OPERATING AND FINANCIAL REVIEW
continued
Merchandising and licensing revenues decreased by £0.7m from £5.9m to £5.2m. The main cause of the decrease was a reduction in licensing income of £0.7m due to a fall off of sales of the England shirt and other merchandise. £0.3m of the decline was in our retail business due to a variety of factors, all of which were also prevalent in 2005/06. The continuing poor performance of the England team, the loss of a retail unit in the old South Stand, the disappointing sales of the England shirt and a difficult retail market all had their effect. Current sales levels are now at approximately half the level they reached at
their peak in 2003/04 following England’s victory at RWC 2003. We will continue to monitor sales carefully in the coming period to ensure that we take the appropriate remedial action should business not pick up significantly. Travel and leisure revenues increased by £0.3m from £0.5m to £0.8m, being the first full year’s trading income from the RFU’s recently established subsidiary company, England Rugby Travel Limited.
Other income comprises stadium rental income, income from hosting non-RFU events, grant income from Government and other public bodies and miscellaneous other categories. Total income from these sources increased by £4.9m from £6.8m to £11.7m. Included in this total is a net gain to the group of £4.9m from the sale of new hospitality rights to the South Stand to Twickenham Experience, with the net gain representing the contribution from outside shareholders. Other major changes included a reduction in Community Rugby income of £0.8m, mainly due to reduced funding for the Active Sports and Approved Coaching Centres programmes, an increase in income from concerts of £0.7m and an increase in facility fees of £0.8m, primarily due to the staging of the final of the Heineken Cup.
Costs
Total costs increased by £9.1m from £66.5m to £75.6m with the main increases being due to revenue related increases in direct costs together with a number of non-recurring and one-off items in Business and Administration costs. Direct costs, which comprise all costs directly associated with generating revenue in each category, increased by £4.5m from £18.7m to £23.2m, broken down as follows:
Direct Costs
| 2007 | 2006 | |
| £m | £m | |
| Ticket income | 4.9 | 2.8 |
| Sponsorship | 0.6 | 0.7 |
| Hospitality and catering | 12.4 | 9.1 |
| Merchandising and liscensing | 4.5 | 5.6 |
| Travel and leisure | 0.6 | 0.3 |
| Other Income | 0.2 | 0.2 |
| 23.2 | 18.7 |
Sponsorship and other costs were broadly flat year-on-year, with no major underlying changes. Ticket income costs increased by £2.1m from £2.8m to £4.9m mainly due to costs of £2.5m associated with the England v New Zealand match, offset by a reduction of £0.6m due to the fact that we did not stage an England v Barbarians match in 2007. Hospitality and catering direct costs increased by £3.3m from £9.1m to £12.4m for the same reasons as explained above in the Revenue section. Merchandising and licensing costs decreased by £0.9m from £5.6m to £4.5m. This represents a decrease of 20% compared to a reduction in total revenues of 12% – this is mainly due to the fact 2005/06 contained a higher than usual inventory write down due to old England and Lions stock. Travel and leisure direct costs are the costs of the first full year of operation of the RFU’s new subsidiary, England Rugby Travel Limited.
Elite rugby costs decreased by £0.5m from £13.0m to £12.5m. Most of the underlying infrastructure costs remained flat in real terms, with no major increased investment following the completion of the elite rugby restructure in 2006 and the appointment of the new Elite Rugby Director. Player fees increased by £1.0m primarily due to the impact of a new agreement on player fees between the RFU, PRL and the PRA. Offsetting this were minor reductions in a number of different areas, including Sevens, the U21 programme, the U19 programme and the England Rugby Academy programme.
Community rugby costs increased by £1.1m from £14.1m to £15.2m, of which £0.3m was due to internal cost reallocations. As with elite rugby costs, the underlying level of investment remained flat in most infrastructure areas, following a period of substantially increased investment in recent years. We did, however, increase our underlying investment in areas identified as a priority in our annual Business Plan, including
We will continue to monitor sales carefully in the coming period to ensure that we can take the appropriate remedial action