celtic report 06

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Celtic plcAnnual Report

Year Ended30 June 2006


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CONTENTS

Chairmans Statement 1

Summary of the Results 2

Chief Executives Review 3Financial Review 7

Directors Report 11

Corporate Governance 15

Remuneration Report 19

Statement of Directors Responsibilities 23Five Year Record 23


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Independent auditors' report to the members 24

Celtic Charity Fund 25

Group Profit and Loss Account 27

Group Balance Sheet 28Company Balance Sheet 29

Group Cash Flow Statement 30

Notes to the Financial Statements 31

Notice of AGM and Notes 45

Explanatory Notes 46Directors, Officers and Advisers 48


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Chairmans Statement Brian Quinn CBE

2005/2006 was, on the whole, a good year for Celtic plc andfor Celtic Football Club. Although our early departure fromEuropean competition and from the Tennents Scottish Cupwere disappointing, with substantial adverse effects onincome, we fought back in a manner that is typical of this

Club and nished the year on a strongly positive note.

We also strengthened our nancial position andbegan the process of creating a modern purpose-builttraining facility at Lennoxtown. The football team isbeing rebuilt, as it has to if the successes of recentseasons are to be maintained. In the week-to-weekexcitement and uncertainty that characterise football,I believe it is crucial to have a clear idea of longer-termobjectives and a sense of direction that goes beyondthe febrile environment of the modern game.

Turnover of the group fell by 7.7%, very largely reectingthe loss of gate receipts and TV income from Europeancompetition. Celtic played 3 fewer home games last seasonand ticket sales were 15% lower as a result. Multimediaand communications were 28% lower. Despite this, withoperating expenses down by 7.6% - primarily wages andsalaries for football staff and merchandise sales h igherby a remarkable 42.5%, the company recorded a prot fromoperations of 3.74m. The loss before tax, at 4.22m, wasless than half the level of the preceding year.

The successful 15m share issue in December 2005 rebuiltthe balance sheet, reducing bank debt at year end from

19.3m to 9.1m and almost doubling net assets. We alsoincreased investment in the acquisition of players from2.3m to 8.8m.

UK Accounting Standards have begun to converge withInternational Accounting Standards. As part of thisprocess Celtic has adopted paragraphs 1 to 50 of FRS25the impact of which is to reclassify certain nancialinstruments from equity to debt.

Under FRS 25 the groups Preference Shares andConvertible Preferred Ordinary Shares, previously denedas equity, were reclassied as a combination of debtand equity; and non-equity dividends were in essencere-classied as interest. As a result, net assets were3.8m lower, net debt 4.7m higher and interest charges771,000 higher than would have been reported prior tothe implementation of FRS 25. In our accounts we haveadjusted the prior periods gures for these differences intreatment to allow a meaningful comparison to be made.

The football squad showed great resilience after adifcult start to the season. Two long unbeaten runs inthe Scottish Premier League from late August until lateNovember, and from then until early April, returned the

championship title to Celtic Park with the loss of only twogames. No club has won the SPL title earlier in the season,nor with a bigger margin over its nearest competitor. TheClub also won the CIS Insurance Cup for the 13th time toadd to its 40th league championship. A very special note

of thanks goes to Gordon Strachan, Garry Pendrey andTommy Burns whose contribution has involved combiningsuccess on the eld with assembling and managing what islargely a new rst team squad. I also congratulate our rstteam for being commended again this year by the SFA for

achieving high standards of on-eld discipline.

The under-19 and reserve teams won their leagues for thefourth and fth consecutive times, respectively. Celticsunder-19 team also won the Scottish Youth Cup and aninternational tournament in Italy. These successes notonly contain signs of promise for the future but alsotestify to the work done by the managers and supportstaff of the squads.

Squad restructuring is an especially challenging task intodays transfer market. The reduction in transfer feesevident several seasons ago, as clubs in the UK reorderedtheir nances, has been replaced with a market that in anyother business sector would be considered overheated.Likewise, salary packages for footballers are probablyunprecedentedly high, not just for those of the highestcalibre, but also for many outside the elite category. Themain driver seems to be the substantially larger sumsavailable to FA Premier League clubs from the recentlyagreed television contract. Many clubs are spendingmoney now that will not be available for another year,creating echoes of the last boom and bust in football.

Clubs are, however, better run today throughout the

UK and should avoid a repeat of the nancial problemsthat arose a few years ago. But what is clear is that,despite the welcome increase in the value of the Bankof Scotland Premierleague TV contract, Celtic and otherclubs in Scotland endeavouring to compete in Europeancompetition nd themselves at a serious disadvantage.This is compounded by the distribution model for UEFAChampions League revenues which favours the largernations. This gives additional force to our policy ofdeveloping our own young players.

I believe the new training ground at Lennoxtown will bean important factor in this regard. We have secured thesite and work in building the pitches, accommodation andadministration facilities has begun and isproceeding according to plan. We hope the trainingcomplex will be completed and available for use at thebeginning of next season.

Evidence of the revival in Scottish football to which I lookedforward two years ago grew during the season just ended.For the rst time in many years, the rst two positionsin the SPL were not occupied by the Old Firm; and theTennents Scottish Cup Final was contested by Hearts andGretna, a team from the Scottish Division II. As I said in my

statement accompanying our 2005 Interim Report, we seethis as a healthy and welcome development. We do notexpect to lose domestic competitions and certainly donot like it when we do, but excitement and interest in thegame is created when the established order is challenged.


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SUMMARY OF THE RESULTS

Operational Highlights

Winners of the Bank ofScotland Premierleague

by 17 points Winners of the

CIS Insurance Cup

24 home matches played atCeltic Park in the year(2005 : 27)

Contract extensionsawarded to Stilian Petrov,Stephen McManus,Stanislav Varga, Neil Lennonand Shunsuke Nakamura

Successful launch of newplaying kits under the newkit agreement with NIKE

Extension of Carling shirtsponsorship contractuntil 2010

Construction of thetraining academy atLennoxtown commenced

Financial Highlights

Successful issue of 50million new OrdinaryShares raising 14.55mnet of expenses

Signicant changes to thereporting of non-equityshare capital, debt and non-equity dividends followingthe implementationof FRS25 requiring therestatement of prior periodcomparatives

Group turnover decreasedby 7.7% to 57.41m(2005 : 62.17m)

Operating expensesreduced by 7.6% to53.67m (2005 : 58.07m)

Prot from operations of3.74m (2005 : 4.10m)

Loss before taxation of4.22m (2005 : 8.71mas restated)

Year end bank debt of

9.09m (2005 : 19.33m) Investment of 8.84m (2005

: 2.34m) in the acquisitionof intangible xed assets

We have always been serious aboutthis. It costs Celtic a substantialamount of money to monitor crowdbehaviour in the form of additionalstewarding, policing and CCTV

cameras; but we consider it our duty todo so and will continue these activitiesin a way that eliminates discriminatorybehaviour, without removing thepassion and excitement that comesfrom following Celtic Football Club.

Our support is amongst the best inthe world and I have no hesitation insaying so every year. Average homeattendance in our league games lastseason was over 58,000, the secondhighest in the UK. Season ticket salesof all kind exceeded 53,000, a level weexpect to be maintained this season.Celtic supporters also account for overhalf of total attendance at many of ourSPL away matches. Our Club is alwaysin demand for friendly and testimonialmatches because of the numbers webring. The Celtic diaspora has expandedas we have re-established ourselvesin European football in recent years.Participation in the UEFA ChampionsLeague group stage this season will, I

trust, add to the reputation of our Club.

It will, obviously, also add to ourrevenues and should thereforecontribute to our nancial performancegenerally. We begin the football yearwith a strong nancial position, anexperienced and well-qualied Board ofDirectors and excellent managementand staff. The rebuilding of the rstteam squad is well advanced andour youth development programmeis delivering positive results. I feelcondent that the success story ofrecent years will be further extended.

Brian Quinn CBE 16 August 2006Chairman

I also welcome the signs of revival inthe Scottish national side which hasarrested the slide in performances andhas begun the job of recovering theteams historic reputation for good,

winning football.

Our efforts to promote the Celticbrand continue. The squad madetraining trips to Poland and the UnitedStates and played friendly matches inJapan and England. The response byCeltic supporters, actual and potential,has been remarkable and provides hardevidence that this policy is appreciatedby our fans everywhere. Of coursethese events also raise additionalincome for us, which seems sensiblein the light of what is happening inthe television and transfer markets;we have to explore all means ofmaintaining the quality of the playingand coaching staff. Allegations ofgreed or short-termism miss the point:any money generated by these gamesis made available to the manager forplayers. All the benets of our policy tospread the brand accrue to the footballdivision, no-one else. As for exhaustingthe players, they are professional

athletes, and the coaching staff arebest placed to judge what is acceptablein their management of resources.

We have also continued our work toeradicate objectionable behaviourat Celtic Park and, so far as it is inour power to do so, at other footballgrounds where Celtic play. I believethat the scope of our activities is notappreciated fully; and that this work isproving effective. Sectarian and otheroffensive songs and chants have all butdisappeared at home matches, and wehave made proposals to the ScottishPremier League, to other SPL teamsand to police forces to try to eradicatesuch behaviour at away games.


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Chief Executives Review Peter T Lawwell

Theres never a dull moment at Celtic and this past 12months have been more exciting and eventful than most.We regained the Bank of Scotland Premierleague title by ahuge margin, sealing the Championship against our closestrivals Hearts several weeks before the end of the season.We also won the CIS Insurance Cup, defeating Dunfermlinein convincing style at Hampden.

To counterbalance the highs there were some disappointing lows too, falling at the rst hurdle in the UEFA ChampionsLeague qualifying stages even before the domestic seasonhad got underway and being knocked out of the TennentsScottish Cup by an impressive young Clyde team.

Following the disappointment of our European defeat atthe hands of Artmedia Bratislava, Gordon Strachan and hisnew management team bounced back to achieve domesticsuccess with a developing and transitioning squad. GarryPendrey and Jim Blyth, who had worked with Gordonpreviously, together with Tommy Burns brought theirconsiderable wealth of coaching experience to Celtic.

The passing of Celtics Greatest Ever Player Jimmy Johnstone in March saddened everybody associated with the Club. Hisfuneral and the tributes which followed were extremelymoving. They demonstrated the enormous respectand affection Jimmy enjoyed and that this magnicentinstitution of Celtic is far more than a football club.

FINANCIAL PERFORMANCE

The Clubs reported retained loss of 4.22m re-emphasisesthe ongoing challenge we face in matching footballsuccess with nancial stability. Nevertheless, it representsa signicant improvement on 2005 and represents a mostencouraging performance, particularly in view of the lack

of European football and our early exit from the TennentsScottish Cup.

Group turnover has reduced by 4.76m, 7.7% to 57.41mfrom 2005, largely as a result of playing three fewer homegames due to our early exit from Europe. In the currentyear, turnover continued to benet from the healthy take-up of standard season tickets, together with the openingof new retail stores.

Operating expenses, excluding exceptional operating costs,have reduced by 4.39m, 7.6% to 53.67m, predominantlydue to prudent cost control throughout the business.

Exceptional operating expenses at 0.58m are mainly

a result of accelerated depreciation on player values,whereas last years gure of 2.96m reected the costsincurred in the early termination of certain playerscontracts. The amortisation charge of 5.1m is down by31% on last year, demonstrating the reduced carryingvalue of the rst team squad and continued decline in thevalue of transfer fees paid in recent years.

FOOTBALL INVESTMENT

The highest prole player arriving at the Club over the last12 months was Roy Keane, himself a big Celtic fan and oneof the true greats of the game, who joined from ManchesterUnited in January. Unfortunately Roy was only with us for sixmonths before long-term injury curtailed his playing career,but he made quite an impression during his short stay.

Other new signings during the year included MaciejZurawski, Artur Boruc, Adam Virgo, Shunsuke Nakamura,Paul Telfer, Mo Camara and Mark Wilson. Since the end ofthe season Derek Riordan, Kenny Miller, Jiri Jarosik, GaryCaldwell and Evander Sno have been recruited.

Jeremie Aliadiere and Du Wei had short spells on loan at the Club during the 2005/06 season, whilst Dion Dublin joinedon a short-term contract, which came to an end in June.

Contracts were extended for a number of rst team playersincluding Stilian Petrov, Neil Lennon, Stanislav Varga, PaulLawson, Stephen McManus and Shunsuke Nakamura.

High prole player departures this year have included ChrisSutton and John Hartson, who had been great servantsfor Celtic. During the summer of 2005 Paul Lambert, RabDouglas, Jackie McNamara, Ulrik Laursen, Magnus Hedman,David Fernandez and Joos Valgaeren left the Club as didDidier Agathe in January.

The intent of the Celtic Board is to achieve a managedratio between turnover and labour costs. Ongoing nancialcontrols are in place to ensure that labour costs aremaintained at a manageable level, particularly in relationto turnover. It is acknowledged that the football sectorremains nancially difcult, although there is a desire toassist in delivering on-eld success. The ability to eld acompetitive side and retain control on costs remains achallenge. The player trading activity completed duringthe last year has reected such a balanced approach andthis will be continued as the organisation moves forward.During this time, employment contracts have included agreater element of performance related pay. It is plannedthat this policy be extended and that a greater proportionof remuneration be based on football success. The biggestchallenge facing your Board remains the management ofsalary and transfer costs, whilst achieving playing successin order to yield satisfactory nancial return.

The decision to appoint Ray Clarke as our Head of

International Scouting stemmed from a desire to expandthe search for new footballing talent overseas. Eleven newscouts were taken on during the last nancial year, both inEngland and on the Continent, and their efforts are alreadyshowing encouraging signs.

Overall, the realignment of the rst team squad over the last year has resulted in a meaningful reduction in labour costs.

FOOTBALL OPERATIONS

In winning the SPL Championship and CIS Insurance Cup,Celtic played 45 competitive matches in total duringthe 2005/06 season, winning 33 and losing just 5, with 7matches drawn. It is also pleasing to see our rst teamcommended again this year by the SFA for its conduct on

the eld, nishing in rst place for the second successiveyear in the SFAs annual disciplinary analysis.

Celtics reserve side won the SPL Reserve Championship forthe fth year in succession, playing 22 matches and losing just 3.

In another highly successful year, Celtics Under 19 sidewon their championship for the fourth year in a row,retained the SFA Youth Cup, won the Arcobaleno YouthTournament in Italy and had 6 of the 22 Scotland Under19 squad members at the recent European Championshipswhere Scotland reached the nal. The 6 were Ryan Conroy,Scott Cuthbert, Simon Ferry, Scott Fox, Charles Grant andMichael McGlinchey.

In advance of the start of the new season, the rst team forthe third time in recent years undertook a pre-season tourto North America, playing three matches. This and ourpre-season visit to Poland assists in expansion of the Cluband brand on a global basis.


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In addition, a further match against Yokohama F. Marinoswas played in Japan on 3 August, increasing the Clubsprole in Japan following the signing of ShunsukeNakamura last year.

TICKET SALES

Standard Season Ticket sales reached a record 50,595for the year, generating income of 17.06m. In addition100,506 tickets were sold for home SPL matches at a netvalue of 1.93m.

All SPL matches at Celtic Park were virtually sold out, witha total of over 1.1 million spectators attending SPL xtureshere during the season, an average attendance of 58,193.Supporters are now able to purchase tickets from a varietyof sources including a 24 hour telephone line, on-linethrough the website as well as directly from the TicketOfce.

Following a successful pilot in the North West Lowercorner stand, the Skidata SMART Card System has beenintroduced to the stadiums 105 turnstiles. For the newseason all season ticket holders have been issued with aSMART card. This signicant nancial investment by theClub will deliver a major safety managementimprovement, which will benet all spectatorsvisiting Celtic Park.

YOUTH DEVELOPMENT

Over 2.5 million lottery chances were sold under thevarious schemes operated by Celtic Development Poolsduring the period, with donations of over 1m made to theClub for the purposes of youth development. A similar sumwas paid out in prize money to Celtic supporters from allover the country, an impressive achievement in light of the

challenging times facing small lotteries operated in the UK.The Paradise Windfall matchday draw, with a top prizeof 7,000, enjoyed strong average sales during the yeardespite there being fewer matches as a consequence ofour early exit from Europe and the Scottish Cup. Nextseason will see the top prize rise to 7,500.

2005 also saw the launch of Celtic World Lotto, a newon-line marketing referral syndicate scheme based onthe National Lottery and Euromillions lottery. It allowssupporters from around the world, who cannot participatein Celtic Pools domestic lotteries, the opportunity tosupport Celtic Youth Development.

In May, work commenced on the new state of the art CelticSports Academy and Training Centre in Lennoxtown, whichis scheduled to be operational for the 2007/08 season. It isenvisaged that this will result in an increase in homegrowntalent, building on the tremendous success our youthteams have enjoyed over recent years.

CELTIC FOUNDATION

During the year, the Club decided to consolidate itscommunity work under the new title of the CelticFoundation. This important step will enable Celtics rangeof community-related activities to receive greater focusand improved co-ordination.

The Foundation will incorporate football in the community

and community coaching programmes across bothdomestic and international markets, anti-bigotryinitiatives, including anti-racism and anti-sectarianism,Celtic Charity Fund, Celtic Learning Programmes andthe Learning Centre, the Old Firm Alliance Project, CelticAgainst Drugs and the Support Employment initiative.

The new structure is indicative of the importance Celticattaches to its role in the community. The Foundationwill be working alongside key partners to deliver on policydirection set by the Scottish Executive.

CELTIC IN THE COMMUNITY

Celtic In The Community has developed into one of theleading community football services in the UK sinceits inception in June 2003. It provides a coaching anddevelopment programme to meet the needs of children,teenagers and adults. The range of products and serviceshas grown considerably during this time, providing greateropportunities for all sectors of the community. The Celticin the Community Programme has to date attracted overhalf a million young people and adults from across some ofScotlands most deprived areas. Celtic remains committedto the Programme and has invested signicantly inrecruiting and developing over 100 community coaches.

The Celtic In The Community Programme also providesa potential pathway into our Youth Academy, with over200 youngsters invited into the Development CentreProgramme, ve of whom have already graduated to theelite Academy itself. In Ireland the Community Programmehas become rmly established in partnership with TopightSoccer with over 2,000 youngsters attending courses.

Internationally, Celtic In The Community has deliveredcourses in Canada, Germany and Cyprus and has organisedcoaching clinics in Boston, Seattle, Michigan, Alabama andMelbourne. The reputation of the Club and its supportersprovides real potential to offer new programmes in a varietyof languages throughout a number of international locations,a challenge the Celtic Foundation will be embracing withrelish. The Programmes track record is outstanding with

buy-in from the private, public and voluntary sectors.The Community Department has been instrumental insecuring grant funding to support a number of meaningfulprojects tackling health issues, unemployment, education,antisocial behaviour and social inclusion.

MERCHANDISING

This year was the rst of the new NIKE contract and sawthe successful launch of a new home kit in July 2005 andrecord sales of NIKE training product. Our retail store atGlasgow International Airport generated record incomeper square foot sales at the kit launch.

Merchandise turnover for the year reached 14.34m,

around 42.5% up on last years gure of 10.06m, despiteplaying fewer home games.

This year saw the Celtic home shopping business transferto Kitbag Limited, who operate equivalent services forManchester United, Chelsea and Barcelona. Despite someteething troubles, we are condent this arrangement willgive us the capacity to cope far better with demand goingforward and offer a better service to our customers.

We opened new Celtic retail stores in Coatbridge,Clydebank and Stirling, bringing the total number to14 across Scotland and Ireland. In addition we operateconcessions within Debenhams department stores inGlasgow, Inverness and Ayr, and a further concession

recently opened in Debenhams in Newry.

The agship Celtic Superstore has undergone a major retand re-opened in mid July with the latest NIKE conceptstore look, whilst the new international white away kitenjoyed a successful launch in July 2006.


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MULTIMEDIA

Season 2005/06 saw a change of publisher, with CRE8 nowworking with the Club on producing the Celtic View andthe matchday programme. Both publications increasedin pagination the Celtic View to 72 pages and thematchday programme to 64 pages.

In August 2005, the Celtic View celebrated its 40thanniversary, conrming its position as the oldest weeklyclub publication in football. The high standard of designand production was maintained and enhanced further byour new publishers as we chronicled another successfulseason, and the Celtic View maintained its position as thebest-selling weekly club magazine in British football.

We have developed our Celtic TV relationship with Setantaand moved from joint venture to a licensed agreement,over which Celtic has retained editorial control.

Overseas subscriptions to Celtics Channel 67 Online+service rose to over 2,000 per month, whilst the UK andIreland service, Channel 67, held up well despite the furtheradvance of Celtic TV.

The Multimedia team produced several successfulofcial events including the Neil Lennon Dinner,John Clark Dinner, Player of the Year Dinners inGlasgow and in Dublin, and the AGM.

We have also produced DVDs for News International aspart of a sponsorship deal, as well as end of season DVDsfor the domestic and Japanese markets amongst others.

PUBLIC RELATIONS

During the period, media coverage of Celtic-related issues

has generally been positive. Major media highlights ofthe season included the SPL Championship victory andassociated coverage, the sad passing of Jimmy Johnstoneand the signing of Roy Keane.

Clearly, on the negative side, failure to make theChampions League group stage was a major media issueand the Club received substantial criticism in the press.

The coverage achieved by Celtics Public Relations departmentfor events such as kit launches, new merchandise, retail outletopenings, sponsorship announcements and a range of Clubinitiatives has been excellent.

The passing of Jimmy Johnstone, as well as being a very sad

event for everyone connected to Jimmy, his family and theClub, also developed into one of the largest media eventswhich Celtic has ever known.

PARTNER PROGRAMME

NIKEs rst year as exclusive Club kit manufacturer hasbeen a success, helping grow the global brand awarenessof the Club. Other positive partnership developmentsduring the year included the extension of our contractwith T-Mobile as well as the retention of key long-standingpartners Carling, MBNA, Ladbrokes and Phoenix.

The announcement of Thomas Cook as the Ofcial TravelPartner of Celtic Football Club will give fans improved accessto matchday breaks as well as consolidating responsibility

for all international travel for the team and ofcials.

Largely as a consequence of signing Shunsuke Nakamura,our focus on the Japanese market has enabled us to securea number of productive new business deals. These haveincluded services such as broadband, 3G and DVD, as well

as yielding many sponsorship opportunities. This remainsan important focus of attention for 2006/07.

New online partners and international sponsors will helpsecure our income streams during the season ahead.

STADIUM

During the course of the year, Celtic worked in close liaisonwith the Glasgow City Council Safety Team for SportsGrounds to enhance the management of safety within thestadium. The Club views this partnership approach as keyto spectator safety.

A total smoking ban was introduced at the stadium on 26March to comply with national legislation.

The SMART Card System is designed to improve ease ofaccess to the stadium while providing those responsiblefor public safety duties with the latest technologyavailable in monitoring spectator movement.

The Club will continue to place spectator safety as itshighest priority.

FACILITIES

A number of customer hospitality areas were refurbishedand upgraded during the year, including the South Standboxes and Kerrydale reception and function suite. A newwireless hearing system was installed for the visuallyimpaired supporters group.

In terms of Health and Safety, audits were carried out inrespect of re assessment and the Disability DiscriminationAct and a programme of actions implemented.

CATERING AND CORPORATE HOSPITALITY

The partnership with Lindley, who provide our concoursecatering, continues to work well.

Seasonal hospitality sales remained encouraging despitethe shortfall in European and Scottish Cup home games,whilst Conference and Banqueting and Number 7Restaurant sales were ahead of last year.Number 7 was particularly successful for special events,including St Valentines Day, Mothering Sunday andFathers Day, while the newly refurbished KerrydaleSuite hosted a string of successful conferences,events and dinners.

The number of visitors to the Visitor Centre was well

ahead of the previous year at just under 20,000, generatingadditional revenue for the Club.

SUPPORTER RELATIONS

A new Customer Relationship Management (CRM)database is under construction, which will record allsupporter, partner and customer transactions with theClub. This will enable us to provide an improved service tosupporters and reward those who contributemost to the Club.

WORK WITHIN THE LOCAL COMMUNITY

Celtic was delighted to launch the new Celtic LearningCentre at Celtic Park in May 2006. Built in association withGlasgow City Council, the Centre will provide invaluable

support to improve the education of young peoplethroughout the region.

1,175 local school children beneted from participatingin Celtic Education Programmes during the year, with asuccess rate of 83% on the reason for referral.

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This brings the total to a remarkable 2,794 since theProgrammes were launched back in April 2004. In addition,50 primary school pupils took part in Celtic Learningsliteracy support classes this year and 48 secondary pupilstook part in our web design lessons.

CELTIC CHARITY FUND

Celtic Charity Fund, the Clubs charitable arm, again enjoyeda highly successful year, raising thousands of pounds for arange of worthy causes. The highlight of the year was theCeltic Charity Fund Sporting Dinner, held at Celtic Park.Attended by the football management team, Directors andrst team players, the event was a tremendous success.The SOS Childrens Villages Campaign was the principalbeneciary but numerous other organisations benetedfrom support during the course of the year.

HUMAN RESOURCES

Celtic was awarded the Positive About Disabled Peoplesymbol by Job Centre Plus during the year in recognition ofworking towards fullling its commitments to colleaguesand job applicants with a disability.

Over 90 pupils from local schools enjoyed a week ofstructured work experience at Celtic Park during the year.

The hard work and contribution of all colleagues inanother challenging but successful year is once againgreatly appreciated.

SUMMARY AND OUTLOOK

Much progress was achieved in the current year inimproving the nancial position of Celtic. A year on yearreduction in the retained loss of 4.48m represents a realstep in the right direction. Equally, it is acknowledged

that the football sector remains nancially difcult.However, trading at the beginning of the new nancialyear has been encouraging. Seasonal sales of standard,premium and corporate tickets are at levels comparablewith last year and the launch of the new internationalkit has been very successful. Additional revenue streams

and new commercial contracts have boosted incomeand a more acceptable cost structure has given us thebasis of a sustainable business model going forward.Celtic continues to enjoy relationships with a number ofinternational companies, including NIKE, Carling, T-Mobile,MBNA, Thomas Cook and Kitbag, which together with therevenues generated from our partner programme secure asizeable proportion of our income streams going forward.In addition, a new 4 year domestic television contract hasbeen secured by the SPL, which will provide year on yearincremental revenue.

In the short term we can look forward with optimism toreaping the rewards of last seasons domestic successthough our guaranteed participation in the lucrative groupstage of the UEFA Champions League. This participationallows us to compete with the best teams in Europe,but also provides revenues which allow much greaterexibility in the transfer market. The playing squad hasbeen strengthened during the close season and furtherrecruitment is planned.

Further forward, implementation of the new scoutingnetwork has given Celtic better coverage than ever beforethroughout Europe.

Our Academy continues to produce quality players and,together with our strenuous efforts to retain and recruitthe best, we plan to have a strong, balanced team capableof competing domestically and in Europe. In addition, it isplanned to continue the success achieved in recent yearswith a number of the internally generated youth playersestablishing themselves in the rst team. The completionof the new training academy at Lennoxtown shouldaugment this process in future years. These initiatives,

together with the reduction already achieved in footballlabour costs and the continued planned reduction inamortisation costs will result in a cost base and nancialposition that is sustainable.

Our objectives are to secure domestic football success andto ensure UEFA Champions League football at Celtic Parkon an annual basis.

Peter T Lawwell 16 August 2006Chief Executive


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Financial Review Financial Director, Eric J Riley

ACCOUNTING POLICIESDetails of the main accounting policies adopted by theGroup are disclosed in Note 1 to the Financial Statements.

UK Accounting Standards have begun to converge with

International Accounting Standards. As part of this processCeltic has adopted paragraphs 1 to 50 of FRS25 (nancialinstruments disclosure and presentation) the impact ofwhich is to reclassify certain nancial instruments fromequity to debt. We expect that further disclosures andchanges in reporting will be required in the future asfurther UK Standards converge with IFRS. The FinancialStatements for the year to 30 June 2006 are the rstaudited accounts to be prepared by the group on thisbasis. As a result the comparative gures for the yearended 30 June 2005 have been restated accordingly.

The main requirement of the above is theimplementation of FRS25 (nancial instruments disclosureand presentation) which results in elements of thePreference Shares and Convertible Preferred OrdinaryShares being reclassied as debt and non-equity dividendsbeing reclassied as interest. The impact of this is areduction in reported net assets in comparison to thosereported prior to the implementation of FRS25 and anincrease in reported debt as follows on the table at thebottom of this page.

Other than as noted above, the accounting policiesadopted by the Group are consistent with last year.

FINANCIAL RESULTS

Celtic plc recorded a retained loss for the year to 30 June2006 of 4.22m which is a signicant improvement fromthe 8.71m reported last year. This improvement islargely as a result of savings in costs, amortisation andinterest charges.

Celtics trading results for the year to 30 June 2006 havesuffered dramatically as a result of failing to progressin European competition and also in the TennentsScottish Cup. In addition, the nancial position hasbeen signicantly affected by the adoption of the new

accounting standard FRS25, as outlined above.

However, the capital structure of the organisationwas signicantly improved in December 2005 with thesuccessful completion of the 15m issue of OrdinaryShares which was oversubscribed by approximately1.6m. 10m of the share issue proceeds will be investedin football development with a substantial proportionearmarked for the establishment of the new trainingacademy at Lennoxtown. The remaining 5m of share issueproceeds will assist with debt reduction and strengtheningof the balance sheet. Also in December 2005 Celtic plcformally moved its stock exchange listing from the OfcialList of the UK Listing Authority to AIM.

Group turnover has reduced by 4.76m, 7.7% to 57.41mhaving played 24 home matches in comparison to 27 lastyear. The reduction in income over last year is largely asa result of failing to progress in Europe this season incomparison to being Scotlands sole participant in thegroup stage of the UEFA Champions League last year.

Total operating expenses decreased over last year by4.39m, 7.6% to 53.67m, predominantly due to reducedlabour costs and savings in overheads directly related tothe number of home matches in the year. As a result, protfrom operations of 3.74m compares with 4.1m last year.

The net loss for the year after provision for exceptionalcosts, amortisation of intangible xed assets, loss ondisposal of xed tangible and intangible assets, interestand tax, amounted to 4.22m in comparison to a loss of8.71m in 2005.

30 June 2006000

30 June 2005000

Net assets prior to FRS25 25,911 16,215

FRS25 adjustment (3,814) (4,487)

Revised net assets following FRS25 implementation 22,097 11,728

Debt Position

Cash at bank and in hand 2,914 171

Co-operative Bank loan (12,000) (19,500)

Bank borrowings net of cash (9,086) (19,329)

Other Loans (164) (174)

Debt as reported prior to FRS25 (9,250) (19,503)

Impact of FRS25

Remaining debt from reclassification of non-equity shares due within one year (901) (901)

Remaining debt from reclassification of non-equity shares due after more than one year (3,814) (4,487)

Debt reported under FRS25 (13,965) (24,891)


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last year. This ratio, which incorporates limited revenuefrom European and Tennents Scottish Cup progression,compares with an average of 59.05% recently reportedfor the English Premiership in Season 2004/05. The Boardrecognises the need to maintain strict control of wage

costs in an area that requires to be closely monitored.Wage ination is an area of concern throughout theworldwide football industry that will need to be carefullycontrolled, particularly following the enhanced televisioncontracts that have now been agreed in Scotland andEngland. Celtic plan to achieve a managed ratiobetween turnover and labour costs. Ongoing nancialcontrols are in place to ensure that labour costs aremaintained at a manageable level, particularly in relationto turnover.

EXCEPTIONAL OPERATING EXPENSES

Exceptional operating expenses of 0.58m (2005 : 2.96m)reect 0.18m (2005 : 1.56m) of operating costs and0.40m (2005 : 1.40m) provision for impairment tointangible xed assets.

AMORTISATION COSTS

Total amortisation costs at 5.1m represent a reduction of2.24m, 30.6% in comparison to the previous year, mainlyas a result of the elimination of the charge in respect ofthe football players who left at the end of the 2004/05season and a reduction in the annual charge in respect ofthe contract extensions signed during the 2005/06 seasonoffset by the charge in respect of the new players signedduring that season.

NET LOSS ON DISPOSAL OF INTANGIBLE FIXED ASSETS

The loss on disposal of 0.26m in the current year is largelyrepresented by the sale of John Hartson and the releaseof Didier Agathe. The loss on disposal of 0.14m last yearreects the transfer of Henri Camara and the transfer/release of certain youth players.

LOSS ON DISPOSAL OF TANGIBLE FIXED ASSETSThe loss on disposal of tangible xed assets in the yearof 0.25m reects the disposal of xtures, ttings andequipment in respect of the Kerrydale Suite, Superstore,Walfrid and South Stand following the refurbishment workcarried out.

8

TURNOVER

A summary of turnover per business operation is set out inNote 2 to the Financial Statements and a detailed analysis ofperformance of each operating division is given in the ChiefExecutives Review on pages 3 to 6. The major movements in

turnover in comparison to last year are noted below.

Income from football operations decreased by 4.77m,15.2% to 26.66m, mainly as a result of not progressingin the Tennents Scottish Cup and not participating in thegroup stage of the UEFA Champions League as last year.This reduction was offset by the continued high take-upof standard season tickets following a price increase ofapproximately 3% in addition to the revenues generatedfrom success in the CIS Insurance Cup.

Multimedia revenue has decreased by 4.72m, 28.4% to11.89m, almost entirely as a result of failing to progressin Europe and participate in the group stage of the UEFAChampions League as last year.

Merchandising reported a signicant increase in turnover of4.28m, 42.5% to 14.34m, largely as a result of appointingNIKE as kit supplier and the availability of the NIKE range ofproducts for the rst time. Sales have also beneted fromthe launch of the rst ever home NIKE strip in addition tothe launch of the new green and black NIKE kits.

Income from stadium enterprises has increased by 0.24m,9.6% to 2.78m, mainly as a result of increased conferenceand banqueting revenue.

Youth development income has increased by 0.21m,13.7% to 1.75m over last year, largely as a result of thesuccess of the community soccer schools programme.

OPERATING EXPENSES

Total operating expenses, excluding exceptional operatingcosts, have reduced by 4.39m, 7.6% to 53.67m, largelydue to a reduction in labour costs and other overheadssuch as matchday costs, maintenance, travel andaccommodation and other overheads which are directlyrelated to trading activity and the number of homematches in the year.

Total wage costs reduced by 4.90m, 13.1% to 32.49m asa result of labour savings in professional football and youthdevelopment from last year. Such savings are mainly dueto a reduction in rst team and football management costsfollowing the change in personnel during the year andsavings in success, loyalty and bonus payments to the rstteam this year in comparison to last.

The non-football divisions reported an increase inlabour costs of 0.50m as a result of the facilitiesmanagement team returning in-house, resulting insavings in maintenance costs as noted above, togetherwith increased labour costs as a result of additionalturnover in conference and banqueting and particularly in

merchandising with revenue up 42.5% in comparison withlast year and the opening of 3 new retail units.

There has been a saving in total wage costs in the currentyear. In addition, the ratio of the total labour cost toturnover has reduced to 56.6% from the 60.1% reported


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JOINT VENTURE

At the end of March 2006, Celtic disposed of its 50%shareholding in Setanta CTV Broadcasting Limited. The joint venture reported a breakeven position for the period

until the disposal such that no share of any gain/loss isreported in the Groups Financial Statements for the yearto 30 June 2006 in accordance with FRS9.

INTEREST

The interest charge for the year to 30 June 2006 of1.77m (2005: 2.27m) reects interest due on the Groupsoverdraft and term loan facilities together with thereclassication of the Preference and the CPOshare dividends as interest following the implementationof FRS25.

TAXATION PROVISION

No provision for Corporation Tax is required in respectof the year ended 30 June 2006. The provisional taxcomputation for accounts purposes provides tax lossescarried forward of approximately 44m and an availablecapital allowances pool of 18m as at 30 June 2006.

The value of the deferred tax asset not reected in theFinancial Statements of the Group is 13.80m, which willalso be recoverable to the extent of future tax and protsof the Group.

TANGIBLE ASSETS

The additions to tangible xed assets in the year of 2.99mare represented mainly by upgraded facilities in the

Kerrydale Suite, Walfrid kitchen and South Stand boxes,in addition to land, construction costs, professional feesand interest in respect of the new training academy atLennoxtown. Other additions include improved lowertier seating in the South Stand, safety improvements atCeltic Park, the opening of new stores in Coatbridge andClydebank and further enhancements to informationtechnology equipment.

INTANGIBLE ASSETS

The increase in the net book value of intangible assetsfrom 30 June 2005 of 2.34m to 7.59m reectsthe investment in the playing squad of 8.84m lessthe amortisation charge of 5.10m, the exceptionalimpairment charge of 0.4m and the net book value ofdisposals of 1.00m. The investment in the playing squad islargely represented by the acquisition of Zurawski, Boruc,Virgo, Nakamura, Telfer, Camara, Wilson, Riordan, Sno andJarosik. However, additional capital instalments were alsopaid in respect of existing players.

DEBTORS

The increase in the level of debtors from 30 June 2005 of0.40m is primarily as a result of an increase in amountsreceivable, particularly in respect of television and othertrading revenues.

CREDITORS DUE WITHIN ONE YEARThe increase in creditors falling due within one year from30 June 2005 of 1.40m largely reects an uplift on sumsdue in respect of intangible xed assets.

CREDITORS DUE AFTER MORE THAN ONE YEAR

Creditors due after more than one year is reported as17.19m in comparison to 23.99m the previous year.Much of this reduction is due to the proceeds received

from the share issue at the end of December, resulting ina reduction in Co-operative Bank loans due in more thanone year to 12m (2005 : 19.5m).

FUNDING

Net debt, excluding the reallocation from equity underFRS 25, at 30 June 2006 is 9.25m (2005 : 19.5m) andincludes all bank borrowings and other loans offset bycash at bank and in hand. The reduction from 30 June 2005is principally as a result of the 14.55m net proceeds fromthe share issue together with the cash generated fromtrading in the 12 months to 30 June 2006 being offset bycapital expenditure in respect of transfer fees paid forplayer acquisitions, tangible asset additions and dividendand interest payments.

The Group has internal procedures in place to ensureefcient cashow and treasury management in order tomaximise return and minimise risks where appropriate.Details of the Groups nancial instruments and debtprole are included in Notes 18, 20, 25 and 27 to theFinancial Statements.

INTERNATIONAL ACCOUNTING STANDARDS

The Group will be required to rst adopt InternationalAccounting Standards (IAS) when preparing itsFinancial Statements for the year ended 30 June 2008.

In preparation, the Group has in conjunction with itsauditors, identied the key standards which will impactupon the Financial Statements and have taken steps toensure the availability of comparative gures.

Accounting for nancial instruments, earnings per shareand segmental reporting are those areas where we expectIAS to have the most impact on our Financial Statements.

The reclassication of certain dividends to interest/nancecosts and a different denominator in number of shares usedfor the EPS calculation per IAS33 will result in different EPSbeing quoted under IAS than UK GAAP. It is widely acceptedthat EPS will become more volatile under IAS.

Under IAS14 Segmental Reporting, additional disclosurewill be required as a result of what are dened asreportable segments. The Group has made progress inidentifying such reportable segments and has determinedthat while they are not expected to be signicantlydifferent to the current ve operating divisions, additionalinformation will be required and accounting systems havebeen adapted to accommodate this.

Given the above procedures have been, andcontinue to be, implemented, it is considered thata successful conversion to nancial reporting

under IAS will be achieved.

Eric J RileyFinancial Director

9

16 August 2006


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11

Directors Report

The Directors present their Report together with theaudited nancial statements for the year ended30 June 2006.

PRINCIPAL ACTIVITYThe principal activity of the Group is the operation ofa professional football club, with related and ancillaryactivities.

RESULTS AND DIVIDENDSGroup turnover is reported as 57.41m compared with to62.17m in 2005. Operating costs at 53.67m result in aprot from operations of 3.74m (2005: 4.10m). The losson ordinary activities before taxation amounted to 4.22m(2005: 8.71m as restated).

Dividends will be paid on 31 August 2006 to those

shareholders not participating in the dividendreinvestment scheme. The record dates for the purpose ofthe dividends are:

4% Fixed Preferred Dividend on Convertible PreferredOrdinary Shares 30 June 20066% Preference Shares Dividend 4 August 2006

No Participating Dividend on Convertible PreferredOrdinary Shares is payable.

Mandates representing 722,308 Preference Shares and350,640 Convertible Preferred Ordinary Shares remainin place for the scrip dividend reinvestment schemeintroduced in July 2005. The scheme remains in operationwith approximately 41,000 (2005 : 40,000) of dividendsfor the nancial year being reinvested. For regulatoryreasons the Company was unable to issue a furtherinvitation to join the scheme last year but does intend toissue such an invitation during the nancial year to 30 June2007 to those eligible to participate. Ordinary Shares due

under the scheme will be allotted on 31 August 2006,with certicates and tax vouchers despatched shortlyafter that.

The Directors do not recommend the payment of anOrdinary Share dividend.

The retained loss of 4.22m has been taken to reserves.

BUSINESS REVIEWA review of the Groups business and operational activitiesis contained within the Chairmans Statement, the ChiefExecutives Review and the Financial Review.

EVENTS SINCE THE YEAR ENDSince 30 June 2006, the registration of Scottishinternationalist Kenny Miller was acquired.

INCREASE IN SHARE CAPITALDuring the year the authorised share capital of theCompany was increased from 32,950,000 to34,700,000 by the creation of 175 million new OrdinaryShares of 1p each. 50 million of the new Ordinary Shareswere issued pursuant to an Open Offer and Offer forSubscription in December 2005. Details of the Companysauthorised and issued share capital are set out inNote 21 to the Financial Statements.

FINANCIAL INSTRUMENTSDetails of the nancial instruments used by the Group areincluded in Note 27 of the Financial Statements.

DIRECTORS AND THEIR INTERESTS IN THE COMPANYSSHARE CAPITALThe Directors serving throughout the year and at30 June 2006 and their interests, including those ofconnected persons, in the share capital of theCompany were as follows:

30 June 2006 1 July 2005

Name

No. ofConvertiblePreferredOrdinary

Shares of 1each

No. of Ordinary

Sharesof 1p each

No. of ConvertibleCumulativePreference

Sharesof 60p each

No. ofConvertiblePreferredOrdinary

Shares of 1each

No. of Ordinary

Sharesof 1p each

No. of ConvertibleCumulativePreference

Sharesof 60p each

Brian Quinn CBE 20,000 76,117 7,775 20,000 7,350 7,775

Peter T Lawwell - 356,000 - - 20,000 -

Eric J Riley 8,000 72,387 5,000 8,000 5,000 5,000

Thomas E Allison - 330,000 - - 20,000 -

Dermot F Desmond 8,000,000 32,772,073 5,131,300 8,000,000 6,273,770 5,131,300

Eric Hagman CBE - 7,500 - - 5,000 -

Brian J McBride - 2,187 - - 1,458 -

Brian D H Wilson - 3,000 500 - 1,000 500


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12

Certain of the benecial interests of Brian Quinn inthe shares noted above are held in the name of BrooksMacDonald Services Limited. Similarly, the benecialinterests of Peter Lawwell and Eric Hagman are held inthe name of R.C. Greig Nominees Limited. The benecialinterest of Brian McBride is held in the name of BarclayshareNominees Limited. Mr Desmond is benecially interested inthe shares noted above, which are held in the name of LineNominees Limited.

No changes in Directors shareholdings between 30 June2006 and 16 August 2006 have been reported to theCompany.

Brief biographical details of the Directors serving as at 30June 2006 are as follows:

Brian Quinn, CBE (Chairman) has been a non-executiveDirector since March 1996, and non-executive Chairmansince June 2000. Mr Quinn is chairman of the NominationCommittee and a member of the RemunerationCommittee. He also holds non-executive posts withGenworth Financial Mortgage Insurance Europe Limitedand Qatar Financial Centre Regulatory Authority.

Thomas E. Allison has been a non-executive Director sinceSeptember 2001. He is Chairman of the RemunerationCommittee and a member of the Audit and NominationCommittees. Mr Allison is the nominated SeniorIndependent Director. Mr Allison is Chief Executive ofPeel Ports Limited, a Director of Peel Holdings Limited,Chairman of Wood McKenzie Limited and Eco-EuropeanLimited. He is a member of the Council of CBI Scotland.

Dermot F. Desmond has been a non-executive Director ofthe Company since May 1995. He is chairman and founderof International Investment & Underwriting Limited (IIU),a private investment company. Mr Desmond is a memberof the Nomination and Audit Committees.

Eric Hagman, CBE became a non-executive Director in May2003 and is Chairman of the Audit Committee. Mr Hagmanis also a non-executive director of British PolytheneIndustries plc, the Royal College of Art and ScottishAmerican Investment Trust plc and serves as Chairman ofAon Limited Scotland.

Peter T. Lawwell , Chief Executive, joined the Company in

October 2003 from his position as commercial directorwith Clydeport plc. Previously he held senior positionswith ICI, Hoffman-La-Roche and Scottish Coal. Mr Lawwellis non-executive Chairman of Intelligent Ofce Limited(formerly Electronic Document Services Limited).

Brian J. McBride was appointed to the Board as anon-executive Director in January 2005. Mr McBride ismanaging director of Amazon UK and previously helda similar post at T-Mobile UK Limited. Mr McBride is amember of the Audit and Remuneration Committees.

Eric J. Riley is the Financial Director and joined theCompany in August 1994. Mr Riley is a charteredaccountant and has executive responsibility for operationalareas of corporate strategy and nance. During the year MrRiley was an unpaid non-executive director of the ScottishFootball Association Limited. He joined the Board of theScottish Premier League Limited in July 2006.

Brian Wilson was appointed as a non-executive Directorin June 2005. Formerly a Member of Parliament, Mr Wilsonalso held several ministerial posts during his politicalcareer. He is an experienced journalist and writer and adirector of several private companies.

Policy on appointment of non-executive DirectorsThe Nomination Committee reviews potentialappointments to the Board and makes recommendationsfor consideration by the Board. Re-appointment is notautomatic. When a position becomes or is likely to becomeavailable, the Board, through the Nomination Committee,seeks high quality candidates who have the experience,skills and knowledge which will further the interests ofthe Company and its shareholders. The terms of referenceof the Nomination Committee are published on theCompanys website.

Retirement and re-election of DirectorsIn accordance with the Articles of Association of the

Company, Tom Allison, Eric Hagman and Peter Lawwellretire by rotation. Tom Allison and Peter Lawwell beingeligible, offer themselves for re-election. Brian Quinn andDermot Desmond have each served more than 9 years andin accordance with Rule A7.2 of the Combined Code eachretires and offers himself for re-election.

The Board has reviewed the performance of each of theseindividuals and is satised that they continue to meet thehigh standards expected of Directors of the Company.The Directors recommend that Tom Allison, Peter Lawwell,Brian Quinn and Dermot Desmond be re-elected.

During the year the Company maintained liabilityinsurance for its Directors and ofcers.

SUBSTANTIAL INTERESTSIn addition to the Directors interests set out above, theCompany has been notied or is aware of the followinginterests of over 3% in its issued Ordinary Share capital asat 16 August 2006:

OrdinaryShares of 1p

each

Percentageof IssuedOrdinary

Share capital

Christopher D Trainer 5,933,748 7.32%

John S Keane 4,474,747 5.52%

Michael D Culhane 3,000,000 3.70%

In addition to the Directors interests as set outabove the Company has been notified or is awareof the following interests of over 3% in the issuedConvertible Preferred Ordinary Share capital:-

Registered Owner

ConvertiblePreferredOrdinary

Shares of 1each

Percentageof Issued

ConvertiblePreferredOrdinary

Shares

NY Nominees Ltd 1,600,000 8.88%

Martin ONeill 1,600,000 8.88%

Aurum Nominees Ltd 800,000 4.44%

Natwest FIS Nominees Ltd 800,000 4.44%

Princella Investments Ltd 800,000 4.44%


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DONATIONSDetails of the charitable activities of Celtic and thecharitable donations made by Celtic Charity Fund duringthe year are narrated on pages 25 and 26. The Group alsomade direct charitable donations of 5,800 (2005 : 13,504).

CREDITORS PAYMENT POLICYIt is the Groups policy to pay creditors within the termsagreed when the contract of supply is made, to theextent that the creditors have fullled and performedtheir contractual obligations. Where no terms are agreed,creditors are paid within thirty days of the month end inwhich the invoice is received. The ratio expressed in daysbetween amounts invoiced to the Group by its suppliersin the year and the amounts owed to its trade creditors atthe end of the year was 24 days (2005: 27 days).

GENERAL GROUP POLICIESEmployee CommunicationsColleagues at all levels are kept informed regularly ofmatters that affect the progress of the Group and may beof interest. Presentations are given regularly to colleaguesat Celtic Park with copies circulated to all those unable toattend. Representatives of senior management also meetformally with employee representatives nominated by allbusiness units to consult on business development andoperational matters.

The Company operates a detailed annual appraisal systemfor all regular employees which involves a separate one-

to-one meeting with their line manager. This providesthe opportunity for feedback and comment. An annualperformance bonus scheme is operated in conjunctionwith the appraisal system. Details of this are set out in theRemuneration Report.

Employment PoliciesThe Group is an equal opportunity employer andcommitted to positive policies in recruitment, trainingand career development for all colleagues (and potentialcolleagues) regardless of marital status, religion, colour,race, ethnic origin or disability. The Group is registered

with Disclosure Scotland.

Full consideration is given to applications for employmentby disabled persons where the requirement of the job canbe adequately fullled by a handicapped or disabled person.Where existing colleagues become disabled it is the Groupspolicy, where practical, to provide continuing employmentunder similar terms and conditions and to providetraining and career development. The Group has obtainedrecognition from Jobcentre Plus with the award of the rightto use the Positive about Disabled People logo.

Social ResponsibilityThe Company is proud of its charitable origins and operatespolicies designed to encourage social inclusion. These arereferred to in the Chief Executives Review. The activities ofCeltic Charity Fund are detailed on pages 25 and 26.

Waste paper and materials are recycled where possibleand efforts are being made to reduce energy and waterconsumption.

HEALTH AND SAFETY

The Group operates strict health and safety regulationsand policies. It complies with the requirements of theGreen Guide on Safety at Sports Grounds (4th Edition), andobtains its Safety Certicate each year from Glasgow CityCouncil only after rigorous testing and review. Celtic seeksto achieve consistent compliance at all levels with theHealth and Safety at Work Act etc 1974, the Managementof Health and Safety at Work Regulations 1992 andassociated regulations.

Senior executives meet regularly with employeerepresentatives under the auspices of a Health and SafetyCommittee. This Committee is charged with day-to-daymonitoring of health and safety and working practicesand the creation and implementation of risk assessmentsthroughout the business.

Accident statistics are collated and reported to the Boardat each meeting.

THE INTRODUCTION OF THE EUROThe majority of the Groups business continues to becarried out within the UK, which remains outside EuropeanMonetary Union (EMU). Should that position change,limited modication of certain systems and some training

will be required in order to accommodate dual currencies.These modications will be performed within the timescaleof any UK entry into EMU. Although the costs associatedwith these modications cannot be readily quantied atthis time, in the opinion of the Directors these are unlikelyto have a material impact upon future results.

INFORMATION SUPPLIED TO AUDITORSSo far as each of the Directors is aware at the time theannual report is approved: There is no relevant audit information of which the

Companys auditors are unaware, and They have taken all steps they ought to have taken

to make themselves aware of any relevant auditinformation and to establish that the auditors are awareof that information.

AUDITORSAt the Annual General Meeting on 7 October 2005 PKF(UK) LLP were appointed as auditors to the Company.Accordingly, the audit report has been signed in the nameof PKF (UK) LLP. Following good corporate governancepractice, a tender process for the provision of auditservices to the Group is being conducted. A resolution forappointment of the successful candidate will be proposedat the Annual General Meeting.

BY ORDER OF THE BOARDRobert Howat, Secretary 16 August 2006Celtic Park, Glasgow, G40 3RE

13


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15

Corporate Governance

Following the Extraordinary General Meeting heldon 23 November 2005, the listings of the CompanysOrdinary Shares, Convertible Preferred Ordinary Sharesand Convertible Cumulative Preference Shares on theOfcial List of the UK Listing Authority were cancelled on21 December 2005. These shares were then admitted totrading on the AIM market operated by the London StockExchange on 22 December 2005.

The Company is not obliged under the AIM Rules to applythe Combined Code on Corporate Governance, or reportupon it. However during this transition year, the Companyhas elected to continue to apply the Combined Code in fulland report on the basis of the principles contained in it.This position will be kept under review.

The Board remains committed to providing shareholders

with accurate and detailed information about theperformance of the Company and to the application ofhigh standards in the governance and management of theCompanys affairs.

The Group has complied with the provisions of theCombined Code in force for the accounting period ending30 June 2006 but draws shareholders attention to the factthat the Nomination Committee did not require to meetduring the year.

Board of DirectorsThe Board of Directors has a non-executive chairman,ve other non-executive Directors and two executiveDirectors. No appointments were made to the Boardduring the nancial year. The Chairman was absent forseveral weeks while recuperating from hospital treatment.During that period Brian Wilson undertook responsibilitiesas Acting Chairman.

Tom Allison is the Senior Independent Director.

All Directors stand for election at the rst opportunityarising after appointment, and for re-election at least everythree years after that. Following Combined Code Rule A7.2,

Directors who have held ofce for more than 9 years retireand stand for re-election annually. This approach will beapplied at the forthcoming AGM for Dermot Desmond andBrian Quinn.

Key decisions, including: nancial policies, budgets,strategy and long term planning, major capital expenditure,material contracts, risk management and controls, healthand safety and the appointment of the Companys principalexternal advisers, directors and senior executives areall subject to Board approval. A specic list of mattersreserved for the Board is maintained and applied.

Compliance is monitored by the Company Secretary.

The Companys executive management are delegatedwith authority to enter into and implement contracts

authorised by the Board or otherwise falling withinspecied authorisation levels, conduct the Companysday-to-day operations and implement Board decisions andgeneral strategy. Detailed reports are provided at eachBoard meeting.

IndependenceThe Board has assessed the independence of each of thenon-executive Directors, taking account of the factorsstated in the Combined Code.

Dermot Desmond has completed more than nine yearsservice and has a substantial shareholding. The Chairman,Brian Quinn, has also completed more than nine yearsservice as a director.

The Board has considered the tests stated in the Combined

Code and is entirely satised that in their work forand support of the Company these individuals displayindependence of mind and judgement and objectivity inthe contributions they make.

The Board has therefore determined that all of thenon-executive Directors are independent.

The non-executive Directors do not participate inCompany share option schemes, pension plans or thebonus scheme. Save for individual shareholdings, none ofthe Directors has a nancial interest in the Company.

Review of Director performanceThe Board has conducted an evaluation of its performanceand that of its Committees, the Chairman and each ofthe non-executive Directors. This was done by way of adetailed condential questionnaire issued to all Directors.The results have been discussed in detail by the Board andcomments noted.

All non-executive Directors were considered to haveperformed well and to have met the high standardsexpected of a Director of the Company. Where any trainingor development need arises or is identied, the Company

will fund attendance at relevant seminars and courses.

The performance of executive Directors is evaluatedformally by the Remuneration Committee, against specicobjectives set early in the nancial year.


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16

Attendance

Twelve Board meetings and 3 meetings of each of the

Audit and Remuneration Committees were held during theyear. The Nomination Committee did not meet.

Peter Lawwell, Brian McBride, Eric Riley and Brian Wilsonattended all Board and Committee meetings for whichthey were eligible. Mr Hagman attended all meetings forwhich he was eligible except for one Board meeting due toa pre-existing commitment. Mr Desmond did not attendany Board or Committee meetings personally but wasrepresented at all meetings for which he was eligible.

Brian Quinn missed 3 Board meetings and 1 meeting of theRemuneration Committee as a result of hospital treatmentand convalescence. Tom Allison did not attend 2 Boardmeetings and missed one meeting of each of the Audit andRemuneration Committees, also as a result of illness.

The Board is satised that where a Director has notattended a meeting there is sufcient and appropriate

reason. Mr Desmond is represented regularly by analternate, Mr Michael Walsh, who speaks with the fullauthority of Mr Desmond. The Chairman also speakswith Mr Desmond before Board meetings as well asregularly with all Directors and where they are unable toattend or be represented at a meeting, establishes andcommunicates their views on the business of the meeting,on their behalf.

The Board is supplied in a timely fashion with appropriateinformation.

All Directors are entitled to seek professional advice, at theCompanys expense, to assist them in the performance oftheir duties. The Directors also have access to the adviceand services of the Company Secretary.


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17

Board Committees

The Board has three standing committees to whichcertain responsibilities are delegated, namely: Audit,Remuneration and Nomination. Each Committee haswritten terms of reference. These are published on theCompanys website.

Membership of each standing Committee is restricted tonon-executive Directors. Only independent non-executiveDirectors are entitled to sit on the Audit and RemunerationCommittees. Executive Directors, the Company Secretaryand other executives and advisers attend certainCommittee meetings as required, but are notCommittee members.

Audit Committee

The Committee consists of Eric Hagman (Chair), TomAllison, Dermot Desmond, and Brian McBride. It met threetimes in the year. The external auditor, CompanySecretary, Financial Director and other members ofthe accounting team attend routinely. Business is alsoconducted without executive Directors and the auditorsbeing present, when appropriate.

The Audit Committee has a number of key roles: review of Groups accounting policies, internal controls

and nancial reporting monitoring health and safety

risk management and business continuity planning monitoring the scope, quality and independence of theexternal and internal audit functions

appointment and fees of the external auditors.

The auditors are required to disclose any potentialconicts, contracts with the Company and non-auditwork conducted by them. The Company has guidelines inplace governing the appointment of professional advisers,including the auditors.

The Audit Committee, on behalf of the Board, was satised

that audit objectivity and independence had beenmaintained during the year.

Remuneration Committee

This Committee met on 3 occasions in the last nancialyear. Tom Allison chairs this Committee with Brian Quinnand Brian McBride being the other members.

The Remuneration Committee determines the termsof engagement and remuneration of the Companysexecutive Directors, Company Secretary and certain seniorexecutives, on behalf of the Board. The Committee also

monitors the Companys executive share option schemeand implementation of other executive and employeeincentive schemes. The Remuneration Report is set out indetail on pages 19 to 22.

Nomination Committee

This Committee comprises Brian Quinn as Chairman,Dermot Desmond and Tom Allison. It meets as necessary,principally to consider and recommend new appointmentsto the Board and senior positions in the Company forsuccession purposes. The Committee did not meet duringthe nancial year. Executive search consultants are usedby the Committee where considered appropriate but werenot used in the course of this year.

INVESTOR COMMUNICATION

Dialogue with shareholders remains an important part ofthe Boards work.

Matchday events and investor dinners are used asinformal, but effective methods of communicating withshareholders. The Annual General Meeting in particularis used to encourage participation of shareholders.Extraordinary General Meetings were held in July 2005for the purpose of introducing the dividend reinvestmentscheme and again in November 2005 relating to theproposed share issue and changes to the Articles ofAssociation. Open Days were held at Celtic Park in advanceof these events and various presentations were given.At each of these events shareholders are invited to askquestions and to meet with the Directors informally.

The Companys website is used to provide information

on an ongoing basis and the Group Financial Statementsand other information are published there shortlyafter release.

REPORTING AND INTERNAL CONTROLS

The Boards Review of Internal Control

Risk management, compliance and internal controlprogrammes are approved, monitored and reviewed by theAudit Committee throughout the year on behalf of theBoard. The results of these programmes are reported tothe Audit Committee in detail at each of its meetings andthen communicated to the Board at the next following

Board meeting.

The Board is satised that there is an ongoing andeffective process for identifying, assessing and managingall signicant risks facing the Group.

Internal Financial Control

The Board has ultimate responsibility for ensuring that abalanced and understandable assessment of theGroups nancial position and prospects is presented.The Annual Report and Financial Statements are anessential part of this presentation. The Directors are

committed to achieving high levels of disclosurewithin the connes of preserving the Groupscompetitive position and maintaining commercialcondentiality.


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18

The internal nancial control procedures are designed togive reasonable but not absolute assurance that the assetsof the Company and the Group are safeguarded againstmaterial misstatement or loss and that proper accountingrecords are maintained.

The key features of the control system are as follows:

Control Environment: an appropriate framework is inplace to plan, control and monitor the Groups activitiesincluding an annual budget and a rolling ve year plan.Business Risk Assessment: the nancial implicationsof signicant business risks are kept under review andcontrolled by the Board.Financial Reporting: comprehensive internal forecastingis carried out and updated regularly. Monthly results arereported and signicant variances from budget identiedand investigated.

The effectiveness of the system of internal nancialcontrol takes account of any material developments thathave taken place in the Group and in applicable rules andlegislation. The review is currently performed on the basisof the criteria in the Turnbull Guidance.

GOING CONCERN

After making enquiries, the Directors have a reasonableexpectation that the Company and the Group haveadequate resources to continue in operational existencefor the foreseeable future. For this reason, they continueto adopt the going concern basis in preparing theFinancial Statements.


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Remuneration Report

REMUNERATION REPORTThis Report has been prepared in accordance withapplicable regulations. It has been approved and adoptedby the Board. The information contained within the tableson pages 20 and 22 and the paragraphs entitled Pension

and Share options below has been subject to audit inaccordance with The Directors Remuneration ReportRegulations 2002.

The Remuneration Committee (the Committee)The Committee has formal terms of reference which arepublished on the Companys website. The Committeemembers serving during the year are identied on page 17.

Remuneration PolicyNotwithstanding the move to AIM, and the removal of theobligation to apply the Combined Code, the Company haselected to report against these requirements for the yearended 30 June 2006 and conrms that it has complied withthe Code during that period in connection with executiveremuneration in force during that time.

The main objective remains to attract, retain and motivateexperienced and capable individuals who will make asignicant contribution to the Companys success butwithout paying more than is reasonable or necessary.Account is taken of the level of remuneration packagesavailable within other comparable companies and sectors,the Companys performance against budget in the yearand against actual performance from year to year.Specic corporate and personal objectives are used for

executive Directors and certain senior executives. A similarappraisal system is also applied to regular employeesthroughout the Company.

The Committee obtains advice from the Company

Secretary, Head of Human Resources and fromindependent research. External consultants were not usedduring the year.

The service contracts of executive Directors can beterminated on no more than one years notice anddo not provide for pre-determined compensation ontermination, or for loss of ofce. Compensation due, if any,is determined by reference to the applicable notice periodand reason for termination.

The Company operates an annual bonus scheme for all ofits regular employees in order to encourageout-performance, and motivate and retain staff.

The Celtic plc Executive Share Option Scheme expiredin December 2004 and has not been replaced. Optionsgranted prior to then are not affected. Further details onoutstanding share options are given below.

Remuneration of Executive Directors and SeniorExecutivesPayments made to Directors in the nancial year areset out in the table on page 22. There are several mainelements to the Companys executive remunerationpackages:

Basic salary and benetsThe Committee reviews base salaries for executiveDirectors and senior executives annually, on promotionand exceptionally during the year if signicant additionalresponsibilities have been undertaken.

Benets for executive Directors include the provision of afully expensed company vehicle or equivalentnon-pensionable vehicle allowance, relocation allowance,private medical insurance and critical illness cover. Thesebenets may be, but are not automatically, extendedto senior executives. Those receiving such benets areassessed for income tax on them.

The Company allows all regular employees a discount onCompany merchandise and products.

Annual Performance Related Bonus SchemeThe Group operates a bonus scheme for executiveDirectors and all full and part-time employees on regularcontracts, with the following key objectives:

Improving and sustaining the nancial performance ofthe Group from year to year;

Delivering and enhancing shareholder value;

Enhancing the reputation and standing of Celtic;

Delivering consistently high standards of service toCeltic and its customers; and


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Attracting, retaining and motivating talented individualswhose skills and services will enable Celtic to meet itsstrategic objectives.

Performance conditions reect corporate nancial

performance and satisfaction of personal objectives.Corporate nancial performance incorporates bothperformance against budget and the previous yearsresults. Maximum award levels depend upon seniorityand contractual entitlements. The awards range from amaximum of 20% of salary to a maximum of 60% of salary.The Committee reviews the bonus scheme structure andperformance conditions annually. Bonus payments are notpensionable.

Football players and the football management team aresubject to a separate bonus scheme that rewardson-eld success.

PensionThe Company operates a Group pension plan, withdened contributions, in which the Financial Director,several senior executives and a number of otheremployees participate. Pension contributions for PeterLawwell are made to an independent pension provider.Stakeholder arrangements are available to qualifyingemployees. The Company does not operate any denedbenet (nal salary) schemes.

Share optionsThe Celtic plc Executive Share Option Scheme (theScheme) expired in December 2004, having been in place

for ten years. No further grants of options can be madeunder it. The only Directors participating in the Scheme are PeterLawwell and Eric Riley.

The last grant of options over Ordinary Shares of 1p underthe Scheme was on 27 October 2003 to Peter Lawwell atan option price of 51p. The options granted then and inthe preceding grant in September 2001, including thosegranted to the Directors, are exercisable in total only afterthree years from the date of grant and provided that overthree consecutive nancial years:

the increase in market value of the Companys shareswould place the Company in the top one third ofcompanies within the Leisure, Entertainment and Hotelssector of the FTSE; and

if the percentage growth in earnings per share overthree consecutive nancial years exceeds percentagegrowth in RPI over the same period by an average of atleast 3% per year.

The performance criteria stated above are regarded asa challenging and realistic test of comparative nancialperformance, with a view to securing consistent growthand shareholder return against the sector. These options,unless exercised or lapsing earlier, lapse on the tenthanniversary of the date of the grant.

The interests of executive Directors serving during theyear under the Scheme are set out in the table at thebottom of this page.

On 24 April 1997, a limited number of employees weregranted options over Ordinary Shares (then having anominal value of 1.00 each, now 1p each) at the marketvalue on that date of 3.00. None of those options lapsedduring the year. At the balance sheet date, options fromthat grant over 60,000 Ordinary Shares of 1p remained.These options are exercisable at any time between 24 April2002 and 24 April 2007 and are not subject to performanceconditions.

No options over Ordinary Shares from the grant inSeptember 2001 lapsed during the year. At 30 June 2006,the total number of options outstanding over OrdinaryShares, including those of the executive Directors andthose remaining from the grant in 1997 was 1,283,704.

50,000,000 new Ordinary Shares of 1p each were allottedand issued during the year under the Open Offer and Offerfor Subscription in December 2005. Under the terms ofthe Scheme, in such circumstances the number of sharesover which options subsist and the acquisition price, areto be adjusted in such manner as the Companys auditorsconsider is fair and reasonable. The prior consent ofH M Revenue and Customs to any adjustment is required.Advice has been received from the Companys auditors inaccordance with this requirement but no change has beenimplemented pending HM Revenue and Customs approval.

The market price of Ordinary Shares on 30 June 2006 was27.0p (2005: 61.5p). The price range during the year was27.0p to 61.5p.

Balance at1 July 2005

NumberGranted2005/06

Exercised/Lapsed

2005/06

Balance at30 June 2006

NumberExercise

price ClassOptionPeriod

P T Lawwell 588,234 - - 588,234 51.0p Ordinary 1p Oct 2006/13

E J Riley 413,053 - - 413,053 107.5p Ordinary 1p Sept 2004/11


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Service AgreementsExecutive DirectorsPeter Lawwells service contract as Chief Executivecommenced on 25 October 2003. It continues subjectto 12 months notice by him to the Company or by the

Company to him. Mr Lawwell is, with the consent of theCompany, non-executive chairman of Intelligent OfceLimited (formerly Electronic Document Services Limited).He retains the annual fee of 17,500 payable for that post.Mr Lawwell is entitled to a maximum payment under theCompanys bonus scheme of 60% of basic salary, if allperformance conditions are satised.

Eric Rileys service agreement as Financial Directorcommenced on 19 August 1994 and continues subject totermination on twelve months notice from the Company,or three months notice from the Financial Director.Mr Riley is entitled to a maximum payment under theCompanys bonus scheme of 50% of basic salary, if allperformance conditions are satised. Mr Riley serves as anon-executive director of the Scottish Football AssociationLimited and of The Scottish Premier League Limited. No feeis payable for either post.

Termination by the Company of the contracts of theseDirectors on shorter notice than provided for in thecontracts, other than for misconduct, would be likely tocreate a requirement for payment of compensation relatedto the unexpired element of the notice period.

Non-executive DirectorsIndividual letters govern the appointments of the

Chairman and the non-executive Directors. Typically,non-executive Directors are expected to serve for at leastthree years. All appointments provide for a stated duration,in accordance with best practice.

Remuneration of DirectorsDirectors remuneration and benets are set out in thetable opposite.

Remuneration of non-executive Directors is for service onthe Board and its Committees and is reviewed by the Boardas a whole each year against fees in comparable companiesof a similar size and taking account of overall nancialperformance of the Company. No increase in non-executiveDirector fees was applied during the year. There has beenno increase in non-executive Directors fees since 1998.

The non-executive Directors have no personal nancialinterest other than as shareholders. They are not membersof the Companys pension scheme and do not participatein any bonus scheme, share option or other prot schemes.All Directors are entitled to one seat in the Presidential Box

without charge for each home match, to assist them inperforming their duties.

The Company Chairman is entitled to take up to 50% of hisfees in Ordinary Shares of the Company and has the use ofa Company car and driver on Company business.

Shareholder ReturnThe graph below compares the total shareholder returnon an investment of 100 in the Ordinary Shares of Celticplc over a ve year period commencing on 1 July 2001with the total shareholder return over the same periodon a notional investment of 100 made up of shares ofthe same kinds and number as those by reference towhich the FTSE Leisure and Hotels index is calculated. Inthe opinion of the Directors, the FTSE Leisure and Hotelsindex, of which the Company is a constituent, is currentlythe most appropriate index against which the totalshareholder return of the Company should be measured, asit is most likely to be used by investors, shareholders andmanagement as a measure of performance in the leisureand hotel sector. This index includes other listed footballclubs and is currently utilised as the benchmark againstwhich performance under the Companys Executive ShareOption Scheme is assessed. Total shareholder returnrepresents the change in value of a holding of sharesover the relevant period assuming immediate

reinvestment of dividends.

The Chairman of the Committee will be available to answerquestions concerning Directors remuneration at theCompanys Annual General Meeting.

BY ORDER OF THE BOARD

Robert Howat, Secretary 16 August 2006Celtic ParkGlasgow, G40 3RE

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PERFORMANCE GRAPH


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Statement of Directors' Responsibilities

Company law requires the Directors to prepare FinancialStatements for each nancial year which give a true andfair view of the state of affairs of the Company and theGroup and of the Groups prot or loss for that period. Inpreparing those Financial Statements, the Directors arerequired to:

select suitable accounting policies and then apply themconsistently;

make judgements and estimates that are reasonableand prudent;

state whether applicable accounting standards havebeen followed, subject to any material departuresdisclosed and explained in the Financial Statements; and

prepare the Financial Statements on the going concernbasis unless it is inappropriate to presume that theCompany will continue in business.

The Directors are responsible for keeping properaccounting records which disclose with reasonableaccuracy at any time the nancial position of theCompany and the Group and enable them to ensure that

the Financial Statements comply with the CompaniesAct 1985. They are also responsible for safeguarding theassets of the Company and the Group and henc

celtic report 06

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