Club News Back

Date: Wed 27 Dec 2006. Richard Murray, chairman

Annual report 2006

On behalf of the board of Charlton Athletic plc, I present the annual report for the year ending June 30th, 2006.

The 2005/06 season ended with the football club retaining its FA Premier League status by finishing in 13th place, but will undoubtedly be remembered as Alan Curbishley's 15th and final season in charge of the team.

Alan made a unique contribution to this football club by masterminding one of the most successful periods in the club's history, during which time the team twice gained promotion to the Premier League.

Promotion in May 2000 was achieved after becoming Football League champions and then followed six consecutive seasons of top-flight football. To commemorate these remarkable achievements a bust of Alan has been commissioned that will be placed on display at The Valley alongside another legendary Charlton manager, Jimmy Seed.

Once again, the club's Premiership status was never seriously under threat during the season, although as in previous years a strong start was not sustained. The team did, however, enjoy some success in the FA Cup competition, eventually being eliminated by Middlesbrough at the quarter-final stage.

I reported in the interim statement that the main football club sponsor, all:sports, was placed in administration in September 2005 and our assessment that the company would not receive the outstanding fees due for the remainder of the year has proved to be unfortunately accurate.

However, a new long-term agreement with a major Spanish property company, Llanera, was completed in December and in record time, a credit to our management team.

Financial report

This financial year recorded a rise in turnover to £41.9m with increased matchday income and conference and banqueting revenues offsetting a reduction in broadcast income. Overheads have been significantly increased to £47m through increased salary costs and other football-related costs, resulting in operating losses of £4.6m and an overall net loss for the period of £8.8m.

At the beginning of the year, the company issued ordinary shares raising £5.5m to support this increase in overheads and to fund payments for player purchases made in the period of £1.9m. The company received funds from the sale of players of £2.3m.

In October 2005 the company repaid commercial mortgages taken out to develop the west and north stands by drawing down a new loan repayable over eight years, consolidating its long-term bank debt and reducing its annual expenditure. This also funded the capital programme for the year costing £623,000. In this we thank Lombard Corporate Finance for its continuing support.

	Year to June 2006	Year to June 2005
Turnover	£41.9m	£40.7m
Operating overheads	(£40.7m)	(£38.8m)
Operating (loss)/profit before amortisation and player trading	(£4.6m)	£4.7m
Amortisation of player costs	(£4.8m)	(£4.1m)
Operating (loss)/profit	(£8.0m)	£1.7m
Net interest	(£0.1m)	(£0.3m)
Profit on player disposals	£1.4m	£1.1m
Net (loss)/profit	(£8.1m)	£1.4m
Proceeds from issue of ordinary shares	£5.5m	£0.0m
Shareholders funds	£29.2m	£31.8m

This financial year was the second in the current three-year cycle of agreements for the sale of the FA Premier League broadcast rights, the most significant proportion of these revenues relating to the BSkyB contracts for the domestic rights. This element is distributed to member clubs through the Premier League's established formula that provides for 50 per cent of the income to be related to the number of live broadcast matches featuring the football club during the season and the finishing position in the league.

Broadcast income earned during the year totalled £22.4m, accounting for 53 per cent of total turnover for the year (2005: 58 per cent) and a reduction of £900,000 from the previous year.

The football team was featured in 12 live matches, an increase of one match from the previous year, but a finishing position of 13th was two places lower than last season resulting in this overall reduction in income.

The average attendance at The Valley fell slightly to 26,171, but this still results in 97 per cent of the available capacity of the stadium being filled on matchdays.

We have continued our investment in the Valley Express coach service that provides subsidised travel on matchdays as this is undoubtedly an important factor in maintaining these levels of support.

I reported in the interim statement that our season-ticket numbers had fallen by nearly 10 per cent this season to 18,700 due to a number of factors, the more important we feel being the varied kick-off times spread across weekends during the season and the more negative approach to matches taken by clubs because of the fear of relegation and its serious financial impact.

It is pleasing that overall our combined ticket income from season tickets and matchday tickets rose nearly five per cent for Premiership matches.

Our progress in the two domestic cups brought revenues of more than £2m from stadium income and television fees, although it should be noted that there are significant costs associated with these cup runs, including the costs of subsidising travel for supporters to the quarter-final FA Cup match at the Riverside Stadium against Middlesbrough.

Sponsorship revenues were affected by the premature termination of the all:sports agreement with the loss of nearly the entire year's income.

However, the second half of the financial year saw the benefits of the new Llanera club sponsorship and generally the company increased the number of its sponsorship opportunities and so overall revenues remained steady at £4m.

Retail sales rely on a strong Christmas period and clearly the inability to sell any goods branded with the all:sports logo during that period reduced sales. The company had to make significant provisions against its branded stocks and so retail operations were not in line with expectations through events outside of our control.

Our conference and banqueting business at The Valley has seen a number of years of steady growth but this year recorded a tremendous performance with revenues up 43 per cent to £1.5m.

These included further income from the Transport for London public inquiry into the proposed Thames Gateway Bridge and the first concert held at The Valley in recent times when Sir Elton John entertained a crowded stadium in June 2006. The site has a number of licences for non-football events and the company will now explore the opportunities available to it to commercially exploit these.

Notably, during the period donations in excess of £500,000 were received for the further development of the FA youth academy programmes, predominantly from the supporters' Valley Gold lottery and from Sir Maurice Hatter, the club's honorary life president.

The board took a deliberate decision to substantially increase the level of investment in the playing squad for the 2005/06 season and this is reflected in the increased costs incurred during this period.

The players brought in for the season are detailed later in this statement, but the financial effect of the increase in squad numbers is that the company's wages and salary costs increased by 18 per cent to £30.3m, representing 72 per cent of turnover (2005: 63 per cent).

Businesses like ours that have high personnel costs also pay significant amounts of employer's national insurance charges, and this company has paid £3.5m during the period (representing eight per cent of turnover).

Overall the other overheads for the football sections rose by £3m. Included in this increase are fees and costs associated with loan players and former players and employees.

Expenditure in our medical department rose by 15 per cent and the company made further investment in our ProZone player-assessment system. Clearly, the health and fitness of our current players is vital to the operations of the football club.

Meanwhile, additional investment with our overseas partners incurred in this period will facilitate wider access to foreign players capable of playing in the Premiership.

Other operating expenses include the cost of maintaining our sites at The Valley, Bexleyheath and New Eltham, and our indoor sports facility at Greenwich University.

Significant costs were incurred during our planning processes for New Eltham and The Valley that I refer to later in this statement, the most significant being for the east stand developments that have not been capitalised as no decision has been taken to commence the project.

The significant costs incurred due to the all:sports default relate to the retail stock write-off, changes to the electronic advertising systems and the stadium advertising, new branding throughout the business, and professional costs.

The capital programme for the year was focused on the purchase and implementation of a new integrated business system incorporating ticketing, CRM, accounting and retail elements. In addition, a new commercial centre was developed in the west stand and essential safety works were completed at all our sites. The total expenditure on our capital programme was £623,000.

In July 2005 the company completed its placing of 9,208,333 ordinary shares to a number of directors and other shareholders associated with the board, raising funds of £5.5m. These funds were used primarily to support the investment in the first-team squad. Derek Chappell, who had participated in this placing, accepted an invitation to join the board of this company at this time.

Cancellation of admission to AIM

In March 1997 the company's shares were admitted to the Alternative Investment Market of the London Stock Exchange, raising £6m from directors, supporters and institutional investors to develop the west stand and to provide working capital for the business.

Subsequently, your board and other shareholders have invested a further £22m through the issue of ordinary shares that enabled the company to develop further The Valley stadium and other infrastructure assets.

This investment had diluted institutional holdings to approximately four per cent of the issued share capital and your board believed that there was little prospect of raising material funds through AIM and considered that the ongoing cost and administrative burden of maintaining an AIM quotation outweighed the benefits gained from it.

At an Extraordinary General Meeting of the company held on September 6th, 2006 at The Valley shareholders passed a resolution to cancel the admission of trading of the company's ordinary shares to AIM, and this duly took place on September 21st, 2006.

Your board has sent a circular to all shareholders giving details of the trading service available to buy and sell shares in the company after this cancellation, this service being operated on behalf of the company by stockbrokers, JP Jenkins.

Commercial partners

The company is pleased to welcome Llanera as club sponsor for the period to June 2010 in an agreement that provides us with record sponsorship fees in excess of £6.6m through that period.

During the course of this agreement, we will help to develop the Llanera business in the United Kingdom and especially in the South East.

Llanera is developing a number of new lifestyle resorts in eastern Spain, the first being at Caravaca de La Cruz in the Murcia region and had identified England as a key market for these types of developments.

There is a strong synergy between the two businesses through a shared belief in the importance of the link with the communities in which we both operate.

Llanera has chosen Kent as its base with the establishment of its headquarters at Maidstone. Subsequently, Llanera has demonstrated its commitment to developing its commercial activities by becoming the shirt sponsors of London Irish rugby club.

We believe that our agreement offers strong benefits to both parties, particularly in the context of the significant regeneration of the South East region that is taking place over the next few years. I will thank Emilio Teresa and Fernando Gallego from Llanera and Bruce Bell from Blue Sun World for their combined support and enthusiasm in concluding this sponsorship agreement with us in such a short time frame and sharing our vision for the future.

Negotiations with our kit supplier, Joma, also concluded in December 2006 with the announcement of an extension to its sponsorship, also now until June 2010. With two of our key sponsorships now extended we look forward to a period during which we can develop these relationships and deliver long-term commercial benefits to all parties.

I am pleased to report that we concluded a six-year agreement with MBNA Group during this financial period to provide an affinity credit card programme to our supporters and this new relationship is progressing strongly.

T-Mobile is our established mobile phone partner and now interacts with our supporters through the T-Mobile/CAFC information service that sends news via text message to more than 3,500 subscribers.

As always we have a number of longstanding sponsors whose support continues to be invaluable to the company's commercial development, and while there are many, I will thank in particular Axis Europe plc, Courage, Gallions Housing Association, Kent Messenger, Ladbrokes, London Leisure College, OMM Sport and Paddy Power.

I am pleased that our relationship with Greenwich Council remains strong, demonstrated by the support they have provided in granting us two major planning consents during this year. These relate to the east-stand stadium development and the further development of the Sparrows Lane training complex.

Additionally, they have renewed their sponsorship agreement for a further two years. Our partnerships with Greenwich Community College and Greenwich Leisure Limited provide important benefits not only for the parties involved but for the wider community.

Football report

Your board decided to invest significantly in the development of the first-team squad and during the 2005 summer seven new senior players were brought in either on permanent contracts or on loan.

It was hoped that the increase in the number of players in the first-team squad and the consequent rise in player costs would allow the club to challenge for Europe and domestic honours.

Darren Ambrose and Darren Bent were purchased from Newcastle United and Ipswich Town respectively at a cost of £3.8m, although the latter was recorded in the previous accounting period. Both players featured in Alan Curbishley's first team with Darren Bent making his mark on the Premiership with 18 goals and a total of 22 in all competitions. He has also established himself as a regular member of the England senior squad.

Before the season, contracts were given to Jay Bothroyd and Thomas Myhre, the latter following a pre-season finger injury to Dean Kiely.

We also invested in loan players during the summer with Alexei Smertin, Gonzalo Sorondo and Jonathan Spector joining the club for the season from Chelsea, Intermazionale and Manchester United respectively. Smertin and Spector became established members of the first-team squad, but unfortunately injury to Sorondo made him unavailable for selection for most of the season and he played only eight senior matches. Finally, Chris Powell rejoined the club from West Ham to give the squad further defensive options.

At this time a number of players left the club, most notably Paul Konchesky to West Ham United. He had requested a transfer as he was not able to secure the left-back position at our club on a permanent basis. He was a product of our youth system and gained an England cap whilst with our club.

In the January 2006 transfer window we further strengthened the attacking potential within the squad with the signing of Marcus Bent from Everton at a cost of £2.3m and he scored on his debut against Chelsea to earn a point at Stamford Bridge.

Also during the transfer window, Dean Kiely was granted a transfer to Portsmouth as, having recovered from injury, he was unable to regain the first-team position from Thomas Myhre. Dean played 248 matches for the club following his transfer from Bury in 1999 and also had become involved with others in supporting the Demelza Care for Children hospice. He was a firm favourite with supporters and we all wish him well for the future.

Danny Murphy left to join Tottenham Hotspur and Alexei Smertin was released to return to Russia in circumstances that were disappointing with respect to the timing of their departures.

The team made a very positive start to the season with some exceptional performances away from The Valley. By October the club had reached second place in the Premiership before a run of poor results brought it back into a mid-table position. Eventually the team finished in 13th place with 47 points.

In May 2006 the final home game against Blackburn Rovers saw Alan Curbishley's last match at The Valley after 15 seasons in charge. The contribution made by Alan to the progress of this football club since the return to The Valley in 1992 is immense and a record of great achievement at a time when the whole club was being rebuilt.

The drama of the First Division play-ff Final at Wembley in May 1998 is ingrained in the memory of both Charlton Athletic and football fans alike, with its 4-4 scoreline after extra-time and then a 7-6 penalty shoot-out success. Subsequent relegation on the last day of the next season was followed by a successful campaign in Division One that led to the Football League championship in May 2000. Subsequent seasons have seen consolidation in the Premiership and some very memorable matches.

The management of Alan's final match at The Valley and, in particular, the spontaneous ovation given to him shortly before the end of that match, was a unique moment for every one involved with Charlton Athletic and one which he thoroughly deserved.

Mervyn Day and Keith Peacock left the club at the same time as Alan and I will also record our sincere appreciation for the contribution made by them while at the club. Mervyn was first-team coach both during our Football League championship success and our subsequent seasons in the Premiership and was instrumental in the success that was achieved. Keith Peacock has enjoyed a remarkable period at the club, both as a player and as a coach, and in his role as assistant manager. On behalf of us all at Charlton I wish them well in their future careers.

The team performed well in the early rounds of the Carling Cup with a victory at The Valley against Hartlepool United. This was followed by a 1-1 draw at Stamford Bridge against Chelsea in the next round and a dramatic penalty shoot-out victory.

Charlton became the first team to win at Stamford Bridge in the 2005/06 season and to show the measure of this success this was the only occasion that Chelsea were to lose at home in domestic competition during the entire season. The team was then eliminated 3-2 in the fourth round by Blackburn Rovers in front of The Valley crowd.

The FA Cup was a longer journey that eventually ended in the North East at Middlesbrough in a replay of a quarter-final match. In the third round the team won at Hillsborough against Sheffield Wednesday, followed by victories at The Valley against Leyton Orient and then Brentford in the following rounds.

The sixth-round tie was played firstly at The Valley in a 0-0 draw and then at the Riverside Stadium in the replay. Having reached the quarter-final stage for the first time since season 1999/2000 the team lost 4-2 in front of a crowd containing more than 5,500 Charlton Athletic supporters. Your board took the decision to organise free and subsidised transport for all supporters making the midweek journey to Teesside by air, road and rail, a task that became known as 'Operation Riverside'.

At the end of May 2006, the club appointed Iain Dowie as head coach in a new football management structure in which Les Reed returned to the club as assistant head coach and Mark Robson was elevated from youth-team coach development coach.

With the new management structure in place for season 2006/07, the board decided to make considerable funds available to ensure that the team would be competitive in the Premiership.

In all nearly £12m was committed in acquiring new players for the coming campaign and your board decided to retain the high level of squad wages from the previous season.

This process saw seven players move permanently to the club, Souleymane Diawara from Sochaux in France, Amady Faye from Newcastle United, Cory Gibbs on a Bosman transfer, Andy Reid from Tottenham Hotspur, and Djimi Traore from Liverpool. All are established international players for their countries and were brought in to provide a more experienced first-team squad.

In addition, Gonzalo Sorondo and Jimmy-Floyd Hasselbaink signed contracts for the season, with Omar Pouso brought in on loan from Penarol in Uruguay and Scott Carson from Liverpool. Mark Staunton and Simon Walton were identified as promising young players for the future and they joined from Celtic and Leeds United.

With these players coming into the squad, the club released Shaun Bartlett, Jay Bothroyd, Jason Euell, Jonatan Johansson, Francis Jeffers, Chris Perry and Chris Powell and we thank them for their efforts during their time with us.

The investment in the playing squad during the summer and the changes to the management team meant we entered the 2006/07 season with optimism of retaining our Premiership status and pressing for a European place.. The opening fixtures were more difficult than in recent seasons but overall we have made a disappointing start to this new season.

Overseas partners

The club has established a number of overseas collaboration agreements that are designed to both widen our access to overseas players and young talent and to create greater international awareness of Charlton Athletic football club and its community operations. This programme was started in 2004 and now has links to many countries worldwide.

Our current partners include:

Asec Mimosa, of the Ivory Coast
Germinal Beerschot Antwerpen, of Belgium
MyPa 47, of Finland
New Zealand Knights
Valencia, of Spain

Our community football programmes in Spain continue to develop and the sponsorship agreement with Llanera will allow them to expand still further over the next few years.

In addition to these activities, Charlton Athletic has continued its support for a series of British Airways and Metropolitan Police coaching and community initiatives in South African townships.

Capital projects

At the beginning of the year we signed a contract with Cambridge Online, an accredited Microsoft distributor, for a new integrated business system that has been specifically designed for football clubs and is widely used by clubs in Germany's Bundesliga.

This incorporates ticketing, internet ticketing, conference and banqueting, a customer relationship management database, accounting and retail systems. This replaced a number of individual software packages that the company previously used to manage its operations.

This project had a number of phases throughout the year during which the majority of the applications were implemented. However, due to the complex and diverse nature of a football business, the project was designed to fit in around the critical elements of the season's activities. It is anticipated that full implementation will be achieved by June 2007.

The new system offers significant commercial benefits, most particularly in the management of the ticket sales process, the opportunity to buy tickets on a real-time basis via the internet and the full integration of data processing systems throughout the business.

We are developing the concept of a 'one-stop shop' through our commercial centre that enables our supporters and customers to purchase a range of club goods and services through one central point. Significantly, we will soon also be in a position to sell match tickets through our retail outlets.

The new database management system offers many opportunities to develop our commercial activities and central to this is the introduction of a new Red Card membership scheme which will enable the company to engage with individuals interested in supporting the club both here and overseas, most particularly those who do not regularly attend matches at The Valley. I am pleased to report that there are currently approximately 50,000 Red Card members and with future marketing campaigns we expect to increase this number.

We are continuing with the redevelopment of our training ground complex in New Eltham in conjunction with our charitable trust.

A new Astroturf facility has now been constructed by the trust on land leased from the company and this has a revolutionary new Mondo playing surface that has many of the characteristics of a traditional grass pitch. This project was funded through the Barclays Bank Spaces for Sport programme and The Football Foundation and was officially opened in July 2006. It is primarily to be used as a community facility and uniquely received the endorsement of Tony Blair, following a question posed by the MP for Eltham, Clive Efford, during Prime Minister's Question Time!

Your board places considerable importance on having planning consents in place to expand the capacity within the stadium in future as it is our key goal to significantly increase the football team's support in the coming years.

We believe that the growth of recent years can be sustained and so we have continued to press the case for further developments at The Valley to be endorsed by Greenwich Council.

The detailed planning consents for both the east-stand development and a residential development to its rear have recently been granted by the council, offering the opportunity to expand the future capacity of The Valley to approximately 31,000. Of course, we will only proceed with any development when there is the commercial justification to do so.

In parallel to the planning permissions for the east stand, we continue to have a dialogue with Greenwich Council regarding the master plan for development of the whole site, in particular the proposals for significant redevelopment of the south stand and the surrounding area.

I feel that it is important to gain Greenwich Council's support for our overall long-term objective, to complete the construction of a major stadium with a capacity of 40,000 and the development of commercial and community facilities to serve the local area.

Industry prospects

The FA Premier League has completed the negotiation of the domestic broadcasting agreements for three seasons from 2007/08 and is in the process of concluding the tender process for the international broadcasting agreements for the same period.

We are advised that the increased revenue share will be significant as the overall rise in revenues will exceed 60 per cent in total, this again demonstrating the popularity of the English Premier League.

It is essential that this additional revenue is used wisely for the long-term development of the infrastructure and commercial operations at Premier League clubs and does not merely facilitate further player wage inflation and an increase in transfer fees.

I shall continue to press the case for a more equitable distribution of broadcasting revenues through our involvement in the Premier League Attendance Working Group, on which we are represented by Peter Varney.

This group discusses those issues that affect the level of attendances at Premier League matches including the competitive nature of the league. I would anticipate that this group will in due course bring forward proposals to bring about a fairer distribution of revenues.

The Premier League board and its commercial team deserve great credit for having completed a tender process for the United Kingdom rights that was acceptable to the European Union and still gained such substantial increases in revenues.

The image of football continues to be a matter of concern and all those involved in the game at all levels have a responsibility to promote it in the most positive light possible. The media spotlight on the Premier League is increasing and unfortunately the focus is on negative stories rather than positive ones.

The Premier League will shortly receive a report from Lord Stevens and his so-called 'Bungs Inquiry'. If any evidence of impropriety is found, it is essential that those involved are dealt with severely in order to protect the integrity of the game.

Conclusion

The regeneration of the Greenwich Peninsular, the huge development planned for the South East region and the associated road and rail infrastructure improvements, together with the opportunities which arise from the award of the 2012 Olympic Games to London, are all factors which provide opportunities to expand the club.

We now have in place the necessary planning consents to complete the next stage of the development of The Valley and we have proved through the successful expansion of the Valley Express service that we can increase our core support.

Before we do this, however, it is important that we are providing an entertaining and successful team on the pitch and that the number of people wishing to support the club exceeds those able to attend.

The club was honoured to be one of the finalists of the 2005 National Business Awards for its work in corporate social responsibility, demonstrating that there is a firm commitment at all levels of the company to its social responsibility programmes.

I would like to take this opportunity to thank all my fellow directors for their support throughout the year. I must particularly thank Nigel Capelin, Martin Simons, David Sumners, Peter Varney and Robert Whitehand who, with me, make up the executive committee that oversees the management of the business.

We are rightly protective of the excellent image we enjoy both in the media and beyond as a community club with a board of directors containing genuine and committed Charlton supporters.

Our role in the community at large is something we are immensely proud of and through the charitable trust we aim to expand that involvement still further.

It is not only right that a football club should play a prominent role in the community from which it derives its support but it has a social responsibility to do so. It is also the mechanism by which we will continue to grow the football club.