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Manchester United Plc: 2014 Third Quarter Results

Released : 05/15/2014

  • RECORD THIRD QUARTER REVENUES OF £115.5 MILLION UP 26%
  • RECORD THIRD QUARTER ADJUSTED EBITDA OF £40.0 MILLION UP 60%

MANCHESTER, England--(BUSINESS WIRE)-- 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 2014 fiscal third quarter and nine months ended 31 March 2014.


Highlights

  • Commercial revenues of £42.8 million
    • Sponsorship revenue increased 43.5%.
  • Two new sponsorship deals announced in the third quarter – Aperol (global) and EuroFood (regional - Cambodia, Laos, Myanmar, Thailand and Vietnam).
  • Broadcasting revenues increased 64.1% for the quarter and 35.7% for the year to date, due to the new FAPL domestic and international TV rights agreements, two additional Premier League home games and five more games were broadcast live during the quarter compared to the same period last year.


Commentary

Ed Woodward, Executive Vice Chairman commented, “We once again generated record revenues and EBITDA as all of our businesses delivered impressive year over year growth. This puts us in a healthy financial position to continue to invest in the squad. Everyone at the Club is working hard to ensure the team is back challenging for the title and trophies next season.


Outlook

For fiscal 2014, Manchester United continues to expect:

  • Revenue to be £420m to £430m.
  • Adjusted EBITDA to be £128m to £133m.


Key Financials (unaudited)

£ million (except adjusted earnings per share)   Three months ended

31 March

      Nine months ended

31 March

   
  2014   2013 Change 2014   2013 Change
Commercial revenue

42.8

36.0 18.9% 145.0 114.5 26.6%
Broadcasting revenue 35.6 21.7 64.1% 101.8 75.0 35.7%
Matchday revenue 37.1 34.0 9.1% 90.1 88.6 1.7%
Total revenue 115.5 91.7 26.0% 336.9 278.1 21.1%
Adjusted EBITDA* 40.0 25.0 60.0% 113.2 91.5 23.7%
 
Profit for the period (i.e. net income) 11.0 3.6 205.6% 29.7 40.3 (26.3%)
Adjusted profit for the period (i.e. adjusted net income)*13.04.1217.1%35.022.555.6%
Adjusted basic and diluted earnings per share (pence)* 7.93 2.52 214.7% 21.37 13.84 54.4%
 
Gross debt 351.7 367.6 (4.3%) 351.7 367.6 (4.3%)
Cash and cash equivalents 34.3 36.2 (5.2%) 34.3 36.2 (5.2%)

* Adjusted EBITDA, adjusted profit for the period and adjusted basic and diluted earnings per share are non-IFRS measures. See “Non-IFRS Measures: Definitions and Use” below 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.

Revenue Analysis

Commercial

Commercial revenue for the third quarter was £42.8 million, an increase of £6.8 million, or 18.9%, over the prior year quarter.

  • Sponsorship revenue for the third quarter was £30.7 million, an increase of £9.3 million, or 43.5%, primarily due to higher renewals and the activation of new global and regional sponsorships.
  • Retail, Merchandising, Apparel & Product Licensing revenue for the third quarter was £8.4 million, a decrease of £0.8 million. For the year to date, revenue was £28.2 million, an increase of £0.1 million, or 0.4%.
  • New Media & Mobile revenue for the third quarter was £3.7 million, a decrease of £1.7 million, due to the expiration of a few of our mobile partnerships.

Broadcasting

Broadcasting revenue for the third quarter was £35.6 million, an increase of £13.9 million, or 64.1%, over the prior year quarter, due to increased revenue from the Premier League domestic and international rights agreements, two additional home Premier League games, and having five additional Premier League games broadcast live .

Matchday

Matchday revenue for the third quarter was £37.1 million, an increase of £3.1 million, or 9.1%, over the prior year quarter, primarily due to playing two additional home Premier League games and one additional home Capital One Cup game, partly offset by playing three fewer home FA Cup games.

Other Financial Information

Operating expenses

Total operating expenses for the third quarter were £91.5 million, an increase of £12.5 million, or 15.8%, over the prior year quarter.

Staff costs

Staff costs for the third quarter were £53.4 million, an increase of £8.5 million, or 18.9%, primarily due to the impact of player acquisitions and renegotiated player contracts.

Other operating expenses

Other operating expenses for the third quarter were £22.1 million, an increase of £0.3 million, or 1.4% due primarily to the increases in fixed costs from foreign exchange losses and higher sponsorship servicing being largely offset by lower variable costs from three fewer FA Cup matches.

Depreciation & amortization of players’ registrations

Depreciation for the third quarter was £2.2 million, an increase of £0.3 million, or 15.8%, over the prior year quarter. Amortization of players’ registrations was £13.8 million, an increase of £3.4 million, or 32.7%, over the prior year quarter. The unamortized balance of players’ registrations at 31 March 2014 was £161.8 million.

Net finance costs

Net finance costs for the third quarter were £5.9 million, a decrease of £12.4 million, or 67.8%, over the prior year quarter. The decrease was primarily due to a £2.8 million reduction in interest payable on our secured borrowings following the refinancing in June 2013 and a £9.5 million net foreign exchange loss on the re-translation of our US dollar net borrowings in the prior year quarter.

On 1 July 2013, the Group started hedging the foreign exchange risk, in our income statement, on a portion of our future US dollar revenues using our US dollar borrowings as the hedging instrument. As a result, FX gains or losses arising on re-translation of our US dollar borrowings are now initially recognized in other comprehensive income, rather than recognized in the income statement immediately. Amounts previously recognized in other comprehensive income and accumulated in a hedging reserve are subsequently reclassified into the income statement in the same accounting period and within the same income statement line (i.e. commercial revenue) as the underlying future US dollar revenues. This will reduce foreign exchange volatility in our income statement.

Tax

The tax expense for the third quarter was £9.5 million reflecting an effective full-year tax rate of 40.1% and a charge of £0.5 million relating to the adjustment of deductions in respect of previous years, in line with the most recently filed US tax return. The prior year adjustment includes the finalisation of the deductible element of the ‘step-up’, previously based on management’s best estimate at the 30 June 2013 year-end. This compares to a credit of £6.7 million in the prior year quarter.

Cash flows

Net cash used in operating activities for the third quarter was £12.6 million, a decrease of £11.0 million from £23.6 million net cash used in the prior year quarter, primarily due to a reduction in interest paid.

Capital expenditure on property, plant and equipment for the third quarter was £1.7 million, an increase of £0.4 million from the prior year quarter.

Net player capital expenditure for the third quarter was £23.3 million, an increase of £21.9 million from the prior year quarter.


Conference Call Information

The Company’s conference call to review the third quarter fiscal 2014 results will be broadcast live over the internet today, 15 May 2014 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 team in the world, playing one of the most popular spectator sports on Earth.

Through our 136-year heritage we have won 62 trophies, enabling us to develop the world’s leading sports brand 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, new media & mobile, 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 for the period before depreciation, amortization of, and profit on disposal of, players’ registrations, exceptional items, net finance costs, and tax.

We believe 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), 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 the adjusted profit for the period attributable to owners of the parent, calculated, where appropriate, by adding the profit for the period attributable to non-controlling interest to the profit for the period attributable to owners of the parent, adjusting for material charges related to the initial public offering, the repurchase of senior secured notes, foreign exchange losses/gains on US dollar denominated bank accounts and borrowings, the fair value movements on derivative financial instruments, and hedge ineffectiveness on cash flow hedges, adding/(subtracting) the actual tax expense/(credit) for the period, subtracting the adjusted tax expense for the period (based on an normalized tax rate of 35%; 2013: 35%) and subtracting the profit for the period attributable to non-controlling interest. The normalized tax rate of 35% is management’s estimate of the tax rate likely to be applicable to the Group in the long-term.

We believe that 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 material charges related to ‘one-off’ transactions such as the initial public offering (including the associated recognition of deferred tax assets or liabilities) and repurchase of senior secured notes, plus the impact of foreign exchange reflected in the retranslation of the US dollar denominated bank accounts and borrowings, the fair value movement on derivative financial instruments, and hedge ineffectiveness on cash flow hedges; and then to apply a ‘normalized’ tax rate (for both the current and prior periods) of the US federal income tax rate of 35%. A reconciliation of profit for the period attributable to owners of the parent to adjusted profit for the period attributable to owners of the parent is presented in supplemental note 3.

3. Adjusted basic and diluted earnings per share

Adjusted basic and diluted earnings per share is calculated by dividing the adjusted profit for the period attributable to owners of the parent by the weighted average number of ordinary shares in issue during the period, and is presented in supplemental note 3.

Key Performance Indicators
    Three months ended   Nine months ended
31 March31 March
  2014   2013 2014   2013
Commercial % of total revenue 37.1% 39.2% 43.0% 41.2%
Broadcasting % of total revenue 30.8% 23.7% 30.2% 27.0%
Matchday % of total revenue 32.1% 37.1% 26.8% 31.8%
Home Matches Played        
FAPL 7 5 16 15
UEFA competitions 1 1 4 4
Domestic Cups 2 4 4 5
Away Matches Played        
UEFA competitions 1 1 4 4
Domestic Cups 1 1 2 2
 
Other        
Employees at period end 875 792 875 792
Staff costs % of revenue 46.2% 48.9% 46.9% 46.5%
Phasing of Premier League home games   Quarter 1   Quarter 2   Quarter 3   Quarter 4   Total
2013/14 season 3 6 7 3 19
2012/13 season 3 7 5 4 19
2011/12 season 3 7 5 4 19

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

    Three months ended

31 March

  Nine months ended

31 March

 

2014   2013 2014   2013
Revenue115,495 91,721 336,943 278,093
Operating expenses (91,499) (79,069) (269,422) (227,049)
Profit on disposal of players’ registrations 2,361 2,520 4,203 8,025
Operating profit26,357 15,172 71,724 59,069
Finance costs (5,959) (18,607) (21,562) (40,360)
Finance income 36 285 143 441
Net finance costs (5,923) (18,322) (21,419) (39,919)
Profit/(loss) before tax20,434 (3,150) 50,305 19,150
Tax (expense)/credit (9,520) 6,784 (20,644) 21,170
Profit for the period10,914 3,634 29,661 40,320

Attributable to:

Owners of the parent

10,914 3,634 29,661 40,151
Non-controlling interest - - - 169
  10,914 3,634 29,661 40,320
 
Earnings per share attributable to owners of the parent:
Basic and diluted earnings per share (pence) 6.66 2.22 18.11 24.70
Weighted average number of ordinary shares outstanding (thousands) 163,812 163,826 163,815 162,586


CONSOLIDATED BALANCE SHEET
(unaudited; in £ thousands)

    As of

31 March

2014

    As of

30 June

2013

    As of

31 March

2013

ASSETS
Non-current assets
Property, plant and equipment 255,332 252,808 252,888
Investment property 13,700 14,080 14,111
Goodwill 421,453 421,453 421,453
Players’ registrations 161,769 119,947 126,457

Derivative financial instruments          

791 - -
Trade and other receivables 141 1,583 2,500

Deferred tax asset

128,368 145,128 16,402
  981,554 954,999 833,811
Current assets
Derivative financial instruments 317 260 546
Trade and other receivables 77,014 68,619 74,297
Current tax receivable - - 2,500
Cash and cash equivalents 34,344 94,433 36,211
  111,675 163,312 113,554

Total assets                      

1,093,229 1,118,311 947,365

CONSOLIDATED BALANCE SHEET (continued)
(unaudited; in £ thousands)

      As of

31 March

2014

      As of

30 June

2013

      As of

31 March

2013

   
EQUITY AND LIABILITIES
Equity
Share capital 52 52 52
Share premium 68,822 68,822 68,822
Merger reserve 249,030 249,030 249,030
Hedging reserve 21,156 231 398
Retained earnings 160,431 129,825 23,548
Equity attributable to owners of the parent499,491 447,960 341,850
Non-current liabilities
Derivative financial instruments 1,919 1,337 1,571
Trade and other payables 27,941 18,413 21,384
Borrowings 339,679 377,474 362,102
Deferred revenue 14,440 17,082 17,980
Provisions - 988 1,092
Deferred tax liabilities 29,140 17,168 22,416
  413,119 432,462 426,545
Current liabilities
Derivative financial instruments 1,072 29 154
Current tax liabilities 3,147 900 1,128
Trade and other payables 76,468 78,451 76,804
Borrowings 11,991 11,759 5,487
Deferred revenue 87,941 146,278 94,936
Provisions - 472 461
  180,619 237,889 178,970

Total equity and liabilities              

1,093,229 1,118,311 947,365


CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited; in £ thousands)

 

Three months ended
31 March

 

Nine months ended
31 March

 

  2014   2013 2014   2013
Cash flows from operating activities
Cash (used in)/generated from operations (see supplemental note 4) (3,970) (4,938) 30,693 56,925
Debt finance costs relating to borrowings - - (123) -
Interest paid (8,830) (18,963) (22,794) (46,897)
Interest received 36 285 143 442
Tax refund/(paid) 175 - (1,071) 600
Net cash (used in)/generated from operating activities(12,589) (23,616) 6,848 11,070
Cash flows from investing activities
Purchases of property, plant and equipment (1,679) (1,311) (8,557) (10,649)
Proceeds from sale of property, plant and equipment - - 50 -
Purchases of players’ registrations (24,815) (3,009) (62,102) (41,267)
Proceeds from sale of players’ registrations 1,500 1,606 8,556 7,969
Net cash used in investing activities(24,994) (2,714) (62,053) (43,947)
Cash flows from financing activities
Proceeds from issue of shares - - - 70,258
Expenses directly related to the issue of shares - - - (1,459)
Acquisition of additional interest in subsidiary - (2,664) - (2,664)
Repayment of borrowings (97) (4,534) (284) (67,330)
Net cash used in financing activities(97) (7,198) (284) (1,195)
Net decrease in cash and cash equivalents(37,680) (33,528) (55,489) (34,072)
Cash and cash equivalents at beginning of period 72,144 66,631 94,433 70,603
Exchange (losses)/gains on cash and cash equivalents (120) 3,108 (4,600) (320)
Cash and cash equivalents at end of period34,344 36,211 34,344 36,211


SUPPLEMENTAL NOTES

1General 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.

2Reconciliation of profit for the period to adjusted EBITDA

 

Three months ended
31 March

 

 

Nine months ended
31 March

 

  2014

£’000

  2013

£’000

2014

£’000

  2013

£’000

Profit for the period10,914 3,634 29,661 40,320
Adjustments:
Tax expense/(credit) 9,520 (6,784) 20,644 (21,170)
Net finance costs 5,923 18,322 21,419 39,919
Profit on disposal of players’ registrations (2,361) (2,520) (4,203) (8,025)
Exceptional items - - 293 3,879
Amortization of players’ registrations 13,841 10,389 39,163 30,872
Depreciation 2,206 1,974 6,274 5,743
Adjusted EBITDA40,043 25,015 113,251 91,538

3Reconciliation of profit for the period attributable to owners of the parent to adjusted profit for the period and adjusted basic and diluted earnings per share

 

Three months ended
31 March

 

 

Nine months ended
31 March

 

 

2014

£’000

  2013

£’000

2014

£’000

  2013

£’000

Profit for the period attributable to owners of the parent10,914 3,634 29,661 40,151
Add: profit for the period attributable to non-controlling interest - - - 169
Profit for the period 10,914 3,634 29,661 40,320
Professional advisors fees relating to the issue of shares - - - 3,879
Accelerated amortization of issue discount and debt finance costs associated with the repurchase of senior secured notes - - - 2,543
Premium on repurchase of senior secured notes - - - 5,244
Foreign exchange (gain)/loss on US dollar denominated bank accounts - (3,108) 2,712 320
Foreign exchange loss on US dollar denominated borrowings - 12,655 - 3,846
Fair value movement on derivative financial instruments 90 (57) 1,640 (114)
Ineffectiveness on cash flow hedges (543) - (791) -
Tax expense/(credit) 9,520 (6,784) 20,644 (21,170)
Adjusted profit before tax 19,981 6,340 53,866 34,868

Adjusted tax expense (using a normalised tax rate of 35% (2013: 35%))

(6,993) (2,219) (18,853) (12,204)
12,988 4,121 35,013 22,664
Less: profit for the period attributable to non-controlling interest - - - (169)
Adjusted profit for the period (i.e. adjusted net income)12,988 4,121 35,013 22,495
 
Adjusted basic and diluted earnings per share (pence) 7.93 2.52 21.37 13.84
Weighted average number of ordinary shares outstanding (thousands) 163,812 163,826 163,815 162,586

4Cash generated from operations

 

Three months ended
31 March

 

 

Nine months ended
31 March

 

  2014

£’000

  2013

£’000

2014

£’000

  2013

£’000

Profit for the period 10,914 3,634 29,661 40,320
Tax expense/(credit) 9,520 (6,784) 20,644 (21,170)
Profit/(loss) before tax 20,434 (3,150) 50,305 19,150
Depreciation charges 2,206 1,974 6,274 5,743
Impairment charges - - 293 -
Amortization of players’ registrations 13,841 10,389 39,163 30,872
Profit on disposal of players’ registrations (2,361) (2,520) (4,203) (8,025)
Net finance costs 5,923 18,322 21,419 39,919
Profit on disposal of property, plant and equipment - - (43) -
Equity-settled share-based payments 377 153 918 634
Exchange losses on operating activities 97 - 469 -
Fair value (gains)/losses on derivative financial instruments (58) 224 (184) 215
Reclassified from hedging reserve (260) - (778) -
(Increase)/decrease in trade and other receivables (7,594) (12,393) (11,535) 2,334
Decrease in trade and other payables and deferred revenue (36,575) (17,879) (69,930) (33,623)
Decrease in provisions - (58) (1,475) (294)
Cash (used in)/generated from operations(3,970) (4,938) 30,693 56,925

Manchester United
Investor Relations:
Samanta Stewart
+44 207 054 5928
ir@manutd.co.uk
or
Media: Philip Townsend
Manchester United plc
+44 161 868 8148
philip.townsend@manutd.co.uk
or
Jim Barron / Michael Henson
Sard Verbinnen & Co + 1 212 687 8080

Source: Manchester United