UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13A-16 OR 15D-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of February, 2020
Commission File Number: 001-35627

 

MANCHESTER UNITED PLC

(Translation of registrant’s name into English)

 

Old Trafford

Manchester M16 0RA

United Kingdom

(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F x Form 40-F o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1). o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7). o

 

 

 


 

THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE FOLLOWING REGISTRATION STATEMENT OF THE REGISTRANT:

 

REGISTRATION STATEMENT ON FORM F-3 (NO. 333-227606) ORIGINALLY FILED WITH THE SEC ON SEPTEMBER 28, 2018, AS AMENDED.

 

2


 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: February 26, 2019

 

 

MANCHESTER UNITED PLC

 

 

 

 

 

By:

/s/ Edward Woodward

 

 

 

Name: Edward Woodward

 

 

Title: Executive Vice Chairman

 

 

3


 

EXHIBIT INDEX

 

Exhibit Number

 

Description

99.1

 

Manchester United plc Interim report (unaudited) for the three and six months ended 31 December 2019

 

4


Exhibit 99.1

 

Manchester United plc

Interim report (unaudited) for the three and six months

ended 31 December 2019

 


 

Contents

 

Management’s discussion and analysis of financial condition and results of operations

2

Interim consolidated statement of profit or loss for the three and six months ended 31 December 2019 and 2018

12

Interim consolidated statement of comprehensive income for the three and six months ended 31 December 2019 and 2018

13

Interim consolidated balance sheet as of 31 December 2019, 30 June 2019 and 31 December 2018

14

Interim consolidated statement of changes in equity for the six months ended 31 December 2019, the six months ended 30 June 2019 and the six months ended 31 December 2018

16

Interim consolidated statement of cash flows for the three and six months ended 31 December 2019 and 2018

17

Notes to the interim consolidated financial statements

18

 

1


 

Manchester United plc

Management’s discussion and analysis of financial condition and results of operations

 

GENERAL INFORMATION AND FORWARD-LOOKING STATEMENTS

 

The following Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the interim consolidated financial statements and notes thereto included as part of this report. This report contains forward-looking statements. You should not place undue reliance on such statements because they are subject to numerous risks and uncertainties relating to Manchester United plc’s (“the Company”) 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 interim report 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 Annual Report on Form 20-F for the year ended 30 June 2019, as filed with the Securities and Exchange Commission on 24 September 2019 (File No. 001-35627).

 

GENERAL

 

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 142-year heritage we have won 66 trophies, including a record 20 English league titles, enabling us to develop what we believe is one of the world’s leading sports brands and a global community of 1.1 billion fans and 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. We attract leading global companies such as adidas, Aon, General Motors (Chevrolet) and Kohler that want access and exposure to our community of followers and association with our brand.

 

RESULTS OF OPERATIONS

 

Manchester United adopted IFRS 16 ‘Leases’ with effect from 1 July 2019. The Company elected to apply the ‘simplified approach’ on initial adoption of IFRS 16, consequently comparative information has not been restated.

 

Three months ended 31 December 2019 as compared to the three months ended 31 December 2018

 

 

 

Three months ended
31 December
(in £ millions)

 

% Change

 

 

 

2019

 

2018

 

2019 over
2018

 

Revenue

 

168.4

 

208.6

 

(19.3

)%

Commercial revenue

 

70.6

 

65.9

 

7.1

%

Broadcasting revenue

 

64.7

 

103.7

 

(37.6

)%

Matchday revenue

 

33.1

 

39.0

 

(15.1

)%

Total operating expenses

 

(131.2

)

(160.3

)

(18.2

)%

Employee benefit expenses

 

(70.9

)

(77.9

)

(9.0

)%

Other operating expenses

 

(25.4

)

(26.4

)

(3.8

)%

Depreciation

 

(3.7

)

(3.0

)

23.3

%

Amortization

 

(31.2

)

(33.4

)

(6.6

)%

Exceptional items

 

 

(19.6

)

 

Loss on disposal of intangible assets

 

(0.7

)

(4.3

)

(83.7

)%

Net finance income/(costs)

 

15.3

 

(6.3

)

 

Income tax expense

 

(16.8

)

(10.9

)

54.1

%

 

2


 

Revenue

 

Total revenue for the three months ended 31 December 2019 was £168.4 million, a decrease of £40.2 million, or 19.3%, over the three months ended 31 December 2018, as a result of a decrease in revenue in our broadcasting and matchday sectors, partially offset by an increase in revenue in our commercial sector, as described below.

 

Commercial revenue

 

Commercial revenue for the three months ended 31 December 2019 was £70.6 million, an increase of £4.7 million, or 7.1%, over the three months ended 31 December 2018.

 

·                  Sponsorship revenue for the three months ended 31 December 2019 was £45.1 million, an increase of £4.8 million, or 11.9%, over the three months ended 31 December 2018, primarily due to increased sponsorship deals.

·                  Retail, Merchandising, Apparel & Product Licensing revenue for the three months ended 31 December 2019 was £25.5 million, a decrease of £0.1 million, or 0.4%, over the three months ended 31 December 2018.

 

Broadcasting revenue

 

Broadcasting revenue for the three months ended 31 December 2019 was £64.7 million, a decrease of £39.0 million, or 37.6%, over the three months ended 31 December 2018, primarily due to non-participation in the UEFA Champions League. Guaranteed UEFA broadcasting revenues are typically recognised evenly over the course of the competition’s group stages. Given 5 of the 6 group stage matches were played in the quarter, the majority of the full year revenue impact has occurred in Q2.

 

Matchday revenue

 

Matchday revenue for the three months ended 31 December 2019 was £33.1 million, a decrease of £5.9 million, or 15.1%, over the three months ended 31 December 2018, primarily due to playing two fewer home games across the Premier League and UEFA competitions; partially offset by playing an additional domestic cup home game.

 

Total operating expenses

 

Total operating expenses (defined as employee benefit expenses, other operating expenses, depreciation, amortization, and exceptional items) for the three months ended 31 December 2019 were £131.2 million, a decrease of £29.1 million, or 18.2%, over the three months ended 31 December 2018.

 

Employee benefit expenses

 

Employee benefit expenses for the three months ended 31 December 2019 were £70.9 million, a decrease of £7.0 million, or 9.0%, over the three months ended 31 December 2018, primarily due to reductions in player salaries as a result of non-participation in the UEFA Champions League.

 

Other operating expenses

 

Other operating expenses for the three months ended 31 December 2019 were £25.4 million, a decrease of £1.0 million, or 3.8%, over the three months ended 31 December 2018.

 

Depreciation

 

Depreciation for the three months ended 31 December 2019 was £3.7 million, an increase of £0.7 million, or 23.3%, over the three months ended 31 December 2018.

 

3


 

Amortization

 

Amortization, primarily of players’ registrations, for the three months ended 31 December 2019 was £31.2 million, a decrease of £2.2 million, or 6.6%, over the three months ended 31 December 2018. The unamortized balance of registrations as of 31 December 2019 was £329.2 million.

 

Exceptional items

 

Exceptional items for the three months ended 31 December 2019 were £nil. Exceptional items for the three months ended 31 December 2018 were £19.6 million, relating to compensation to the former manager and certain members of the coaching staff for loss of office.

 

Loss on disposal of intangible assets

 

Loss on disposal of intangible assets for the three months ended 31 December 2019 was £0.7 million, compared to a loss of £4.3 million for the three months ended 31 December 2018.

 

Net finance income/(costs)

 

Net finance income for the three months ended 31 December 2019 were £15.3 million, compared to net finance costs of £6.3 million for the three months ended 31 December 2018,  primarily due to unrealized foreign exchange gains on unhedged USD borrowings compared to losses in the prior year quarter.

 

Income tax

 

The income tax expense for the three months ended 31 December 2019 was £16.8 million, compared to £10.9 million for the three months ended 31 December 2018.

 

Six months ended 31 December 2019 as compared to the six months ended 31 December 2018

 

 

 

Six months ended
31 December
(in £ millions)

 

% Change

 

 

 

2019

 

2018

 

2019 over
2018

 

Revenue

 

303.8

 

343.6

 

(11.6

)%

Commercial revenue

 

151.0

 

141.8

 

6.5

%

Broadcasting revenue

 

97.6

 

146.5

 

(33.4

)%

Matchday revenue

 

55.2

 

55.3

 

(0.2

)%

Total operating expenses

 

(267.6

)

(303.8

)

(11.9

)%

Employee benefit expenses

 

(141.1

)

(154.9

)

(8.9

)%

Other operating expenses

 

(55.8

)

(55.0

)

1.5

%

Depreciation

 

(7.3

)

(5.8

)

25.9

%

Amortization

 

(63.4

)

(68.5

)

(7.4

)%

Exceptional items

 

 

(19.6

)

 

Profit on disposal of intangible assets

 

11.3

 

18.1

 

(37.6

)%

Net finance income/(costs)

 

6.8

 

(11.5

)

 

Income tax expense

 

(18.2

)

(13.0

)

40.0

%

 

Revenue

 

Total revenue for the six months ended 31 December 2019 was £303.8 million, a decrease of £39.8 million, or 11.6%, over the six months ended 31 December 2018, as a result of a decrease in revenue in our broadcasting and matchday sectors, partially offset be an increase in revenue in our commercial sector, as described below.

 

4


 

Commercial revenue

 

Commercial revenue for the six months ended 31 December 2019 was £151.0 million, an increase of £9.2 million, or 6.5%, over the six months ended 31 December 2018.

 

·                  Sponsorship revenue for the six months ended 31 December 2019 was £98.8 million, an increase of £8.9 million, or 9.9%, over the six months ended 31 December 2018, primarily due to increased sponsorship deals and additional tour revenue.

·                  Retail, Merchandising, Apparel & Product Licensing revenue for the six months ended 31 December 2019 was £52.2 million, an increase of £0.3 million, or 0.6%, over the six months ended 31 December 2018.

 

Broadcasting revenue

 

Broadcasting revenue for the six months ended 31 December 2019 was £97.6 million, a decrease of £48.9 million, or 33.4%, over the six months ended 31 December 2018, primarily due to non-participation in the UEFA Champions League.

 

Matchday revenue

 

Matchday revenue for the six months ended 31 December 2019 was £55.2 million, a decrease of £0.1 million, or 0.2%, over the six months ended 31 December 2018.

 

Total operating expenses

 

Total operating expenses (defined as employee benefit expenses, other operating expenses, depreciation, amortization, and exceptional items) for the six months ended 31 December 2019 were £267.6 million, a decrease of £36.2 million, or 11.9%, over the six months ended 31 December 2018.

 

Employee benefit expenses

 

Employee benefit expenses for the six months ended 31 December 2019 were £141.1 million, a decrease of £13.8 million, or 8.9%, over the six months ended 31 December 2018, primarily due to reductions in player salaries as a result of non-participation in the UEFA Champions League.

 

Other operating expenses

 

Other operating expenses for the six months ended 31 December 2019 were £55.8 million, an increase of £0.8 million, or 1.5%, over the six months ended 31 December 2018.

 

Depreciation

 

Depreciation for the six months ended 31 December 2019 was £7.3 million, an increase of £1.5 million, or 25.9%, over the six months ended 31 December 2018.

 

Amortization

 

Amortization, primarily of players’ registrations, for the six months ended 31 December 2019 was £63.4 million, a decrease of £5.1 million, or 7.4%, over the six months ended 31 December 2018. The unamortized balance of registrations as of 31 December 2019 was £329.2 million.

 

Exceptional items

 

Exceptional items for the six months ended 31 December 2019 were £nil. Exceptional items for the six months ended 31 December 2018 were £19.6 million, relating to compensation to the former manager and certain members of the coaching staff for loss of office.

 

Profit on disposal of intangible assets

 

Profit on disposal of intangible assets for the six months ended 31 December 2019 was £11.3 million, compared to a profit of £18.1 million for the six months ended 31 December 2018.

 

5


 

Net finance income/(costs)

 

Net finance income for the six months ended 31 December 2019 were £6.8 million, compared to net finance costs of £11.5 million for the six months ended 31 December 2018, primarily due to unrealized foreign exchange gains on unhedged USD borrowings compared to losses in the six months ended 31 December 2018.

 

Income tax

 

The income tax expense for the six months ended 31 December 2019 was £18.2 million, compared to £13.0 million for the six months ended 31 December 2018.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Our primary cash requirements stem from the payment of transfer fees for the acquisition of players’ registrations, capital expenditure for the improvement of facilities at Old Trafford and the Aon Training Complex, payment of interest on our borrowings, employee benefit expenses, other operating expenses and dividends on our Class A ordinary shares and Class B ordinary shares. Historically, we have met these cash requirements through a combination of operating cash flow and proceeds from the transfer fees from the sale of players’ registrations. Our existing borrowings primarily consist of our secured term loan facility and our senior secured notes. Additionally, although we have not needed to draw any borrowings under our revolving facility since 2009, we have no intention of retiring our revolving facility and may draw on it in the future in order to satisfy our working capital requirements. We manage our cash flow interest rate risk where appropriate using interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating to fixed rates. We have US dollar borrowings that we use to hedge our US dollar commercial revenue exposure. We continue to evaluate our financing options and may, from time to time, take advantage of opportunities to repurchase or refinance all or a portion of our existing indebtedness to the extent such opportunities arise.

 

We currently intend to continue paying regular semi-annual cash dividends on our Class A ordinary shares and Class B ordinary shares of $0.09 per share from our operating cash flows. The declaration and payment of any future dividends, however, will be at the sole discretion of our board of directors or a committee thereof, and our expectations and policies regarding dividends are subject to change as our business needs, capital requirements or market conditions change.

 

Our business generates a significant amount of cash from our matchday revenues and commercial contractual arrangements prior to the start of our fiscal year, with a steady flow of other cash received throughout the fiscal year. In addition, we generate a significant amount of our cash through advance receipts, including season tickets (which include general admission season tickets and seasonal hospitality tickets), most of which are received prior to the end of June for the following season. Our broadcasting revenues from the Premier League and UEFA are paid periodically throughout the season, with primary payments made in late summer, December, January and the end of the football season. Our sponsorship and other commercial revenue tends to be paid either quarterly or annually in advance, with a large portion being received in June prior to the start of a new fiscal year. However, while we typically have a high cash balance at the beginning of each fiscal year, this is largely attributable to deferred revenue, the majority of which falls under current liabilities in the consolidated balance sheet, and this deferred revenue is unwound through the statement of profit or loss over the course of the fiscal year. Over the course of a year, we use our cash on hand to pay employee benefit expenses, other operating expenses, interest payments and other liabilities as they become due. This typically results in negative working capital movement at certain times during the year. In the event it ever became necessary to access additional operating cash, we also have access to cash through our revolving facility. As of 31 December 2019, we had no borrowings under our revolving facility.

 

We also maintain a mixture of long-term debt and capacity under our revolving facility in order to ensure that we have sufficient funds available for short-term working capital requirements and for investment in the playing squad and other capital projects.

 

Our cost base is more evenly spread throughout the fiscal year than our cash inflows. Employee benefit expenses and fixed costs constitute the majority of our cash outflows and are generally paid throughout the 12 months of the fiscal year.

 

6


 

In addition, transfer windows for acquiring and disposing of registrations occur in January and the summer. During these periods, we may require additional cash to meet our acquisition needs for new players and we may generate additional cash through the sale of existing registrations. Depending on the terms of the agreement, transfer fees may be paid or received by us in multiple installments, resulting in deferred cash paid or received. Although we have not historically drawn on our revolving facility during the summer transfer window, if we seek to acquire players with values substantially in excess of the values of players we seek to sell, we may be required to draw on our revolving facility to meet our cash needs.

 

Acquisition and disposal of registrations also affects our trade receivables and payables, which affects our overall working capital. Our trade receivables include transfer fees receivable from other football clubs, whereas our trade payables include transfer fees and other associated costs in relation to the acquisition of registrations.

 

Cash Flow

 

The following table summarizes our cash flows for the six months ended 31 December 2019 and 2018:

 

 

 

Six months ended
31 December
(in £ millions)

 

 

 

2019

 

2018

 

Cash flow from operating activities

 

 

 

 

 

Cash (used in)/generated from operations

 

(18.4

)

82.3

 

Net interest paid

 

(8.9

)

(8.1

)

Debt finance costs paid

 

(0.6

)

 

Tax paid

 

(1.7

)

(1.8

)

Net cash (outflow)/inflow from operating activities

 

(29.6

)

72.4

 

Cash flow from investing activities

 

 

 

 

 

Payments for property, plant and equipment

 

(13.0

)

(7.3

)

Payments for intangible assets

 

(187.3

)

(145.1

)

Proceeds from sale of intangible assets

 

22.0

 

25.2

 

Net cash outflow from investing activities

 

(178.3

)

(127.2

)

Cash flow from financing activities

 

 

 

 

 

Repayment of borrowings

 

 

(3.8

)

Principal elements of lease payments

 

(0.8

)

 

Net cash outflow from financing activities

 

(0.8

)

(3.8

)

Net decrease in cash and cash equivalents(1)

 

(208.7

)

(58.6

)

 


(1) Excludes the effect of exchange rate changes on cash and cash equivalents.

 

Net cash (outflow)/inflow from operating activities

 

Cash (used in)/generated from operations represents our operating results and net movements in our working capital. Our working capital is generally impacted by the timing of cash received from the sale of tickets and hospitality and other matchday revenues, broadcasting revenue from the Premier League and UEFA and sponsorship and other commercial revenue. Cash used in operations for the six months ended 31 December 2019 was £18.4 million, a decrease of £100.7 million from cash generated from operations of £82.3 million for the six months ended 31 December 2018.

 

Additional changes in net cash (outflow)/inflow from operating activities generally reflect our finance costs. We currently pay fixed rates of interest on our senior secured notes and variable rates of interest on our secured term loan facility. We use interest rate swaps to manage the cash flow interest rate risk. Such swaps have the economic effect of converting a portion of interest from variable rates to a fixed rate. Our revolving facility is also subject to variable rates of interest. Net cash outflow from operating activities for the six months ended 31 December 2019

 

7


 

was £29.6 million, a decrease of £102.0 million from net cash inflow of £72.4 million for the six months ended 31 December 2018.

 

Net cash outflow from investing activities

 

Capital expenditure for the acquisition of intangible assets as well as for improvements to property, principally at Old Trafford and the Aon Training Complex, are funded through cash flow generated from operations, proceeds from the sale of intangible assets and, if necessary, from our revolving facility. Capital expenditure on the acquisition, disposal and trading of intangible assets tends to vary significantly from year to year depending on the requirements of our first team, overall availability of players, our assessment of their relative value and competitive demand for players from other clubs. By contrast, capital expenditure on the purchase of property, plant and equipment tends to remain relatively stable as we continue to make improvements at Old Trafford and invest in the expansion of our training facility, the Aon Training Complex.

 

Net cash outflow from investing activities for the six months ended 31 December 2019 was £178.3 million, an increase of £51.1 million from £127.2 million for the six months ended 31 December 2018.

 

For the six months ended 31 December 2019, net capital expenditure on property, plant and equipment was £13.0 million, an increase of £5.7 million from £7.3 million for the six months ended 31 December 2018.

 

For the six months ended 31 December 2019, net capital expenditure on intangible assets was £165.3 million, an increase of £45.4 million from £119.9 million for the six months ended 31 December 2018.

 

Net cash outflow from financing activities

 

Net cash outflow from financing activities for the six months ended 31 December 2019 was £0.8 million, a decrease of £3.0 million compared to net cash outflow of £3.8 million for the six months ended 31 December 2018. The remaining balance of the secured bank loan amounting to £3.8 million was repaid on 9 July 2018.

 

Indebtedness

 

Our primary sources of indebtedness consist of our senior secured notes, our secured term loan facility and our revolving facility. As part of the security for our senior secured notes, our secured term loan facility and our revolving facility, substantially all of our assets are subject to liens and mortgages.

 

Description of principal indebtedness

 

Senior secured notes

 

Our wholly-owned subsidiary, Manchester United Football Club Limited, issued $425 million in aggregate principal amount of 3.79% senior secured notes. As of 31 December 2019 the sterling equivalent of £318.7 million (net of unamortized issue costs of £3.2 million) was outstanding. The outstanding principal amount was $425.0 million. The senior secured notes mature on 25 June 2027.

 

The senior secured notes are guaranteed by Red Football Limited, Red Football Junior Limited, Manchester United Limited and MU Finance Limited and secured against substantially all of the assets of those entities and Manchester United Football Club Limited. These entities are wholly owned subsidiaries of Manchester United plc.

 

The note purchase agreement governing the senior secured notes contains a financial maintenance covenant requiring us to maintain consolidated profit for the period before depreciation, amortization of, and profit/(loss) on disposal of, intangible assets, exceptional items, net finance costs, and tax (“EBITDA”) of not less than £65 million for each 12 month testing period. We are able to claim certain dispensations from complying with the consolidated EBITDA floor up to twice (in non-consecutive financial years) during the life of the senior secured notes if we fail to qualify for the first round group stages (or its equivalent from time to time) of the UEFA Champions League. The impact of IFRS 16 is excluded for the purpose of covenant compliance testing. The covenant is tested on a quarterly basis and we were in compliance for the quarter ended 31 December 2019.

 

8


 

The note purchase agreement governing the senior secured notes contains events of default typical for securities of this type, as well as customary covenants and restrictions on the activities of Red Football Limited and each of Red Football Limited’s subsidiaries, including, but not limited to, the incurrence of additional indebtedness; dividends or distributions in respect of capital stock or certain other restricted payments or investments; entering into agreements that restrict distributions from restricted subsidiaries; the sale or disposal of assets, including capital stock of restricted subsidiaries; transactions with affiliates; the incurrence of liens; and mergers, consolidations or the sale of substantially all of Red Football Limited’s assets. The covenants in the note purchase agreement governing the senior secured notes are subject to certain thresholds and exceptions described in the note purchase agreement governing the senior secured notes.

 

The senior secured notes may be redeemed in part, in an amount not less than 5% of the aggregate principal amount of the senior secured notes then outstanding, or in full, at any time at 100% of the principal amount plus a “make-whole” premium of an amount equal to the discounted value (based on the US Treasury rate) of the remaining interest payments due on the senior secured notes up to 25 June 2027.

 

Secured term loan facility

 

Our wholly-owned subsidiary, Manchester United Football Club Limited, has a secured term loan facility with Bank of America Merrill Lynch International Designated Activity Company as lender. As of 31 December 2019 the sterling equivalent of £168.1 million (net of unamortized issue costs of £2.3 million) was outstanding. The outstanding principal amount was $225.0 million. The secured term loan facility was amended by an amendment and restatement agreement dated 5 August 2019 which became effective on 6 August 2019 to, among other things, extend the expiry date. Consequently, the remaining balance of the secured term loan facility is repayable on 6 August 2029, although the Group has the option to repay the secured term loan facility at any time before then.

 

Loans under the secured term loan facility bear interest at a rate per annum equal to US dollar LIBOR (provided that if the rate is less than zero, LIBOR shall be deemed to be zero) plus the applicable margin. The applicable margin, if no event of default has occurred and is continuing, means the following:

 

Total net leverage ratio (as defined in the secured term loan facility agreement)

 

Margin%
(per annum)

 

Greater than 3.5

 

1.75

 

Greater than 2.0 but less than or equal to 3.5

 

1.50

 

Less than or equal to 2.0

 

1.25

 

 

While any event of default is continuing, the applicable margin shall be the highest level set forth above.

 

Our secured term loan facility is guaranteed by Red Football Limited, Red Football Junior Limited, Manchester United Limited, MU Finance Limited and Manchester United Football Club Limited and secured against substantially all of the assets of those entities. These entities are wholly owned subsidiaries of Manchester United plc.

 

The secured term loan facility contains a financial maintenance covenant  requiring us to maintain consolidated profit for the period before depreciation, amortization of, and profit/(loss) on disposal of, intangible assets, exceptional items, net finance costs, and tax (“EBITDA”) of not less than £65 million for each 12 month testing period. We are able to claim certain dispensations from complying with the consolidated EBITDA floor up to twice (in non-consecutive financial years) during the life of the secured term loan facility if we fail to qualify for the first round group stages (or its equivalent from time to time) of the UEFA Champions League. The impact of IFRS 16 is excluded for the purpose of covenant compliance testing. The covenant is tested on a quarterly basis and we were in compliance for the quarter ended 31 December 2019.

 

Revolving facility

 

Our revolving facilities agreement allows Manchester United Football Club Limited (or any direct or indirect subsidiary of Red Football Limited that becomes a borrower thereunder) to borrow up to £125 million, plus (subject to certain conditions) the ability to drawdown a further £25 million by way of incremental facilities, from a

 

9


 

syndicate of lenders with Bank of America Merrill Lynch International Designated Activity Company as agent and security trustee. As of 31 December 2019, we had no outstanding borrowings and had £125 million (exclusive of capacity under the incremental facilities) in borrowing capacity under our revolving facility agreement.

 

Our revolving facility is scheduled to expire on 4 April 2025 (although it may be possible for any subsequent incremental facility thereunder to expire at a later date). Any amount still outstanding at that time will be due in full immediately on the applicable expiry date.

 

Our revolving facility is guaranteed by Red Football Limited, Red Football Junior Limited, Manchester United Limited, MU Finance Limited and Manchester United Football Club Limited and secured against substantially all of the assets of those entities. These entities are wholly owned subsidiaries of Manchester United plc.

 

RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

 

We do not conduct research and development activities.

 

OFF BALANCE SHEET ARRANGEMENTS

 

Transfer fees payable

 

Under the terms of certain contracts with other football clubs in respect of player transfers, additional amounts would be payable by us if certain specific performance conditions are met. We estimate the fair value of any contingent consideration at the date of acquisition based on the probability of conditions being met and monitor this on an ongoing basis. The maximum additional amount that could be payable as of 31 December 2019 is £60.2 million.

 

Transfer fees receivable

 

Similarly, under the terms of contracts with other football clubs for player transfers, additional amounts would be payable to us if certain specific performance conditions are met. In accordance with the recognition criteria for contingent assets, such amounts are only disclosed by the Company when probable and recognized when virtually certain. As of 31 December 2019, we believe receipt of £4.0 million to be probable.

 

Other commitments

 

In the ordinary course of business, we enter into capital commitments. These transactions are recognized in the consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), and are more fully disclosed therein.

 

As of 31 December 2019, we had not entered into any other off-balance sheet transactions.

 

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

 

Contractual Obligations

 

The following table summarizes our contractual obligations as of 31 December 2019:

 

 

 

Less than
1 year

 

1-3
years

 

3-5
years

 

More than
five years

 

Total
contractual
cash flows(1)

 

Total per
consolidated
financial
statements

 

 

 

£’000

 

£’000

 

£’000

 

£’000

 

£’000

 

£’000

 

Long-term debt obligations(2)

 

18,336

 

36,673

 

36,325

 

547,862

 

639,196

 

492,140

 

Lease obligations(3)

 

1,911

 

1,105

 

633

 

3,722

 

7,371

 

5,248

 

Purchase obligations(4)

 

150,294

 

25,502

 

7,135

 

 

182,931

 

173,185

 

Total

 

170,541

 

63,280

 

44,093

 

551,584

 

829,498

 

670,573

 

 

10


 


(1)             Total contractual cash flows reflect contractual non-derivative financial obligations including interest, lease payments on short-term leases, purchase order commitments and capital commitments and therefore differs from the carrying amounts in our consolidated financial statements.

(2)             As of 31 December 2019, we had $425.0 million of our senior secured notes outstanding and $225.0 million of our secured term loan facility outstanding.

(3)             We enter into leases in the normal course of business. The future lease obligations would change if we were to enter into additional new leases.

(4)             Purchase obligations include current and non-current obligations related to the acquisition of registrations, purchase order commitments and capital commitments. Purchase obligations do not include contingent transfer fees of £60.2 million which are potentially payable by us if certain specific performance conditions are met.

 

Except as disclosed above and in note 29.1 to the unaudited interim consolidated financial statements as of and for the three and six months ended 31 December 2019 included elsewhere in this interim report, as of 31 December 2019, we did not have any material contingent liabilities or guarantees.

 

11


 

Manchester United plc

Interim consolidated statement of profit or loss - unaudited

 

 

 

 

 

Three months ended
31 December

 

Six months ended
31 December

 

 

 

Note

 

2019
£’000

 

2018
£’000

 

2019
£’000

 

2018
£’000

 

Revenue from contracts with customers

 

6

 

168,455

 

208,612

 

303,826

 

343,638

 

Operating expenses

 

7

 

(131,253

)

(160,269

)

(267,674

)

(303,849

)

(Loss)/profit on disposal of intangible assets

 

9

 

(715

)

(4,349

)

11,302

 

18,079

 

Operating profit

 

 

 

36,487

 

43,994

 

47,454

 

57,868

 

Finance costs

 

 

 

(5,386

)

(7,131

)

(11,912

)

(12,946

)

Finance income

 

 

 

20,644

 

785

 

18,732

 

1,474

 

Net finance income/(costs)

 

10

 

15,258

 

(6,346

)

6,820

 

(11,472

)

Profit before income tax

 

 

 

51,745

 

37,648

 

54,274

 

46,396

 

Income tax expense

 

11

 

(16,738

)

(10,878

)

(18,139

)

(12,980

)

Profit for the period

 

 

 

35,007

 

26,770

 

36,135

 

33,416

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share during the period:

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share (pence)

 

12

 

21.27

 

16.27

 

21.96

 

20.31

 

Diluted earnings per share (pence)

 

12

 

21.25

 

16.26

 

21.94

 

20.29

 

 

See accompanying notes to the interim consolidated financial statements.

 

12


 

Manchester United plc

Interim consolidated statement of comprehensive income - unaudited

 

 

 

Three months ended
31 December

 

Six months ended
31 December

 

 

 

2019
£’000

 

2018
£’000

 

2019
£’000

 

2018
£’000

 

Profit for the period

 

35,007

 

26,770

 

36,135

 

33,416

 

Other comprehensive income/(loss):

 

 

 

 

 

 

 

 

 

Items that may be reclassified to profit or loss

 

 

 

 

 

 

 

 

 

Movement on hedges

 

14,162

 

(6,429

)

9,904

 

(7,286

)

Income tax credit/(expense) relating to movements on hedges

 

947

 

(199

)

(607

)

(849

)

Other comprehensive income/(loss) for the period, net of tax

 

15,109

 

(6,628

)

9,297

 

(8,135

)

Total comprehensive income for the period

 

50,116

 

20,142

 

45,432

 

25,281

 

 

See accompanying notes to the interim consolidated financial statements.

 

13


 

Manchester United plc

Interim consolidated balance sheet - unaudited

 

 

 

 

 

As of

 

 

 

Note

 

31 December
2019
£’000

 

30 June
2019
£’000

 

31 December
2018
£’000

 

ASSETS

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

14

 

253,523

 

246,032

 

246,910

 

Right-of-use assets

 

15

 

5,168

 

 

 

Investment property

 

16

 

24,792

 

24,979

 

13,772

 

Intangible assets

 

17

 

758,476

 

768,857

 

739,472

 

Deferred tax asset

 

18

 

53,862

 

58,415

 

57,636

 

Trade receivables

 

20

 

40,586

 

9,889

 

10,387

 

Income tax receivable

 

 

 

 

 

547

 

Derivative financial instruments

 

21

 

 

30

 

2,559

 

 

 

 

 

1,136,407

 

1,108,202

 

1,071,283

 

Current assets

 

 

 

 

 

 

 

 

 

Inventories

 

19

 

2,535

 

2,130

 

2,610

 

Prepayments

 

 

 

13,211

 

13,030

 

10,320

 

Contract assets — accrued revenue

 

6.2

 

78,098

 

39,532

 

79,496

 

Trade receivables

 

20

 

26,313

 

23,851

 

32,819

 

Other receivables

 

 

 

614

 

1,188

 

1,597

 

Income tax receivable

 

 

 

618

 

643

 

598

 

Derivative financial instruments

 

21

 

 

312

 

625

 

Cash and cash equivalents

 

22

 

100,856

 

307,637

 

190,395

 

 

 

 

 

222,245

 

388,323

 

318,460

 

Total assets

 

 

 

1,358,652

 

1,496,525

 

1,389,743

 

 

See accompanying notes to the interim consolidated financial statements.

 

14


 

Manchester United plc

Interim consolidated balance sheet - unaudited (continued)

 

 

 

 

 

As of

 

 

 

Note

 

31 December
2019
£’000

 

30 June
2019
£’000

 

31 December
2018
£’000

 

EQUITY AND LIABILITIES

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

Share capital

 

23

 

53

 

53

 

53

 

Share premium

 

 

 

68,822

 

68,822

 

68,822

 

Merger reserve

 

 

 

249,030

 

249,030

 

249,030

 

Hedging reserve

 

 

 

(26,247

)

(35,544

)

(35,693

)

Retained earnings

 

 

 

169,341

 

132,841

 

170,544

 

Total equity

 

 

 

460,999

 

415,202

 

452,756

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

Deferred tax liabilities

 

18

 

37,766

 

31,865

 

33,302

 

Contract liabilities - deferred revenue

 

6.2

 

23,605

 

33,354

 

32,952

 

Trade and other payables

 

24

 

31,241

 

79,183

 

46,644

 

Borrowings

 

25

 

486,852

 

505,779

 

502,576

 

Lease liabilities

 

15

 

3,626

 

 

 

Derivative financial instruments

 

21

 

2,323

 

2,298

 

 

 

 

 

 

585,413

 

652,479

 

615,474

 

Current liabilities

 

 

 

 

 

 

 

 

 

Contract liabilities - deferred revenue

 

6.2

 

143,577

 

190,146

 

129,662

 

Trade and other payables

 

24

 

152,093

 

230,386

 

180,588

 

Income tax liabilities

 

 

 

9,429

 

2,859

 

5,771

 

Borrowings

 

25

 

5,288

 

5,453

 

5,492

 

Lease liabilities

 

15

 

1,622

 

 

 

Derivative financial instruments

 

21

 

231

 

 

 

 

 

 

 

312,240

 

428,844

 

321,513

 

Total equity and liabilities

 

 

 

1,358,652

 

1,496,525

 

1,389,743

 

 

See accompanying notes to the interim consolidated financial statements.

 

15


 

Manchester United plc

Interim consolidated statement of changes in equity - unaudited

 

 

 

Share
capital
£’000

 

Share
premium
£’000

 

Merger
reserve
£’000

 

Hedging
reserve
£’000

 

Retained
earnings
£’000

 

Total
equity
£’000

 

Balance at 30 June 2018

 

53

 

68,822

 

249,030

 

(27,558

)

136,757

 

427,104

 

Profit for the period

 

 

 

 

 

33,416

 

33,416

 

Cash flow hedges

 

 

 

 

(7,286

)

 

(7,286

)

Tax expense relating to movement on hedges

 

 

 

 

(849

)

 

(849

)

Total comprehensive income for the period

 

 

 

 

(8,135

)

33,416

 

25,281

 

Equity-settled share-based payments

 

 

 

 

 

371

 

371

 

Balance at 31 December 2018

 

53

 

68,822

 

249,030

 

(35,693

)

170,544

 

452,756

 

Loss for the period

 

 

 

 

 

(14,535

)

(14,535

)

Cash flow hedges

 

 

 

 

566

 

 

566

 

Tax expense relating to movement on hedges

 

 

 

 

(417

)

 

(417

)

Total comprehensive loss for the period

 

 

 

 

149

 

(14,535

)

(14,386

)

Equity-settled share-based payments

 

 

 

 

 

328

 

328

 

Dividends paid

 

 

 

 

 

(23,326

)

(23,326

)

Deferred tax expense relating to share-based payments

 

 

 

 

 

(170

)

(170

)

Balance at 30 June 2019

 

53

 

68,822

 

249,030

 

(35,544

)

132,841

 

415,202

 

Profit for the period

 

 

 

 

 

36,135

 

36,135

 

Cash flow hedges

 

 

 

 

9,904

 

 

9,904

 

Tax expense relating to movement on hedges

 

 

 

 

(607

)

 

(607

)

Total comprehensive income for the period

 

 

 

 

9,297

 

36,135

 

45,432

 

Equity-settled share-based payments

 

 

 

 

 

365

 

365

 

Balance at 31 December 2019

 

53

 

68,822

 

249,030

 

(26,247

)

169,341

 

460,999

 

 

See accompanying notes to the interim consolidated financial statements.

 

16


 

Manchester United plc

Interim consolidated statement of cash flows - unaudited

 

 

 

 

 

Three months ended
31 December

 

Six months ended
31 December

 

 

 

Note

 

2019
£’000

 

2018
£’000

 

2019
£’000

 

2018
£’000

 

Cash flow from operating activities

 

 

 

 

 

 

 

 

 

 

 

Cash (used in)/generated from operations

 

26

 

(13,833

)

(41,019

)

(18,439

)

82,337

 

Interest paid

 

 

 

(1,585

)

(1,734

)

(9,951

)

(9,507

)

Debt finance costs paid

 

 

 

 

 

(555

)

 

Interest received

 

 

 

406

 

722

 

1,050

 

1,355

 

Tax paid

 

 

 

(208

)

(376

)

(1,697

)

(1,810

)

Net cash (outflow)/inflow from operating activities

 

 

 

(15,220

)

(42,407

)

(29,592

)

72,375

 

Cash flow from investing activities

 

 

 

 

 

 

 

 

 

 

 

Payments for property, plant and equipment

 

 

 

(9,879

)

(2,414

)

(13,030

)

(7,318

)

Payments for intangible assets(1)

 

 

 

(11,598

)

(16,418

)

(187,311

)

(145,056

)

Proceeds from sale of intangible assets(1)

 

 

 

4,530

 

255

 

22,009

 

25,183

 

Net cash outflow from investing activities

 

 

 

(16,947

)

(18,577

)

(178,332

)

(127,191

)

Cash flow from financing activities

 

 

 

 

 

 

 

 

 

 

 

Repayment of borrowings

 

 

 

 

 

 

(3,750

)

Principal elements of lease payments

 

 

 

(382

)

 

(761

)

 

Net cash outflow from financing activities

 

 

 

(382

)

 

(761

)

(3,750

)

Net decrease in cash and cash equivalents

 

 

 

(32,549

)

(60,984

)

(208,685

)

(58,566

)

Cash and cash equivalents at beginning of period

 

 

 

140,307

 

247,505

 

307,637

 

242,022

 

Effect of exchange rate changes on cash and cash equivalents

 

 

 

(6,902

)

3,874

 

1,904

 

6,939

 

Cash and cash equivalents at end of period

 

22

 

100,856

 

190,395

 

100,856

 

190,395

 

 


(1) Payments and proceeds for intangible assets primarily relate to player and key football management staff registrations. When acquiring or selling players’ and key football management staff registrations it is normal industry practice for payment terms to spread over more than one year and consideration may also include non-cash items. Details of registrations additions and disposals are provided in note 17. Trade payables in relation to the acquisition of registrations at the reporting date are provided in note 24. Trade receivables in relation to the disposal of registrations at the reporting date are provided in note 20.

 

See accompanying notes to the interim consolidated financial statements.

 

17


 

Manchester United plc

Notes to the interim consolidated financial statements — unaudited

 

1           General information

 

Manchester United plc (the “Company”) and its subsidiaries (together the “Group”) is a men’s and women’s professional football club together with related and ancillary activities. The Company incorporated under the Companies Law (as amended) of the Cayman Islands. The Company’s shares are listed on the New York Stock Exchange under the symbol “MANU”.

 

These financial statements are presented in pounds sterling and all values are rounded to the nearest thousand (£’000) except when otherwise indicated.

 

These interim consolidated financial statements were approved for issue by the Audit Committee on 25 February 2020.

 

2           Basis of preparation

 

The interim consolidated financial statements of Manchester United plc have been prepared on a going concern basis and in accordance with International Accounting Standard 34 “Interim Financial Reporting”. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended 30 June 2019, as filed with the Securities and Exchange Commission on 24 September 2019, contained within the Company’s Annual Report on Form 20-F, which were prepared in accordance with International Financial Reporting Standards (“IFRS”). The report of the auditors on those financial statements was unqualified and did not contain an emphasis of matter paragraph. The results of operations for the interim periods should not be considered indicative of results to be expected for the full fiscal year.

 

18


 

Manchester United plc

Notes to the interim consolidated financial statements — unaudited (continued)

 

3           Accounting policies

 

The accounting policies adopted are consistent with those of the consolidated financial statements for the year ended 30 June 2019, with the exception of the implementation of IFRS 16 ‘Leases’ and except as described below.

 

Foreign exchange gains and losses that relate to transfer fees receivable from other football clubs are presented in the statement of profit or loss on a net basis within profit on disposal of intangible assets. Such amounts were previously immaterial.

 

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

 

New and amended standards and interpretations adopted by the Group

 

·                  IFRS 16, “Leases”

 

The Group adopted IFRS 16 ‘Leases’ with effect from 1 July 2019. IFRS 16 introduced a single lease accounting model, requiring a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. The lessee is required to recognize a right-of-use asset representing the right to use the underlying asset, and a lease liability representing the obligation to pay lease payments.

 

The Group has elected to apply the ‘simplified approach’ on initial adoption of IFRS 16, consequently comparative information has not been restated. The Group also elected to apply the following transitional practical expedients:

 

·                      lease liabilities are initially measured at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate determined as 2.22% as at 1 July 2019;

·                      right-of-use assets are measured at an amount equal to the lease liability; and

·                      operating leases with a remaining lease term of less than 12 months as at 1 July 2019 are accounted for as short-term leases.

 

The new treatment of leases has resulted in an increase in non-current assets and financial liabilities as these leases are capitalised and included on the Group balance sheet. The reduction in operating lease expenses is offset by an increase in depreciation and an increase in finance charges. This has resulted in a higher operating profit. This depreciation charge is constant over the lease period, but finance charges decrease as the remaining lease liability decreases, resulting in a net reduction in profit before tax in the early part of a lease arrangement but a positive profit impact towards the end of the contract. This is in contrast to the previous typical straight-line treatment of operating lease expenses under IAS 17.

 

The Group recognized right-of-use assets of £6.0 million on 1 July 2019 and lease liabilities of the same amount, measured as follows:

 

 

 

£’000

 

Operating lease commitments disclosed as at 30 June 2019

 

8,087

 

Discounted using the Group’s incremental borrowing rate as at 1 July 2019

 

6,246

 

Less short term leases not recognized as a liability

 

(270

)

Lease liability recognized as at 1 July 2019

 

5,976

 

 

19


 

Manchester United plc

Notes to the interim consolidated financial statements — unaudited (continued)

 

3           Accounting policies (continued)

 

New and amended standards and interpretations adopted by the Group (continued)

 

The Group expects that operating profit for the year ending 30 June 2020 will increase by approximately £0.1 million as a result of adopting the new standard. Profit before tax is expected to decrease by approximately £0.1 million.

 

Lease payments were previously presented as operating cash flows. Lease payments are now split into payments for the principal portion of the lease liability which are presented as financing cash flows, and payments for the interest portion of the lease liability which are presented as operating cash flows. There is no impact on overall cash flow.

 

The Group’s activities as a lessor are not materially impacted by the new standard.

 

·                  Phase 1 amendments to IFRS 9, “Financial instruments” for IBOR reform

 

Phase 1 amendments to IFRS 9, “Financial instruments” for IBOR reform are effective for annual reporting periods beginning on or after 1 January 2020 with earlier application permitted. The Group has applied early adoption the amendments.

 

New and amended standards and interpretations issued but not yet adopted

 

There are no IFRS or IFRS IC interpretations that are not yet effective that would be expected to have a material impact on the Group in the future reporting periods or on foreseeable future transactions.

 

4           Critical estimates and judgments

 

The preparation of interim financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the interim consolidated financial statements are considered to be minimum guarantee revenue recognition, fair value and impairment of intangible assets — registrations, and recognition of deferred tax assets.

 

In preparing these interim consolidated financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 30 June 2019, with the exception of changes in estimates that are required in determining the provision for income taxes.

 

20


 

Manchester United plc

Notes to the interim consolidated financial statements — unaudited (continued)

 

5           Seasonality of revenue

 

We experience seasonality in our revenue and cash flow, limiting the overall comparability of interim financial periods. In any given interim period, our total revenue can vary based on the number of games played in that period, which affects the amount of Matchday and Broadcasting revenue recognized. Similarly, certain of our costs are derived from hosting games at Old Trafford, and these costs will also vary based on the number of games played in the period. We historically recognize the most revenue in our second and third fiscal quarters due to the scheduling of matches. However, a strong performance by our first team in European competitions and domestic cups could result in significant additional Matchday and Broadcasting revenue, and consequently we may recognize the most revenue in our fourth fiscal quarter in those years.

 

Commercial revenue (whether settled in cash or value in kind) comprises revenue receivable from the exploitation of the Manchester United brand through sponsorship and other commercial agreements, including minimum guaranteed revenue, revenue receivable from retailing Manchester United branded merchandise in the UK and licensing the manufacture, distribution and sale of such goods globally, and fees for the Manchester United men’s first team undertaking tours. Revenue is recognized over the term of the sponsorship agreement in line with the performance obligations included within the contract and based on the sponsorship rights enjoyed by the individual sponsor. In instances where the sponsorship rights remain the same over the duration of the contract, revenue is recognized as performance obligations are satisfied evenly over time (i.e. on a straight-line basis). In respect of contracts with multiple performance obligations, the Group allocates the total consideration receivable to each separately identifiable performance obligation based on their relative fair values, and then recognizes the allocated revenue as performance obligations are satisfied evenly over time (i.e. on a straight-line basis). Retail revenue is recognized when control of the products has transferred, being at the point of sale to the customer. License revenue in respect of right to access licences is recognized in line with the performance obligations included within the contract, in instances where these remain the same over the duration of the contract, revenue is recognized evenly on a time elapsed (i.e. straight-line) basis. Sales-based royalty revenue is recognized only when the subsequent sale is made.

 

Minimum guaranteed revenue is recognized over the term of the sponsorship agreement in line with the performance obligations included within the contract and based on the sponsorship benefits enjoyed by the individual sponsor. In instances where the sponsorship rights remain the same over the duration of the contract, revenue is recognized as performance obligations are satisfied evenly over time (i.e. on a straight-line basis). The Group has a 10-year agreement with adidas which began on 1 August 2015. The minimum guarantee payable by adidas over the term of the agreement is £750 million, subject to certain adjustments. Payments due in a particular year may increase if the club’s men’s first team wins the Premier League, FA Cup or UEFA Champions League, or decrease if the club’s men’s first team fails to participate in the UEFA Champions League for two or more consecutive seasons with the maximum possible increase being £4 million per year and the maximum possible reduction being 30% of the applicable payment for the year in which the second or other consecutive season of non-participation falls. Participation in the UEFA Champions League is typically secured via a top 4 finish in the Premier League or winning the UEFA Europa League. Revenue is currently being recognized based on management’s estimate as at 31 December 2019 that the full minimum guarantee amount is the most likely amount that will be received, as management does not expect two consecutive seasons of non-participation in the Champions League.

 

21


 

Manchester United plc

Notes to the interim consolidated financial statements — unaudited (continued)

 

5           Seasonality of revenue (continued)

 

Broadcasting revenue represents revenue receivable from all UK and overseas broadcasting contracts, including contracts negotiated centrally by the Premier League and UEFA. Distributions from the Premier League comprise a fixed element (which is recognized evenly as each performance obligation is satisfied i.e.as each Premier League match is played), facility fees for live coverage and highlights of domestic home and away matches (which are recognized when the respective performance obligation is satisfied i.e. the respective match is played), and merit awards (which, being variable consideration, are recognized when each performance obligation is satisfied i.e. as each Premier League match is played, based on management’s estimate at the balance sheet date of where the men’s first team will finish at the end of the football season i.e. the most likely outcome). Distributions from UEFA relating to participation in European competitions comprise market pool payments (which are recognized over the matches played in the competition, a portion of which reflects Manchester United’s performance relative to the other Premier League clubs in the competition), fixed amounts for participation in individual matches (which are recognized when the matches are played) and an individual club coefficient share (which is recognized over the group stage matches).

 

Matchday revenue is recognized based on matches played throughout the year with revenue from each match (including season ticket allocated amounts) only being recognized when the performance obligation is satisfied i.e. the match has been played. Revenue from related activities such as Conference and Events or the Museum is recognized as the event or service is provided or the facility is used. Matchday revenue includes revenue receivable from all domestic and European match day activities from Manchester United games at Old Trafford, together with the Group’s share of gate receipts from domestic cup matches not played at Old Trafford, and fees for arranging other events at the Old Trafford stadium. As the Group acts as the principal in the sale of match tickets, the share of gate receipts payable to the other participating club and competition organizer for domestic cup matches played at Old Trafford is treated as an operating expense.

 

22


 

Manchester United plc

Notes to the interim consolidated financial statements — unaudited (continued)

 

6           Revenue from contracts with customers

 

6.1                     Disaggregation of revenue from contracts with customers

 

The principal activity of the Group is the operation of men’s and women’s professional football clubs. All of the activities of the Group support the operation of the football clubs and the success of the men’s first team in particular is critical to the on-going development of the Group. Consequently the chief operating decision maker (being the Board and executive officers of Manchester United plc) regards the Group as operating in one material segment, being the operation of professional football clubs.

 

All revenue derives from the Group’s principal activity in the United Kingdom. Revenue can be analysed into its three main components as follows:

 

 

 

Three months ended
31 December

 

Six months ended
31 December

 

 

 

2019
£’000

 

2018
£’000

 

2019
£’000

 

2018
£’000

 

Sponsorship

 

45,147

 

40,300

 

98,777

 

89,916

 

Retail, merchandising, apparel & product licensing

 

25,513

 

25,644

 

52,278

 

51,928

 

Commercial

 

70,660

 

65,944

 

151,055

 

141,844

 

Domestic competitions

 

50,440

 

50,128

 

78,327

 

79,005

 

European competitions

 

11,935

 

50,918

 

14,949

 

62,212

 

Other

 

2,322

 

2,630

 

4,297

 

5,301

 

Broadcasting

 

64,697

 

103,676

 

97,573

 

146,518

 

Matchday

 

33,098

 

38,992

 

55,198

 

55,276

 

 

 

168,455

 

208,612

 

303,826

 

343,638

 

 

All non-current assets, other than US deferred tax assets, are held within the United Kingdom.

 

6.2                     Assets and liabilities related to contracts with customers

 

Details of movements on assets related to contracts with customers are as follows:

 

 

 

Current
contract assets 
— accrued
revenue
£’000

 

At 1 July 2018

 

38,018

 

Recognized in revenue during the period

 

74,034

 

Cash received/amounts invoiced during the period

 

(32,556

)

At 31 December 2018

 

79,496

 

Recognized in revenue during the period

 

37,778

 

Cash received/amounts invoiced during the period

 

(77,742

)

At 30 June 2019

 

39,532

 

Recognized in revenue during the period

 

74,877

 

Cash received/amounts invoiced during the period

 

(36,311

)

At 31 December 2019

 

78,098

 

 

23


 

Manchester United plc

Notes to the interim consolidated financial statements — unaudited (continued)

 

6                                 Revenue from contracts with customers (continued)

 

6.2                     Assets and liabilities related to contracts with customers (continued)

 

A contract asset (accrued revenue) is recognized if commercial, broadcasting or matchday revenue performance obligations are satisfied prior to unconditional consideration being due under the contract.

 

Details of movements on liabilities related to contracts with customers are as follows:

 

 

 

Current
contract
liabilities —
 deferred
revenue
£’000

 

Non-current
contract
liabilities —
 deferred
revenue
£’000

 

Total contract
liabilities —
 deferred
revenue
£’000

 

At 1 July 2018

 

(180,512

)

(37,085

)

(217,597

)

Recognized in revenue during the period

 

112,215

 

 

112,215

 

Cash received/amounts invoiced during the period

 

(56,519

)

(713

)

(57,232

)

Reclassified to current during the period

 

(4,846

)

4,846

 

 

At 31 December 2018

 

(129,662

)

(32,952

)

(162,614

)

Recognized in revenue during the period

 

128,956

 

 

128,956

 

Cash received/amounts invoiced during the period

 

(168,025

)

(21,817

)

(189,842

)

Reclassified to current during the period

 

(21,415

)

21,415

 

 

At 30 June 2019

 

(190,146

)

(33,354

)

(223,500

)

Recognized in revenue during the period

 

125,635

 

 

125,635

 

Cash received/amounts invoiced during the period

 

(69,317

)

 

(69,317

)

Reclassified to current during the period

 

(9,749

)

9,749

 

 

At 31 December 2019

 

(143,577

)

(23,605

)

(167,182

)

 

Commercial, broadcasting and matchday consideration which is received in advance of the performance obligation being satisfied is treated as a contract liability (deferred revenue). The deferred revenue is then recognized as revenue when the performance obligation is satisfied. The Group receives substantial amounts of deferred revenue prior to the previous financial year end which is then recognized as revenue throughout the current and, where applicable, future financial years.

 

24


 

Manchester United plc

Notes to the interim consolidated financial statements — unaudited (continued)

 

7                               Operating expenses

 

 

 

Three months ended
31 December

 

Six months ended
31 December

 

 

 

2019
£’000

 

2018
£’000

 

2019
£’000

 

2018
£’000

 

Employee benefit expenses

 

(70,965

)

(77,903

)

(141,175

)

(154,946

)

Depreciation - property, plant and equipment (note 14)

 

(3,133

)

(2,938

)

(6,273

)

(5,715

)

Depreciation — right-of-use assets (note 15)

 

(404

)

 

(808

)

 

Depreciation - investment property (note 16)

 

(89

)

(32

)

(187

)

(64

)

Amortization (note 17)

 

(31,257

)

(33,440

)

(63,444

)

(68,571

)

Other operating expenses

 

(25,405

)

(26,357

)

(55,787

)

(54,954

)

Exceptional items (note 8)

 

 

(19,599

)

 

(19,599

)

 

 

(131,253

)

(160,269

)

(267,674

)

(303,849

)

 

8                               Exceptional items

 

 

 

Three months ended
31 December

 

Six months ended
31 December

 

 

 

2019
£’000

 

2018
£’000

 

2019
£’000

 

2018
£’000

 

Compensation paid for loss of office

 

 

(19,599

)

 

(19,599

)

 

 

 

(19,599

)

 

(19,599

)

 

Compensation paid for loss of office relates to amounts payable to the former manager and certain members of the coaching staff.

 

9                               (Loss)/profit on disposal of intangible assets

 

 

 

Three months ended
31 December

 

Six months ended
31 December

 

 

 

2019
£’000

 

2018
£’000

 

2019
£’000

 

2018
£’000

 

(Loss)/profit on disposal of registrations

 

(1,531

)

(4,508

)

10,214

 

17,841

 

Player loan income

 

816

 

159

 

1,088

 

238

 

 

 

(715

)

(4,349

)

11,302

 

18,079

 

 

25


 

Manchester United plc

Notes to the interim consolidated financial statements — unaudited (continued)

 

10                          Net finance income/(costs)

 

 

 

Three months ended
31 December

 

Six months ended
31 December

 

 

 

2019
£’000

 

2018
£’000

 

2019
£’000

 

2018
£’000

 

Interest payable on bank loans and overdrafts

 

(245

)

(261

)

(583

)

(525

)

Interest payable on secured term loan facility and senior secured notes

 

(4,345

)

(4,859

)

(9,455

)

(9,390

)

Interest payable on lease liabilities (note 15)

 

(33

)

 

(68

)

 

Amortization of issue costs on secured term loan facility and senior secured notes

 

(146

)

(165

)

(291

)

(321

)

Foreign exchange losses on retranslation of unhedged US dollar borrowings

 

 

(1,316

)

 

(1,535

)

Unwinding of discount relating to registrations

 

(192

)

(505

)

(1,169

)

(1,231

)

Fair value movement on derivative financial instruments:

 

 

 

 

 

 

 

 

 

Embedded foreign exchange derivatives

 

(425

)

(25

)

(346

)

56

 

Total finance costs

 

(5,386

)

(7,131

)

(11,912

)

(12,946

)

Interest receivable on short-term bank deposits

 

415

 

785

 

1,070

 

1,474

 

Foreign exchange gains on retranslation of unhedged US dollar borrowings

 

19,522

 

 

17,074

 

 

Hedge ineffectiveness on cash flow hedges

 

707

 

 

588

 

 

Total finance income

 

20,644

 

785

 

18,732

 

1,474

 

Net finance income/(costs)

 

15,258

 

(6,346

)

6,820

 

(11,472

)

 

26


 

Manchester United plc

Notes to the interim consolidated financial statements — unaudited (continued)

 

11                          Income tax expense

 

 

 

Three months ended
31 December

 

Six months ended
31 December

 

 

 

2019
£’000

 

2018
£’000

 

2019
£’000

 

2018
£’000

 

Current tax

 

 

 

 

 

 

 

 

 

Current tax on profit for the period

 

(6,073

)

(1,953

)

(6,673

)

(2,603

)

Foreign tax

 

(205

)

(292

)

(655

)

(403

)

Adjustment in respect of previous years

 

(32

)

 

(32

)

 

Total current tax expense

 

(6,310

)

(2,245

)

(7,360

)

(3,006

)

Deferred tax

 

 

 

 

 

 

 

 

 

Origination and reversal of temporary differences

 

(6,432

)

(8,633

)

(6,783

)

(9,974

)

Re-measurement of US deferred tax asset

 

(3,996

)

 

(3,996

)

 

Total deferred tax expense

 

(10,428

)

(8,633

)

(10,779

)

(9,974

)

Total income tax expense

 

(16,738

)

(10,878

)

(18,139

)

(12,980

)

 

Tax is recognized based on management’s estimate of the weighted average annual tax rate expected for the full financial year. Based on current forecasts, the estimated weighted average annual tax rate used for the year to 30 June 2020 is 32.58% (30 June 2019: 28.2%).

 

In addition to the amounts recognized in the statement of profit or loss, the following amounts relating to tax have been recognized in other comprehensive income:

 

 

 

Three months ended
31 December

 

Six months ended
31 December

 

 

 

2019
£’000

 

2018
£’000

 

2019
£’000

 

2018
£’000

 

Current tax

 

(529

)

(1,453

)

(932

)

(959

)

Deferred tax (note 18)

 

1,476

 

1,254

 

325

 

110

 

Total income tax credit/(expense) recognized in other comprehensive income

 

947

 

(199

)

(607

)

(849

)

 

27


 

Manchester United plc

Notes to the interim consolidated financial statements — unaudited (continued)

 

12                          Earnings per share

 

 

 

Three months ended
31 December

 

Six months ended
31 December

 

 

 

2019

 

2018

 

2019

 

2018

 

Profit for the period (£’000)

 

35,007

 

26,770

 

36,135

 

33,416

 

Basic earnings per share (pence)

 

21.27

 

16.27

 

21.96

 

20.31

 

Diluted earnings per share (pence)

 

21.25

 

16.26

 

21.94

 

20.29

 

 

(i)                          Basic

 

Basic earnings per share is calculated by dividing the profit for the period by the weighted average number of ordinary shares in issue during the period.

 

(ii)                     Diluted

 

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue during the year to assume conversion of all dilutive potential ordinary shares. The Company has 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, or, if later, the date of issue of the potential ordinary shares.

 

(iii)                    Weighted average number of shares used as the denominator

 

 

 

Three months ended
31 December

 

Six months ended
31 December

 

 

 

2019
Number
‘000

 

2018
Number
‘000

 

2019
Number
‘000

 

2018
Number
‘000

 

Class A ordinary shares (thousands)

 

40,573

 

40,526

 

40,573

 

40,526

 

Class B ordinary shares (thousands)

 

124,000

 

124,000

 

124,000

 

124,000

 

Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share

 

164,573

 

164,526

 

164,573

 

164,526

 

Adjustment for calculation of diluted earnings per share assumed conversion into Class A ordinary shares

 

173

 

137

 

164

 

137

 

Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share

 

164,746

 

164,663

 

164,737

 

164,663

 

 

13                          Dividends

 

No dividend has been paid by the Company during the six month period ended 31 December 2019 (six months ended 31 December 2018: £nil). A semi-annual dividend of $14,812,000, equivalent to $0.09 per share, was paid on 6 January 2020. The pounds sterling equivalent was £11,323,000. A further semi-annual dividend of $0.09 per share will be paid on 3 June 2020.

 

28


 

Manchester United plc

Notes to the interim consolidated financial statements — unaudited (continued)

 

14                          Property, plant and equipment

 

 

 

Freehold
property
£’000

 

Plant and
machinery
£’000

 

Fixtures
and fittings
£’000

 

Total
£’000

 

At 1 July 2019

 

 

 

 

 

 

 

 

 

Cost

 

268,981

 

34,845

 

64,806

 

368,632

 

Accumulated depreciation

 

(53,155

)

(29,688

)

(39,757

)

(122,600

)

Net book amount

 

215,826

 

5,157

 

25,049

 

246,032

 

Six months ended 31 December 2019

 

 

 

 

 

 

 

 

 

Opening net book amount

 

215,826

 

5,157

 

25,049

 

246,032

 

Additions

 

 

1,384

 

12,380

 

13,764

 

Depreciation charge

 

(1,631

)

(1,271

)

(3,371

)

(6,273

)

Closing net book amount

 

214,195

 

5,270

 

34,058

 

253,523

 

At 31 December 2019

 

 

 

 

 

 

 

 

 

Cost

 

268,981

 

36,229

 

77,186

 

382,396

 

Accumulated depreciation

 

(54,786

)

(30,959

)

(43,128

)

(128,873

)

Net book amount

 

214,195

 

5,270

 

34,058

 

253,523

 

 

 

 

 

 

 

 

 

 

 

At 1 July 2018

 

 

 

 

 

 

 

 

 

Cost

 

269,367

 

34,790

 

57,800

 

361,957

 

Accumulated depreciation

 

(50,032

)

(30,621

)

(35,903

)

(116,556

)

Net book amount

 

219,335

 

4,169

 

21,897

 

245,401

 

Six months ended 31 December 2018

 

 

 

 

 

 

 

 

 

Opening net book amount

 

219,335

 

4,169

 

21,897

 

245,401

 

Additions

 

23

 

1,308

 

5,893

 

7,224

 

Transfers

 

(25

)

 

25

 

 

Depreciation charge

 

(1,638

)

(1,056

)

(3,021

)

(5,715

)

Closing net book amount

 

217,695

 

4,421

 

24,794

 

246,910

 

At 31 December 2018

 

 

 

 

 

 

 

 

 

Cost

 

269,365

 

36,098

 

63,718

 

369,181

 

Accumulated depreciation

 

(51,670

)

(31,677

)

(38,924

)

(122,271

)

Net book amount

 

217,695

 

4,421

 

24,794

 

246,910

 

 

29


 

Manchester United plc

Notes to the interim consolidated financial statements — unaudited (continued)

 

15                          Leases

 

As explained in note 3 above, the Group has adopted IFRS 16 for leases where the Group is the lessee with effect from 1 July 2019.

 

(i)                            Amounts recognized in the consolidated balance sheet

 

The balance sheet shows the following amounts relating to leases:

 

Right-of-use assets:

 

 

 

 

31 December
2019
£’000

 

30 June
2019
£’000

 

31 December
2018
£’000

 

Property

 

5,056

 

 

 

Plant and machinery

 

112

 

 

 

Total

 

5,168

 

 

 

 

Additions to right-of-use assets for the three and six months ended 31 December 2019 amounted £nil.

 

Lease liabilities:

 

 

 

31 December
2019
£’000

 

30 June
2019
£’000

 

31 December
2018
£’000

 

Current

 

1,622

 

 

 

Non-current

 

3,626

 

 

 

Total lease liabilities

 

5,248

 

 

 

 

The total cash outflow for leases for the three months ended 31 December 2019 amounted £398,000.

The total cash outflow for leases for the six months ended 31 December 2019 amounted £796,000.

 

(ii)                        Amounts recognized in the consolidated statement of profit or loss:

 

 

 

31 December
2019
£’000

 

31 December
2018
£’000

 

Depreciation charge of right-of-use assets

 

 

 

 

 

Property

 

(765

)

 

Plant and machinery

 

(43

)

 

 

 

(808

)

 

Interest expense (included in finance cost)

 

(68

)

 

Expense relating to short-term leases (included in operating expenses)

 

(351

)

 

Expense relating to low value leases (included in operating expenses)

 

(8

)

 

 

30


 

Manchester United plc

Notes to the interim consolidated financial statements — unaudited (continued)

 

15                          Leases (continued)

 

(iii)                    The group’s leasing activities and how these are accounted for

 

The Group leases various offices and equipment. Until 30 June 2019, these leases of property, plant and equipment were classified and accounted for as operating leases and lease payments were charged to profit or loss on a straight-line basis over the period of the lease. From 1 July 2019, all leases with a term of more than 12 months, unless the underlying asset is of low value, are recognized as a right-of-use asset, with a corresponding lease liability, at the date at which the leased asset is available for use by the Group.

 

The lease agreements do not impose any covenants other than the security interests in the right-of-use assets that are held by the lessor. Right-of-use assets may not be used as security for borrowing purposes.

 

Lease liabilities are initially measured on a present value basis. Lease liabilities include the net present value of lease payments, less any lease incentives receivable. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, which is generally the case for leases of the Group, the Group’s incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

 

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

 

Right-of-use assets are initially measured at cost comprising the following:

 

·                  the amount of the initial measurement of the lease liability;

·                  any lease payments made at or before the commencement date less any lease incentives received;

·                  any initial direct costs; and

·                  restoration costs.

 

Right-of-use assets are depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.

 

Payments associated with short-term leases of property, plant and equipment and all leases of low-value assets are recognized on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less.

 

31


 

Manchester United plc

Notes to the interim consolidated financial statements — unaudited (continued)

 

16                          Investment property

 

 

 

Total
£’000

 

At 1 July 2019

 

 

 

Cost

 

32,193

 

Accumulated depreciation and impairment

 

(7,214

)

Net book amount

 

24,979

 

Six months ended 31 December 2019

 

 

 

Opening net book amount

 

24,979

 

Depreciation charge

 

(187

)

Closing net book amount

 

24,792

 

At 31 December 2019

 

 

 

Cost

 

32,193

 

Accumulated depreciation and impairment

 

(7,401

)

Net book amount

 

24,792

 

 

 

 

 

At 1 July 2018

 

 

 

Cost

 

19,769

 

Accumulated depreciation and impairment

 

(5,933

)

Net book amount

 

13,836

 

Six months ended 31 December 2018

 

 

 

Opening net book amount

 

13,836

 

Depreciation charge

 

(64

)

Closing net book amount

 

13,772

 

At 31 December 2018

 

 

 

Cost

 

19,769

 

Accumulated depreciation and impairment

 

(5,997

)

Net book amount

 

13,772

 

 

Management obtained an external valuation report carried out in accordance with the Royal Institution of Chartered Surveyors (“RICS”) Valuation - Professional Standards, January 2014 as of 30 June 2019. The fair value of investment properties as of 30 June 2019 was £27,633,000. Management has considered the carrying amount of investment property as of 31 December 2019 and concluded that, as there are no indicators of impairment, an impairment test is not required. The external valuation was carried out on the basis of Market Value, as defined in the RICS Valuation — Professional Standards, January 2014. Fair value of investment property is determined using inputs that are not based on observable market data, consequently the asset is categorized as Level 3.

 

32


 

Manchester United plc

Notes to the interim consolidated financial statements — unaudited (continued)

 

17                          Intangible assets

 

 

 

Goodwill
£’000

 

Registrations
£’000

 

Other
intangible
assets
£’000

 

Total
£’000

 

At 1 July 2019

 

 

 

 

 

 

 

 

 

Cost

 

421,453

 

772,328

 

13,964

 

1,207,745

 

Accumulated amortization

 

 

(433,566

)

(5,322

)

(438,888

)

Net book amount

 

421,453

 

338,762

 

8,642

 

768,857

 

Six months ended 31 December 2019

 

 

 

 

 

 

 

 

 

Opening net book amount

 

421,453

 

338,762

 

8,642

 

768,857

 

Additions

 

 

103,489

 

1,476

 

104,965

 

Disposals

 

 

(51,902

)

 

(51,902

)

Amortization charge

 

 

(61,172

)

(2,272

)

(63,444

)

Closing net book amount

 

421,453

 

329,177

 

7,846

 

758,476

 

At 31 December 2019

 

 

 

 

 

 

 

 

 

Cost

 

421,453

 

772,089

 

14,076

 

1,207,618

 

Accumulated amortization

 

 

(442,912

)

(6,230

)

(449,142

)

Net book amount

 

421,453

 

329,177

 

7,846

 

758,476

 

 

 

 

 

 

 

 

 

 

 

At 1 July 2018

 

 

 

 

 

 

 

 

 

Cost

 

421,453

 

785,594

 

10,379

 

1,217,426

 

Accumulated amortization

 

 

(416,086

)

(1,700

)

(417,786

)

Net book amount

 

421,453

 

369,508

 

8,679

 

799,640

 

Six months ended 31 December 2018

 

 

 

 

 

 

 

 

 

Opening net book amount

 

421,453

 

369,508

 

8,679

 

799,640

 

Additions

 

 

14,461

 

1,871

 

16,332

 

Disposals

 

 

(7,929

)

 

(7,929

)

Amortization charge