Manchester United plc 2019 Third Quarter Results

World News: . []

Manchester United (NYSE: MANU; the “Company” and the “Group”) – one of the most popular and successful sports teams in the world - today announced financial results for the 2019 fiscal third quarter ended 31 March 2019.

Highlights

  • Ole Gunnar Solskjær appointed as permanent manager on a three year contract
  • Manchester United Women promoted to Women’s Super League, winning the FA Women’s Championship title
  • Announced global partnership with Marriott
  • Announced global partnership and licensing agreement with Maui Jim eyewear

Commentary

Ed Woodward, Executive Vice Chairman, commented, "After a turbulent season, everyone at Manchester United is focussed on building towards the success that this great club expects and our fans deserve. Preparations for the new season are underway and the underlying strength of our business will allow us to support the Manager and his team as we look to the future."

Outlook

For fiscal 2019, Manchester United continues to expect:

  • Revenue to be £615m to £630m.
  • Adjusted EBITDA to be £175m to £190m.

Key Financials (unaudited)

£ million (except earnings/(loss) per share)       Three months ended

31 March

      Nine months ended

31 March

           
       

2019

      Restated(1)

2018

     

Change

     

2019

      Restated(1)

2018

     

Change

Commercial revenue       66.6       66.6       0.0%       208.4       212.4       (1.9%)
Broadcasting revenue       53.8       49.4       8.9%       200.3       165.4       21.1%
Matchday revenue       31.7       31.1       1.9%       87.0       90.4       (3.8%)
Total revenue       152.1       147.1       3.4%       495.7       468.2       5.9%
Adjusted EBITDA(2)       41.2       45.7       (9.9%)       174.9       166.2       5.2%
Operating profit       14.2       7.3       94.5%       72.1       67.4       7.0%
 
Profit/(loss) for the period (i.e. net income/(loss))(3)       7.7       6.9       11.6%       41.1       (3.2)       -
Basic earnings/(loss) per share (pence)       4.65       4.20       11.0%       24.96       (1.97)       -
Adjusted profit for the period (i.e. adjusted net income)(2)       7.8       1.5       420.0%       61.1       36.7       66.5%
Adjusted basic earnings per share (pence)(2)       4.72       0.91       418.7%       37.12       22.38       65.9%
 
Net debt(2)/(4)       301.7       301.3       0.1%       301.7       301.3       0.1%

(1)

  Comparative amounts have been restated following the implementation of IFRS 15 – see supplemental note 5 for further details.

(2)

Adjusted EBITDA, adjusted profit for the period, adjusted basic earnings per share and net debt are non-IFRS measures. See “Non-IFRS Measures: Definitions and Use” on page 5 and the accompanying Supplemental Notes for the definitions and reconciliations for these non-IFRS measures and the reasons we believe these measures provide useful information to investors regarding the Group’s financial condition and results of operations.

(3)

The US federal corporate income tax rate reduced from 35% to 21% following the enactment of US tax reform on 22 December 2017. This necessitated a re-measurement of the then existing US deferred tax position in the period to 31 December 2017. As a result the loss for the nine months ended 31 March 2018 included a non-cash tax accounting write off of £49.0 million.

(4)

The gross USD debt principal remains unchanged.

Revenue Analysis

Commercial

Commercial revenue for the quarter was £66.6 million, unchanged from the prior year quarter.

  • Sponsorship revenue for the quarter was £41.6 million, unchanged from the prior year quarter;
  • Retail, Merchandising, Apparel & Product Licensing revenue for the quarter was £25.0 million, unchanged from the prior year quarter.

Broadcasting

Broadcasting revenue for the quarter was £53.8 million, an increase of £4.4 million, or 8.9%, over the prior year quarter, primarily due to the new UEFA Champions League broadcasting rights agreement and playing one additional PL game.

Matchday

Matchday revenue for the quarter was £31.7 million, an increase of £0.6 million, or 1.9%, over the prior year quarter.

Other Financial Information

Operating expenses

Total operating expenses for the quarter were £144.2 million, an increase of £7.8 million, or 5.7%, over the prior year quarter.

Employee benefit expenses

Employee benefit expenses for the quarter were £84.8 million, an increase of £9.7 million, or 12.9%, over the prior year quarter, primarily due to investment in the first team playing squad.

Other operating expenses

Other operating expenses for the quarter were £26.1 million, a decrease of £0.2 million, or 0.8%, over the prior year quarter.

Depreciation & amortization

Depreciation for the quarter was £2.8 million, an increase of £0.2 million, or 7.7%, over the prior year quarter. Amortization for the quarter was £30.5 million, a decrease of £1.9 million, or 5.9%, over the prior year quarter. The unamortized balance of registrations at 31 March 2019 was £288.0 million.

Profit/(loss) on disposal of intangible assets

Profit on disposal of intangible assets for the quarter was £6.3 million compared to a loss of £3.4 million in the prior year quarter.

Net finance (costs)/income

Net finance costs for the quarter were £3.1 million, compared to net finance income of £1.0 million in the prior year quarter, due to a reduction in unrealized, non-cash foreign exchange gains on unhedged USD borrowings compared to the prior year quarter.

Tax

The tax expense for the quarter was £3.4 million, compared to £1.4 million in the prior year quarter.

Cash flows

Net cash generated from operating activities for the quarter was £22.2 million, an increase of £1.0 million over the prior year quarter.

Net capital expenditure on property, plant and equipment for the quarter was £1.6 million, an increase of £0.6 million over the prior year quarter.

Net capital expenditure on intangible assets for the quarter was £2.0 million, an increase of £3.3 million over the prior year quarter.

Overall cash and cash equivalents (including the effects of exchange rate changes) increased by £3.5 million in the quarter compared to an increase of £6.4 million in the prior year quarter.

Net debt

Net debt as of 31 March 2019 was £301.7 million, an increase of £0.4 million over the year. The gross USD debt principal remains unchanged.

Dividend

A semi-annual dividend of $0.09 per share was paid during the quarter. A further semi-annual dividend of $0.09 per share will be paid on 5 June 2019, to shareholders of record on 26 April 2019. The stock began trading ex-dividend on 25 April 2019.

Conference Call Information

The Company’s conference call to review third quarter fiscal 2019 results will be broadcast live over the internet today, 16 May 2019 at 8:00 a.m. Eastern Time and will be available on Manchester United’s investor relations website at http://ir.manutd.com. Thereafter, a replay of the webcast will be available for thirty days.

About Manchester United

Manchester United is one of the most popular and successful sports teams in the world, playing one of the most popular spectator sports on Earth.

Through our 141-year heritage we have won 66 trophies, enabling us to develop what we believe is one of the world’s leading sports brands and a global community of 659 million followers. Our large, passionate community provides Manchester United with a worldwide platform to generate significant revenue from multiple sources, including sponsorship, merchandising, product licensing, broadcasting and matchday.

Cautionary Statement

This press release contains forward-looking statements. You should not place undue reliance on such statements because they are subject to numerous risks and uncertainties relating to the Company’s operations and business environment, all of which are difficult to predict and many are beyond the Company’s control. Forward-looking statements include information concerning the Company’s possible or assumed future results of operations, including descriptions of its business strategy. These statements often include words such as “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “seek,” “believe,” “estimate,” “predict,” “potential,” “continue,” “contemplate,” “possible” or similar expressions. The forward-looking statements contained in this press release are based on our current expectations and estimates of future events and trends, which affect or may affect our businesses and operations. You should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions. Although the Company believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect its actual financial results or results of operations and could cause actual results to differ materially from those in these forward-looking statements. These factors are more fully discussed in the “Risk Factors” section and elsewhere in the Company’s Registration Statement on Form F-1, as amended (File No. 333-182535) and the Company’s Annual Report on Form 20-F (File No. 001-35627).

Non-IFRS Measures: Definitions and Use

1. Adjusted EBITDA

Adjusted EBITDA is defined as profit/(loss) for the period before depreciation, amortization, profit/(loss) on disposal of intangible assets, exceptional items, net finance (costs)/income, and tax.

Adjusted EBITDA is useful as a measure of comparative operating performance from period to period and among companies as it is reflective of changes in pricing decisions, cost controls and other factors that affect operating performance, and it removes the effect of our asset base (primarily depreciation and amortization), material volatile items (primarily profit on disposal of intangible assets and exceptional items), capital structure (primarily finance costs), and items outside the control of our management (primarily taxes). Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for an analysis of our results as reported under IFRS as issued by the IASB. A reconciliation of profit for the period to Adjusted EBITDA is presented in supplemental note 2.

2. Adjusted profit for the period (i.e. adjusted net income)

Adjusted profit for the period is calculated, where appropriate, by adjusting for charges/credits related to exceptional items, foreign exchange gains/losses on unhedged US dollar denominated borrowings, and fair value movements on embedded foreign exchange derivatives, adding/subtracting the actual tax expense/credit for the period, and subtracting/adding the adjusted tax expense/credit for the period (based on a normalized tax rate of 21%; 2018: 28%). The normalized tax rate of 21% is the current US federal corporate income tax rate.

In assessing the comparative performance of the business, in order to get a clearer view of the underlying financial performance of the business, it is useful to strip out the distorting effects of the items referred to above and then to apply a ‘normalized’ tax rate (for both the current and prior periods) of the weighted average US federal corporate income tax rate of 21% (2018: 28%) applicable during the financial year. A reconciliation of profit/(loss) for the period to adjusted profit for the period is presented in supplemental note 3.

3. Adjusted basic and diluted earnings per share

Adjusted basic and diluted earnings per share are calculated by dividing the adjusted profit for the period by the weighted average number of ordinary shares in issue during the period. Adjusted diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue during the period to assume conversion of all dilutive potential ordinary shares. There is one category of dilutive potential ordinary shares: share awards pursuant to the 2012 Equity Incentive Plan (the “Equity Plan”). Share awards pursuant to the Equity Plan are assumed to have been converted into ordinary shares at the beginning of the financial year. Adjusted basic and diluted earnings per share are presented in supplemental note 3.

4. Net debt

Net debt is calculated as non-current and current borrowings minus cash and cash equivalents.

Key Performance Indicators

    Three months ended   Nine months ended
  31 March   31 March
   

2019

  Restated(1)

2018

 

2019

  Restated(1)

2018

Commercial % of total revenue   43.8%   45.3%   42.0%   45.4%
Broadcasting % of total revenue   35.4%   33.6%   40.4%   35.3%
Matchday % of total revenue   20.8%   21.1%   17.6%   19.3%
Home Matches Played                
PL   5   5   15   16
UEFA competitions   1   1   4   4
Domestic Cups   1   2   2   3
Away Matches Played                
PL   6   5   16   15
UEFA competitions   1   1   4   5(2)
Domestic Cups   3   2   3   4
 
Other                
Employees at period end   950   930   950   930
Employee benefit expenses % of revenue   55.8%   51.1%   48.4%   45.9%

(1)Comparative amounts have been restated – see supplemental note 5 for further details.

(2) Includes UEFA Super Cup final following UEFA Europa League win in 2016/17

 

 

 

Phasing of Premier League games Quarter 1   Quarter 2   Quarter 3   Quarter 4   Total
2018/19 season 7   13   11   7   38
2017/18 season 7   14   10   7   38
       
 
CONSOLIDATED STATEMENT OF PROFIT OR LOSS

(unaudited; in £ thousands, except per share and shares outstanding data)

  Three months ended

31 March

  Nine months ended

31 March

  2019   Restated(1)

2018

  2019   Restated(1)

2018

Revenue 152,068   147,059 495,706   468,139
Operating expenses (144,181) (136,411) (448,030) (415,699)
Profit/(loss) on disposal of intangible assets   6,378   (3,446)   24,457   14,846
Operating profit   14,265   7,202   72,133   67,286
Finance costs (5,361) (5,935) (16,877) (18,293)
Finance income   2,213   7,027   2,257   14,239
Net finance (costs)/income   (3,148)   1,092   (14,620)   (4,054)
Profit before tax   11,117   8,294   57,513   63,232
Tax expense (2)   (3,464)   (1,401)   (16,444)   (66,466)
Profit/(loss) for the period   7,653   6,893   41,069   (3,234)
 
Basic earnings/(loss) per share:
Basic earnings/(loss) per share (pence) 4.65 4.20 24.96 (1.97)
Weighted average number of ordinary shares outstanding (thousands) 164,526 164,195 164,526 164,195
Diluted earnings/(loss) per share:
Diluted earnings/(loss) per share (pence)(3) 4.65 4.19 24.94 (1.97)
Weighted average number of ordinary shares outstanding (thousands)   164,664   164,591   164,664   164,591
(1)   Comparative amounts have been restated – see supplemental note 5 for further details.
(2) The US federal corporate income tax rate reduced from 35% to 21% following the enactment of US tax reform on 22 December 2017. This necessitated a re-measurement of the then existing US deferred tax position in the period to 31 December 2017. As a result the tax expense for the nine months ended 31 March 2018 included a non-cash tax accounting write off of £49.0 million.
(3) For the nine months ended 31 March 2018 potential ordinary shares are anti-dilutive, as their inclusion in the diluted loss per share calculation would reduce the loss per share, and hence have been excluded.
CONSOLIDATED BALANCE SHEET

(unaudited; in £ thousands)

   

31 March

2019

  Restated(1)

30 June

2018

  Restated(1)

31 March

2018

ASSETS      
Non-current assets
Property, plant and equipment 246,396 245,401 245,186
Investment property 13,739 13,836 13,869
Intangible assets 718,551 799,640 752,016
Derivative financial instruments 777 4,807 3,404
Trade and other receivables 9,964 4,724 5,618
Tax receivable 547 547 1,033
Deferred tax asset   57,057   63,332   77,064
    1,047,031   1,132,287   1,098,190
Current assets
Inventories 2,083 1,416 1,398
Derivative financial instruments 511 1,159 2,799
Trade and other receivables 185,499 168,060 117,497
Tax receivable 598 800 258
Cash and cash equivalents   193,855   242,022   161,717
    382,546   413,457   283,669
Total assets   1,429,577   1,545,744   1,381,859

(1) Comparative amounts have been restated – see supplemental note 5 for further details.

CONSOLIDATED BALANCE SHEET (continued)

(unaudited; in £ thousands)

 

 

31 March

2019

  Restated(1)

30 June

2018

  Restated(1)

31 March

2018

EQUITY AND LIABILITIES      
Equity
Share capital 53 53 53
Share premium 68,822 68,822 68,822
Merger reserve 249,030 249,030 249,030
Hedging reserve (30,848) (27,558) (12,511)
Retained earnings   166,751   136,757   181,110
    453,808   427,104   486,504
Non-current liabilities
Derivative financial instruments 21 - -
Trade and other payables 45,559 104,271 74,998
Borrowings 493,336 486,694 457,011
Deferred revenue 51,079 37,085 32,208
Deferred tax liabilities   33,678   29,134   39,684
    623,673   657,184   603,901
Current liabilities
Derivative financial instruments 130 - -
Tax liabilities 7,898 3,874 2,166
Trade and other payables 185,733 267,996 208,840
Borrowings 2,197 9,074 5,960
Deferred revenue   156,138   180,512   74,488
    352,096   461,456   291,454
Total equity and liabilities   1,429,577   1,545,744   1,381,859
(1) Comparative amounts have been restated – see supplemental note 5 for further details.
 
 
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited; in £ thousands)
  Three months ended

31 March

  Nine months ended

31 March

    2019     2018     2019     2018  
Cash flows from operating activities    
Cash generated from operations (see supplemental note 4) 29,803 28,743 112,140 17,254
Interest paid (7,679 ) (7,210 ) (17,186 ) (16,849 )
Interest received 697 266 2,052 654
Tax paid   (578 )   (620 )   (2,388 )   (6,388 )
Net cash generated from/(used in) operating activities   22,243     21,179     94,618     (5,329 )
Cash flows from investing activities
Payments for property, plant and equipment (1,559 ) (998 ) (8,877 ) (9,585 )
Proceeds from sale of property, plant and equipment - - - 75
Payments for intangible assets (14,809 ) (6,812 ) (159,865 ) (135,933 )
Proceeds from sale of intangible assets   12,709     8,203     37,892     40,645  
Net cash (used in)/generated from investing activities   (3,659 )   393     (130,850 )   (104,798 )
Cash flows from financing activities
Repayment of borrowings - (106 ) (3,750 ) (312 )
Dividends paid   (11,610 )   (10,929 )   (11,610 )   (10,929 )
Net cash used in financing activities   (11,610 )   (11,035 )   (15,360 )   (11,241 )
Net increase/(decrease) in cash and cash equivalents 6,974 10,537 (51,592 ) (121,368 )
Cash and cash equivalents at beginning of period 190,395 155,312 242,022 290,267
Effects of exchange rate changes on cash and cash equivalents   (3,514 )   (4,132 )   3,425     (7,182 )
Cash and cash equivalents at end of period   193,855     161,717     193,855     161,717  
 
 

SUPPLEMENTAL NOTES

1 General information

Manchester United plc (the “Company”) and its subsidiaries (together the “Group”) is a professional football club together with related and ancillary activities. The Company incorporated under the Companies Law (2011 Revision) of the Cayman Islands, as amended and restated from time to time.

2 Reconciliation of profit/(loss) for the period to Adjusted EBITDA

  Three months ended

31 March

    Nine months ended

31 March

    2019

£’000

    Restated(1)

2018

£’000

      2019

£’000

    Restated(1)

2018

£’000

 
Profit/(loss) for the period 7,653   6,893 41,069   (3,234 )
Adjustments:
Tax expense 3,464 1,401 16,444 66,466
Net finance costs/(income) 3,148 (1,092 ) 14,620 4,054
(Profit)/loss on disposal of intangible assets (6,378 ) 3,446 (24,457 ) (14,846 )
Exceptional items - - 19,599 -
Amortization 30,434 32,400 99,005 105,789
Depreciation   2,852     2,622       8,631     7,951  
Adjusted EBITDA   41,173     45,670       174,911     166,180  

(1) Comparative amounts have been restated – see supplemental note 5 for further details.

3 Reconciliation of profit/(loss) for the period to adjusted profit for the period and adjusted basic and diluted earnings per share

  Three months ended

31 March

  Nine months ended

31 March

 

  2019

£’000

    Restated(1)

2018

£’000

    2019

£’000

    Restated(1)

2018

£’000

 
Profit/(loss) for the period 7,653   6,893 41,069   (3,234 )
Exceptional items - - 19,599 -
Foreign exchange (gains)/losses on unhedged US dollar borrowings (1,430 ) (6,761 ) 105 (13,585 )
Fair value movement on embedded foreign exchange derivatives 138 539 82 1,384
Tax expense   3,464     1,401     16,444     66,466  
Adjusted profit before tax 9,825 2,072 77,299 51,031

Adjusted tax expense (using a normalized tax rate of 21% (2018: 28%))

  (2,063 )   (580 )   (16,233 )   (14,289 )
Adjusted profit for the period (i.e. adjusted net income)   7,762     1,492     61,066     36,742  
 
Adjusted basic earnings per share:
Adjusted basic earnings per share (pence) 4.72 0.91 37.12 22.38
Weighted average number of ordinary shares outstanding (thousands) 164,526 164,195 164,526 164,195
Adjusted diluted earnings per share:
Adjusted diluted earnings per share (pence)1 4.71 0.91 37.09 22.32
Weighted average number of ordinary shares outstanding (thousands)   164,664     164,591     164,664     164,591  

(1) Comparative amounts have been restated – see supplemental note 5 for further details.

4 Cash generated from operations

  Three months ended

31 March

  Nine months ended

31 March

    2019

£’000

    Restated(1)

2018

£’000

    2019

£’000

    Restated(1)

2018

£’000

 
Profit/(loss) for the period 7,653   6,893 41,069   (3,234 )
Tax expense   3,464     1,401     16,444     66,466  
Profit before tax 11,117 8,294 57,513 63,232
Depreciation 2,852 2,622 8,631 7,951
Amortization 30,434 32,400 99,005 105,789
(Profit)/loss on disposal of intangible assets (6,378 ) 3,446 (24,457 ) (14,846 )
Net finance costs/(income) 3,148 (1,092 ) 14,620 4,054
Profit on disposal of property, plant and equipment - - - (75 )
Equity-settled share-based payments 164 617 535 1,820
Foreign exchange (gains)/losses on operating activities (94 ) 200 88 1,200
Reclassified from hedging reserve 1,167 3,652 4,011 11,119
Changes in working capital:
Inventories 527 520 (667 ) 239
Trade and other receivables (66,386 ) 5,775 (27,093 ) (19,662 )
Trade and other payables and deferred revenue   53,252     (27,691 )   (20,046 )   (143,567 )
Cash generated from operations   29,803     28,743     112,140     17,254  

(1) Comparative amounts have been restated – see supplemental note 5 for further details.

5 Restatement of prior periods following implementation of IFRS 15

The Group adopted IFRS 15 ‘Revenue from contracts with customers’ with effect from 1 July 2018. The implementation of IFRS 15 had an impact on the Group’s financial statements as at 1 July 2018 and consequently prior year amounts have been restated. The table below shows the retrospective impact on revenue for the four quarters ended 30 June 2018. Note 34 to the interim consolidated financial statements for the three and nine months ended 31 March 2019 contains tables and notes which explain how the restatement affected the consolidated statement of profit or loss, consolidated statement of comprehensive income, consolidated balance sheet, and consolidated statement of cash flows.

Commercial revenue

IFRS 15 focuses on the identification and satisfaction of performance obligations and includes specific guidance on the methods for measuring progress towards complete satisfaction of a performance obligation therefore revenue on certain commercial contracts is recognized earlier under IFRS 15. The effect of the retrospective application is an increase in cumulative revenue recognized over the financial years up to and including the year ended 30 June 2018 including a reduction to the amount of revenue recognized during the financial year ended 30 June 2018 only.

Broadcasting revenue

Following adoption of IFRS 15, certain performance obligations are satisfied over time as each Premier League match (home and away) is played – accordingly revenue is recognized evenly as each Premier League match (home and away) is played. Broadcasting merit awards were previously recognized one share in the first quarter with the remainder being recognized when they were known at the end of each football season. Merit awards represent variable consideration and therefore, following adoption of IFRS 15, are estimated using the most likely amount method based on management’s estimate of where the Club’s finishing position will be at the end of each season. Broadcasting equal share payments were previously recognized evenly as each Premier League home match was played. Note, these changes only affect the amount of broadcasting revenue recognized in each quarter, they do not affect the amount of broadcasting revenue recognized for the financial year as a whole.

Matchday revenue

Adoption of IFRS 15 has no impact on the recognition of matchday revenue.

£’000   Three months ended

30 September

2017

  Three months ended

31 December

2017

  Three months ended

31 March

2018

  Three months ended

30 June

2018

  Twelve months ended

30 June

2018

Commercial revenue
Reported 80,544 65,366 66,673 63,516 276,099
Adjustment   (66 )   (66 )   (66 )   (66 )   (264 )
Restated   80,478     65,300     66,607     63,450     275,835  
Broadcasting revenue
Reported 38,082 61,628 39,674 64,753 204,137
Adjustment   2,751     13,519     9,656     (25,926 )   -  
Restated   40,833     75,147     49,330     38,827     204,137  
Matchday revenue
Reported 22,354 36,968 31,122 19,342 109,786
Adjustment -   -   -   -   -  
Restated   22,354     36,968     31,122     19,342     109,786  
 
Total revenue
Reported 140,980 163,962 137,469 147,611 590,022
Adjustment   2,685     13,453     9,590     (25,992 )   (264 )
Restated   143,665     177,415     147,059     121,619     589,758  

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Business Wire: 12:00 GMT Thursday 16th May 2019

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