Manchester United plc — FY2019 Form 20-F summary
Period clarification: The filing is an annual report for the fiscal year ended 30 June 2019, not a standalone 2018 Q4 report. It reports under IFRS as issued by the IASB, in pounds sterling; comparative 2018 figures were restated following adoption of IFRS 15.
Business context
Manchester United operates men’s and women’s professional football teams and related commercial, broadcasting and matchday businesses. Financial performance is materially exposed to men’s first-team results and participation in domestic and European competitions. The men’s team qualified for the 2019/20 Europa League, but not the Champions League.
Financial performance and position
Amounts below are £ millions unless stated otherwise.
| Metric | FY2019 | FY2018 restated | Change |
|---|---|---|---|
| Revenue | 627.1 | 589.8 | +6.3% |
| Commercial revenue | 275.1 | 275.8 | -0.3% |
| Broadcasting revenue | 241.2 | 204.1 | +18.1% |
| Matchday revenue | 110.8 | 109.8 | +0.9% |
| Operating profit | 50.0 | 43.9 | +13.9% |
| Profit/(loss) before tax | 27.5 | 25.8 | +6.4% |
| Profit/(loss) for year | 18.9 | (37.6) | Returned to profit |
| Adjusted EBITDA | 185.8 | 176.8 | +5.1% |
| Net cash from operating activities | 244.8 | 95.3 | +149.6 |
Operating margin was approximately 8.0% (FY2018: 7.4%); net margin was approximately 3.0% (FY2018: negative). Adjusted EBITDA is a non-IFRS measure defined by the company and should not be treated as a substitute for IFRS profit or cash flow.
- Broadcasting growth was primarily attributed to the new UEFA Champions League rights agreement. Commercial revenue was broadly flat; sponsorship was £173.0 million and retail, merchandising, apparel and licensing was £102.1 million.
- Employee benefit expenses rose 12.3% to £332.4 million, which management attributed primarily to investment in the first-team squad. Total operating expenses increased 6.9% to £602.9 million.
- Exceptional expense was £19.6 million, mainly compensation for the former men’s team manager and certain coaching staff. Profit on player-registration disposals was £25.8 million.
- FY2019 tax expense was £8.6 million. FY2018’s £63.5 million expense included a £49.0 million non-cash deferred-tax write-off associated with the reduction in the US corporate tax rate.
Cash, debt and liquidity
- Cash and cash equivalents were £307.6 million at 30 June 2019, versus £242.0 million a year earlier. Borrowings were £511.2 million, versus £495.8 million; reported net debt was £203.6 million, down from £253.7 million.
- Operating cash inflow of £244.8 million was significantly higher than FY2018, largely due to timing of commercial-contract cash receipts. Investing activities used £161.3 million, including £135.2 million net cash expenditure on player registrations. Financing activities used £27.1 million, including £23.3 million of dividends.
- The company had no revolving-facility borrowings and £125 million of stated undrawn capacity at year end. Management said working capital was sufficient for present requirements. Cash inflows are seasonal and include substantial advance receipts.
- Debt included $425 million of 3.79% senior secured notes due 2027 and $225 million of variable-rate secured term debt, extended in August 2019 to mature in 2029. The company reported compliance with debt covenants, including a £65 million minimum EBITDA covenant.
Changes, outlook, risks and unusual items
- Revenue growth was driven by broadcasting, while wage costs grew faster than revenue. Exclusion from the 2019/20 Champions League creates a risk to broadcasting and matchday income; the company identifies European competition participation as an important, uncertain revenue source. Adidas payments may be reduced by 30% in a year if the team misses the Champions League for two or more consecutive seasons.
- Management stated it expected to continue regular semi-annual dividends, subject to board discretion, results, capital needs, legal requirements and debt restrictions. FY2019 dividends were $0.18 per share (£0.14 equivalent). The filing provides no specific financial forecast or quantified revenue or earnings guidance.
- Key risks include reliance on team performance, player and staff costs, renewal of commercial agreements, concentrated media-rights counterparties, piracy and changes in viewing habits, foreign-exchange exposure, cyber and privacy risks, Brexit-related uncertainty, and debt and covenant restrictions.
- The Premier League, UEFA, adidas, General Motors (Chevrolet) and Aon were the top five customers and together accounted for 61.1% of revenue. The Premier League alone represented 24.1% of revenue.
- Potential contingent transfer payments were up to £74.3 million at year end, dependent on specified performance conditions. The company also disclosed active discussions with UK tax authorities regarding arrangements involving players and representatives; potential exposure was not quantified in the filing. Routine legal proceedings were not considered material in aggregate.
- IFRS 15 materially affected the opening 2018/19 financial statements and led to restatement of prior periods, including a £0.3 million reduction in FY2018 revenue. PwC gave an unqualified audit opinion and reported effective internal control over financial reporting.
Most important facts for investors to verify
- How the absence of Champions League participation affects FY2020 broadcasting, matchday and commercial income, and whether the club returns to the competition.
- Whether personnel costs, player transfer spending and amortization remain supportable by recurring revenue and operating cash flow.
- The composition and timing of debt service, variable-rate exposure, covenant headroom and restrictions on dividends and other payments.
- Cash conversion: FY2019 operating cash benefited from timing of commercial receipts; compare future cash generation with player-registration spending and dividends.
- Developments in UK tax-authority discussions and contingent transfer obligations, alongside the concentration of revenue among a small number of counterparties.