Trenton Tan BM HL 12D

Arsenal Holdings PLC: Victoria Concordia CrescitVictory Through Harmony,

the Harmony of Profit, Supporters, and Trophies
Financial Analysis Essay: Arsenal Holdings PLC

Arsenal Holdings PLC is an unquoted public limited company that, among other things,
mainly controls Arsenal FC, a top football club in England, and all other activities related to it
including, but not limited to, the ownership and development Arsenals Emirates Stadium, the
management of its stadium during matches, the management of its retail operations, and so on.
Arsenal Holdings PLC is a company that diers from many public limited companies in the sense that
its primary objectives are not limited to financial and market related factors such as increased
revenue, market growth and more, but also puts an emphasis on the on field performance of the
team. As such the Arsenal Holdings PLCs business strategies generally revolve on increasing
revenue and profit (finances), increasing fan base and supporters (market), and increasing success on
the field (winning games, performing well in competitions, and getting trophies) which are
consequently influenced by the companys financial standing and performance.

Taking a quick glance at Arsenal Holdings PLCs profit and loss account for the periods ended
May 31 , 2013 and May 31, 2014, it can be seen that the companys performance improved over the
one year period between May of 2013 and May of 2014. From a making a loss, the company went on
to making a profit at the end of a period of time of one year. On the other hand, a quick glance at
Arsenal Holdings PLCs balance sheet would just tell you that it is a company that is worth quite a lot
of money at over 300 million.

Analyzing the figures more closely, it can be seen that the companys net profit margin
improved from -10.09% to 3.33%, an improvement of over 13%. While a net profit margin of 3.33%
does not look very high, it should be considered that it is above the interest rate in England of 0.50%
and that a profit margin of 3.33% translates to a little over 10 million for Arsenal Holdings PLC. The
increase in the companys net profit along with a decrease in long term liabilities also caused an
increase in the companys return on capital employed. From a negative percentage of -4.29%, the
company was able to bring it up to a positive 1.6%. The one year between May of 2013 and May of
2014 saw a dip in the current ratio of Arsenal Holdings PLC from 1.77 to 1.44. It is lower than the
generally accepted 1.5 and can be attributed to an increase in current liabilities. Contrary to this
however, the gearing ratio of the company decreased by about 2% as net assets increased and long
term liabilities decreased.

These numbers, ratios, and percentages can aect Arsenal Holdings PLCs business
strategies in many ways depending on the final decisions of the companys managers. One course of
action that managers of Arsenal Holdings PLC could take would be to sell some of their players. At
the moment, 166.4 million or 54% of the companys annual revenue is used to pay player wages.
The sale of players would be able to generate income while reducing expenses. Selling players with
higher wages would be able to significantly increase the net profit margin of the company, keeping
net assets at a constant as the player, classified as a fixed asset, is essentially converted into cash
while increasing the liquidity of the company. This cash can then be used to pay o the large long
term debt the company still owes to creditors. Doing so would be able to reduce their high gearing
ratio. This business strategy puts more emphasis on improving the companys financial ratios and
increasing profit to pay o debt, and it is a strategy that Arsenal Holdings has generally been
employing over the past decade since it spent over 390 million to build a new stadium.

However, it should also be taken into account the possible implications of doing this. Selling
players with higher wages, who are often the same players who are more skilled, could negatively
aect the companys objective of having a success on the field. A poor performance from Arsenal FC
could also mean a decreased amount of revenues as successful competition runs could potentially
earn the club between 3 million to 41 million in prize money depending on the competition they are
participating in. With the large increase of 40%-50% in the value of distributed of prize money for two
of the three major competitions Arsenal competes in, a successful season wherein all three major
competitions are won could translate to almost 100 million in prize money. That amount is excluding
additional payments depending on the scope of their TV broadcasting.

Alternately, managers of Arsenal Holdings PLC could take higher net profit margin, return on
capital, and lower gearing ratio to mean a less tight restriction on the purchase of players. Buying
more skilled players and bringing them to the club could increase their chance of success on the field
which could in turn yield more profit for the company through competition prize money. This prize
money would be able to increase their revenue and possibly improve these same ratios as well as
increase their current ratio (prize money would be considered cash) so long as the prize money
received is more than the expenses of the new players salaries. However, one problem with this
strategy is that it is dependent on the performance of the players which may not always be reliably
and accurately predicted based on past performances. This would be due to factors such as team
chemistry, injuries, adjustment problems with living in a new country, and so on.

Yet another approach that Arsenal Holdings PLC could take based on their financial ratios and
performance would be to increase their fan base and broaden their market. Their improved financial
performance and their change from a negative to a positive net profit margin could again mean that
managers will be more willing to spend instead of just cut costs. They could try to increase the
number of supporters they have around the globe as retail of their merchandise, ticket sales (keep the
demand up as about 99% of seats in games on average are sold per game), and earnings from TV
broadcasts that are dependent on the range of the broadcast. To do this they could set up stores in
more countries such as the Asian countries to increase sale of merchandise, play preseason games
in a wider range of countries, and also purchase players of more varied nationalities as this could
garner the support of more of their countrymen. All these methods of broadening their fan base and
consequently their market, involve the spending of money although they would either become fixed
assets (stores and players) or pay for themselves (preseason games) and very possibly increase the
revenue of the company. This would most likely positively influence their financial ratios.

In conclusion, the business strategies that Arsenal Holdings PLC would implement based on
the financial ratios of their performance in the past year depends heavily on its managers because it
is ambiguous and open to interpretation. While it was generally an improvement from 2013, their
performance was not stellar either (although this is to be expected as major improvements generally
do not just happen in the span of one year) therefore how their current financial ratios and
performance in relation to past ratios and performances is interpreted and in turn aect the business
strategies that the company implants is in the hand of the managers of the company. They could
implement a more cost cutting centered business strategy to keep up the improvements in financial
performance, a more revenue and profit maximization centered business strategy to also keep up the
improvements in financial performance, a market expansion strategy to better their financial
performance in the long run, or a supporter satisficing strategy that puts less emphasis on financial
performance (which would likely cause their financial ratios to worsen) but would bring popular
football players to the team and likely produce more victories as well, thus satisfying the supporters
and fans. But speaking realistically and basing things on the companys financial ratios at present,
Arsenal Holdings PLC would probably implement a mix of these strategies in order to not just further
improve their financial ratios but to also be successful on the football field. Victoria Concordia
Crescit, Arsenal FCs motto which is Latin for Victory Through Growing Harmony is as applicable
to the companys future performance as it is on the field; there has to be a sense of harmony between
the companys objectives and its finances in order to truly be victorious.
FINANCIALS

I. PROFIT & LOSS STATEMENT (For the period ended)

May, 31 2013 May 31, 2014

(000) (000)

Revenue 280,374 301,872

Total Expenses & Costs 308,655 291,808

Gross Profit N/A N/A

Net Profit Before Interest & Tax (28,281) 10,064

*Gross profit is not explicitly stated in the companys financial reports and variable costs is already combined
with overhead expenses. This is likely due to the nature of the business wherein majority of the companys
revenue does not come from the sale of tangible products

II. BALANCE SHEET (As of)

May, 31 2013 May 31, 2014

(000) (000)

Net Fixed Assets 523,064 541,547

Current Assets 265,346 293,165

Current Liabilities 149,931 203,032

Net Current Assets 115,415 90,133

Total Assets less

638,479 631,590
Current Liabilities

Long Term Debt 335,124 320,972

Net Assets 303,355 310,618

 May, 31 2013 May 31, 2014
(continuation)
(000) (000)

Financed by:

Share Capital 56,758 56,758

Retained Profit 246,597 253,860

Equity 303,355 310,618

III. RATIO ANALYSES

2013 2014

Gross Profit Margin - -

Net Profit Margin -10.09% 3.33%

Current Ratio 1.77 : 1 1.44 : 1

Return on Capital Employed -4.29% 1.6%

Gearing Ratio 52.49% 50.82%

REFERENCES

http://www.arsenal.com/the-club/corporate-info/arsenal-holdings-financial-results

http://www.arsenal.com/assets/_files/documents/sep_13/gun__1380277138_Arsenal_Holdings_plc_-
_Annual_.pdf

http://www.arsenal.com/assets/_files/documents/sep_14/
gun__1411461364_Arsenal_Holdings_plc_Annual_Re.pdf

http://www.thefa.com/thefacup/more/prize-fund

http://www.telegraph.co.uk/sport/football/competitions/premier-league/11620171/Premier-League-prize-
money-how-much-each-club-earns-in-2014-15.html

http://www.bankofengland.co.uk/Pages/home.aspx

http://www.uefa.com/uefachampionsleague/news/newsid=1858497.html

http://www.dailymail.co.uk/sport/football/article-3019568/Champions-League-prize-money-increase-means-
winners-season-scoop-74MILLION.html

http://www.premierleague.com/content/premierleague/en-gb/contact-us.html

http://www.forbes.com/sites/bobbymcmahon/2014/09/20/latest-accounts-show-financial-times-have-
changed-for-arsenal/

http://www.mirror.co.uk/sport/football/news/arsenal-financial-results-6-things-5243646