ARSENAL HOLDINGS PLC - Final Results

Chairman’s Statement

The Club has had a successful year on and off the pitch. Returning to Wembley in May to defend the FA Cup was a significant achievement and the manner and style of our performance to beat Aston Villa in the final was a source of real pride.

This was our twelfth FA Cup win making us the most successful club in the history of the world’s oldest cup competition. Our FA Cup record is testimony to the efforts the Club has made through the years and also to our manager Arsène Wenger, who has now won the competition a record equalling six times.

Naturally our victory at Wembley prompted celebrations amongst our fans around the world and we again enjoyed a rousing reception from our supporters closer to home in Islington during the open top bus parade the day after the game. It was another special day for all and I would like to thank Islington Council for their hospitality at the Town Hall and their support for the whole event.

The FA Cup Final victory was a fitting end to an exciting season which saw us recover from a slow start in the league to finish third. In doing so we reached the UEFA Champions League for an 18^th successive season and, thankfully, avoided the challenge of a qualifying game. This is a remarkable record of consistency unmatched by anyone else in England and huge credit must go to our manager and the players in this regard.

It is also testimony to the Club’s philosophy, which we continue to adhere to season to season. We remain committed to spending only the money we earn, our style of play, investing in young talent and our local community.

I am delighted that we have been able to invest strongly in the team over the last year including, most recently, to bring in promising defender Gabriel in January and the experienced Petr Cech during the summer. We have also retained the core of our team on new contracts which means we can build on the unity and spirit which was so evident last season.  It has also been hugely encouraging to see Hector Bellerin, Francis Coquelin and Chuba Akpom emerge from our youth programme.

We have also invested off the pitch to ensure that, looking to our future requirements, our training facilities are of the appropriate highest quality for all of our teams. We are close to finishing a second phase of development works at our Hale End Academy, with a third phase to come subject to planning consents. In addition, we are just underway on a major two year project for the first team site at London Colney, which will include a new player performance centre. These infrastructure investments may not attract the headlines in the same way as player transfers but they will provide benefits over a longer term, which are just as important to the Club.

You will read in the following pages that our revenues have exceeded GBP344 million and that we have reported a profit before tax of GBP24.7 million. The primary source of this revenue uplift was from progress made on our commercial agenda. We also benefited from a one-off profit share within our property income.  Revenue from commercial activities passed GBP100 million for the first time. We have brought a number of new partners to the Club and our retail operation enjoyed a record year. The latter was due in large part to a successful first year of our new PUMA partnership.

As a Club we remain committed to making a difference to communities at home and abroad. The Arsenal Foundation goes from strength to strength, thanks to significant financial contributions from our players and fans. At the same time, our much respected Arsenal in the Community team marked 30 years of hard work delivering programmes in and around Islington. The anniversary was marked by the opening of the new Arsenal Hub in Queensland Road. It was particularly gratifying to see Alan Sefton, who has led the community team for many years, receive personal recognition in the form of an M.B.E. in the Queen’s New Year’s Honours List.

I would again pay tribute to our loyal fans. Throughout the season your support was outstanding. Emirates Stadium was sold out for most games with a better than ever atmosphere. The support given to the team both home and away is first class and really makes a difference.

Finally my thanks go to Stan Kroenke for his continued support and guidance, my fellow directors, our management team and entire staff for all their hard work and dedication over the last year. I would also like to publicly recognise the support from our commercial partners who make such important contributions both financially and in terms of helping build the Club’s name around the world.

In closing, we look forward with optimism and strong belief that we are on a positive trajectory. We are in a robust position across all the key areas of our activities and, financially, we stand ready to support the manager with such further investment as he deems appropriate.

I look forward to welcoming you to Emirates Stadium and to a successful season.

Sir Chips Keswick
Chairman
18 September 2015

Arsenal Holdings plc
Chief Executive’s Report

Overview

Winning the FA Cup for a second successive season was a wonderful achievement and continued the progress the Club is making.

I cannot recall a team playing so well and with such style on a day which is renowned for being tense and difficult.  The display against Aston Villa epitomised much of what we are trying to achieve together.

Our Club will always have a philosophy of investing in and supporting the development of young players. We also have the financial ability to invest in world class, experienced players. The Cup Final demonstrated what a potent force the right blend of youth and experience can be. The sight of young players such as Hector Bellerin and Francis Coquelin, alongside established stars such as Alexis Sanchez and Mesut Özil, rising to the occasion with a performance of style and substance was hugely gratifying.

A trophy in consecutive seasons only serves to increase our desire for more success and sets us up well for what should be an exciting period for the Club both on and off the pitch.

Football

We have put a lot of work into building and investing in this group of players over the past three years. Over that period they have developed a strong bond and belief. Arsène is, I know, very happy with the balance we have in the squad in terms of age profile, depth in all positions and, importantly, length of contracts.

Our improved financial position allows us to support the manager as and when he identifies players capable of adding genuine quality to our squad. With this in mind, we were delighted to sign defender Gabriel in January and Petr Cech from Chelsea during the summer. Gabriel has settled in well and is an important part of the squad.  Petr’s experience is already proving invaluable on and off the pitch and he will make a strong contribution.

Equally importantly we have again done a lot of work this year agreeing contract extensions with key players. Chuba Akpom, Mikel Arteta, Hector Bellerin, Santi Cazorla, Francis Coquelin, Olivier Giroud, Alex Iwobi, Carl Jenkinson, Jon Toral and Theo Walcott have all signed extensions to their existing contracts. This ensures we will maintain continuity in the squad and puts us in a strong position for the future.

We have also recruited a number of exciting players in the Under-17 and Under-18 age groups. These are players we have identified and targeted through our international scouting network and who join a group of talented scholars and young professionals already at the Club. I look forward to seeing them develop their careers and hopefully a number will progress into the first team squad in due course.

Staying with youth development, I am glad to report that work at our Hale End Academy is going well. The new buildings are complete and the final phase of development will start when we get the go ahead from local planners to re-lay all the pitches. We have continued investing in new staff and the use of the very latest techniques in sports science and physical development. We also continue to strengthen our scouting networks to ensure we find the very best young global talent.

As indicated last year, work is also underway on a multi-million pound programme at our London Colney training centre. This two year project will transform our training, fitness and preparation facilities.

The Arsenal Ladies

Arsenal Ladies have enjoyed a year of progress, in what has been a changing time for the women’s game.

Under the stewardship of Pedro Martinez Losa, who joined the club in August 2014, the team has been adjusting well to the demands of the increasingly competitive Women’s Super League. Last season, a fourth place finish in the table and a place in the FA Continental Cup final represented a good recovery after a difficult start.

We have since been bolstered by the arrival of some excellent new players and are once again in a position to challenge for honours.

Away from domestic football, we have been extremely proud of our international players, who helped to take the popularity of the women’s game to new heights at the World Cup in Canada.  In particular, Jordan Nobbs, Alex Scott and Casey Stoney excelled for England, helping the Three Lions to third place in the competition.

Their efforts have translated to the domestic game and the team has enjoyed excellent attendances since. Arsenal’s first game back following the World Cup attracted a crowd of 2,061 – a league record for the Gunners at Meadow Park.

With improvements planned to the Ladies’ training facilities as part of the Colney redevelopment, there is every reason to be positive about the year ahead for Arsenal Ladies.

Business update

The financial results for the year, which are covered in more detail in the Financial Review section, show our turnover moved to in excess of GBP340 million. This was driven by our commercial operations delivering more than GBP100 million in revenue for the first time, together with an uplift in Premier League broadcasting revenues and a one-off revenue bonus in our property business.

Commercial Partnerships

We continue to be focused on growing our family of commercial partners around the world. Since our last annual report we have agreed new partnerships with Markets.com, Capital Bank, Betfair, Duchamp, DJI Holdings and Indosat.

All these businesses have two things in common; a desire to engage with our fans wherever they are in the world and the recognition that Arsenal can help them achieve their business objectives in a powerful and meaningful way.

We now have 27 partnerships around the world. This is due to a lot of hard work by many people across the Club which has seen us transform our sales capability, including the opening of our first international office in Singapore, and the development of what is regarded as industry leading management of partnership relationships.

We are confident in our ability and capacity to make further progress in this area which remains a key priority for us.

 Retail

Our new partnership with PUMA and a major re-fit of our flagship Armoury store have helped deliver record retail and licensing revenues this financial year.  PUMA have put significant effort into promoting our partnership globally through innovative and effective marketing campaigns and prominent presentation of Arsenal products in their stores all around the world, resulting in record levels of replica kit sales.  We have also recently entered into agreements to build our e-commerce and retail presence internationally. Our stadium tours continue to attract increasing numbers of visitors. More than 197,000 toured the stadium last year.

Arsenal Media Group

Our media group continues to drive strong reach and engagement with supporters around the world through digital and social media channels.  Arsenal.com continues to be the central hub for all news from around the Club. We have grown our Facebook following from 26 million to 33 million, we are the most followed English team on Twitter with 6 million followers and our YouTube, Instagram, Sound Cloud, Google+ and Sina Weibo channels continue to thrive.

We also this year released our first in-house produced documentary - ‘Invincibles’ - to positive reviews. The film has been screened on both Sky Sports in the UK and NBC in the USA.

Ticketing

Demand in our General Admission and Premium / Hospitality levels continues to be extremely strong and subscriptions to our various membership schemes are also growing.

We continue to make investments in the facilities and infrastructure at Emirates Stadium, including new LED floodlights and perimeter boards alongside a major renovation of the 'Royal Oak’ area on Club Level this close season. Additionally, we have improved the functionality of Ticket Exchange and Ticket Transfer, making it easier for season ticket holders unable to attend matches to sell or transfer their seats to other Arsenal supporters.

In March we hosted a high profile Brazil v Chile international friendly in front of a sell-out crowd.

Looking ahead, ticket prices at the Emirates Stadium were held flat for the 2015/16 season and for a seventh time in ten seasons. Whilst our match day revenue is now ranked behind both broadcasting and commercial as a source of income, it remains vitally important to the Club and is a key differentiator to competitor clubs with smaller, less modern venues.

Pre-season 2015/16

We made a highly successful visit to Singapore to take part in the Barclays Asia Trophy. Two competitive games against a Singapore XI and Everton saw us emerge as the tournament winners and we received a fantastic reception from fans from across Asia and Australia during our stay. It was great to see young players like Chuba Akpom, Dan Crowley, Alex Iwobi, Jon Toral and Gideon Zelalem involved at a first team level. Off the pitch, players took part in a number of events including a well received launch of our away kit, a soccer school with Emirates and a fan party attended by 700 passionate supporters.

The following week we hosted another highly popular Emirates Cup. Firmly established as one of the best pre-season tournaments on the calendar we again sold out across the weekend, with 120,000 fans visiting the Emirates Stadium. It was great to see us lift the trophy after some exciting games involving Lyon, Wolfsburg and Villarreal.

The pre-season preparations concluded a week later when we returned to Wembley for the FA Community Shield match against Chelsea. Another impressive display saw us retain the Shield and enter the season on a winning run.

Arsenal Foundation and Arsenal in the Community

Our commitment to our local and wider community remains a central part of what we stand for as a football club. The Arsenal Foundation continued to provide invaluable support for projects here in Islington and further afield. In the past three years the Foundation has raised GBP1 million for Save the Children to support emergency appeals. This year some of the money will go towards developing artificial football pitches in a refugee camp in Iraq. This is a perfect example of using the power of football and Arsenal to change people’s lives and I look forward to seeing the project develop.

Closer to home, our Arsenal in the Community team celebrated its 30^th anniversary of delivering programmes in Islington and surrounding boroughs. They have done a remarkable job, now reaching more than 5,000 people through 350 sessions every week. As the Chairman has noted, it was fitting that Alan Sefton, who leads our local community work, was recognised in the Queen’s New Year honours with an M.B.E.

Looking ahead

We know the Premier League will be more competitive than ever this season as clubs invest more money in top players from around the world. Teams across the league are raising their level, which means each and every game will be a significant challenge. The promise of the increased value of Premier League broadcasting revenues from 2016/17 may already be having an impact.

The new Premier League TV revenues are good news for Arsenal and for the other member clubs. The increased revenue may see the league becoming even more competitive and it raises a number of strategic questions and opportunities that will need to be discussed in the forthcoming months. For now it is too early to say what the impact of the Premier League’s changing financial landscape will be, either domestically or in a wider context across Europe

We look forward to another exciting campaign in the UEFA Champions League with the new format throwing up a challenging series of group stage games against Bayern Munich, Olympiacos and GNK Dinamo Zagreb.

Everyone at the Club is in optimistic mood and determined to build on the FA Cup successes of the past two seasons. We continue to look to develop every aspect of our operations while remaining true to our principles around being self-funding, investing in youth, our style of play and our commitment to our fans and to our place in the community.

We are focused on delivering more success. This remains the shared ambition of our majority shareholder Stan Kroenke, the board and everyone connected with the Club.

We look forward to the rest of the season with excitement and your continued support.

I E Gazidis
Chief Executive Officer
18 September 2015

Arsenal Holdings plc
Financial Review

The Group recorded a profit before tax for the 2014/15 year of GBP24.7 million (2014 - GBP4.7 million).

The principal factors influencing this result were:

• Increased revenues from commercial activities and sponsorship of GBP26 million, taking the Group’s commercial revenues above GBP100 million for the first time and ensuring overall revenues from football activities alone were comfortably in excess of GBP£300 million.
• Increased profits from player transfers of GBP28.9 million (2014 - GBP6.9 million).
• Profits in the property development business of GBP13.3 million (2014 - GBP0.9 million).
• Significant investment in the playing squad resulting in higher amortisation charges on player registrations of GBP55.3 million (2014 - GBP40.0 million) and driving an overall increase of GBP25.8 million in our wage bill.

The main reason for increased turnover from football was our new kit partnership with PUMA from July 2014 which has had a strong, positive impact across our sponsorship, retail and licensing revenue lines. We have also again increased our revenues from secondary partnerships.

The property business recorded an operating profit of GBP13.0 million (2014 - GBP0.4 million) which included a profit share / overage bonus in respect of one of the development land sites sold by the Group in a prior year. The overage receivable represents a share of the revenues achieved by the developer on its successful sale of completed residential units on the finished site.

The wage bill for the year of GBP192.2 million (2014 - GBP166.4 million) was increased primarily as a consequence of the players added to the squad in the year and the contract extensions agreed with existing players. There is also an impact from Champions League qualification bonuses, which are a feature of many of our First Team player contracts. By virtue of reaching the Group Stage of the 2014/15 competition, via the play-off round, and the Group Stage of the 2015/16 edition, via third place in the Premier League, there have been two bonus trigger events during the 2014/15 financial year.

Increased depreciation charges of GBP14.6 million (2014 - GBP12.4 million) reflect a fairly high level of fixed asset additions for the year at GBP12.8 million. There have been major projects developing the facilities and a new building at our Hale End Academy training ground and fitting out the Arsenal Hub community building on Queensland Road. Capital expenditure is expected to remain at an elevated level over the short term as the Club is committed to a major development project at its first team training ground at London Colney, a further phase of works at Hale End and a programme of upgrades at Emirates Stadium, which commenced with the new LED floodlights and perimeter boards installed this summer and the refit of the Royal Oak area in Club Tier.

Player trading consists of the profit from the sale of player registrations, the amortisation charge, including any impairment, on the cost of player registrations and fees charged for player loans.

The profit on sale of players for the year amounted to GBP28.9 million (2014 - GBP6.9 million) which includes the transfer of Thomas Vermaelen and the proceeds of an agreement to cancel the Club’s option to reacquire the registration of former player Carlos Vela.

The increased amortisation charge is a direct result of the fact that we have invested strongly in the playing squad. Additions of GBP114 million have been booked in relation to the acquisition of new player registrations, including Alexis Sanchez, Calum Chambers, Danny Welbeck and Gabriel and, to a lesser extent, the extension of contract terms for certain existing players.

In cash terms the impact of these acquisitions was partially offset by the collection of receivables on player sales (both current and previous) and by the credit terms agreed with the vendor clubs; nonetheless GBP46.2 million of net cash paid out in the year for player registrations still represents a record high level for the Club.

At the balance sheet date, the Group’s total cash and bank balances amounted to GBP228.2 million (2014 - GBP207.9 million), inclusive of debt service reserve balances of GBP35.0 million (2014 - GBP34.6 million). This is considered to be a robust position with the Group’s overall net debt standing at GBP5.7 million (2014 - GBP32.6 million). However, proper consideration of the Group’s cash balance must include allowance for the payments for the aforementioned transfers, as follows:

In addition, it is important to understand that our year end bank balance includes advance receipts, of sponsorship and season ticket sales, which represent working capital for season 2015/16.

Football Segment

There were two fewer home fixtures than in the prior year, with two rounds in our successful defence of the FA Cup being drawn as away fixtures. Our 27 home fixtures (19 Barclays Premier League, five UEFA Champions League, two FA Cup and one Capital One Cup) achieved an average tickets sold per game of 59,930 (2014 – 59,790).

When the Club first moved to the Emirates for season 2006/07 our match-day revenues of GBP90 million represented the Group’s main source of income. Despite achieving a highest ever level of GBP100.4 million for the 2014/15 season (2014 - GBP100.2 million) match-day has now been overtaken, by both Broadcasting and Commercial, in terms of its ranking as a source of revenue.

Broadcasting revenues this year were only slightly increased at GBP124.8 million (2014 - GBP120.8 million) as was to be expected given this was the second season of three for the current Premier League broadcasting contracts and the final year of a UEFA contract cycle. Our League form meant we once again attracted 25 live Premier League game facility fees (2014 – 25).

Looking to the next cycle of broadcasting revenues UEFA’s successful marketing of Champions League broadcast and commercial rights (including BT’s purchase of exclusive UK rights) will drive further growth in values for the participating English clubs for the 2015/16 season and beyond. The underlying revenue growth may be slightly offset by a weaker Euro. The Premier League has confirmed a significant uplift in the value achieved for the UK TV rights for the three seasons commencing 2016/17. The process for tendering the international broadcasting rights for these three seasons is ongoing. We note that an investigation into the sale of live broadcast rights in the UK is currently being undertaken by OFCOM the outcome of which cannot be predicted at this stage.

Combined commercial and retail revenues for the year rose by some 34% to GBP103.3 million (2014 – 24% growth to GBP77.1 million).

The main driver for this growth was the new kit partnership contract with PUMA which started in July 2014 and has had an excellent first 11 months. In addition, we benefited from a major re-fit of our flagship Armoury store which was completed to coincide with the launch of the first PUMA kits. The PUMA contract signals the end of a period where our commercial revenues lagged behind a number of our competitors as a consequence of the long-term deals that were in place as part of the funding of the Emirates move.

We also made strong progress with secondary partnerships adding brands such as Cooper Tires, Vitality and Europcar to our roster and bringing the Club’s total number of partnerships to 24 at the end of the 2014/15 year. During the year we opened our first commercial office outside the UK, in Singapore, and have already secured a number of new contracts from this location.

We have a healthy pipeline of potential partner deals and commercial opportunities; as such we expect that our commercial revenues will continue to grow. However, inevitably, the growth rate will now slow as we have our key partnerships with Emirates and PUMA in place for the medium term.

As ever payroll was the largest and most important area of cost. Wage costs for the year rose by 15.5% (2014 – 7.7%) to GBP192.2 million (2014 - GBP166.4 million), which was mainly attributable to increases in the cost of our football playing and support staff. As mentioned above, the Club’s on field performance meant there were two trigger events in the year in respect of certain elements of remuneration linked to Champions League qualification.

The ratio of total wage bill to football revenues was slightly increased to 58.4% (2014 – 55.7%). We disclose this ratio as a benchmark which is widely used in the analysis of football finance although our own monitoring in this area is based on total player spend, a combination of wages plus transfer expenditure and related costs, on a rolling three year basis against projections for the available funds generated over that period by the Group’s business activities.

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