Manchester United plc 2019 First 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 2019 fiscal first quarter ended 30 September 2018.

Highlights

• Successfully launched partnership with Kohler achieving over 1 billion social and editorial impressions worldwide
• Announced global partnership with denim brand True Religion
• Renewed two global partnerships, Canon Medical Systems and Deezer

Commentary

Ed Woodward, Executive Vice Chairman, commented, "Our financial strength enables us to continue to attract and retain top players and to invest in our academy, as we look to drive the success on the pitch that the club and our fans expect. We remain on track to deliver our record full-year revenue guidance, underpinning our long-term, strategic plan to create sustainable growth across all areas of the club."

Outlook

For fiscal 2019, Manchester United continues to expect:

• Revenue to be £615m to £630m.
• Adjusted EBITDA to be £175m to £190m.

Key Financials (unaudited)

Revenue Analysis

Commercial
Commercial revenue for the quarter was £75.9 million, a decrease of £4.6 million, or 5.7%, over the prior year quarter.

• Sponsorship revenue for the quarter was £49.6 million, a decrease of £3.6 million, or 6.8%, over the prior year quarter, primarily due to a smaller summer tour; and
• Retail, Merchandising, Apparel & Product Licensing revenue for the quarter was £26.3 million, a decrease of £1.0 million, or 3.7%, over the prior year quarter, primarily due to playing two fewer home games across all competitions.

Broadcasting
Broadcasting revenue for the quarter was £42.8 million, an increase of £2.0 million, or 4.9%, over the prior year quarter.

Matchday
Matchday revenue for the quarter was £16.3 million, a decrease of £6.1 million, or 27.2% over the prior year quarter, primarily due to playing two fewer home games across all competitions.

Other Financial Information

Operating expenses
Total operating expenses for the quarter were £143.5 million, an increase of £0.4 million, or 0.3%, over the prior year quarter.

Employee benefit expenses
Employee benefit expenses for the quarter were £77.0 million, an increase of £7.1 million, or 10.2%, over the prior year quarter primarily due to investment in the first team playing squad.

Other operating expenses
Other operating expenses for the quarter were £28.6 million, a decrease of £5.9 million, or 17.1%, over the prior year quarter primarily due to a smaller summer tour.

Depreciation & amortization
Depreciation for the quarter was £2.8 million, an increase of £0.2 million, or 7.7%, over the prior year quarter. Amortization for the quarter was £35.1 million, a decrease of £1.0 million, or 2.8%, over the prior year quarter. The unamortized balance of players’ registrations at 30 September 2018 was £336.9 million.

Profit on disposal of intangible assets
Profit on disposal of intangible assets for the quarter was £22.4 million, compared to profit of £17.3 million in the prior year quarter.

Net finance costs
Net finance costs for the quarter were £5.2 million, an increase of £4.4 million, or 550.0%, over the prior year quarter, due to unrealised foreign exchange losses on unhedged USD borrowings compared to gains in the prior year quarter.

Tax
The tax expense for the quarter was £2.1 million, compared to £7.5 million in the prior year quarter. The decrease is due in part to a reduction in the US federal corporate income tax rate in December 2017 from 35% to 21%.

Cash flows
Net cash generated from operating activities for the quarter was £114.8 million, an increase of £96.9 million over the prior year quarter, primarily due to the timing of sponsorship payments.

Net capital expenditure on property, plant and equipment and investment property for the quarter was £4.9 million, an increase of £0.5 million over the prior year quarter. Net capital expenditure on intangible assets for the quarter was £103.7 million, an increase of £18.8 million over the prior year quarter.

Overall cash and cash equivalents (including the effects of exchange rate changes) increased by £5.5 million in the quarter.

Net Debt
Net Debt as of 30 September 2018 was £247.2 million, a decrease of £20.9 million over the year. The gross USD debt principal remains unchanged.

Dividend
A semi-annual cash dividend of $0.09 per share will be paid on 4 January 2019, to shareholders of record on 30 November 2018. The stock will begin to trade ex-dividend on 29 November 2018.

Conference Call Information

The Company’s conference call to review first quarter fiscal 2019 results will be broadcast live over the internet today, 15 November 2018 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.

About Manchester United

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 140-year heritage we have won 66 trophies, enabling us to develop what we believe is one of the world’s leading sports brands 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, broadcasting and matchday.

Cautionary Statement

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).

Non-IFRS Measures: Definitions and Use

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

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 profit for the period (i.e. adjusted net income)
Adjusted profit for the period is calculated, where appropriate, by adjusting for charges/credits related to exceptional items, foreign exchange gains/losses on unhedged US dollar denominated borrowings, and fair value movements on embedded foreign exchange derivatives, adding/subtracting the actual tax expense/credit for the period, and subtracting the adjusted tax expense for the period (based on a normalized tax rate of 21%; September 2017: 35%). The normalized tax rate of 21% is the current US federal corporate income tax rate.

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 the items referred to above and then to apply a ‘normalized’ tax rate (for both the current and prior periods) equivalent to the US federal corporate income tax rate of 21% (September 2017: 35%). A reconciliation of profit for the period to adjusted profit for the period is presented in supplemental note 3.

3. Adjusted basic and diluted earnings per share
Adjusted basic and diluted earnings per share are calculated by dividing the adjusted profit for the period by the weighted average number of ordinary shares in issue during the period. Adjusted diluted 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. There is 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 earnings per share are presented in supplemental note 3.

4. Net debt
Net debt is calculated as non-current and current borrowings minus cash and cash equivalents.

Key Performance Indicators

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 profit for the period to adjusted profit for the period and adjusted basic and diluted earnings per share

4 Cash generated from operations

5 Restatement of prior periods following implementation of IFRS 15

The Group adopted IFRS 15 ‘Revenue from contracts with customers’ with effect from 1 July 2018. The implementation of IFRS 15 had an impact on the Group’s financial statements as at 1 July 2018 and consequently prior year amounts have been restated. The table below shows the retrospective impact on revenue for the four quarters ended 30 June 2018. Note 32 to the interim consolidated financial statements for the three months ended 30 September 2018 contains tables and notes which explain how the restatement affected the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, and consolidated statement of cash flows.

Commercial revenue
IFRS 15 focuses on the identification and satisfaction of performance obligations and includes specific guidance on the methods for measuring progress towards complete satisfaction of a performance obligation therefore revenue on certain commercial contracts is recognized earlier under IFRS 15. The effect of the retrospective application is an increase in cumulative revenue recognized over the financial years up to and including the year ended 30 June 2018 including a reduction to the amount of revenue recognized during the financial year ended 30 June 2018 only.

Broadcasting revenue
Following adoption of IFRS 15, certain performance obligations are satisfied over time as each Premier League match (home and away) is played – accordingly revenue is recognized evenly as each Premier League match (home and away) is played. Broadcasting merit awards were previously recognized one share in the first quarter with the remainder being recognized when they were known at the end of each football season. Merit awards represent variable consideration and therefore, following adoption of IFRS 15, are estimated using the most likely amount method based on management’s estimate of where the Club’s finishing position will be at the end of each season. Broadcasting equal share payments were previously recognized evenly as each Premier League home match was played. Note, these changes only affect the amount of broadcasting revenue recognized in each quarter, they do not affect the amount of broadcasting revenue recognized for the financial year as a whole.

Matchday revenue
Adoption of IFRS 15 has no impact on the recognition of matchday revenue.

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