Exhibit 99.1
Manchester United plc
Interim report (unaudited) for the three months
ended 30 September 2016
Contents
Management’s discussion and analysis of financial condition and results of operations | 2 |
Interim consolidated income statement for the three months ended 30 September 2016 and 2015 | 10 |
Interim consolidated statement of comprehensive income for the three months ended 30 September 2016 and 2015 | 11 |
Interim consolidated balance sheet as of 30 September 2016, 30 June 2016 and 30 September 2015 | 12 |
Interim consolidated statement of changes in equity for the three months ended 30 September 2016, the nine month period ended 30 June 2016 and the three month period ended 30 September 2015 | 14 |
Interim consolidated statement of cash flows for the three months ended 30 September 2016 and 2015 | 15 |
Notes to the interim consolidated financial statements | 16 |
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 2016, as filed with the Securities and Exchange Commission on 15 September 2016 (File No. 001-35627).
GENERAL
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 138-year heritage we have won 64 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 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, mobile & content, broadcasting and matchday. We attract leading global companies such as adidas, Aon and General Motors (Chevrolet) that want access and exposure to our community of followers and association with our brand.
RESULTS OF OPERATIONS
Three months ended 30 September 2016 as compared to the three months ended 30 September 2015
|
| Three months ended |
| % Change |
| ||
|
| 2016 |
| 2015 |
| 2015 |
|
Revenue |
| 120.2 |
| 123.6 |
| (2.8 | )% |
Commercial revenue |
| 74.3 |
| 71.2 |
| 4.4 | % |
Broadcasting revenue |
| 29.1 |
| 27.6 |
| 5.4 | % |
Matchday revenue |
| 16.8 |
| 24.8 |
| (32.3 | )% |
Total operating expenses |
| (122.2 | ) | (106.7 | ) | 14.5 | % |
Employee benefit expenses |
| (62.3 | ) | (58.9 | ) | 5.8 | % |
Other operating expenses |
| (26.7 | ) | (23.1 | ) | 15.6 | % |
Depreciation |
| (2.4 | ) | (2.5 | ) | (4.0 | )% |
Amortization |
| (30.8 | ) | (22.2 | ) | 38.7 | % |
Profit/(loss) on disposal of intangible assets |
| 8.2 |
| (7.4 | ) | — |
|
Net finance costs |
| (5.9 | ) | (4.3 | ) | (37.2 | )% |
Tax credit/(expense) |
| 0.9 |
| (0.2 | ) | — |
|
Revenue
Consolidated revenue for the three months ended 30 September 2016 was £120.2 million, a decrease of £3.4 million, or 2.8%, over the three months ended 30 September 2015, as a result of a decrease in revenue in our matchday sector, which was partially offset by an increase in our commercial and broadcasting sectors, as described below.
Commercial revenue
Commercial revenue for the three months ended 30 September 2016 was £74.3 million, an increase of £3.1 million, or 4.4%, over the three months ended 30 September 2015.
· Sponsorship revenue for the three months ended 30 September 2016 was £44.4 million, a decrease of £1.9 million, or 4.1%, over the three months ended 30 September 2015, due to playing fewer Tour matches;
· Retail, Merchandising, Apparel & Product Licensing revenue for the three months ended 30 September 2016 was £27.4 million, an increase of £5.1 million, or 22.9%, over the three months ended 30 September 2015, due to the commencement of the adidas agreement and bringing in-house of several businesses, both only commencing part way through the prior year quarter (on 1 August 2015); and
· Mobile & Content revenue for the three months ended 30 September 2016 was £2.5 million, compared with £2.6 million in the three months ended 30 September 2015.
Broadcasting revenue
Broadcasting revenue for the three months ended 30 September 2016 was £29.1 million, an increase of £1.5 million, or 5.4%, over the three months ended 30 September 2015, primarily due to commencement of new FAPL broadcasting rights agreement, partially offset by non-participation in the UEFA Champions League and playing one fewer FAPL home game.
Matchday revenue
Matchday revenue for the three months ended 30 September 2016 was £16.8 million, a decrease of £8.0 million, or 32.3% over the three months ended 30 September 2015, primarily due to playing three fewer home games across all competitions.
Total operating expenses
Total operating expenses (defined as employee benefit expenses, other operating expenses, depreciation, amortization and exceptional items) for the three months ended 30 September 2016 were £122.2 million, an increase of £15.5 million, or 14.5%, over the three months ended 30 September 2015.
Employee benefit expenses
Employee benefit expenses for the three months ended 30 September 2016 were £62.3 million, an increase of £3.4 million, or 5.8%, over the three months ended 30 September 2015.
Other operating expenses
Other operating expenses for the three months ended 30 September 2016 were £26.7 million, an increase of £3.6 million, or 15.6%, over the three months ended 30 September 2015, primarily due to adverse unrealised foreign exchange movements.
Depreciation
Depreciation for the three months ended 30 September 2016 was £2.4 million, a decrease of £0.1 million, or 4.0%, over the three months ended 30 September 2015.
Amortization
Amortization, primarily of players’ registrations, for the three months ended 30 September 2016 was £30.8 million, an increase of £8.6 million, or 38.7%, over the three months ended 30 September 2015. The unamortized balance of players’ registrations at 30 September 2016 was £374.0 million.
Profit/(loss) on disposal of intangible assets
Profit on disposal of intangible assets for the three months ended 30 September 2016 was £8.2 million compared to a loss of £7.4 million for the three months ended 30 September 2015. The profit on disposal of intangible assets for the three months ended 30 September 2016 primarily related to the disposal of McNair (Sunderland).
Net finance costs
Net finance costs for the three months ended 30 September 2016 were £5.9 million, an increase of £1.6 million, or 37.2%, over the three months ended 30 September 2015, primarily due to adverse exchange rate movements.
Tax
The tax credit for the three months ended 30 September 2016 was £0.9 million, compared to an expense of £0.2 million for the three months ended 30 September 2015.
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 a portion of our US dollar sponsorship 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.
In fiscal 2016 we began paying a regular quarterly cash dividend on our Class A and Class B ordinary shares of $0.045 per share. Our board of directors recently approved replacing the previous quarterly cash dividend with a regular semi-annual cash dividend of $0.09 per share. We expect to continue paying regular semi-annual dividends to our Class A ordinary shareholders and Class B ordinary shareholders out of 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 at or near the beginning 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 revenue 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. 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 income statement 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 30 September 2016, 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. Our working capital levels tend to be at their lowest in November, in advance of Premier League and, if applicable, UEFA broadcasting receipts in December.
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 current trade receivables and payables, which affects our overall working capital. Our current trade receivables include accrued income from sponsors as well as 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 three months ended 30 September 2016 and 2015:
|
| Three months ended |
| ||
|
| 2016 |
| 2015 |
|
Cash flows from operating activities |
|
|
|
|
|
Cash generated from operations |
| 63.8 |
| 38.1 |
|
Net interest paid |
| (7.7 | ) | (1.5 | ) |
Income tax paid |
| (3.5 | ) | (0.9 | ) |
Net cash generated from operating activities |
| 52.6 |
| 35.7 |
|
Cash flows from investing activities |
|
|
|
|
|
Purchases of property, plant and equipment |
| (1.6 | ) | (0.4 | ) |
Purchases of investment property |
| (0.6 | ) | — |
|
Purchases of players’ registrations and other intangible assets |
| (158.8 | ) | (86.5 | ) |
Proceeds from sale of players’ registrations |
| 36.1 |
| 36.6 |
|
Net cash used in investing activities |
| (124.9 | ) | (50.3 | ) |
Cash flows from financing activities |
|
|
|
|
|
Repayment of borrowings |
| (0.1 | ) | (0.1 | ) |
Net cash used in financing activities |
| (0.1 | ) | (0.1 | ) |
Net decrease in cash and cash equivalents |
| (72.4 | ) | (14.7 | ) |
Net cash generated from operating activities
Net cash 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 generated from operations for the three months ended 30 September 2016 produced a cash inflow of £63.8 million, an increase of £25.7 million from a cash inflow of £38.1 million for the three months ended 30 September 2015.
Additional changes in net cash generated 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 have entered into an interest rate swap which has the economic effect of converting interest on our secured term loan facility from variable rates to a fixed rate. Our revolving facility is also subject to variable rates of interest. Net cash generated from operating activities for the three months ended 30 September 2016 was £52.6 million, an increase of £16.9 million from net cash generated of £35.7 million for the three months ended 30 September 2015.
Net cash used in investing activities
Capital expenditure for the acquisition of intangible assets and investment property 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 used in investing activities for the three months ended 30 September 2016 was £124.9 million, an increase of £74.6 million from £50.3 million for the three months ended 30 September 2015.
For the three months ended 30 September 2016, net capital expenditure on property, plant and equipment and investment property was £2.2 million, an increase of £1.8 million from net expenditure of £0.4 million for the three months ended 30 September 2015.
For the three months ended 30 September 2016, net capital expenditure on intangible assets was £122.7 million, an increase of £72.8 million from net expenditure of £49.9 million for the three months ended 30 September 2015.
Net cash used in financing activities
Net cash used in financing activities for the three months ended 30 September 2016 was £0.1 million, the same as for the three months ended 30 September 2015.
Indebtedness
Our primary sources of indebtedness consist of our secured term loan facility and our senior secured notes. As part of the security for our secured term loan facility, our senior secured notes and our revolving facility, substantially all of our assets are subject to liens and mortgages.
Description of principal indebtedness
Secured term loan facility
Our wholly-owned finance subsidiary, MU Finance plc, has a secured term loan facility with Bank of America, N.A. As of 30 September 2016 the sterling equivalent of £171.2 million (net of unamortized issue costs of £2.7 million) was outstanding. The outstanding principal amount was $225.0 million. We have the option to repay the loan at any time. The remaining balance of the loan is repayable on 26 June 2025.
Loans under the secured term loan facility bear interest at a rate per annum equal to US dollar LIBOR (provided that if the rate is less than zero, LIBOR shall be deemed to be zero) plus the applicable margin. The applicable margin, if no event of default has occurred and is continuing, means the following:
Total net leverage ratio (as defined in the secured term loan facility agreement) |
| Margin % |
|
Greater than 3.5 |
| 1.75 |
|
Greater than 2.0 but less than or equal to 3.5 |
| 1.50 |
|
Less than or equal to 2.0 |
| 1.25 |
|
While any event of default is continuing, the applicable margin shall be the highest level set forth above.
Our secured term loan facility is guaranteed by Red Football Limited, Red Football Junior Limited, Manchester United Limited, Manchester United Football Club Limited and MU Finance plc and secured against substantially all of the assets of those entities.
The secured term loan facility contains a financial maintenance covenant requiring us to maintain consolidated profit/loss for the period before depreciation, amortization of, and profit on disposal of, players’ registrations, 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 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 Champions League.
Senior secured notes
Our wholly-owned finance subsidiary, MU Finance plc, issued $425 million in aggregate principal amount of 3.79% senior secured notes due 2027. As of 30 September 2016 the sterling equivalent of £324.1 million (net of unamortized issue costs of £4.4 million) was outstanding. The outstanding principal amount was $425.0 million. The notes mature on 25 June 2027.
The notes are guaranteed by Red Football Limited, Red Football Junior Limited, Manchester United Limited and Manchester United Football Club Limited and are secured against substantially all of the assets of those entities.
The note purchase agreement governing the notes contains a financial maintenance covenant requiring us to maintain consolidated 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 years) during the life of the notes if we fail to qualify for the first round group stages (or its equivalent from time to time) of the Champions League.
The note purchase agreement governing the 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 notes are subject to certain thresholds and exceptions described in the note purchase agreement governing the notes.
The notes may be redeemed in part, in an amount not less than 5% of the aggregate principal amount of the 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 notes up to 25 June 2027.
Revolving facility
Our revolving facilities agreement allows MU Finance plc (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 incur a further £25 million by way of incremental facilities, from a syndicate of lenders with Bank of America Merrill Lynch International Limited as agent and security trustee. As of 30 September 2016, we had no outstanding borrowings and had £125 million (exclusive of capacity under the incremental facilities) in borrowing capacity under our revolving facilities agreement.
Our initial revolving facility is scheduled to expire on 26 June 2021 (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, Manchester United Football Club Limited and MU Finance plc and secured against substantially all of the assets of those entities.
Alderley facility
The Alderley facility consists of a bank loan to Alderley Urban Investments Limited, a subsidiary of Manchester United Limited. The loan attracts interest at LIBOR plus 1%. As of 30 September 2016, £4.5 million was outstanding under the Alderley facility, £0.9 million of the loan is repayable in quarterly installments through July 2018, and the remaining balance of £3.6 million is repayable at par on 9 July 2018. The loan is secured against the Manchester International Freight Terminal which is owned by Alderley Urban Investments Limited.
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. As noted above, 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 30 September 2016 is £41.4 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 recognised when virtually certain. As of 30 September 2016, we believe receipt of £1.9 million to be probable.
Other commitments
In the ordinary course of business, we enter into operating lease commitments and capital commitments. These transactions are recognised 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 30 September 2016, 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 30 September 2016:
|
| Payments due by period(1) |
| ||||||||
|
| Less than |
| 1-3 years |
| 3-5 years |
| More than |
| Total |
|
|
| (in £ thousands) |
| ||||||||
Long-term debt obligations(2) |
| 19,526 |
| 42,240 |
| 19,057 |
| 617,695 |
| 698,518 |
|
Finance lease obligations |
| — |
| — |
| — |
| — |
| — |
|
Operating lease obligations(3) |
| 2,563 |
| 4,249 |
| 167 |
| 4,008 |
| 10,987 |
|
Purchase obligations(4) |
| 161,124 |
| 65,066 |
| 6,312 |
| — |
| 232,502 |
|
Other long-term liabilities |
| — |
| — |
| — |
| — |
| — |
|
Total |
| 183,213 |
| 111,555 |
| 25,536 |
| 621,703 |
| 942,007 |
|
(1) This table reflects contractual non-derivative financial obligations including interest and operating lease payments and therefore differs from the carrying amounts in our consolidated financial statements.
(2) As of 30 September 2016, we had $225.0 million of our secured term loan facility outstanding and $425.0 million of our senior secured notes outstanding. Other long-term indebtedness consists of a bank loan to Alderley Urban Investments Limited, a subsidiary of Manchester United Limited. As of 30 September 2016, we had £4.5 million outstanding under the Alderley facility.
(3) We enter into operating leases in the normal course of business. Most lease arrangements provide us with the option to renew the leases at defined terms. The future operating lease obligations would change if we were to exercise these options, or if we were to enter into additional new operating leases.
(4) Purchase obligations include current and non-current obligations related to the acquisition of players’ registrations and capital commitments. Purchase obligations do not include contingent transfer fees of £41.4 million which are potentially payable by us if certain specific performance conditions are met.
Except as disclosed above and in note 27.3 to the unaudited interim consolidated financial statements as of and for the three months ended 30 September 2016 included elsewhere in this interim report, as of 30 September 2016, we did not have any material contingent liabilities or guarantees.
Manchester United plc
Interim consolidated income statement - unaudited
|
|
|
| Three months ended |
| ||
|
| Note |
| 2016 |
| 2015 |
|
Revenue |
| 6 |
| 120,213 |
| 123,562 |
|
Operating expenses |
| 7 |
| (122,242 | ) | (106,606 | ) |
Profit/(loss) on disposal of intangible assets |
| 8 |
| 8,205 |
| (7,436 | ) |
Operating profit |
|
|
| 6,176 |
| 9,520 |
|
Finance costs |
|
|
| (6,098 | ) | (4,379 | ) |
Finance income |
|
|
| 180 |
| 38 |
|
Net finance costs |
| 9 |
| (5,918 | ) | (4,341 | ) |
Profit before tax |
|
|
| 258 |
| 5,179 |
|
Tax credit/(expense) |
| 10 |
| 903 |
| (219 | ) |
Profit for the period |
|
|
| 1,161 |
| 4,960 |
|
|
|
|
|
|
|
|
|
Earnings per share during the period: |
|
|
|
|
|
|
|
Basic earnings per share (pence) |
| 11 |
| 0.71 |
| 3.03 |
|
Diluted earnings per share (pence) |
| 11 |
| 0.71 |
| 3.02 |
|
See accompanying notes to the interim consolidated financial statements.
Manchester United plc
Interim consolidated statement of comprehensive income - unaudited
|
| Three months ended |
| ||
|
| 2016 |
| 2015 |
|
Profit for the period |
| 1,161 |
| 4,960 |
|
Other comprehensive loss: |
|
|
|
|
|
Items that may be subsequently reclassified to profit or loss |
|
|
|
|
|
Fair value movements on cash flow hedges (note 29.2) |
| (7,123 | ) | (15,145 | ) |
Tax credit relating to cash flow hedges (note 29.2) |
| 2,493 |
| 5,300 |
|
Other comprehensive loss for the period, net of tax |
| (4,630 | ) | (9,845 | ) |
Total comprehensive loss for the period |
| (3,469 | ) | (4,885 | ) |
See accompanying notes to the interim consolidated financial statements.
Manchester United plc
Interim consolidated balance sheet - unaudited
|
| Note |
| 30 September |
| 30 June |
| 30 September |
|
ASSETS |
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
| 13 |
| 245,004 |
| 245,714 |
| 249,449 |
|
Investment property |
| 14 |
| 14,060 |
| 13,447 |
| 13,531 |
|
Intangible assets |
| 15 |
| 800,290 |
| 665,634 |
| 682,694 |
|
Derivative financial instruments |
| 17 |
| 3,313 |
| 3,760 |
| 944 |
|
Trade and other receivables |
| 18 |
| 4,005 |
| 11,223 |
| 10,331 |
|
Deferred tax asset |
| 24 |
| 148,016 |
| 145,460 |
| 137,214 |
|
|
|
|
| 1,214,688 |
| 1,085,238 |
| 1,094,163 |
|
Current assets |
|
|
|
|
|
|
|
|
|
Inventories |
| 16 |
| 1,422 |
| 926 |
| 1,360 |
|
Derivative financial instruments |
| 17 |
| 5,218 |
| 7,888 |
| 902 |
|
Trade and other receivables |
| 18 |
| 68,600 |
| 128,657 |
| 104,925 |
|
Tax receivable |
|
|
| 97 |
| — |
| 99 |
|
Cash and cash equivalents |
| 19 |
| 164,277 |
| 229,194 |
| 143,525 |
|
|
|
|
| 239,614 |
| 366,665 |
| 250,811 |
|
Total assets |
|
|
| 1,454,302 |
| 1,451,903 |
| 1,344,974 |
|
See accompanying notes to the interim consolidated financial statements.
Manchester United plc
Interim consolidated balance sheet — unaudited (continued)
|
| Note |
| 30 September |
| 30 June |
| 30 September |
|
EQUITY AND LIABILITIES |
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
Share capital |
| 20 |
| 52 |
| 52 |
| 52 |
|
Share premium |
|
|
| 68,822 |
| 68,822 |
| 68,822 |
|
Merger reserve |
|
|
| 249,030 |
| 249,030 |
| 249,030 |
|
Hedging reserve |
|
|
| (37,619 | ) | (32,989 | ) | (5,116 | ) |
Retained earnings |
|
|
| 174,985 |
| 173,367 |
| 160,620 |
|
|
|
|
| 455,270 |
| 458,282 |
| 473,408 |
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
Derivative financial instruments |
| 17 |
| 8,773 |
| 10,637 |
| 4,084 |
|
Trade and other payables |
| 21 |
| 67,412 |
| 41,450 |
| 19,598 |
|
Borrowings |
| 22 |
| 499,305 |
| 484,528 |
| 426,534 |
|
Deferred revenue |
| 23 |
| 35,836 |
| 38,899 |
| 19,422 |
|
Deferred tax liabilities |
| 24 |
| 11,975 |
| 14,364 |
| 15,281 |
|
|
|
|
| 623,301 |
| 589,878 |
| 484,919 |
|
Current liabilities |
|
|
|
|
|
|
|
|
|
Derivative financial instruments |
| 17 |
| 1,163 |
| 2,800 |
| 1,389 |
|
Tax liabilities |
|
|
| 5,054 |
| 6,867 |
| 1,666 |
|
Trade and other payables |
| 21 |
| 170,705 |
| 199,668 |
| 191,276 |
|
Borrowings |
| 22 |
| 2,683 |
| 5,564 |
| 3,187 |
|
Deferred revenue |
| 23 |
| 196,126 |
| 188,844 |
| 189,129 |
|
|
|
|
| 375,731 |
| 403,743 |
| 386,647 |
|
Total equity and liabilities |
|
|
| 1,454,302 |
| 1,451,903 |
| 1,344,974 |
|
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 1 July 2015 |
| 52 |
| 68,822 |
| 249,030 |
| 4,729 |
| 155,285 |
| 477,918 |
|
Profit for the period |
| — |
| — |
| — |
| — |
| 4,960 |
| 4,960 |
|
Cash flow hedges |
| — |
| — |
| — |
| (15,145 | ) | — |
| (15,145 | ) |
Tax credit relating to cash flow hedges |
| — |
| — |
| — |
| 5,300 |
| — |
| 5,300 |
|
Total comprehensive (loss)/income for the period |
| — |
| — |
| — |
| (9,845 | ) | 4,960 |
| (4,885 | ) |
Equity-settled share-based payments |
| — |
| — |
| — |
| — |
| 375 |
| 375 |
|
Balance at 30 September 2015 |
| 52 |
| 68,822 |
| 249,030 |
| (5,116 | ) | 160,620 |
| 473,408 |
|
Profit for the period |
| — |
| — |
| — |
| — |
| 31,411 |
| 31,411 |
|
Cash flow hedges |
| — |
| — |
| — |
| (42,880 | ) | — |
| (42,880 | ) |
Tax credit relating to cash flow hedges |
| — |
| — |
| — |
| 15,007 |
| — |
| 15,007 |
|
Total comprehensive loss for the period |
| — |
| — |
| — |
| (27,873 | ) | 31,411 |
| 3,538 |
|
Equity-settled share-based payments |
| — |
| — |
| — |
| — |
| 1,420 |
| 1,420 |
|
Dividends paid |
| — |
| — |
| — |
| — |
| (20,084 | ) | (20,084 | ) |
Balance at 30 June 2016 |
| 52 |
| 68,822 |
| 249,030 |
| (32,989 | ) | 173,367 |
| 458,282 |
|
Profit for the period |
| — |
| — |
| — |
| — |
| 1,161 |
| 1,161 |
|
Cash flow hedges |
| — |
| — |
| — |
| (7,123 | ) | — |
| (7,123 | ) |
Tax credit relating to cash flow hedges |
| — |
| — |
| — |
| 2,493 |
| — |
| 2,493 |
|
Total comprehensive (loss)/income for the period |
| — |
| — |
| — |
| (4,630 | ) | 1,161 |
| (3,469 | ) |
Equity-settled share-based payments |
| — |
| — |
| — |
| — |
| 457 |
| 457 |
|
Balance at 30 September 2016 |
| 52 |
| 68,822 |
| 249,030 |
| (37,619 | ) | 174,985 |
| 455,270 |
|
Movements on the hedging reserve are provided in note 29.2.
See accompanying notes to the interim consolidated financial statements.
Manchester United plc
Interim consolidated statement of cash flows - unaudited
|
|
|
| Three months ended |
| ||
|
| Note |
| 2016 |
| 2015 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
Cash generated from operations |
| 25 |
| 63,783 |
| 38,115 |
|
Interest paid |
|
|
| (7,904 | ) | (1,542 | ) |
Interest received |
|
|
| 180 |
| 67 |
|
Tax paid |
|
|
| (3,452 | ) | (942 | ) |
Net cash generated from operating activities |
|
|
| 52,607 |
| 35,698 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
Payments for property, plant and equipment |
|
|
| (1,557 | ) | (353 | ) |
Proceeds from sale of property, plant and equipment |
|
|
| — |
| 21 |
|
Payments for investment property |
|
|
| (644 | ) | — |
|
Payments for intangible assets |
|
|
| (158,848 | ) | (86,532 | ) |
Proceeds from sale of intangible assets |
|
|
| 36,159 |
| 36,591 |
|
Net cash used in investing activities |
|
|
| (124,890 | ) | (50,273 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
Repayment of borrowings |
|
|
| (94 | ) | (89 | ) |
Net cash used in financing activities |
|
|
| (94 | ) | (89 | ) |
Net decrease in cash and cash equivalents |
|
|
| (72,377 | ) | (14,664 | ) |
Cash and cash equivalents at beginning of period |
|
|
| 229,194 |
| 155,752 |
|
Effects of exchange rate changes on cash and cash equivalents |
|
|
| 7,460 |
| 2,437 |
|
Cash and cash equivalents at end of period |
| 19 |
| 164,277 |
| 143,525 |
|
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 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. 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 on 18 November 2016.
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 2016, as filed with the Securities and Exchange Commission on 15 September 2016, contained within the Company’s Annual Report on Form 20-F, which were prepared in accordance with International Financial Reporting Standards (“IFRSs”), as issued by the International Accounting Standards Board (“IASB”) and IFRS Interpretations Committee (“IFRS IC”) interpretations. 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 2016, except as described below.
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 adopted by the Group
No new or amended IFRS standards were adopted by the Group for the first time for the financial year beginning on 1 July 2016.
New and amended standards and interpretations issued but not yet adopted
The following new standards, amendments to standards and interpretations are not yet effective and have not been applied in preparing these interim consolidated financial statements. Adoption may affect the disclosures in the Group’s financial statements in the future. The adoption of these standards, amendments and interpretations is not expected to have a material impact on the consolidated financial statements of the Group, except as set out below.
· IFRS 9, “Financial instruments”. While the Group has yet to undertake a detailed assessment it does not expect the new standard to have a significant impact on the classification and measurement of financial assets and financial liabilities and it would appear that the Group’s current hedge relationships would qualify as continuing hedges upon the adoption of IFRS 9. The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the Group’s disclosures about its financial instruments particularly in the year of adoption of the new standard. The Group expects to adopt IFRS 9 from 1 July 2018.
· IFRS 15, “Revenue from contracts with customers”. Management is currently assessing the effects of applying the new standard. At this stage, the Group is not able to estimate the impact of the new rules on the Group’s financial statements. The Group will make more detailed assessments of the impact over the next nine months. The Group expects to adopt IFRS 15 from 1 July 2018.
· IFRS 16, “Leases”. The new standard will affect primarily the accounting for the Group’s operating leases. As at the reporting date, the Group has non-cancellable operating lease commitments, however, the Group has not yet determined to what extent these commitments will result in the recognition of an asset and a liability for future payments and how this will affect the Group’s profit and classification of cash flows. The Group expects to adopt IFRS 16 from 1 July 2019.
· Amendment to IAS 12, “Income taxes”.
There are no other IFRSs or IFRS IC interpretations that are not yet effective that would be expected to have a material impact on the Group.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
4 Estimates
The preparation of interim financial statements requires management to make judgements, 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 judgement or complexity, or areas where assumptions and estimates are significant to the interim consolidated financial statements are considered to be revenue recognition — minimum guarantee, impairment of goodwill and non-current assets, intangible assets — registrations contingent consideration estimates, tax, and recognition of deferred tax assets.
In preparing these interim consolidated financial statements, the significant judgements 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 2016, 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 recognised. 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 also recognize the most revenue in our fourth fiscal quarter in those years.
Commercial revenue comprises revenue receivable from the exploitation of the Manchester United brand through sponsorship and other commercial agreements, including minimum guaranteed revenue, and fees for the Manchester United first team undertaking tours. For sponsorship contracts any additional revenue receivable over and above the minimum guaranteed revenue contained in the sponsorship and licensing agreements is taken to revenue when a reliable estimate of the future performance of the contract can be obtained and it is probable that the amounts will not be recouped by the sponsor in future years. 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 recognised on a straight-line basis. In respect of contracts with multiple elements, the Group allocates the total consideration receivable to each separately identifiable element based on their relative fair values, and then recognizes the allocated revenue on a straight-line basis over the relevant period of each element. Minimum guaranteed revenue under the agreement with adidas is subject to certain adjustments. Management’s current best estimate is that the full minimum guarantee amount will be received, as management do not expect two consecutive seasons of non-participation in the Champions League. Retail revenue is recognized at the point of sale while license revenue is recognized in the period in which the goods and services are provided.
Broadcasting rights revenue represents revenue receivable from all UK and overseas media contracts, including contracts negotiated centrally by the FA Premier League and UEFA. In addition, broadcasting rights revenue includes revenue receivable from the exploitation of Manchester United media rights through the internet or wireless applications. Distributions from the FA Premier League comprise a fixed element (which is recognized evenly as domestic home matches are played), facility fees for live coverage and highlights of domestic home and away matches (which are recognized when the respective match is played), and merit awards (which are primarily recognized when they are known at the end of the football season). 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 FA Premier League clubs in the competition) and fixed amounts for participation in individual matches (which are recognized when the matches are played).
Matchday revenue is recognized based on matches played throughout the year with revenue from each match being recognized only after the match to which the revenue relates 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 enjoyed. 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 cup matches not played at Old Trafford (where applicable), and fees for arranging other events at the Old Trafford stadium. The share of gate receipts payable to the other participating club and competition organiser for cup matches played at Old Trafford (where applicable) is treated as an operating expense.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
6 Segment information
The principal activity of the Group is the operation of a professional football club. All of the activities of the Group support the operation of the football club and the success of the first team 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 a professional football club.
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 |
| ||
|
| 30 September 2016 |
| 30 September 2015 |
|
Commercial |
| 74,337 |
| 71,172 |
|
Broadcasting |
| 29,084 |
| 27,579 |
|
Matchday |
| 16,792 |
| 24,811 |
|
|
| 120,213 |
| 123,562 |
|
All non-current assets, other than US deferred tax assets, are held within the United Kingdom.
7 Operating expenses
|
| Three months ended |
| ||
|
| 30 September 2016 |
| 30 September 2015 |
|
Employee benefit expenses |
| (62,264 | ) | (58,847 | ) |
Depreciation - property, plant and equipment (note 13) |
| (2,381 | ) | (2,466 | ) |
Depreciation - investment property (note 14) |
| (31 | ) | (28 | ) |
Amortization (note 15) |
| (30,805 | ) | (22,147 | ) |
Other operating expenses |
| (26,761 | ) | (23,118 | ) |
|
| (122,242 | ) | (106,606 | ) |
8 Profit/(loss) on disposal of intangible assets
|
| Three months ended |
| ||
|
| 30 September 2016 |
| 30 September 2015 |
|
Profit/(loss) on disposal of registrations |
| 8,131 |
| (7,436 | ) |
Player loan fee income |
| 74 |
| — |
|
|
| 8,205 |
| (7,436 | ) |
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
9 Net finance costs
|
| Three months ended |
| ||
|
| 30 September 2016 |
| 30 September 2015 |
|
Interest payable on bank loans and overdrafts |
| (277 | ) | (434 | ) |
Interest payable on secured term loan facility and senior secured notes |
| (4,755 | ) | (4,016 | ) |
Amortization of issue costs on secured term loan facility and senior secured notes |
| (146 | ) | (133 | ) |
Foreign exchange losses on unhedged US dollar borrowings |
| (2,111 | ) | (759 | ) |
Unwinding of discount relating to player transfer fees |
| (83 | ) | (844 | ) |
Fair value movement on derivative financial instruments: |
|
|
|
|
|
Embedded foreign exchange derivatives |
| 1,274 |
| 1,807 |
|
Total finance costs |
| (6,098 | ) | (4,379 | ) |
Total finance income - interest receivable on short-term bank deposits |
| 180 |
| 38 |
|
Net finance costs |
| (5,918 | ) | (4,341 | ) |
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
10 Tax credit/(expense)
|
| Three months ended |
| ||
|
| 30 September 2016 |
| 30 September 2015 |
|
Current tax |
|
|
|
|
|
Current tax on result for the period |
| (30 | ) | (523 | ) |
Foreign tax |
| (12 | ) | — |
|
Adjustment in respect of prior years |
| (1,535 | ) | — |
|
Total current tax expense |
| (1,577 | ) | (523 | ) |
Deferred tax |
|
|
|
|
|
Origination and reversal of temporary differences |
| 959 |
| 304 |
|
Foreign tax |
| 12 |
| — |
|
Adjustment in respect of prior years |
| 1,535 |
| — |
|
Impact of change in UK corporation tax rate |
| (26 | ) | — |
|
Total deferred tax credit |
| 2,480 |
| 304 |
|
Total tax credit/(expense) |
| 903 |
| (219 | ) |
Tax is recognised 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 2017 is 40.72% (30 June 2016: 34.79%). The total tax credit includes a £1.0 million credit (30 September 2015: £1.6 million credit) in relation to foreign exchange translation movements on US dollar denominated deferred tax assets relating to net operating losses (‘NOL’s’) and foreign tax credits, treated as a separate item.
In addition to the amounts recognized in the income statement, the following amounts relating to tax have been recognized in other comprehensive income:
|
| Three months ended |
| ||
|
| 30 September 2016 |
| 30 September 2015 |
|
Current tax |
| 28 |
| — |
|
US deferred tax (note 24) |
| 2,129 |
| 2,271 |
|
UK deferred tax (note 24) |
| 336 |
| 3,029 |
|
Total tax credit recognized in other comprehensive income |
| 2,493 |
| 5,300 |
|
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
11 Earnings per share
(a) 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.
|
| Three months ended |
| ||
|
| 30 September |
| 30 September |
|
Profit for the period (£’000) |
| 1,161 |
| 4,960 |
|
Class A ordinary shares (thousands) |
| 40,025 |
| 39,883 |
|
Class B ordinary shares (thousands) |
| 124,000 |
| 124,000 |
|
Basic earnings per share (pence) |
| 0.71 |
| 3.03 |
|
(b) 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.
|
| 30 September |
| 30 September |
|
Profit for the period (£’000) |
| 1,161 |
| 4,960 |
|
Class A ordinary shares (thousands) |
| 40,025 |
| 39,883 |
|
Adjustment for assumed conversion into Class A ordinary shares (thousands) |
| 458 |
| 385 |
|
Class B ordinary shares (thousands) |
| 124,000 |
| 124,000 |
|
Diluted earnings per share (pence) |
| 0.71 |
| 3.02 |
|
12 Dividends
No dividend has been paid by the Company during the three month period ended 30 September 2016 (three months ended 30 September 2015: £nil). Our board of directors recently approved replacing the previous quarterly cash dividend with a regular semi-annual cash dividend on the Company’s outstanding Class A and Class B ordinary shares of $0.09 per share which will be paid in January and June 2017.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
13 Property, plant and equipment
|
| Freehold |
| Plant and |
| Fixtures |
| Total |
|
At 1 July 2016 |
|
|
|
|
|
|
|
|
|
Cost |
| 269,369 |
| 36,728 |
| 43,809 |
| 349,906 |
|
Accumulated depreciation |
| (43,443 | ) | (32,487 | ) | (28,262 | ) | (104,192 | ) |
Net book amount |
| 225,926 |
| 4,241 |
| 15,547 |
| 245,714 |
|
Three months ended 30 September 2016 |
|
|
|
|
|
|
|
|
|
Opening net book amount |
| 225,926 |
| 4,241 |
| 15,547 |
| 245,714 |
|
Additions |
| (22 | ) | 198 |
| 1,495 |
| 1,671 |
|
Depreciation charge |
| (817 | ) | (556 | ) | (1,008 | ) | (2,381 | ) |
Closing net book amount |
| 225,087 |
| 3,883 |
| 16,034 |
| 245,004 |
|
At 30 September 2016 |
|
|
|
|
|
|
|
|
|
Cost |
| 269,347 |
| 36,926 |
| 45,304 |
| 351,577 |
|
Accumulated depreciation |
| (44,260 | ) | (33,043 | ) | (29,270 | ) | (106,573 | ) |
Net book amount |
| 225,087 |
| 3,883 |
| 16,034 |
| 245,004 |
|
|
|
|
|
|
|
|
|
|
|
At 1 July 2015 |
|
|
|
|
|
|
|
|
|
Cost |
| 270,047 |
| 39,826 |
| 40,269 |
| 350,142 |
|
Accumulated depreciation |
| (40,228 | ) | (34,091 | ) | (25,197 | ) | (99,516 | ) |
Net book amount |
| 229,819 |
| 5,735 |
| 15,072 |
| 250,626 |
|
Three months ended 30 September 2015 |
|
|
|
|
|
|
|
|
|
Opening net book amount |
| 229,819 |
| 5,735 |
| 15,072 |
| 250,626 |
|
Additions |
| 33 |
| 479 |
| 807 |
| 1,319 |
|
Disposals |
| — |
| (30 | ) | — |
| (30 | ) |
Depreciation charge |
| 832 |
| 631 |
| 1,003 |
| 2,466 |
|
Closing net book amount |
| 229,020 |
| 5,553 |
| 14,876 |
| 249,449 |
|
At 30 September 2015 |
|
|
|
|
|
|
|
|
|
Cost |
| 270,080 |
| 40,232 |
| 41,076 |
| 351,388 |
|
Accumulated depreciation |
| (41,060 | ) | (34,679 | ) | (26,200 | ) | (101,939 | ) |
Net book amount |
| 229,020 |
| 5,553 |
| 14,876 |
| 249,449 |
|
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
14 Investment property
|
| Total |
|
At 1 July 2016 |
|
|
|
Cost |
| 19,128 |
|
Accumulated depreciation and impairment |
| (5,681 | ) |
Net book amount |
| 13,447 |
|
Three months ended 30 September 2016 |
|
|
|
Opening net book amount |
| 13,447 |
|
Additions |
| 644 |
|
Depreciation charge |
| (31 | ) |
Closing net book amount |
| 14,060 |
|
At 30 September 2016 |
|
|
|
Cost |
| 19,772 |
|
Accumulated depreciation and impairment |
| (5,712 | ) |
Net book amount |
| 14,060 |
|
|
|
|
|
At 1 July 2015 |
|
|
|
Cost |
| 19,128 |
|
Accumulated depreciation and impairment |
| (5,569 | ) |
Net book amount |
| 13,447 |
|
Three months ended 30 September 2015 |
|
|
|
Opening net book amount |
| 13,447 |
|
Depreciation charge |
| 28 |
|
Closing net book amount |
| 13,559 |
|
At 30 September 2015 |
|
|
|
Cost |
| 19,128 |
|
Accumulated depreciation and impairment |
| (5,597 | ) |
Net book amount |
| 13,559 |
|
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 2016 which supported the carrying value of investment property as of that date and consequently there were no changes to the net book amount. Management has considered the carrying amount of investment property as of 30 September 2016 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 (see note 29.3).
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
15 Intangible assets
|
| Goodwill |
| Registrations |
| Other |
| Total |
|
At 1 July 2016 |
|
|
|
|
|
|
|
|
|
Cost |
| 421,453 |
| 511,893 |
| 2,766 |
| 936,112 |
|
Accumulated amortization |
| — |
| (270,169 | ) | (309 | ) | (270,478 | ) |
Net book amount |
| 421,453 |
| 241,724 |
| 2,457 |
| 665,634 |
|
Three months ended 30 September 2016 |
|
|
|
|
|
|
|
|
|
Opening net book amount |
| 421,453 |
| 241,724 |
| 2,457 |
| 665,634 |
|
Additions |
| — |
| 163,087 |
| 2,499 |
| 165,586 |
|
Disposals |
| — |
| (125 | ) | — |
| (125 | ) |
Amortization charge |
| — |
| (30,645 | ) | (160 | ) | (30,805 | ) |
Closing book amount |
| 421,453 |
| 374,041 |
| 4,796 |
| 800,290 |
|
At 30 September 2016 |
|
|
|
|
|
|
|
|
|
Cost |
| 421,453 |
| 670,338 |
| 5,265 |
| 1,097,056 |
|
Accumulated amortization |
| — |
| (296,297 | ) | (469 | ) | (296,766 | ) |
Net book amount |
| 421,453 |
| 374,041 |
| 4,796 |
| 800,290 |
|
|
|
|
|
|
|
|
|
|
|
At 1 July 2015 |
|
|
|
|
|
|
|
|
|
Cost |
| 421,453 |
| 465,830 |
| 951 |
| 888,234 |
|
Accumulated amortization |
| — |
| (227,684 | ) | (153 | ) | (227,837 | ) |
Net book amount |
| 421,453 |
| 238,146 |
| 798 |
| 660,397 |
|
Three months ended 30 September 2015 |
|
|
|
|
|
|
|
|
|
Opening net book amount |
| 421,453 |
| 238,146 |
| 798 |
| 660,397 |
|
Additions |
| — |
| 105,884 |
| 214 |
| 106,098 |
|
Disposals |
| — |
| (61,654 | ) | — |
| (61,654 | ) |
Amortization charge |
| — |
| (22,109 | ) | (38 | ) | (22,147 | ) |
Closing book amount |
| 421,453 |
| 260,267 |
| 974 |
| 682,694 |
|
At 30 September 2015 |
|
|
|
|
|
|
|
|
|
Cost |
| 421,453 |
| 459,674 |
| 1,165 |
| 882,292 |
|
Accumulated amortization |
| — |
| (199,407 | ) | (191 | ) | (199,598 | ) |
Net book amount |
| 421,453 |
| 260,267 |
| 974 |
| 682,694 |
|
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
15 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 30 September 2016 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
Other intangible assets include internally generated assets whose cost and accumulated amortization as of 30 September 2016 was £585,000 and £nil respectively (2015: £nil and £ nil respectively).
Capital commitments at the balance sheet date are disclosed in note 27.2.
16 Inventories
|
| 30 September |
| 30 June |
| 30 September |
|
Finished goods |
| 1,422 |
| 926 |
| 1,360 |
|
The cost of inventories recognized as an expense and included in operating expenses for the period amounted to £2,795,000 (30 June 2016: £7,228,000; 30 September 2015: £11,882,000).
Reversal/write-down of inventories to net realizable value for the period amounted to a reversal of £154,000 (30 June 2016: write-down of £177,000; 30 September 2015: £nil). These were recognized as a credit (reversal) or expense (write-down) during the period and included in operating expenses.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
17 Derivative financial instruments
|
| 30 September 2016 |
| 30 June 2016 |
| 30 September 2015 |
| ||||||
|
| Assets |
| Liabilities |
| Assets |
| Liabilities |
| Assets |
| Liabilities |
|
|
| £’000 |
| £’000 |
| £’000 |
| £’000 |
| £’000 |
| £’000 |
|
Derivatives that are designated and effective as hedging instruments carried at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
| — |
| (8,773 | ) | — |
| (9,710 | ) | — |
| (4,084 | ) |
Forward foreign exchange contracts |
| 226 |
| — |
| — |
| — |
| — |
| — |
|
Financial instruments carried at fair value through profit or loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded foreign exchange derivatives |
| 6,523 |
| — |
| 5,248 |
| — |
| 1,768 |
| — |
|
Forward foreign exchange contracts |
| 1,782 |
| (1,163 | ) | 6,400 |
| (3,727 | ) | 78 |
| (1,389 | ) |
|
| 8,531 |
| (9,936 | ) | 11,648 |
| (13,437 | ) | 1,846 |
| (5,473 | ) |
Less non-current portion: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives that are designated and effective as hedging instruments carried at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
| — |
| (8,773 | ) | — |
| (9,710 | ) | — |
| (4,084 | ) |
Financial instruments carried at fair value through profit or loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded foreign exchange derivatives |
| 3,104 |
| — |
| 3,052 |
| — |
| 866 |
| — |
|
Forward foreign exchange contracts |
| 209 |
| — |
| 708 |
| (927 | ) | 78 |
| — |
|
Non-current derivative financial instruments |
| 3,313 |
| (8,773 | ) | 3,760 |
| (10,637 | ) | 944 |
| (4,084 | ) |
Current derivative financial instruments |
| 5,218 |
| (1,163 | ) | 7,888 |
| (2,800 | ) | 902 |
| (1,389 | ) |
Further details of derivative financial instruments are provided in note 29.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
18 Trade and other receivables
|
| 30 September |
| 30 June |
| 30 September |
|
Trade receivables |
| 40,817 |
| 116,242 |
| 60,366 |
|
Less: provision for impairment of trade receivables |
| (10,931 | ) | (6,451 | ) | (3,830 | ) |
Net trade receivables |
| 29,886 |
| 109,791 |
| 56,536 |
|
Other receivables |
| 897 |
| 927 |
| 157 |
|
Accrued income |
| 24,608 |
| 16,557 |
| 46,623 |
|
|
| 55,391 |
| 127,275 |
| 103,316 |
|
Prepayments |
| 17,214 |
| 12,605 |
| 11,940 |
|
|
| 72,605 |
| 139,880 |
| 115,256 |
|
Less: non-current portion |
|
|
|
|
|
|
|
Trade receivables |
| 4,005 |
| 11,223 |
| 10,331 |
|
Non-current trade and other receivables |
| 4,005 |
| 11,223 |
| 10,331 |
|
Current trade and other receivables |
| 68,600 |
| 128,657 |
| 104,925 |
|
Net trade receivables include transfer fees receivable from other football clubs of £19,586,000 (30 June 2016: £46,646,000; 30 September 2015: £41,827,000) of which £4,005,000 (30 June 2016: £11,223,000; 30 September 2015: £10,331,000) is receivable after more than one year. Net trade receivables also include £4,432,000 (30 June 2016: £54,860,000; 30 September 2015: £7,885,000) of deferred revenue that is contractually payable to the Group, but recorded in advance of the earnings process, with corresponding amounts recorded as current deferred revenue liabilities.
19 Cash and cash equivalents
|
| 30 September |
| 30 June |
| 30 September |
|
Cash at bank and in hand |
| 164,277 |
| 229,194 |
| 143,525 |
|
Cash and cash equivalents for the purposes of the statement of cash flows are as above.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
20 Share capital
|
| Number of shares |
| Ordinary shares |
|
At 1 July 2015 |
| 163,873 |
| 52 |
|
Employee share-based compensation awards — issue of shares |
| 10 |
| — |
|
At 30 September 2015 |
| 163,883 |
| 52 |
|
Employee share-based compensation awards — issue of shares |
| 142 |
| — |
|
At 30 June 2016 |
| 164,025 |
| 52 |
|
Employee share-based compensation awards — issue of shares |
| — |
| — |
|
At 30 September 2016 |
| 164,025 |
| 52 |
|
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 30 September 2016, the Company’s issued share capital comprised 40,025,280 Class A ordinary shares and 124,000,000 Class B ordinary shares.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
21 Trade and other payables
|
| 30 September |
| 30 June |
| 30 September |
|
Trade payables |
| 173,530 |
| 167,733 |
| 144,097 |
|
Other payables |
| 3,006 |
| 2,865 |
| 2,225 |
|
Accrued expenses |
| 44,467 |
| 54,756 |
| 47,487 |
|
|
| 221,003 |
| 225,354 |
| 193,809 |
|
Social security and other taxes |
| 17,114 |
| 15,764 |
| 17,065 |
|
|
| 238,117 |
| 241,118 |
| 210,874 |
|
Less: non-current portion: |
|
|
|
|
|
|
|
Trade payables |
| 66,372 |
| 40,304 |
| 18,136 |
|
Other payables |
| 1,040 |
| 1,146 |
| 1,462 |
|
Non-current trade and other payables |
| 67,412 |
| 41,450 |
| 19,598 |
|
Current trade and other payables |
| 170,705 |
| 199,668 |
| 191,276 |
|
Trade payables include transfer fees and other associated costs in relation to the acquisition of players’ registrations of £167,207,000 (30 June 2016: £156,292,000; 30 September 2015: £135,027,000) of which £66,372,000 (30 June 2016: £40,304,000; 30 September 2015: £18,136,000) is due after more than one year.
The fair value of trade and other payables is not materially different to their carrying amount.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
22 Borrowings
|
| 30 September |
| 30 June |
| 30 September |
|
Senior secured notes due 2027 |
| 324,050 |
| 314,341 |
| 276,288 |
|
Secured term loan facility due 2025 |
| 171,186 |
| 166,018 |
| 145,778 |
|
Secured bank loan due 2018 |
| 4,470 |
| 4,564 |
| 4,845 |
|
Accrued interest on senior secured notes |
| 2,282 |
| 5,169 |
| 2,810 |
|
|
| 501,988 |
| 490,092 |
| 429,721 |
|
Less: non-current portion: |
|
|
|
|
|
|
|
Senior secured notes due 2027 |
| 324,050 |
| 314,341 |
| 276,288 |
|
Secured term loan facility due 2025 |
| 171,186 |
| 166,018 |
| 145,778 |
|
Secured bank loan due 2018 |
| 4,069 |
| 4,169 |
| 4,468 |
|
Non-current borrowings |
| 499,305 |
| 484,528 |
| 426,534 |
|
Current borrowings |
| 2,683 |
| 5,564 |
| 3,187 |
|
The senior secured notes due 2027 of £324,050,000 (30 June 2016: £314,341,000; 30 September 2015: £276,288,000) is stated net of unamortized issue costs amounting to £4,364,000 (30 June 2016: £4,441,000; 30 September 2015: £4,648,000). The outstanding principal amount of the notes is $425,000,000 (30 June 2016: $425,000,000; 30 September 2015: $425,000,000). The notes have a fixed coupon rate of 3.79% per annum and interest is paid semi-annually. The notes mature on 25 June 2027.
The notes were issued by our wholly-owned finance subsidiary, MU Finance plc, and are guaranteed by Red Football Limited, Red Football Junior Limited, Manchester United Limited and Manchester United Football Club Limited and are secured against substantially all of the assets of those entities and MU Finance plc.
The secured term loan facility due 2025 of £171,186,000 (30 June 2016: £166,018,000; 30 September 2015: £145,778,000) is stated net of unamortized issue costs amounting to £2,680,000 (30 June 2016: £2,749,000; 30 September 2015: £2,953,000). The outstanding principal amount of the loan is $225,000,000 (30 June 2016: $225,000,000; 30 September 2015: $225,000,000). The loan 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 remaining balance of the loan is repayable on 26 June 2025, although the Group has the option to repay the loan at any time.
The loan was provided to our wholly-owned finance subsidiary, MU Finance plc, and is guaranteed by Red Football Limited, Red Football Junior Limited, Manchester United Limited, Manchester United Football Club Limited and MU Finance plc and is secured against substantially all of the assets of each of those entities.
The secured bank loan of £4,470,000 (30 June 2016: £4,564,000; 30 September 2015: £4,845,000) comprises a bank loan within Alderley Urban Investments Limited, a subsidiary of Manchester United Limited, that attracts interest of LiBOR + 1% per annum. £826,000 (30 June 2016: £920,000; 30 September 2015: £1,201,000) is repayable in quarterly instalments through to July 2018, with the remaining balance of £3,644,000 (30 June 2016: £3,644,000; 30 September 2015: £3,644,000) being re-payable at par on 9 July 2018. The loan is secured by way of a first legal charge over a Group investment property, known as the Manchester International Freight Terminal, and the loan is also guaranteed by Manchester United Limited.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
22 Borrowings (continued)
The Group also has undrawn committed borrowing facilities of £125,000,000 (30 June 2016: £125,000,000; 30 September 2015: £125,000,000). The Group also has (subject to certain conditions) the ability to incur a further £25,000,000 by way of incremental facilities. The new facility terminates on 26 June 2021 (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 2016 or 2015.
As of 30 September 2016, the Group was in compliance with all covenants under its revolving facility, the secured term loan facility and the note purchase agreement governing the senior secured notes.
23 Deferred revenue
|
| 30 September |
| 30 June |
| 30 September |
|
Total |
| 231,962 |
| 227,743 |
| 208,551 |
|
Less non-current deferred revenue |
| (35,836 | ) | (38,899 | ) | (19,422 | ) |
Current deferred revenue |
| 196,126 |
| 188,844 |
| 189,129 |
|
Revenue from commercial, broadcasting and matchday activities received in advance of the period to which it relates is treated as deferred revenue. The deferred revenue is then released to revenue in accordance with the substance of the relevant agreements or, where applicable, as matches are played. The Group receives substantial amounts of deferred revenue prior to the previous financial year end which is then released to revenue throughout the current and, where applicable, future financial years.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
24 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:
|
| 30 September |
| 30 June |
| 30 September |
|
US deferred tax assets |
| (148,016 | ) | (145,460 | ) | (137,214 | ) |
UK deferred tax liabilities |
| 11,975 |
| 14,364 |
| 15,281 |
|
Net deferred tax asset |
| (136,041 | ) | (131,096 | ) | (121,933 | ) |
The movements in the net deferred tax asset are as follows:
|
| 30 September |
| 30 June |
| 30 September |
|
At the beginning of the period |
| (131,096 | ) | (116,329 | ) | (116,329 | ) |
(Credited)/expensed to income statement |
| (2,480 | ) | 4,074 |
| (304 | ) |
Credited to other comprehensive income |
| (2,465 | ) | (18,841 | ) | (5,300 | ) |
At the end of the period |
| (136,041 | ) | (131,096 | ) | (121,933 | ) |
25 Cash generated from operations
|
| Three months to |
| Three months to |
|
Profit before tax |
| 258 |
| 5,179 |
|
Depreciation |
| 2,412 |
| 2,494 |
|
Amortization |
| 30,805 |
| 22,147 |
|
(Profit)/loss on disposal of intangible assets |
| (8,205 | ) | 7,436 |
|
Net finance costs |
| 5,929 |
| 4,345 |
|
Loss on disposal of property, plant and equipment |
| — |
| 9 |
|
Equity-settled share-based payments |
| 457 |
| 375 |
|
Foreign exchange (gains)/losses on cash and cash equivalents recognized in operating activities |
| (4,090 | ) | 2,066 |
|
Fair value losses/(gains) on derivative financial instruments |
| 2,054 |
| (4,247 | ) |
Reclassified from hedging reserve |
| 766 |
| 342 |
|
Increase in inventories |
| (496 | ) | (1,360 | ) |
Decrease/(increase) in trade and other receivables |
| 39,447 |
| (10,166 | ) |
(Decrease)/increase in trade and other payables and deferred revenue |
| (5,554 | ) | 9,495 |
|
Cash generated from operations |
| 63,783 |
| 38,115 |
|
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
26 Contingencies
At 30 September 2016, the Group had no material contingent liabilities in respect of legal claims arising in the ordinary course of business. Contingent transfer fees are disclosed in note 27.3.
27 Commitments
27.1 Operating lease arrangements
The Group leases various premises and plant and equipment under non-cancellable operating lease agreements. The Group leases out its investment properties.
27.2 Capital commitments
At 30 September 2016 the Group had capital commitments amounting to £4.7 million (30 June 2016: £5.4 million; 30 September 2015: £5.5 million).
27.3 Transfer fees payable
Under the terms of certain contracts with other football clubs in respect of player transfers, additional amounts, in excess of the amounts included in the cost of players’ registrations, would be payable by the Group if certain substantive performance conditions are met. These excess amounts are only recognised within the cost of players’ registrations when the Company considers that it is probable that the condition related to the payment will be achieved. For MUFC appearances, the Company estimates the probability of the player achieving the contracted number of appearances. The conditions relating to the signing of a new contract and international appearances are only considered to be probable once they have been achieved. The maximum additional amounts that could be payable is £41,399,000 (30 June 2016: £41,582,000; 30 September 2015: £41,078,000).
At 30 September 2016 the potential amount payable by type of condition and category of player was:
Type of condition |
| First team squad |
| Other |
| Total |
|
MUFC appearances/new contract |
| 23,692 |
| 5,278 |
| 28,970 |
|
International appearances |
| 12,182 |
| 247 |
| 12,429 |
|
|
| 35,874 |
| 5,525 |
| 41,399 |
|
Similarly, under the terms of contracts with other football clubs for 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 30 September 2015, the amount of such receipt considered to be probable was £1.9 million (30 June 2016: £1.6 million; 30 September 2015: £3.0 million).
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
28 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 2014 where the total deficit on the ongoing valuation basis was £21.8 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 £437,000 per annum and, based on the actuarial valuation assumptions, will be sufficient to pay off the deficit by 28 February 2020. As of 30 September 2016, the present value of the Group’s outstanding contributions (i.e. its future liability) is £1,462,000. This amounts to £422,000 (30 June 2016: £420,000; 30 September 2015: £415,000) due within one year and £1,040,000 (30 June 2016: £1,146,000; 30 September 2015: £1,462,000) 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 income statement in the period in which they become payable.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
29 Financial risk management
29.1 Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and cash flow risk), credit risk, and liquidity risk. The Group uses derivative financial instruments to hedge certain exposures, and has designated certain derivatives as hedges of cash flows (cash flow hedge).
The interim consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended 30 June 2016, as filed with the Securities and Exchange Commission on 15 September 2016, 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.
29.2 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 income statement immediately. Amounts previously recognized in other comprehensive income and accumulated in the hedging reserve are subsequently reclassified into the income statement in the same accounting period, and within the same income statement 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 July 2016 to June 2021. The foreign exchange gains or losses arising on re-translation of the Group’s unhedged US dollar borrowings are recognized in the income statement immediately, within net finance costs. The table below details the net borrowings being hedged at the balance sheet date:
|
| 30 September |
| 30 June |
| 30 September |
|
USD borrowings |
| 650,000 |
| 650,000 |
| 650,000 |
|
USD cash |
| (112,400 | ) | (100,800 | ) | (141,400 | ) |
Net USD debt |
| 537,600 |
| 549,200 |
| 508,600 |
|
Hedged future USD revenues |
| (423,807 | ) | (394,690 | ) | (467,604 | ) |
Unhedged USD borrowings |
| 113,793 |
| 154,510 |
| 40,996 |
|
Closing USD exchange rate ($: £) |
| 1.2941 |
| 1.3332 |
| 1.5128 |
|
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
29 Financial risk management (continued)
29.2 Hedging activities (continued)
The Group hedges its cash flow interest rate risk where appropriate using interest rate swaps at contract lengths consistent with the repayment schedule of the borrowings. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. The following table details the interest rate swaps at the balance sheet date that are used to hedge borrowings:
|
| 30 September |
| 30 June |
| 30 September |
|
Principal value of loan outstanding ($’000) |
| 225,000 |
| 225,000 |
| 225,000 |
|
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 30 September 2016 the fair value of the above interest rate swaps was a liability of £8,773,000 (30 June 2016: £9,710,000; 30 September 2015: £4,084,000).
The Group also hedges the currency risk on certain contracted future expenses using available foreign currency cash balances and forward foreign exchange contracts.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
29 Financial risk management (continued)
29.2 Hedging activities (continued)
Details of movements on the hedging reserve are as follows:
|
| Future |
| Interest |
| Other |
| Total, |
| Tax |
| Total, |
|
Balance at 1 July 2015 |
| 7,383 |
| (111 | ) | — |
| 7,272 |
| (2,543 | ) | 4,729 |
|
Foreign exchange differences on hedged currency balances |
| (11,514 | ) | — |
| — |
| (11,514 | ) | 4,030 |
| (7,484 | ) |
Reclassified to income statement |
| 342 |
| — |
| — |
| 342 |
| (120 | ) | 222 |
|
Fair value movement |
| — |
| (3,973 | ) | — |
| (3,973 | ) | 1,390 |
| (2,583 | ) |
Movement recognized in other comprehensive income |
| (11,172 | ) | (3,973 | ) | — |
| (15,145 | ) | 5,300 |
| (9,845 | ) |
Balance at 30 September 2015 |
| (3,789 | ) | (4,084 | ) | — |
| (7,873 | ) | 2,757 |
| (5,116 | ) |
Foreign exchange differences on hedged currency balances |
| (38,294 | ) | — |
| — |
| (38,294 | ) | 13,403 |
| (24,891 | ) |
Reclassified to income statement |
| 1,040 |
| 2,665 |
| — |
| 3,705 |
| (1,297 | ) | 2,408 |
|
Fair value movement |
| — |
| (8,291 | ) | — |
| (8,291 | ) | 2,901 |
| (5,390 | ) |
Movement recognized in other comprehensive income |
| (37,254 | ) | (5,626 | ) | — |
| (42,880 | ) | 15,007 |
| (27,873 | ) |
Balance at 30 June 2016 |
| (41,043 | ) | (9,710 | ) | — |
| (50,753 | ) | 17,764 |
| (32,989 | ) |
Foreign exchange differences on hedged currency balances |
| (9,363 | ) | — |
| 311 |
| (9,052 | ) | 3,168 |
| (5,884 | ) |
Reclassified to income statement |
| 822 |
| 678 |
| (56 | ) | 1,444 |
| (505 | ) | 939 |
|
Fair value movement |
| — |
| 259 |
| 226 |
| 485 |
| (170 | ) | 315 |
|
Movement recognized in other comprehensive income |
| (8,541 | ) | 937 |
| 481 |
| (7,123 | ) | 2,493 |
| (4,630 | ) |
Balance at 30 September 2016 |
| (49,584 | ) | (8,773 | ) | 481 |
| (57,876 | ) | 20,257 |
| (37,619 | ) |
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
29 Financial risk management (continued)
29.3 Fair value estimation
The following table presents the financial instruments carried at fair value. The different levels used in measuring fair value have been defined as follows:
· Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
· Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);
· Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).
|
| 30 September |
| 30 June |
| 30 September |
|
Assets |
|
|
|
|
|
|
|
Derivative financial assets designated as cash flow hedges |
| 226 |
| — |
| — |
|
Derivative financial assets at fair value through profit or loss |
| 8,305 |
| 11,648 |
| 1,846 |
|
Liabilities |
|
|
|
|
|
|
|
Derivative financial liabilities designated as cash flow hedges |
| (8,773 | ) | (9,710 | ) | (4,084 | ) |
Derivative financial liabilities at fair value through profit or loss |
| (1,163 | ) | (3,727 | ) | (1,389 | ) |
|
| (1,405 | ) | (1,789 | ) | (3,627 | ) |
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is categorised as Level 2. All of the financial instruments detailed above are categorised as Level 2.
30 Related party transactions
The immediate parent undertaking of Manchester United plc is Red Football LLC, a company incorporated in the state of Delaware. The ultimate parent undertaking and controlling party is Red Football Limited Partnership, a limited partnership formed in the state of Nevada, United States of America whose general partner is Red Football General Partner, Inc., a corporation formed in the state of Nevada, United States of America. Red Football Limited Partnership and Red Football General Partner, Inc. are controlled by family trusts affiliated with the Glazer family.
Manchester United plc
Notes to the interim consolidated financial statements — unaudited (continued)
31 Subsidiaries
The following companies are the principal subsidiary undertakings of the Company as of 30 September 2016:
Subsidiaries |
| Principal activity |
| Issued share |
| Description of | |
Red Football Finance Limited* |
| Finance company |
| USD | 0.01 |
| 100% Ordinary |
Red Football Holdings Limited* |
| Holding company |
| GBP | 150,000,001 |
| 100% Ordinary |
Red Football Shareholder Limited |
| Holding company |
| GBP | 99 |
| 100% Ordinary |
Red Football Joint Venture Limited |
| Holding company |
| GBP | 99 |
| 100% Ordinary |
Red Football Limited |
| Holding company |
| GBP | 99 |
| 100% Ordinary |
Red Football Junior Limited |
| Holding company |
| GBP | 100 |
| 100% Ordinary |
Manchester United Limited |
| Commercial company |
| GBP | 26,519,248 |
| 100% Ordinary |
Alderley Urban Investments Limited |
| Property investment |
| GBP | 2 |
| 100% Ordinary |
Manchester United Commercial Enterprises (Ireland) Limited |
| Property investment |
| EUR | 13 |
| 100% Ordinary |
Manchester United Football Club Limited |
| Professional football club |
| GBP | 1,008,546 |
| 100% Ordinary |
Manchester United Interactive Limited |
| Media company |
| GBP | 10,000 |
| 100% Ordinary |
MU Commercial Holdings Limited |
| Holding company |
| GBP | 100 |
| 100% Ordinary |
MU Commercial Holdings Junior Limited |
| Holding company |
| GBP | 100 |
| 100% Ordinary |
MU Finance plc |
| Debt-holding company |
| GBP | 15,000,000 |
| 100% Ordinary |
MU RAML Limited |
| Retail and licensing company |
| GBP | 100 |
| 100% Ordinary |
MUTV Limited |
| Subscription TV channel |
| GBP | 2,400 |
| 100% Ordinary |
* 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 and Manchester United Commercial Enterprises (Ireland) Limited which was incorporated and operates in Ireland.