DAVE KING spoke to the Rangers shareholders this morning at the AGM at Ibrox. Here’s what he had to say…
Ladies, gentlemen, fellow shareholders.
Thank you for attending your Company’s AGM in such large numbers. The AGM of any public company is the forum for interested shareholders to review and reflect upon the general business and financial activities of their Company. In the case of The Rangers International Football Club the review is for the financial year ended 30 June 2016.
In addition to dealing with the year under review, I will take the opportunity to briefly touch on events subsequent to the year-end.
There will also be an opportunity for shareholders to ask questions of your Board and the Club’s management prior to the conclusion of these proceedings.
The sole business of our Company is the operation and related activities of The Rangers Football Club Limited, which is a wholly owned subsidiary of the Company. My comments on the Company’s business activities therefore relate directly to the activities of the subsidiary company.
The financial year that we completed at the end of June was a significant one for many reasons. But before I deal with some of the highlights and lowlights from the last year I believe that it is appropriate that I address what I consider to be the most important issue that the Company has faced since regime change – and will continue to face in the coming years. That issue is your Board’s position on the need to strike the right balance between financial prudence and deficit funding. In any public company there is a natural tension between equity holders – which all shareholders are – and debt holders – which only a few of us are. The use of debt by a company can add value to equity holders when the debt level is manageable and is used judiciously to grow the business. However, we all have recent memory of what can happen when the opposite is applied.
This Board is on record as stating that we believe deficit funding to meet anticipated operational shortfalls was and remains necessary – as the Club cannot regain its former status by relying solely on the income it presently generates from its normal operations. But the Board has also committed that the use of debt funding will be prudently managed.
A key consideration however is our need to recognise that the Board has a legal and fiduciary responsibility to all shareholders – many of whom, after Charles Green’s fundraising efforts, are not supporters of our Club but were looking for share price appreciation. In this regard, it is known to the Board that a substantial portion of our shareholders (approximately a third of the shareholding) do not support the Board’s decision to consciously operate the Company with a financial deficit for a number of years while we rebuild capacity on an off the pitch.
This resistance has manifested itself in the inability of the Board to secure the passing of key resolutions at the last AGM that were designed to allow the Company to raise additional permanent equity finance. There has even been resistance to the interest free loans that have been secured in the past – and committed to for the future – by some of our shareholders, including myself and other members of this Board.
Over the last year we have made attempts to convince dissenting shareholders of the merit and business sense of our funding strategy. I am hoping that we may receive greater support at this AGM and will finally be able to put our longer term funding plan into action. I have been advised that Mike Ashley and the so-called Easdale Bloc have again opposed the resolutions tabled at this AGM but I hope that our achievements over the last year may result in some of the others being won over to our side.
In supporting the prudent use of deficit funding, I recognise and understand that our shareholders are alert to the fact that the misuse of deficit funding was the prime reason that the liquidated company found itself caught up in the financial debacle that ultimately led to administration and that liquidation. It is therefore incumbent on this Board to outline to shareholders why we believe we should be trusted to run an operating deficit without a concomitant event risk that could lead to a repeat of the last few years.
With any football club there is an obviously direct relationship between the amount invested in its football resources and its success on the pitch. Success on the pitch, in turn, feeds back to the quantum of resources available to invest back into the Club and so the virtuous cycle would appear to continue.
There are however clear dangers that the Board must guard against when interpreting that link between success and money. The first danger is that this close relationship works over time and not necessarily for every season. Within any given season there is scope for a Leicester City to outperform its far more financially muscled competition. Similarly, in my personal experience, the last 2 decades have seen instances of Celtic winning the title during seasons when Rangers spent more on players. It is therefore essential that the Board does not deviate from its approved financial plan due to supporter and media pressure during one specific season and thereby abandon the financial discipline that is so essential to ensuring football and commercial success over the medium to long term. Given that your Company is only now beginning to recover from the financial recklessness of the past few years, I can assure all shareholders that your Board will not betray the well-founded process of recovery by sacrificing a number of future seasons in an imprudent financial attempt to influence any immediate one – whether now or in the future.
The second danger is the risk that the Board tries to buy success on the pitch by committing financial resources beyond the long-term natural potential of the revenue base of the Club – often in the process borrowing money against future revenue streams. Such an approach is financial recklessness and most certainly does not qualify as prudent temporary deficit funding while the natural potential is being re-established. A classic example of such folly was Leeds United. A few years ago Leeds purchased short-term success by investing heavily in football resources beyond the financial sustainability of the Club. This led to the short-term euphoria of reaching the Champions League semi-finals followed shortly thereafter by the disaster of administration. I therefore offer additional assurance to our shareholders that under the governance of the present Board your Company will not be exposed to any financial overstretching of that kind.
Put simply, your Board recognises that we have to spend more than we earn for an as yet undetermined period, but this operating deficit will be prudently funded and managed. This need arose because, by whatever measure is used, it is clear that for a number of years prior to the year under review the Company consistently underspent – not only on the football side but also in all other areas of the Club. This sad state of affairs was destined to continue if shareholders had not finally lost patience and taken matters into their own hands by removing the previous board in its entirety. The operating deficit that we are now running is a necessary compensation for the under-spending in prior years.
To ensure that the deficit funding does not lead to an event risk the Board has not sought third party funding but has relied on soft loans from investors who clearly have the Club’s interests at heart and have advanced funds – and committed further funds – on an interest free basis and without security or the prospect of near-term repayment. These shareholder investors are all committed to swapping their loans for permanent equity capital when the requisite resolutions are finally passed – hopefully at this meeting.
The final point I wish to make on this issue is to address queries I have had from some shareholders on the composition of the Board that is making such decisions on behalf of your Company. Best practice from a governance perspective is that the board of any public company should have an appropriate number of independent directors. The normal understanding of independence would require such a director to be economically independent of the Company – meaning that he or she would have no reason to support or decline a recommendation other than for reasons that are considered to be in the best interest of the Company. However, when dealing with a sports club I would suggest that true independence would extend to not being a supporter of the Club. Having the right mix of directors should comfort shareholders as it reduces the risk of imprudent expenditure as (in the circumstances I referred to earlier) there is a much greater risk of supporter directors breaking the budget for short term emotional gain than would be expected of truly independent directors who don’t have that emotional tug.
The need to expand our board to incorporate truly independent non-executive directors is something we must strive for and occupies my mind every time I reflect on the question posed by a lady at the last AGM. She wanted to know why there are no women on the board and, as I recollect, promised to ask that question at every AGM until an appointment is made.
Unfortunately, however, we are not yet in a position to invite truly independent directors on to our board. The last year has seen a continuation of Mike Ashley and Sports Direct’s attempts to bully your Company’s directors by suing them in their personal capacity. The present Board comprises supporters who signed up for this challenge and who are not intimidated in the slightest by such bullies. But, we couldn’t expect independent directors to be willing to serve on our Board under such circumstances. I hope to be in a position to have resolved this before the next AGM and certainly, particularly as a family club, we should consider suitable female appointments at that juncture. In the interim, I have assured our concerned shareholders that we will not let our “supporter hats” override the disciplined approach we have adopted to date.
I will now deal with some of the more specific aspects of the year under review, which is the first since regime change occurred in the first half of 2015. In this regard it is important to consider both our achievements and our disappointments.
There are many plusses that I can recount;
- We achieved our main football objective of securing promotion to the Premiership.
- We acquired a number of young players that have developed over the last year to the point that the player pool value reflected in the annual financial statements is lower than the true worth of the squad. That is the opposite of what many other clubs are experiencing.
- The Sports Direct loan of 5m was repaid thereby releasing the Club from the onerous provisions associated with that debt.
- The Academy at Auchenhowie has been reconstituted and is now fit for purpose.
- Much needed infrastructure spending has been undertaken and more investment will follow as we ensure Ibrox remains a world-class stadium. Even in its present condition it is still a stadium we can be proud of and the fact that it is debt free is the envy of many other clubs.
- Ibrox and Auchenhowie are valued in the annual financial statements at their “use” value of 40 million, with their depreciated replacement value being a much higher 75 million. This strongly underpins the consolidated net asset value per share of 52p which is significantly higher than the levels at which the share has traded over the last few years. The reasons for this negative gap are well known to you all.
- The average home league attendance increased by 30% to 44k indicating the return of supporters to the Club following regime change.
- A stable board has been in place throughout the year with individuals who serve for no other reason than their love for the Club. Due to the special challenges our Company has faced, my fellow board members have been required to contribute more time than would be generally expected of a non-executive director and all have willingly done so.
- Fees paid to directors of your Company reduced from 383k in the prior year to zero for the year under review. All members of the current board refuse to take fees in return for their services.
- A strong commercial and marketing function is now in place thanks to the Marketing that is the best marketing company, which bodes well for a return to achieving top value for the Rangers brand.
- More than 20 youth players were involved with their respective age group national team.
- Rangers TV subscribers increased by 20%.
- The overall net loss was 3,3m compared with 7,7m for the previous year.
- Additional interest free loans of 6,3m were received from shareholders to fund the financial shortfall for the year. These loans did not require security of the Company’s assets.
- Investor funding is again required in the present financial year and has already been committed to by shareholders on an interest free and unsecured basis. So far, between myself and my co-investors we have invested 6m by way of shares and 13m of interest free loans taking the total to a little less than 20m. That is a bit more than I had initially expected for this stage of our rebuilding program but was necessary as a result of the Club being in an even weaker position than expected following regime change.
There are also some disappointments;
- We have not yet reached a satisfactory position with the relationships that the Club has historically enjoyed with the various football authorities and other influential individuals such as politicians. Much more has to be done on that front.
- The disputes with Sports Direct continued throughout the year with a significant loss of revenue compounded by substantial legal bills.
- Our long term funding plan was frustrated by the failure to pass key resolutions at last year’s AGM.
- The vast amounts of funds that flow into the English Premier League and the Championship has significantly distorted wages and transfer fees to the point that English clubs that are much smaller than Rangers (in every way) can outspend us in the transfer market.
- The company had to carry a loss of 500k on the value of its investment in Rangers Retail Limited.
- Our sponsorship and advertising rights continued to be locked in at unfavourable rates negotiated by the prior board and we will only see a material improvement in the value of these rights commencing from 2017.
- 286k was paid to the SPFL as a fine that related to the Craig Whyte period of ownership.
- Sports Direct has initiated legal action against the Club and Paul Murray and I, in our personal capacities, over the cancellation of the retail arrangements with Sports Direct.
- The prosecution of the Craig Whyte/Charles Green era seems to have stalled which, while not directly affecting the Company, is a great disappointment for everyone at the Club.
Even though this meeting is aimed at giving shareholders the opportunity to review and discuss the business and financial affairs of the Company, I recognise that many of the shareholders here today were supporters before they became shareholders. It is therefore appropriate for me to comment on some of the team issues. I do this from a high-level perspective as Mark is best qualified to deal with the more detailed questions that you might have.
During the year we regained our place in the Premiership, reached the final of the Scottish Cup and won the Petrofac Training Cup. We expected to win the league and the Petrofac, but the Scottish Cup Final was a welcome bonus – albeit not much of what happened on cup final day was to our satisfaction.
It is important that we build on last season’s success in the coming year. Like every other Rangers supporter, your Board will not be satisfied until we are at the summit of the game in this country.
Rebuilding Rangers on and off the pitch is a medium to long-term project. This is the reality which all of us who cherish and support this wonderful Club must accept and keep in focus. Of course our plans would be enhanced, indeed advanced greatly, if we were not still being hampered and stifled by Sports Direct, who continue working to an agenda designed to help only themselves. Nevertheless, it remains my belief that we can free ourselves from these multiple onerous contracts and once again be able to operate and benefit from a strong retail arm. Unfortunately, because of legal restrictions, we cannot share the detail of the work that goes on behind the scenes- but I can confirm that much is being done to bring this to conclusion.
As long as the Company and the supporters stand united, which is presently the case, we will succeed in securing more mutually beneficial partnerships in the future. And, as long as you have this Board in place no company or business will ever again be allowed to abuse or take advantage of our Club.
On a further footballing note, you will all be aware that during the last financial year we introduced a new management team and football philosophy and provided the finance to allow the team to commence the rebuilding phase. Mark Warburton and his staff have given Rangers a different style of play and were spectacularly successful last year in getting all of the new players to make meaningful contributions on the pitch during the 2015/2016 season. This incredible achievement was magnified by the fact that Mark had deliberately chosen to compete with a relatively small first team squad.
As we looked toward this season Mark decided to go with an expanded squad. We signed 11 new players in the summer transfer window even though the manager and I previously indicated a range of 5 to 7 additions would be required. The player spend was consequently increased by 60%.
Unsurprisingly, we have not been as fortunate as last summer with our additions. For various reasons, a significant part of our increased player budget has been tied up in resources that have not, up to this point, made a meaningful contribution on the pitch. It is inevitable that there will be setbacks such as this as players adjust to the higher level required of Premiership football and the special demands of playing in Glasgow for a club like Rangers. Injury has also played its part. It is an ongoing requirement for Mark and his team to review and rotate the player pool to ensure that we are getting the best possible value for our investment in players and this must continue in the January transfer window.
It is my belief that Rangers is presently well enough resourced to achieve our next major football objective – a return to Europe. A further investment in players will be required at that point.
The last year has also seen Rangers’ supporters finally having a substantial coordinated voice when engaging with the Club. The creation of Club 1872, which has just elected its own Board of Directors, gives supporters the opportunity to be heard. Club 1872 is an independent body and your Board looks forward to working with this new group in the years to come.
I would also like to take this moment to again say, on behalf of everyone at Rangers Football Club, that our sympathies remain with the family and friends of Ryan Baird. A lifelong fan, Ryan lost his life when on his way to watch his beloved team against Partick Thistle on October 1. Ryan and his family are in our thoughts, as are the 18 others who were injured when the Nith Valley supporters’ bus crashed on the way to Ibrox. We wish a full recovery for all those injured.
Finally, I would like to express my gratitude to my colleagues on the Board of the Company and to the directors and management of The Rangers Football Club. I am extremely grateful that none of you have been scared off by the unexpected magnitude of the corporate failures that we unearthed after regime change. We all expected the situation to be bad but not quite as awful as it actually turned out to be. Fortunately, most of the unwanted legacy issues have been dealt with – or are being dealt with – and I thank each of you for your continued support during this protracted period of difficulty.
I will now ask Mark Warburton to share some of his thoughts with you. When Mark is finished we will go straight into a Q and A session and hopefully we will be able to answer as many of your questions as possible, although on the Sports Direct front we may be restricted in our replies.