Hidden round the back
In Celtic’s 2012 Annual Report, available under http://www.celticfc.net/corporate_investornews, Chairman Ian Bankier proclaims on page no. 1 under the Summary of Results, that the 2012 Year End net bank debt is £2.77m up £0.53m from 2011. Naturally Scottish football journalists regurgitate the press release, don’t go deeper into the figures and praise the amazing low debt. All the details in an Annual Report are in the back. It takes a bit of digging to get to the real details. Although the free market is supposed to be allow investors access to information so they can make decisions, financial reports are actually an exercise in showing the good news & hiding the bad things. Directors especially Accountants cannot be trusted to expose the full debt position up front and Celtic’s board is full of ex-CFOs [Chief Financial Officers] & Accountants. Accountancy standards are set by auditors to also aid cover ups. If the Standards were so good why do we have the Enrons, Bear Stearns and Lehman Bros. failures. Accountants, Auditors and Lawyers are all part of the 1%ters. They don’t want us, the 99%, to understand what they are hiding while they distract us with the glittery stuff.
Reading the 2012 Annual Report from the back, you find on page 63, there is another debt listed:
‘Fair value of financial assets and financial liabilities
The fair value of the Group and Company’s financial assets and liabilities, as defined above, are not materially different to their book value with the exception of the debt element of the Convertible Cumulative Preference Shares, the fair value of which is considered to be £9.08m (2011: £9.08m).’ [my emphasis]
So Celtic’s true debt position is £11.85 million.
This is verified on page no.49 where under note 11 Finance costs we see the costs of the Convertible Cumulative Preference Shares £544,000 payment for both 2012 & 2011. Yet on page no10, up front, Eric J Riley, Financial Director, hides the true size & impact of the Net Debt by excluding the £9.08 million. This is like saying you own your house if you exclude your mortgage.
On the previous page, page no 62 you can see Contractual maturity analysis for financial liabilities. These are debts owed in the near future and further out even to ‘in perpetuity’:
In Perpetuity Debt
In the table above, note the Convertible Cumulative Preference Share dividends of £544,000 for each of 2012 and 2011.
These securities, although called shares, have equity[shares] and debt elements. Hence their listing in this liabilities table. And please note the column heading above the £544,000 figure is ‘in perpetuity’ in other words ‘FOREVER’. Being a debt element the £544,000 should be called Interest rather then Dividend.
Interest Rate on the Convertible Cumulative Preference Share
Well what interest rate generates a charge of £544,000 on a debt of £9,080,000, it’s 544,000 / 9,080,000:
That’s 6% per annum
This is verified on page 50 where note 13 Dividends Payable describes the interest rate:
‘A 6% (before tax credit deduction) non-equity dividend of £0.54m (2011: £0.54m) was paid on 31 August 2012 to those holders of Convertible Cumulative Preference Shares on the share register at 29 July 2012.'[my emphasis]
Who are the Shareholders getting the 6% Interest rate forever
http://www.celticfc.net/corporate_sharecapital has them listed as:
Well as expected, Line Nominees Limited, Dermot Desmond’s shelf company in the Gibraltar tax haven gets the largest percentage. Note: ‘Dividends’ are not taxable if received from a company outside Gibraltar. Maybe that’s why they are called ‘Dividends’.
Now Convertible shares do have conditions allowing the holder to convert the CCPS’s into Preference shares but when you are guaranteed 6% per annum, under current bank interest rate of 0.25%, would you give up 6% for the possibility of an unpredictable dividend? This is the reality because very few of these securities have been converted over the years. So Celtic FC are going to be paying this high interest rate FOREVER unless they pay the £9.08 million back.