Company Description
Tottenham Hotspur Plc is engaged in the operation of a professional football club in England together with related commercial activities. The Company has two segments: football and property. In addition, the Company continues to acquire numerous properties with a view to a new stadium development.
The sponsors of the club include Autonomy, Investec, Puma, Thomas Cook Sport, Sporting bet, Carlsberg, TNT, EA Sports and Glyn Hopkin. The Company's Tottenham Tribute Trust is an organisation that reaches out to members of the Spurs family who are fighting hard times either financially, medically or both. The clubs patron includes Chigwell Construction (London) Ltd is a medium sized new build, refurbishment and reactive maintenance company based in Hainault Essex.
Financial Analysis
Appendix 1 (Income Statements) shows that revenue has seen an increase of 6% from the same period of last year at £119.81m (2009: £113.01 m). Revenue represents income receivable from football and related commercial activities, exclusive of VAT.
Revenue comprises: Premier League - Gate receipts 2010: £ 20,123 m, Cup competitions - Gate receipts and prize money 2010: £ 6,726 m, Media and broadcasting 2010: £ 51,519 m, Sponsorship and corporate hospitality 2010: £25,763 m, Merchandising 2010: £ 7,793 m, Other 2010: £ 7,890 m.
Participation in this season's UEFA Champions League contributed increases in revenue across the commercial areas of the Club. Gate receipts and other match day revenue is recognised as the games are played. Prize money in respect of cup competitions is recognised when earned. Sponsorship and similar commercial income is recognised over the duration of the respective contracts.
Profit Margins depends on the type of industry (high volume / low margin), company pricing policy, sales volume and control of costs. The higher margin generally represents good performance. However, the level of gross profit margin varies considerably from year to year: 2006: (-12.7) %, 2007: 28.7%, 2008: 5.9%, 2009: 32.5%, 2010: (- 1.3) %.
The fixed element of broadcasting revenues is recognised over the duration of the football season whilst facility fees received for live coverage or highlights are taken when earned. Merit awards are accounted for only when known at the end of the football season.
This suggests that the company's gross profit is unstable and spontaneous, the dynamics of which is difficult to predict. Deviation of the gross profit margin from year to year varies in times from (-12.7) % to 32.5%.
Operating profit was over five years (except in 2007) had a negative dynamic: 2006: £ (-9.42) m, 2007: £ 10.88 m, 2008: £ (-4.83) m, 2009: £ (-16.89) m, 2010: £ (-16.66) m. И, разумеется, поэтому, низкие значения показателя profit for financial year: 2006: £ (-1.58) m, 2007: £ 19.16 m, 2008: £ 0.97 m, 2008: £ 23.16 m, 2010: £ (-6.65) m.
Appendix 2 (Profitability Ratios) presents the profitability of the company. The ratios show minus dynamics of the company's profitability. Virtually all indicators of profitability, except in 2007, have negative values.
Appendix 2 shows Return on Equity (ROE) and Return on Capital Employed (ROCE) ratios, which also show a negative trend over the five years (except 2007). The negative dynamics of return on equity and return on capital employed suggests that the company is focused on growth and investing more than it earns.
1. The Club has made solid progress with its investment in the future growth of the Club's facilities - the new Training Centre at Enfield is halfway through construction and on target to be opened in the summer of 2012. Construction work began on the main building of the new Training Centre in September 2010 and its progress can be tracked on the Future Plans section of the Club website.
2. The Club continued to consider all options for the development of a new stadium (Northumberland Development Project) with increased capacity. Planning permission, subject to the completion of a S106, was granted during this period for the Northumberland Development Project.
3. The Club participated in the bid process for tenancy of the Olympic Stadium site post the Olympics. The Club was not successful in being selected as the preferred bidder for the Olympic Stadium and is now reviewing the process along with working constructively with Haringey Council and the Mayor of London to see if it is possible to enhance the feasibility of the current planning permission.
Earnings per share & Dividends
Appendix 5 shows mostly negative dynamics of company’s figures. The company reported EPS in 2006: (-1.53), 2007: 9.92 p., 2008: 0.90 p., 2009: 11.64 p, 2010: (-5.60) p. It should be noted a good dynamics of EPS in the period 2007 - 2009 period, which shows the profit earned by buying one share will cover the cost of its acquisition. The company’s shares can be good for the period 2007 – 2009 for short-term speculations on the stock market.
Finance costs of borrowings are recognised in the income statement using the effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash flows through the expected life of the borrowing.
According to appendix 4, Interest Cover Ratio may indicate a certain empowerment of debt financing in 2007: 6.40. Low Interest Cover figure could reduce financial flexibility as it was in 2006: (-3.23), 2008: (-1.94), 2009: (-1.58), 2010: (-2.45). It makes possible to increase the return on equity by increasing this ratio.
Gearing ratio is one where a high percentage is not good. The results of gearing ratio is difficult to quantify and varies from industry to industry. So the gearing ratio is for 2006: 1.8, for 2007: 1.37, 2008:1.96, 2009: 2.01, 2010: 1.49.
Non-Current Assets
According to Appendix 3, the structure of the balance for all five years can be traced the growth of non-current assets from 22% to 40% in 2010. It should be also noted an increase of intangible assets from 37% in 2006 to 43% in 2010.
The costs associated with the acquisition of player and key football management staff registrations are capitalised as intangible fixed assets. Any intangible assets acquired on deferred terms are recorded at the fair value at the date of acquisition. The fair value represents the net present value of the costs of acquiring players and key football management staff registrations. These costs are fully amortised on a straight line basis over their useful economic lives, in equal annual instalments over the period of the respective contracts.
Current Assets
Appendix 3 shows the decreases the proportion of fixed assets in the asset structure. Thus, the fixed assets in 2006 amounted to 41%, while in 2010 only 17%. However, the Group has acquired numerous properties. The Group capitalise costs in relation to an asset when economic benefit from the asset is considered probable. Assets under the course of construction are carried at cost and include professional fees. Depreciation commences when the assets are ready for their intended use.
Land and buildings that are currently held for the Northumberland Development Project are included within Assets Under Construction. In the event that the proposed Northumberland Development does not proceed, some of the £23.7m (30 June 2010: £14.8m) of professional fees capitalised would need to be written off.
Liabilities
Balance structure of passive for the last five saves keeps approximately the same ratio of liabilities and capital: in 2006: 78% of total liabilities to 22% of the capital and in 2010: 76% to 24%. Growth of total assets by 113% over the past five years had no effect on its structure.
Under the terms of certain contracts for the purchase of players' registrations future payments may be due to third parties, dependent on the success of the team and/or individual players. At the balance sheet date the maximum contingent liability which has not been provided for was £25,981,000 (June 2010: £26,188,000).
Under the terms of certain contracts for the sale of players' registrations future receipts may be receivable from third parties, dependent on the success of the team and/or individual players. At the balance sheet date the maximum contingent asset was £14,423,000 (June 2010: £11,311,000), none of which has been recognized.
Share Capital & Equity
Convertible Redeemable Preference Shares ("CRPS") are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt. The difference between the proceeds of issue of the CRPS and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group, is included in equity.
Issue costs were apportioned between the liability and equity components of the CRPS based on their relative carrying amounts at the date of issue. The portion relating to the equity component is charged directly against equity.
The finance expense on the liability component is calculated by applying the prevailing market interest rate for similar non-convertible debt to the liability component of the instrument. The difference between this amount and the interest paid is added to the carrying amount of the liability component.
There are no ordinary share options outstanding at period end (31 December 2009: nil). On 24 December 2010, 56,427 CRPS were converted to ordinary shares, leaving 1,575 CRPS still in issue as at period end (31 December 2009: 57,822).
211,400,399 ordinary shares are in issue at period end (31 December 2009: 123,542,585). On conversion of the CRPS in issue as at 31 December 2010, the fully diluted share capital at period end would be 213,860,549 shares (31 December 2009: 213,862,111 shares).
Financial Leverage
Current assets less current liabilities equal working capital. Every business needs adequate liquid resources to maintain day to day cash flow. Maintaining liquidity is a long as well as a short term requirement. Even profitable business fail due to inadequate liquid resources.
Appendix 6 (Working capital) represents working capital of the company over a five year period, as can be seen, the figures are negative: 2006: £ (-17.72) m, 2007: £ (-12.82) m, 2008: £ (-10.26) m, 2009: £ (-44.96) m, 2010: £ (-63.53) m. So the company is constantly lacking in working capital and particularly in the period 2009 - 2010 years.
Appendix 7 shows financial risk ratios. Quick Ratio is the ratio of the most liquid assets to current liabilities. Quick ratio shows what portion of short-term debt the company can pay off in the near future. The ratios have normal value of the absolute liquidity because they are in the range 0.43-0.87.
Current Ratio is calculated as the ratio of all amounts of current assets to current liabilities of the Group. This ratio is used to determine the company's solvency. Considered normal value ratio is from 1.5 to 2.5, depending on the industry. So the Croup has insufficient ratios: 2006: 0.76, 2007: 0.82, 2008: 0.89, 2009: 0.57, 2010: 0.44. It should be noted the decrease in the coefficient of the period 2008 - 2010 years.
Summary
According to appendix 8, the company's shares have good dynamic on the stock market, although this is not confirmed by the financial results of the Group. The profitability ratios are negative figures as well as negative are working capital for all analyzed five years. In our view, there may be only short-term speculative trading in shares because long-term investments in these stocks to very risky.
References
1. Official site of Morning Star, Inc. Available at:
http://tools.morningstar.co.uk/t92wz0sj7c/stockreport/default.aspx?tab=10&vw=bs&SecurityToken=0P000090SM]3]0]E0WWE$ALL&Id=0P000090SM&ClientFund=0&CurrencyId=GBP
[Accessed 04 April 2011].
2. Official site of Morning Star, Inc. Available at:
http://tools.morningstar.co.uk/t92wz0sj7c/stockreport/default.aspx?tab=10&vw=is&SecurityToken=0P000090SM]3]0]E0WWE$ALL&Id=0P000090SM&ClientFund=0&CurrencyId=GBP
[Accessed 04 April 2011].
