and did not contain any statement under
Section 237(2) or (3) of the Companies Act 1985.
The accounting policies adopted with regard to the preliminary announcement are
consistent with those used in the statutory accounts for the year ended 31 July
2003.
The Directors of Heart of Midlothian plc are responsible for preparing and
issuing this preliminary announcement. Additional copies of this report and
copies of the 2003 Annual Report are available from the registered office of
Heart of Midlothian plc, Tynecastle Stadium, Gorgie Road, Edinburgh, EH11 2NL.
2. GOING CONCERN AND IMPAIRMENT OF TANGIBLE FIXED ASSETS
The Company is currently examining options in respect of the sale of Tynecastle
Stadium, the repayment of related borrowings and relocation to a replacement
stadium by 31 July 2004. Under this strategy, the Company has support from its
lenders in providing the necessary working capital until 31 July 2004. If the
stadium position is not concluded successfully by that time, the Company will be
required to enter into subsequent negotiations with its lenders to provide
sufficient financial resources for the foreseeable future on a continuing basis.
Given the nature of these transactions, there is uncertainty about the final
outcome. However, the directors expect that the stadium position will be
concluded satisfactorily by 31 July 2004, which will provide a financial basis
for the business over the long-term and provide the necessary working capital
for a period of at least 12 months from the date of approval of the financial
statements.
Consequently the directors continue to believe that the going concern basis is
appropriate in the preparation of these financial statements. If adoption of the
going concern basis was inappropriate, adjustments could be required to write
down assets to the assessment of their recoverable value, to reclassify fixed
assets as current assets and to provide for any further liabilities that may
arise.
At 31 July 2003, the directors have assessed the carrying amount of freehold
land and buildings against their recoverable amount based on third party
evidence available to them, and conclude that there is no additional impairment
to be recorded as at 31 July 2003. However, given that the recoverable value of
the freehold land and buildings will depend on satisfactory conclusion of the
sale of the stadium, there remains uncertainty regarding the appropriate net
book value of tangible fixed assets to be shown in the financial statements.
3. LOSS PER SHARE
Basic
The loss per share has been calculated on the basis of the number of ordinary
shares in issue throughout the year ended 31 July 2003 of 12,633,636 (2002 -
12,633,636) and the loss after tax for the year of #1,095,000 (2002 -
#2,695,000).
Diluted
There is no difference between the basic and diluted loss per share as the
potential ordinary shares arising on the conversion of loan stock do not have a
dilutive effect as defined by FRS 14.
5. APPROVAL
The Board of Directors approved this preliminary announcement on 28 November
2003.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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