Manchester United plc 6-K, filed Feb 26, 2020
Manchester United plc (MANU)
About this 6-K
Manchester United plc filed this 6-K on February 26, 2020.
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:
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
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MANCHESTER UNITED PLC |
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By: |
/s/ Edward Woodward |
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Name: Edward Woodward |
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Title: Executive Vice Chairman |
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EXHIBIT INDEX
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Exhibit Number |
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Description |
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Manchester United plc Interim report (unaudited) for the three and six months ended 31 December 2019 |
Manchester United plc
Interim report (unaudited) for the three and six months
ended 31 December 2019
Contents
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Management’s discussion and analysis of financial condition and results of operations |
2 |
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Interim consolidated statement of profit or loss for the three and six months ended 31 December 2019 and 2018 |
12 |
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Interim consolidated statement of comprehensive income for the three and six months ended 31 December 2019 and 2018 |
13 |
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Interim consolidated balance sheet as of 31 December 2019, 30 June 2019 and 31 December 2018 |
14 |
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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 |
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Interim consolidated statement of cash flows for the three and six months ended 31 December 2019 and 2018 |
17 |
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Notes to the interim consolidated financial statements |
18 |
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
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Three months ended |
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% Change |
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2019 |
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2018 |
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2019 over |
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Revenue |
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168.4 |
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208.6 |
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(19.3 |
)% |
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Commercial revenue |
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70.6 |
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65.9 |
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7.1 |
% |
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Broadcasting revenue |
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64.7 |
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103.7 |
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(37.6 |
)% |
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Matchday revenue |
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33.1 |
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39.0 |
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(15.1 |
)% |
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Total operating expenses |
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(131.2 |
) |
(160.3 |
) |
(18.2 |
)% |
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Employee benefit expenses |
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(70.9 |
) |
(77.9 |
) |
(9.0 |
)% |
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Other operating expenses |
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(25.4 |
) |
(26.4 |
) |
(3.8 |
)% |
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Depreciation |
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(3.7 |
) |
(3.0 |
) |
23.3 |
% |
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Amortization |
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(31.2 |
) |
(33.4 |
) |
(6.6 |
)% |
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Exceptional items |
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— |
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(19.6 |
) |
— |
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Loss on disposal of intangible assets |
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(0.7 |
) |
(4.3 |
) |
(83.7 |
)% |
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Net finance income/(costs) |
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15.3 |
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(6.3 |
) |
— |
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Income tax expense |
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(16.8 |
) |
(10.9 |
) |
54.1 |
% |
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.
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
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Six months ended |
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% Change |
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2019 |
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2018 |
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2019 over |
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Revenue |
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303.8 |
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343.6 |
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(11.6 |
)% |
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Commercial revenue |
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151.0 |
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141.8 |
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6.5 |
% |
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Broadcasting revenue |
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97.6 |
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146.5 |
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(33.4 |
)% |
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Matchday revenue |
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55.2 |
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55.3 |
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(0.2 |
)% |
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Total operating expenses |
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(267.6 |
) |
(303.8 |
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(11.9 |
)% |
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Employee benefit expenses |
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(141.1 |
) |
(154.9 |
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(8.9 |
)% |
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Other operating expenses |
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(55.8 |
) |
(55.0 |
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1.5 |
% |
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Depreciation |
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(7.3 |
) |
(5.8 |
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25.9 |
% |
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Amortization |
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(63.4 |
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(68.5 |
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(7.4 |
)% |
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Exceptional items |
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— |
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(19.6 |
) |
— |
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Profit on disposal of intangible assets |
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11.3 |
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18.1 |
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(37.6 |
)% |
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Net finance income/(costs) |
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6.8 |
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(11.5 |
) |
— |
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Income tax expense |
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(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.
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.
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.
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:
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Six months ended |
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|
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2019 |
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2018 |
|
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Cash flow from operating activities |
|
|
|
|
|
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Cash (used in)/generated from operations |
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(18.4 |
) |
82.3 |
|
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Net interest paid |
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(8.9 |
) |
(8.1 |
) |
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Debt finance costs paid |
|
(0.6 |
) |
— |
|
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Tax paid |
|
(1.7 |
) |
(1.8 |
) |
|
Net cash (outflow)/inflow from operating activities |
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(29.6 |
) |
72.4 |
|
|
Cash flow from investing activities |
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|
|
|
|
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Payments for property, plant and equipment |
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(13.0 |
) |
(7.3 |
) |
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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 |
|
|
|
|
|
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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
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.
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:
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Total net leverage ratio (as defined in the secured term loan facility agreement) |
|
Margin% |
|
|
Greater than 3.5 |
|
1.75 |
|
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Greater than 2.0 but less than or equal to 3.5 |
|
1.50 |
|
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Less than or equal to 2.0 |
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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
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 |
|
1-3 |
|
3-5 |
|
More than |
|
Total |
|
Total per |
|
|
|
|
£’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 |
|
(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.
Manchester United plc
Interim consolidated statement of profit or loss - unaudited
|
|
|
|
|
Three months ended |
|
Six months ended |
| ||||
|
|
|
Note |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
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.
Manchester United plc
Interim consolidated statement of comprehensive income - unaudited
|
|
|
Three months ended |
|
Six months ended |
| ||||
|
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
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.
Manchester United plc
Interim consolidated balance sheet - unaudited
|
|
|
|
|
As of |
| ||||
|
|
|
Note |
|
31 December |
|
30 June |
|
31 December |
|
|
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.
Manchester United plc
Interim consolidated balance sheet - unaudited (continued)
|
|
|
|
|
As of |
| ||||
|
|
|
Note |
|
31 December |
|
30 June |
|
31 December |
|
|
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.
Manchester United plc
Interim consolidated statement of changes in equity - unaudited
|
|
|
Share |
|
Share |
|
Merger |
|
Hedging |
|
Retained |
|
Total |
|
|
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.
Manchester United plc
Interim consolidated statement of cash flows - unaudited
|
|
|
|
|
Three months ended |
|
Six months ended |
| ||||
|
|
|
Note |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
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.
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.
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 |
|
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.
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.
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.
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 |
|
Six months ended |
| ||||
|
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
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 |
|
|
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 |
|
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 |
|
Non-current |
|
Total contract |
|
|
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.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
7 Operating expenses
|
|
|
Three months ended |
|
Six months ended |
| ||||
|
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
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 |
|
Six months ended |
| ||||
|
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
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 |
|
Six months ended |
| ||||
|
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
(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 |
|
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
10 Net finance income/(costs)
|
|
|
Three months ended |
|
Six months ended |
| ||||
|
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
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 |
) |
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
11 Income tax expense
|
|
|
Three months ended |
|
Six months ended |
| ||||
|
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
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 |
|
Six months ended |
| ||||
|
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
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 |
) |
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
12 Earnings per share
|
|
|
Three months ended |
|
Six months ended |
| ||||
|
|
|
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 |
|
Six months ended |
| ||||
|
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
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.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
14 Property, plant and equipment
|
|
|
Freehold |
|
Plant and |
|
Fixtures |
|
Total |
|
|
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 |
|
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 |
|
30 June |
|
31 December |
|
|
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 |
|
30 June |
|
31 December |
|
|
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 |
|
31 December |
|
|
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 |
) |
— |
|
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.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
16 Investment property
|
|
|
Total |
|
|
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.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
17 Intangible assets
|
|
|
Goodwill |
|
Registrations |
|
Other |
|
Total |
|
|
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 |
|
— |
|
(66,947 |
) |
(1,624 |
) |
(68,571 |
) |
|
Closing net book amount |
|
421,453 |
|
309,093 |
|
8,926 |
|
739,472 |
|
|
At 31 December 2018 |
|
|
|
|
|
|
|
|
|
|
Cost |
|
421,453 |
|
764,746 |
|
12,250 |
|
1,198,449 |
|
|
Accumulated amortization |
|
— |
|
(455,653 |
) |
(3,324 |
) |
(458,977 |
) |
|
Net book amount |
|
421,453 |
|
309,093 |
|
8,926 |
|
739,472 |
|
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
17 Intangible assets (continued)
Impairment tests for goodwill
Goodwill is not subject to amortization and is tested annually for impairment (normally at the end of the third fiscal quarter) or more frequently if events or changes in circumstances indicate a potential impairment. Management has considered the carrying amount of goodwill as of 31 December 2019 and concluded that, as there are no indicators of impairment, a detailed impairment test is not required. Having assessed the future anticipated cash flows, management believes that any reasonably possible changes in key assumptions would not result in an impairment of goodwill.
Other intangible assets
Other intangible assets include internally generated assets whose cost and accumulated amortization as of 31 December 2019 was £2,076,000 and £1,065,000 respectively (31 December 2018: £1,559,000 and £275,000 respectively).
18 Deferred tax
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after allowable offset) for financial reporting purposes:
|
|
|
31 December |
|
30 June |
|
31 December |
|
|
US deferred tax assets |
|
(53,862 |
) |
(58,415 |
) |
(57,636 |
) |
|
UK deferred tax liabilities |
|
37,766 |
|
31,865 |
|
33,302 |
|
|
Net deferred tax asset |
|
(16,096 |
) |
(26,550 |
) |
(24,334 |
) |
The movements in the net deferred tax asset are as follows:
|
|
|
31 December |
|
30 June |
|
31 December |
|
|
At the beginning of the period |
|
(26,550 |
) |
(34,198 |
) |
(34,198 |
) |
|
Expensed to the statement of profit or loss (note 11) |
|
10,779 |
|
8,112 |
|
9,974 |
|
|
Credited to other comprehensive income (note 11) |
|
(325 |
) |
(634 |
) |
(110 |
) |
|
Expense relating to share-based payments(1) |
|
— |
|
170 |
|
— |
|
|
At the end of the period |
|
(16,096 |
) |
(26,550 |
) |
(24,334 |
) |
(1) Expense relating to share-based payments arise on the movement in the share price on equity-settled awards between the grant date and the reporting date — see interim consolidated statement of changes in equity above.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
19 Inventories
|
|
|
31 December |
|
30 June |
|
31 December |
|
|
Finished goods |
|
2,535 |
|
2,130 |
|
2,610 |
|
The cost of inventories recognized as an expense and included in operating expenses for the six months ended 31 December 2019 amounted to £4,888,000 (year ended 30 June 2019: £8,664,000; six months ended 31 December 2018: £4,769,000).
20 Trade receivables
|
|
|
31 December |
|
30 June |
|
31 December |
|
|
Trade receivables |
|
69,633 |
|
46,694 |
|
58,500 |
|
|
Less: provision for impairment of trade receivables |
|
(2,734 |
) |
(12,954 |
) |
(15,294 |
) |
|
Net trade receivables |
|
66,899 |
|
33,740 |
|
43,206 |
|
|
Less: non-current portion |
|
|
|
|
|
|
|
|
Trade receivables |
|
40,586 |
|
9,889 |
|
10,387 |
|
|
Non-current trade receivables |
|
40,586 |
|
9,889 |
|
10,387 |
|
|
Current trade receivables |
|
26,313 |
|
23,851 |
|
32,819 |
|
Net trade receivables include transfer fees receivable from other football clubs of £56,843,000 (30 June 2019: £18,270,000; 31 December 2018: £27,865,000) of which £40,586,000 (30 June 2019: £9,889,000; 31 December 2018: £10,387,000) is receivable after more than one year. Net trade receivables also include £4,255,000 (30 June 2018: £12,725,000; 31 December 2018: £7,474,000) of deferred revenue that is contractually payable to the Group, but recorded in advance of the earnings process, with corresponding amounts recorded as contract liabilities - deferred revenue.
The fair value of net trade receivables as at 31 December 2019 was £69,864,000 (30 June 2019: £34,259,000; 31 December 2018: £44,106,000) before discounting of cash flows.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
21 Derivative financial instruments
|
|
|
31 December 2019 |
|
30 June 2019 |
|
31 December 2018 |
| ||||||
|
|
|
Assets |
|
Liabilities |
|
Assets |
|
Liabilities |
|
Assets |
|
Liabilities |
|
|
|
|
£’000 |
|
£’000 |
|
£’000 |
|
£’000 |
|
£’000 |
|
£’000 |
|
|
Used for hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
— |
|
(2,317 |
) |
— |
|
(2,298 |
) |
2,504 |
|
— |
|
|
At fair value through profit or loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded foreign exchange derivatives |
|
— |
|
(101 |
) |
245 |
|
— |
|
680 |
|
— |
|
|
Forward foreign exchange contracts |
|
— |
|
(136 |
) |
97 |
|
— |
|
— |
|
— |
|
|
|
|
— |
|
(2,554 |
) |
342 |
|
(2,298 |
) |
3,184 |
|
— |
|
|
Less non-current portion: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Used for hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
— |
|
(2,317 |
) |
— |
|
(2,298 |
) |
2,504 |
|
— |
|
|
At fair value through profit or loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded foreign exchange derivatives |
|
— |
|
— |
|
30 |
|
— |
|
55 |
|
— |
|
|
Forward foreign exchange contracts |
|
— |
|
(6 |
) |
— |
|
— |
|
— |
|
— |
|
|
Non-current derivative financial instruments |
|
— |
|
(2,323 |
) |
30 |
|
(2,298 |
) |
2,559 |
|
— |
|
|
Current derivative financial instruments |
|
— |
|
(231 |
) |
312 |
|
— |
|
625 |
|
— |
|
Fair value hierarchy
Derivative financial instruments are carried at fair value. The different levels used in measuring fair value have been defined in accounting standards as follows:
· Level 1 — the fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period.
· Level 2 - the fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximize the use of observable market data and as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
· Level 3 — if one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
All of the financial instruments detailed above are included in level 2.
22 Cash and cash equivalents
|
|
|
31 December |
|
30 June |
|
31 December |
|
|
Cash at bank and in hand |
|
100,856 |
|
307,637 |
|
190,395 |
|
Cash and cash equivalents for the purposes of the interim consolidated statement of cash flows are as above.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
23 Share capital
|
|
|
Number of shares |
|
Ordinary shares |
|
|
At 1 July 2018 |
|
164,526 |
|
53 |
|
|
Employee share-based compensation awards — issue of shares |
|
— |
|
— |
|
|
At 31 December 2018 |
|
164,526 |
|
53 |
|
|
Employee share-based compensation awards — issue of shares |
|
45 |
|
— |
|
|
At 30 June 2019 |
|
164,571 |
|
53 |
|
|
Employee share-based compensation awards — issue of shares |
|
2 |
|
— |
|
|
At 31 December 2019 |
|
164,573 |
|
53 |
|
The Company has two classes of ordinary shares outstanding: Class A ordinary shares and Class B ordinary shares. The rights of the holders of Class A ordinary shares and Class B ordinary shares are identical, except with respect to voting and conversion. Each Class A ordinary share is entitled to one vote per share and is not convertible into any other shares. Each Class B ordinary share is entitled to 10 votes per share and is convertible into one Class A ordinary share at any time. In addition, Class B ordinary shares will automatically convert into Class A ordinary shares upon certain transfers and other events, including upon the date when holders of all Class B ordinary shares cease to hold Class B ordinary shares representing, in the aggregate, at least 10% of the total number of Class A and Class B ordinary shares outstanding. For special resolutions (which are required for certain important matters including mergers and changes to the Company’s governing documents), which require the vote of two-thirds of the votes cast, at any time that Class B ordinary shares remain outstanding, the voting power permitted to be exercised by the holders of the Class B ordinary shares will be weighted such that the Class B ordinary shares shall represent, in the aggregate, 67% of the voting power of all shareholders.
As of 31 December 2019, the Company’s issued share capital comprised 40,572,687 Class A ordinary shares and 124,000,000 Class B ordinary shares.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
24 Trade and other payables
|
|
|
31 December |
|
30 June |
|
31 December |
|
|
Trade payables |
|
106,394 |
|
196,644 |
|
135,328 |
|
|
Other payables |
|
2,807 |
|
4,689 |
|
3,559 |
|
|
Accrued expenses |
|
63,984 |
|
94,381 |
|
77,061 |
|
|
Social security and other taxes |
|
10,149 |
|
13,855 |
|
11,284 |
|
|
|
|
183,334 |
|
309,569 |
|
227,232 |
|
|
Less: non-current portion |
|
|
|
|
|
|
|
|
Trade payables |
|
29,738 |
|
77,438 |
|
44,667 |
|
|
Other payables |
|
1,503 |
|
1,745 |
|
1,977 |
|
|
Non-current trade and other payables |
|
31,241 |
|
79,183 |
|
46,644 |
|
|
Current trade and other payables |
|
152,093 |
|
230,386 |
|
180,588 |
|
Trade payables include transfer fees and other associated costs in relation to the acquisition of registrations of £97,884,000 (30 June 2019: £187,544,000; 31 December 2018: £128,554,000) of which £29,738,000 (30 June 2019: £77,438,000; 31 December 2018: £44,667,000) is due after more than one year. Of the amount due after more than one year, £13,889,000 (30 June 2019: £59,889,000; 31 December 2018: £32,336,000) is expected to be paid between 1 and 2 years, and the balance of £15,849,000 (30 June 2019: £17,549,000; 31 December 2018: £12,331,000) is expected to be paid between 2 and 5 years.
The fair value of trade payables as at 31 December 2019 was £108,538,000 (30 June 2019: £199,922,000; 31 December 2018: £138,276,000) before discounting of cash flows. The fair value of other payables is not materially different to their carrying amount.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
25 Borrowings
|
|
|
31 December |
|
30 June |
|
31 December |
|
|
Senior secured notes |
|
318,738 |
|
330,757 |
|
328,696 |
|
|
Secured term loan facility |
|
168,114 |
|
175,022 |
|
173,880 |
|
|
Accrued interest on senior secured notes |
|
5,288 |
|
5,453 |
|
5,492 |
|
|
|
|
492,140 |
|
511,232 |
|
508,068 |
|
|
Less: non-current portion |
|
|
|
|
|
|
|
|
Senior secured notes |
|
318,738 |
|
330,757 |
|
328,696 |
|
|
Secured term loan facility |
|
168,114 |
|
175,022 |
|
173,880 |
|
|
Non-current borrowings |
|
486,852 |
|
505,779 |
|
502,576 |
|
|
Current borrowings |
|
5,288 |
|
5,453 |
|
5,492 |
|
The senior secured notes of £318,738,000 (30 June 2019: £330,757,000; 31 December 2018: £328,696,000) is stated net of unamortized issue costs amounting to £3,231,000 (30 June 2019: £3,414,000; 31 December 2018: £3,594,000). The outstanding principal amount of the senior secured notes is $425,000,000 (30 June 2019: $425,000,000; 31 December 2018: $425,000,000). The senior secured notes have a fixed coupon rate of 3.79% per annum and interest is paid semi-annually. The senior secured notes mature on 25 June 2027.
The senior secured notes were issued by our wholly-owned subsidiary, Manchester United Football Club Limited, and are guaranteed by Red Football Limited, Red Football Junior Limited, Manchester United Limited and MU Finance Limited and are 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 secured term loan facility of £168,114,000 (30 June 2019: £175,022,000; 31 December 2018: £173,880,000) is stated net of unamortized issue costs amounting to £2,342,000 (30 June 2019: £1,894,000; 31 December 2018: £2,040,000). The outstanding principal amount of the secured term loan facility is $225,000,000 (30 June 2019: $225,000,000; 31 December 2018: $225,000,000). The secured term loan facility attracts interest of US dollar LIBOR plus an applicable margin of between 1.25% and 1.75% per annum and interest is paid monthly. 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.
The secured term loan facility was provided to our wholly-owned subsidiary, Manchester United Football Club Limited, and is guaranteed by Red Football Limited, Red Football Junior Limited, Manchester United Limited, MU Finance Limited and Manchester United Football Club Limited and is secured against substantially all of the assets of each of those entities. These entities are wholly-owned subsidiaries of Manchester United plc.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
25 Borrowings (continued)
The Group also has undrawn committed revolving borrowing facility of up to £125,000,000 plus (subject to certain conditions) the ability to drawdown a further £25,000,000 by way of incremental facilities. The facility terminates on 4 April 2025 (although it may be possible for any incremental facilities to terminate after such date). Drawdowns would attract interest of LIBOR or EURIBOR plus an applicable margin of between 1.25% and 1.75% per annum (depending on the total net leverage ratio at that time). No drawdowns were made from these facilities during 2019 or 2018.
The Group has complied with all covenants under its revolving facility, the secured term loan facility and the note purchase agreement governing the senior secured notes during the 2019 and 2018 reporting period.
26 Cash (used in)/generated from operations
|
|
|
Three months ended |
|
Six months ended |
| ||||
|
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
Profit before income tax |
|
51,745 |
|
37,648 |
|
54,274 |
|
46,396 |
|
|
Adjustments for: |
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
3,626 |
|
2,970 |
|
7,268 |
|
5,779 |
|
|
Amortization |
|
31,257 |
|
33,440 |
|
63,444 |
|
68,571 |
|
|
Loss/(profit) on disposal of intangible assets |
|
715 |
|
4,349 |
|
(11,302 |
) |
(18,079 |
) |
|
Net finance (income)/costs |
|
(15,258 |
) |
6,346 |
|
(6,820 |
) |
11,472 |
|
|
Non-cash employee benefit expense - equity-settled share-based payments |
|
227 |
|
161 |
|
365 |
|
371 |
|
|
Foreign exchange losses/(gains) on operating activities |
|
87 |
|
(95 |
) |
(286 |
) |
182 |
|
|
Reclassified from hedging reserve |
|
2,957 |
|
1,536 |
|
5,811 |
|
2,844 |
|
|
Changes in working capital: |
|
|
|
|
|
|
|
|
|
|
Inventories |
|
129 |
|
56 |
|
(405 |
) |
(1,194 |
) |
|
Prepayments |
|
2,171 |
|
2,336 |
|
(181 |
) |
542 |
|
|
Contract assets — accrued revenue |
|
(38,165 |
) |
(33,643 |
) |
(38,566 |
) |
(41,478 |
) |
|
Trade receivables |
|
6,160 |
|
2,442 |
|
8,504 |
|
81,719 |
|
|
Other receivables |
|
14,655 |
|
(1,438 |
) |
574 |
|
(1,490 |
) |
|
Contract liabilities — deferred revenue |
|
(66,449 |
) |
(97,181 |
) |
(56,318 |
) |
(54,983 |
) |
|
Trade and other payables |
|
(7,690 |
) |
54 |
|
(44,801 |
) |
(18,315 |
) |
|
Cash (used in)/generated from operations |
|
(13,833 |
) |
(41,019 |
) |
(18,439 |
) |
82,337 |
|
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
27 Pension arrangements
The Group participates in the Football League Pension and Life Assurance Scheme (‘the Scheme’). The Scheme is a funded multi-employer defined benefit scheme, with 92 participating employers, and where members may have periods of service attributable to several participating employers. The Group is unable to identify its share of the assets and liabilities of the Scheme and therefore accounts for its contributions as if they were paid to a defined contribution scheme. The Group has received confirmation that the assets and liabilities of the Scheme cannot be split between the participating employers. The Group is advised only of the additional contributions it is required to pay to make good the deficit. These contributions could increase in the future if one or more of the participating employers exits the Scheme.
The last triennial actuarial valuation of the Scheme was carried out at 31 August 2017 where the total deficit on the ongoing valuation basis was £30.4 million. The accrual of benefits ceased within the Scheme on 31 August 1999, therefore there are no contributions relating to current accrual. The Group pays monthly contributions based on a notional split of the total expenses and deficit contributions of the Scheme.
The Group currently pays total contributions of £482,000 per annum and this amount will increase by 5% per annum from September 2020. Based on the actuarial valuation assumptions, this will be sufficient to pay off the deficit by 31 October 2023.
As of 31 December 2019, the present value of the Group’s outstanding contributions (i.e. its future liability) is £1,977,000. This amounts to £474,000 (30 June 2019: £459,000; 31 December 2018: £446,000) due within one year and £1,503,000 (30 June 2019: £1,745,000; 31 December 2017: £1,977,000) due after more than one year and is included within other payables.
Contributions are also made to defined contribution pension arrangements and are charged to the statement of profit or loss in the period in which they become payable.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
28 Financial risk management
28.1 Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, and cash flow and fair value interest rate risk), credit risk, and liquidity risk.
The interim consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements, they 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, in the Company’s Annual Report on Form 20-F.
There have been no changes in risk management since the previous financial year end or in any risk management policies.
28.2 Hedging activities
The Group uses derivative financial instruments to hedge certain exposures, and has designated certain derivatives as hedges of cash flows (cash flow hedge).
The Group hedges the foreign exchange risk on contracted future US dollar revenues whenever possible using the Group’s US dollar net borrowings as the hedging instrument. The foreign exchange gains or losses arising on re-translation of the Group’s US dollar net borrowings used in the hedge are initially recognized in other comprehensive income, rather than being recognized in the statement of profit or loss immediately. Amounts previously recognized in other comprehensive income and accumulated in the hedging reserve are subsequently reclassified into the statement of profit or loss in the same accounting period, and within the same statement of profit or loss line (i.e. commercial revenue), as the underlying future US dollar revenues, which given the varying lengths of the commercial revenue contracts will be between January 2020 to June 2024. The foreign exchange gains or losses arising on re-translation of the Group’s unhedged US dollar borrowings are recognized in the statement of profit or loss immediately (within net finance costs). The table below details the net borrowings being hedged at the balance sheet date:
|
|
|
31 December |
|
30 June |
|
31 December |
|
|
USD borrowings |
|
650,000 |
|
650,000 |
|
650,000 |
|
|
Hedged USD cash |
|
(58,892 |
) |
(308,838 |
) |
(210,400 |
) |
|
Net USD debt |
|
591,108 |
|
341,162 |
|
439,600 |
|
|
Hedged future USD revenues |
|
(199,137 |
) |
(211,153 |
) |
(338,046 |
) |
|
Unhedged USD borrowings |
|
391,971 |
|
130,009 |
|
101,554 |
|
|
Closing USD exchange rate ($: £) |
|
1.3200 |
|
1.2718 |
|
1.2790 |
|
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
28 Financial risk management (continued)
28.2 Hedging activities (continued)
The Group hedges its cash flow interest rate risk where considered appropriate using interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. The effective portion of changes in the fair value of the interest rate swap is initially recognized in other comprehensive income, rather than being recognized in the statement of profit or loss immediately. Amounts previously recognized in other comprehensive income and accumulated in the hedging reserve are subsequently reclassified into the statement of profit or loss in the same accounting period, and within the same statement of profit or loss line (i.e. net finance costs), as the underlying interest payments, which given the term of the swap will be between January 2020 to June 2024. The following table details the interest rate swaps at the reporting date that are used to hedge borrowings:
|
|
|
31 December |
|
30 June |
|
31 December |
|
|
Principal value of loan outstanding ($’000) |
|
150,000 |
|
150,000 |
|
150,000 |
|
|
Rate received |
|
1 month $ LIBOR |
|
1 month $ LIBOR |
|
1 month $ LIBOR |
|
|
Rate paid |
|
Fixed 2.032% |
|
Fixed 2.032% |
|
Fixed 2.032% |
|
|
Expiry date |
|
30 June 2024 |
|
30 June 2024 |
|
30 June 2024 |
|
As of 31 December 2019 the fair value of the above interest rate swap was a liability of £2,317,000 (30 June 2019: liability of £2,298,000; 31 December 2018: asset of £2,504,000).
The Group also seeks to hedge the majority of the foreign exchange risk on revenue arising as a result of participation in UEFA club competitions, either by using contracted future foreign exchange expenses (including player transfer fee commitments) or by placing forward foreign exchange contracts, at the point at which it becomes reasonably certain that it will receive the revenue. The Group also seeks to hedge the foreign exchange risk on other contracted future foreign exchange expenses using available foreign exchange cash balances and forward foreign exchange contracts.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
29 Contingent liabilities and contingent assets
29.1 Contingent liabilities
The Group had contingent liabilities at 31 December 2019 in respect of:
(i) Transfer fees
Under the terms of certain contracts with other football clubs and agents in respect of player transfers, additional amounts, in excess of the amounts included in the cost of registrations, would be payable by the Group if certain substantive performance conditions are met. These excess amounts are only recognized within the cost of registrations when the Group considers that it is probable that the condition related to the payment will be achieved. The maximum additional amounts that could be payable is £60,211,000 (30 June 2019: £74,321,000; 31 December 2018: £66,184,000). No material adjustment was required to the amounts included in the cost of registrations during the period (2018: no material adjustments) and consequently there was no material impact on the amortization of registration charges in the statement of profit or loss (2018: no material impact). As of 31 December 2019, the potential amount payable by type of condition and category of player was:
|
Type of condition |
|
First team |
|
Other |
|
Total |
|
|
MUFC appearances/team success/new contract |
|
20,066 |
|
9,890 |
|
29,956 |
|
|
International appearances |
|
11,102 |
|
— |
|
11,102 |
|
|
Other |
|
18,535 |
|
618 |
|
19,153 |
|
|
|
|
49,703 |
|
10,508 |
|
60,211 |
|
(ii) Tax matters
We are currently in active discussions with UK tax authorities over a number of tax areas in relation to arrangements with players and players’ representatives. It is possible that in the future, as a result of discussions between the Group and UK tax authorities, as well as discussions UK tax authorities are holding with other stakeholders within the football industry, interpretations of applicable rules will be challenged, which could result in liabilities in relation to these matters. The information usually required by IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’, is not disclosed on the grounds that it is not practicable to be disclosed.
29.2 Contingent assets
(i) Transfer fees
Under the terms of certain contracts with other football clubs in respect of player transfers, additional amounts would be payable to the Group if certain specific performance conditions are met. In accordance with the recognition criteria for contingent assets, such amounts are only disclosed by the Group when probable and recognized when virtually certain. As of 31 December 2019, the amount of such receipt considered to be probable was £4,046,000 (30 June 2019: £707,000; 31 December 2018: £2,063,000).
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
30 Commitments
30.1 Capital commitments
As at 31 December 2019, the Group had contracted capital expenditure relating to property, plant and equipment amounting to £4,523,000 (30 June 2019: £3,794,000; 31 December 2018: £1,970,000) and to other intangible assets amounting to £280,000 (30 June 2019: £nil; 31 December 2017: £nil). These amounts are not recognized as liabilities.
30.2 Non-cancellable operating leases
The Group leases various offices and equipment under non-cancellable operating lease agreements.
From 1 July 2019, the Group has recognized right-of-use assets for these leases, except for short term and low value leases. See note 3 and note 15 for further information.
The Group also leases out its investment property.
31 Related party transactions
Trusts and other entities controlled by six lineal descendants of Mr. Malcolm Glazer collectively own 7.44% of our issued and outstanding Class A ordinary shares and all of our issued and outstanding Class B ordinary shares, representing 97.07% of the voting power of our outstanding capital stock.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
32 Subsidiaries
The following companies are the subsidiary undertakings of the Company as of 31 December 2019:
|
Subsidiaries |
|
Principal activity |
|
% of ownership |
|
Red Football Finance Limited* |
|
Finance company |
|
100 |
|
Red Football Holdings Limited* |
|
Holding company |
|
100 |
|
Red Football Shareholder Limited |
|
Holding company |
|
100 |
|
Red Football Joint Venture Limited |
|
Holding company |
|
100 |
|
Red Football Limited |
|
Holding company |
|
100 |
|
Red Football Junior Limited |
|
Holding company |
|
100 |
|
Manchester United Limited |
|
Holding company |
|
100 |
|
Alderley Urban Investments Limited |
|
Property investment |
|
100 |
|
Manchester United Commercial Enterprises (Ireland) Limited |
|
Dormant company |
|
100 |
|
Manchester United Football Club Limited |
|
Professional football club |
|
100 |
|
Manchester United Women’s Football Club Limited |
|
Professional football club |
|
100 |
|
Manchester United Interactive Limited |
|
Dormant company |
|
100 |
|
MU 099 Limited |
|
Dormant company |
|
100 |
|
MU Commercial Holdings Limited |
|
Holding company |
|
100 |
|
MU Commercial Holdings Junior Limited |
|
Holding company |
|
100 |
|
MU Finance Limited |
|
Dormant company |
|
100 |
|
MU RAML Limited |
|
Retail and licensing company |
|
100 |
|
MUTV Limited |
|
Media company |
|
100 |
|
RAML USA LLC |
|
Retail company |
|
100 |
* Direct investment of Manchester United plc, others are held by subsidiary undertakings.
All of the above are incorporated and operate in England and Wales, with the exception of Red Football Finance Limited which is incorporated and operates in the Cayman Islands, Manchester United Commercial Enterprises (Ireland) Limited which is incorporated in Ireland, and RAML USA LLC which is incorporated in the United States.
33 Events after the reporting period
33.1 Dividends
An interim dividend of $14,812,000 (equivalent to $0.09 per share), the pounds sterling equivalent of which was £11,323,000, was paid on 6 January 2020.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
33 Events after the reporting period (continued)
33.2 Registrations
The playing registrations of certain footballers have been disposed of, subsequent to 31 December 2019, for total proceeds, net of associated costs, of £1,278,000. The associated net book value was £160,000. Also subsequent to 31 December 2019, Solidarity contributions, sell-on fees and contingent consideration totalling £79,000, became receivable in respect of previous playing registration disposals.
Subsequent to 31 December 2019 the playing registrations of certain players were acquired or extended for a total consideration, including associated costs, of £56,151,000.