Manchester United PLC: 2015 Third Quarter Results

Manchester United (NYSE:MANU; the “Company” and the “Group”) – one of the most popular and successful sports teams in the world - today announced financial results for the 2015 fiscal third quarter and nine months ended 31 March 2015.

Highlights

• Commercial revenues of £47.8 million up 11.7% for the quarter.
• Three sponsorship deals announced in the quarter – Kama Games as official global social games partner, Swissquote as global Forex & Online Financial Trading Partner and Emtel as our triple play partner in Mauritius.
• Domestic Premier League Live Broadcasting rights up 70% – BSkyB and BT will pay £5.14 billion for the 2017-19 EPL seasons compared to £3.0 billion for the 2014-16 seasons.
• UEFA announced that the amount available for distribution to clubs participating in the Champions League has increased for the 2016-18 cycle to €1.257bn representing an increase of over 25%.

Commentary

Ed Woodward, Executive Vice Chairman commented, “Our commercial revenues were up year over year and we are raising EBITDA guidance for fiscal year 2015 from £90-£95 million to £103-£110 million.

As the season approaches its conclusion, we are pleased with the team’s performance in Louis van Gaal’s first season as manager and are well positioned to achieve a top four finish in the Premier League and to return to European football next year. As we look forward to next season, on the playing side we expect to be challenging for trophies in all competitions and on the commercial side we are excited by the numerous opportunities for further growth, including the first year of our ten year partnership with adidas. ”

Outlook

For fiscal 2015, Manchester United expect:

• Revenue to be £385m to £395m.
• Adjusted EBITDA to be £103m to £110m.

* Adjusted EBITDA, adjusted (loss)/profit for the period and adjusted diluted (loss)/earnings per share are non-IFRS measures. See “Non-IFRS Measures: Definitions and Use” below and the accompanying Supplemental Notes for the definitions and reconciliations for these non-IFRS measures and the reasons we believe these measures provide useful information to investors regarding the Group’s financial condition and results of operations.

** Gross debt increased primarily because of movements in USD/GBP exchange rate from 1.6662 at 31 March 2014 to 1.4861 at 31 March 2015.

Commercial

Commercial revenue for the third quarter was £47.8 million, an increase of £5.0 million, or 11.7%, over the prior year quarter.

• Sponsorship revenue for the third quarter was £37.5 million, an increase of £6.8 million, or 22.1%, over the prior year quarter, primarily due to an increase in shirt and other sponsorships.
• Retail, Merchandising, Apparel & Product Licensing revenue for the third quarter was £7.6 million, a decrease of £0.8 million, or 9.5%, over the prior year quarter, primarily due to reduced Nike guaranteed revenue due to non-participation in UEFA competitions in the current season.
• Mobile & Content revenue for the third quarter was £2.7 million, a decrease of £1.0 million, or 27.0%, over the prior year quarter, due to the expiration of a few of our mobile partnerships.

Broadcasting

Broadcasting revenue for the third quarter was £21.7 million, a decrease of £13.9 million, or 39.0%, over the prior year quarter, primarily due to five fewer FAPL live broadcast games and two fewer FAPL home games in the current quarter, and non-participation in the UEFA Champions League.

Matchday

Matchday revenue for the third quarter was £25.5 million, a decrease of £11.6 million, or 31.3%, over the prior year quarter, primarily due to two fewer FAPL home games in the current quarter and non-participation in the UEFA Champions League.

Operating expenses

Total operating expenses for the third quarter were £99.0 million, an increase of £7.5 million, or 8.2%, over the prior year quarter.

Staff costs

Staff costs for the third quarter were £50.2 million, a decrease of £3.2 million, or 6.0%, over the prior year quarter.

Other operating expenses

Other operating expenses for the third quarter were £19.4 million, a decrease of £2.7 million, or 12.2%, over the prior year quarter, primarily due to non-participation in the UEFA Champions League.

Depreciation & amortization

Depreciation for the third quarter was £2.5 million, an increase of £0.3 million, or 13.6%, over the prior year quarter. Amortization for the third quarter was £25.7 million, an increase of £11.9 million, or 86.2%, over the prior year quarter. The unamortized balance of players’ registrations at 31 March 2015 was £237.0 million.

Exceptional items

Exceptional items for the third quarter were £1.2 million being the present value of the additional contributions the Club is expected to pay to remedy the revised deficit of the Football League pension scheme as per the latest triennial actuarial valuation at 31 August 2014. Exceptional items for the prior year quarter were £nil.

Net finance costs

Net finance costs for the third quarter were £5.8 million, a decrease of £0.1 million, or 1.7%, over the prior year quarter.

Tax

The tax credit for the third quarter was £8.5 million, compared to an expense of £9.5 million in the prior year quarter.

Cash flows

Net cash used in operating activities for the third quarter was £15.0 million, an increase of £2.4 million over the prior year quarter.

Capital expenditure on property, plant and equipment for the third quarter was £0.3 million, a decrease of £1.4 million over the prior year quarter.

Net player and other intangible assets capital expenditure for the third quarter was £11.0 million, a decrease of £12.3 million over the prior year quarter.

The Company’s conference call to review third quarter fiscal 2015 results will be broadcast live over the internet today, 14 May 2015 at 8:00 a.m. Eastern Time and will be available on Manchester United’s investor relations website at http://ir.manutd.com. Thereafter, a replay of the webcast will be available for thirty days.

Manchester United is one of the most popular and successful sports team in the world, playing one of the most popular spectator sports on Earth.

Through our 137-year heritage we have won 62 trophies, enabling us to develop the world’s leading sports brand and a global community of 659 million followers. Our large, passionate community provides Manchester United with a worldwide platform to generate significant revenue from multiple sources, including sponsorship, merchandising, product licensing, new media & mobile, broadcasting and matchday.

This press release contains forward-looking statements. You should not place undue reliance on such statements because they are subject to numerous risks and uncertainties relating to the Company’s operations and business environment, all of which are difficult to predict and many are beyond the Company’s control. Forward-looking statements include information concerning the Company’s possible or assumed future results of operations, including descriptions of its business strategy. These statements often include words such as “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “seek,” “believe,” “estimate,” “predict,” “potential,” “continue,” “contemplate,” “possible” or similar expressions. The forward-looking statements contained in this press release are based on our current expectations and estimates of future events and trends, which affect or may affect our businesses and operations. You should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions. Although the Company believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect its actual financial results or results of operations and could cause actual results to differ materially from those in these forward-looking statements. These factors are more fully discussed in the “Risk Factors” section and elsewhere in the Company’s Registration Statement on Form F-1, as amended (File No. 333-182535) and the Company’s Annual Report on Form 20-F (File No. 001-35627).

1. Adjusted EBITDA

Adjusted EBITDA is defined as profit for the period before depreciation, amortization, profit on disposal of players’ registrations, exceptional items, net finance costs, and tax.

We believe adjusted EBITDA is useful as a measure of comparative operating performance from period to period and among companies as it is reflective of changes in pricing decisions, cost controls and other factors that affect operating performance, and it removes the effect of our asset base (primarily depreciation and amortization), capital structure (primarily finance costs), and items outside the control of our management (primarily taxes). Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for an analysis of our results as reported under IFRS as issued by the IASB. A reconciliation of profit for the period to adjusted EBITDA is presented in supplemental note 2.

2. Adjusted (loss)/profit for the period (i.e. adjusted net income)

Adjusted (loss)/profit for the period is calculated, where appropriate, by adjusting for charges/credits related to exceptional items, foreign exchange gains/losses on US dollar denominated bank accounts, fair value movements on derivative financial instruments, and hedge ineffectiveness on cash flow hedges, adding/subtracting the actual tax expense/credit for the period, and subtracting/adding the adjusted tax expense/credit for the period (based on an normalized tax rate of 35%; 2014: 35%). The normalized tax rate of 35% is management’s estimate of the tax rate likely to be applicable to the Group in the long-term.

We believe that in assessing the comparative performance of the business, in order to get a clearer view of the underlying financial performance of the business, it is useful to strip out the distorting effects of charges/credits related to ‘one-off’ transactions and then to apply a ‘normalized’ tax rate (for both the current and prior periods) of the US federal income tax rate of 35%. A reconciliation of (loss)/profit for the period to adjusted (loss)/profit for the period is presented in supplemental note 3.

3. Adjusted basic and diluted (loss)/earnings per share

Adjusted basic and diluted (loss)/earnings per share are calculated by dividing the adjusted (loss)/profit for the period by the weighted average number of ordinary shares in issue during the period. Adjusted diluted (loss)/earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue during the period to assume conversion of all dilutive potential ordinary shares. We have 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. Adjusted basic and diluted (loss)/earnings per share are presented in supplemental note 3.

SUPPLEMENTAL NOTES

1 General information

Manchester United plc (the “Company”) and its subsidiaries (together the “Group”) is a professional football club together with related and ancillary activities. The Company incorporated under the Companies Law (2011 Revision) of the Cayman Islands, as amended and restated from time to time.

2 Reconciliation of profit for the period to adjusted EBITDA

3 Reconciliation of (loss)/profit for the period to adjusted (loss)/profit for the period and adjusted basic and diluted (loss)/earnings per share

4 Cash generated from operations