Business Context and Reporting Period
Company: Manchester United plc
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended June 30, 2013
Accounting Standards: International Financial Reporting Standards (IFRS)
Key Context: The Company completed a reorganization in August 2012 to list Class A ordinary shares on the New York Stock Exchange (IPO). The Company is an "emerging growth company" under the JOBS Act. The business operates as a single segment: the operation of a professional football club, with revenue derived from Commercial, Broadcasting, and Matchday sectors.
Key Financial Metrics (Year Ended June 30, 2013)
| Metric | Value (£'000) |
|---|---|
| Total Revenue | 363,189 |
| Operating Profit | 62,014 |
| Profit for the Year | 146,419 |
| Net Finance Costs | (70,807) |
| Tax Credit | 155,212 |
| Cash and Cash Equivalents | 94,433 |
| Total Assets | 1,118,311 |
| Total Liabilities | 670,351 |
| Total Equity | 447,960 |
| Net Debt (Total Indebtedness) | 389,200 (approx.) |
Note: Profit for the year includes a significant non-cash tax credit of £155.2 million related to the recognition of US deferred tax assets following the reorganization.
Material Changes vs. Prior Period (2012)
- Revenue Growth: Total revenue increased 13.4% to £363.2 million, driven by a 29.7% increase in Commercial revenue and a 10.5% increase in Matchday revenue. Broadcasting revenue decreased 2.3% due to a lower share of Champions League distributions.
- Commercial Revenue: Rose to £152.5 million, primarily due to new global sponsorships (including pre-sponsorship fees from Chevrolet) and increased profit share from the Nike agreement.
- Operating Expenses: Increased 8.8% to £310.3 million. Employee benefit expenses rose 11.6% due to new player signings and wage increases. Exceptional items decreased to £6.2 million (from £10.7 million in 2012), largely related to IPO advisory fees and coaching staff changes.
- Net Finance Costs: Increased 43.0% to £70.8 million. This was primarily due to a £22.0 million premium paid on the redemption of senior secured notes and increased amortization of debt issue costs.
- Profitability: While operating profit increased to £62.0 million, the reported profit for the year surged to £146.4 million (from £23.3 million in 2012) almost entirely due to the £155.2 million non-cash tax credit.
Guidance, Outlook, and Risks
Management Commentary & Outlook:
- Sponsorship: The Company expects continued growth in sponsorship revenue, highlighted by a new shirt sponsorship agreement with Chevrolet starting in the 2014/15 season, valued at approximately $559 million over seven years.
- Broadcasting: The Company anticipates an increase in Premier League broadcasting rights value from approximately £3.5 billion to over £5.0 billion for the 2013/14 to 2015/16 cycle.
- Capital Expenditure: Planned investments include approximately £5.0 million to £8.0 million over the next three years for new media assets and continued upgrades to Old Trafford and the Aon Training Complex.
Key Risks:
- On-Field Performance: Revenue is heavily dependent on the first team's performance in the Premier League and Champions League. Relegation or failure to qualify for European competitions would materially reduce revenue.
- Indebtedness: Total indebtedness of approximately £389.2 million limits flexibility and requires significant cash flow for debt service. Covenants restrict dividends and additional borrowing.
- Key Personnel: The business relies on attracting and retaining top players and coaching staff. The retirement of Sir Alex Ferguson and appointment of David Moyes introduces transition risk.
- Commercial Contracts: A significant portion of revenue comes from a limited number of sponsors (e.g., Nike, Premier League). Failure to renew these contracts on favorable terms would impact financial results.
- Taxation: Following the reorganization, the Company is subject to US federal income tax (35% statutory rate), which is expected to result in higher future tax liabilities compared to the previous UK-only structure.
Investor Verification Checklist
- Tax Credit Sustainability: Verify the assumptions behind the £155.2 million non-cash tax credit and the probability of realizing the associated US deferred tax assets.
- Debt Covenants: Review the financial maintenance covenants (EBITDA floor of £65 million) in the revolving credit and term loan facilities to ensure compliance.
- Chevrolet Deal Terms: Confirm the start date and payment structure of the new Chevrolet shirt sponsorship to assess future revenue visibility.
- Player Amortization: Monitor the amortization of player registrations (£41.7 million in 2013) and potential impairment charges related to player injuries or contract renegotiations.
- Recurring Profitability: Analyze operating profit excluding the one-time tax credit to assess the underlying operational cash generation capability.