| Financial risk management | 30 Financial risk management 30.1 Financial risk factors This note explains the Group’s exposure to financial risks and how those risks could affect the Group’s future financial performance. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures. The policy for each financial risk is described in more detail below. a) (i) Foreign exchange risk The Group is exposed to the following foreign exchange risks: ● Significant revenue received in Euros primarily as a result of participation in UEFA club competitions. During the year ended 30 June 2024 the Group recognized a total of €63.0 million of revenue denominated in Euros (2023: €32.9 million; 2022: €79.6 million). The Group ordinarily seeks to hedge the majority of the foreign exchange risk of this revenue either by using contracted future foreign exchange expenses (including player transfer fee commitments) or by placing forward contracts, at the point at which it becomes reasonably certain that it will receive the revenue. ● Significant amount of commercial revenue denominated in US dollars. During the year ended 30 June 2024 the Group recognized a total of $93.7 million of revenue denominated in US dollars (2023: $98.0 million; 2022: $106.1 million). The foreign exchange risk on these US dollar revenues is hedged to the extent possible (see Note 30.2 below). ● Risks arising from the US dollar denominated secured term loan facility and senior secured notes (see Note 25). At 30 June 2024 the secured term loan facility and senior secured notes included principal amounts of $650.0 million (2023: $650.0 million) denominated in US dollars. The foreign exchange risk on these US dollar borrowings (net of the Group’s US dollar cash balances) is hedged to the extent possible (see Note 30.2 below). Interest is paid on these borrowings in US dollars. Foreign exchange gains or losses arising on re-translation of our unhedged US dollar borrowings are recognized in the statement of profit or loss immediately and are subject to UK Corporation tax. From time to time, we may use foreign currency options to manage the unfavorable impact that foreign exchange volatility may have on our cash flows. ● Payments and receipts of transfer fees may also give rise to foreign exchange exposures. Due to the nature of player transfers the Group may not always be able to predict such cash flows until the transfer has taken place. Where possible and depending on the payment profile of transfer fees payable and receivable the Group will seek to hedge future payments and receipts at the point it becomes reasonably certain that the payments will be made or the income will be received. When hedging income to be received, the Group also takes account of the credit risk of the counterparty. ● Payments of operating expenses may also give rise to foreign exchange exposures. We seek to hedge future payments either by using future foreign exchange revenue or by placing forward contracts. It is the policy of the Group to enter into forward foreign exchange contracts to cover specific foreign exchange payments and receipts. The following table details the forward foreign exchange contracts outstanding at the reporting date: 2024 2023 Average Foreign Notional Fair Average Foreign Notional Fair exchange currency value value exchange currency value value rate €’000 £’000 £’000 rate €’000 £’000 £’000 Buy Euro 1.104 (187,803) (170,540) (8,506) 1.149 (170,817) (148,709) (2,112) 30 Financial risk management (continued) 30.1 Financial risk factors (continued) a) Market risk (continued) (i) Foreign exchange risk (continued) The Group also has a number of embedded foreign exchange derivatives in host Commercial revenue contracts and the agreement with Trawlers for a further purchase of our Class A ordinary shares by 31 December 2024. These are recognized separately in the financial statements at fair value since they are not closely related to the host contract. As of 30 June 2024, the fair value of such derivatives was an asset of £2,297,000 and a liability of £nil (2023: asset of £11,258,000 and liability of £64,000). Further, we are exposed to cash flow risk on fluctuations in foreign exchange rates. Foreign exchange gains or losses arising on re-translation of our unhedged US dollar borrowings are recognized in the statement of profit or loss immediately and are subject to UK Corporation tax. From time to time, we may use foreign currency options to manage the unfavorable impact foreign exchange volatility may have on our cash flows. The Group’s exposure to material foreign currency risk at the end of the reporting period, expressed in pounds sterling, was as follows: 2024 2023 Euro US Dollar Euro US Dollar £’000 £’000 £’000 £’000 Contract assets — 2,322 1,113 3,099 499 Trade receivables 18,992 4,208 8,801 3,730 Cash and cash equivalents 16,009 8,576 22,905 45,914 Derivative financial assets — 2,297 — 11,258 Trade and other payables (202,836) (460) (150,288) (3,057) Borrowings — (516,604) — (512,788) Derivative financial liabilities — — — (64) (165,513) (500,870) (115,483) (454,508) Sensitivity As shown in the table above, the Group is primarily exposed to changes in Euro/GBP and USD/GBP exchange rates. The sensitivity of equity and post-tax profit as at 30 June 2024 was as follows: ● if pounds sterling had strengthened by 10% against the Euro, with all other variables held constant, equity and post-tax profit for the year would have been £12.8 million higher (2023: £8.9 million higher ). ● if pounds sterling had weakened by 10% against the Euro, with all other variables held constant, equity and post-tax profit for the year would have been £15.6 million lower (2023: £10.9 million lower ). ● if pounds sterling had strengthened by 10% against the US dollar, with all other variables held constant, equity and post-tax profit for the year would have been £38.6 million higher (2023: £35.0 million higher ). ● if pounds sterling had weakened by 10% against the US dollar, with all other variables held constant, equity and post-tax profit for the year would have been £47.2 million lower (2023: £42.8 million lower ). 30 Financial risk management (continued) 30.1 Financial risk factors (continued) a) Market risk (continued) (ii) Cash flow and fair value interest rate risk The Group has no significant interest bearing assets other than cash on deposit which attracts interest at a small margin above UK base rates. The Group’s interest rate risk arises from its borrowings. Borrowings issued at variable interest rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group’s borrowings are denominated in US dollars and pounds sterling. Full details of the Group’s borrowings and associated interest rates can be found in Note 25. In the past, the Group has managed its cash flow interest rate risk where considered appropriate using interest rate swaps. Such interest rate swaps have the economic effect of converting a portion of variable rate borrowings from floating rates to fixed rates. The impact on equity and post-tax profit of a 1.0% shift in interest rates would not be material to any periods presented. As of 30 June 2024, the Group does not have any interest rate swaps in place. b) Credit risk is managed on a Group basis and arises from contract assets, trade receivables, other receivables, favorable derivative financial instruments, and cash and cash equivalents. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected provision for impairment for all trade receivables, other receivables and contract assets. To measure the expected credit losses, trade receivables, other receivables and contract assets have been grouped based on shared risk characteristics and the days past due. Contract assets relate to unbilled revenue and have substantially the same risk characteristics as the trade receivables for the same types of contracts. Gross trade receivables can be analysed by due date and whether or not impaired as follows: 2024 2023 £’000 £’000 Neither past due nor impaired 49,537 49,390 Past due, not impaired 15,392 4,080 Not past due, impaired 260 4,296 Past due, impaired 10,725 11,963 Gross trade receivables 75,914 69,729 A substantial majority of the Group’s Broadcasting revenue is derived from media contracts negotiated by the Premier League and UEFA with media distributors, and although the Premier League obtains guarantees to support certain of its media contracts, typically in the form of letters of credit issued by commercial banks, it remains the Group’s single largest credit exposure. The Group derives commercial and sponsorship revenue from certain corporate sponsors, including global, regional, mobile, media and supplier sponsors in respect of which the Group may manage its credit risk by seeking advance payments, instalments and/or bank guarantees where appropriate. The substantial majority of this revenue is derived from a limited number of sources. The Group is also exposed to other football clubs globally for the payment of transfer fees on players. Depending on the transaction, some of these fees are paid to the Group in instalments. The Group tries to manage its credit risk with respect to those clubs by requiring payments in advance or, in the case of payments on instalment, requiring bank guarantees on such payments in certain circumstances. However, the Group cannot ensure these efforts will eliminate its credit exposure to other clubs. A change in credit quality at one of the media broadcasters for the Premier League or UEFA, one of the Group’s sponsors or a club to whom the Group has sold a player can increase the risk that such counterparty is unable or unwilling to pay amounts owed to the Group. Derivative financial instruments and cash and cash equivalents are placed with counterparties with an investment grade Moody’s rating. 30 Financial risk management (continued) 30.1 Financial risk factors (continued) b) Credit risk (continued) Credit terms offered by the Group vary depending on the type of sale. For seasonal match day facilities and sponsorship contracts, payment is usually required in advance of the season to which the sale relates. For other sales the credit terms typically range from 14 - 30 days, although specific agreements may be negotiated in individual contracts with terms beyond 30 days. For player transfer activities, credit terms are determined on a contract by contract basis. Of the net total trade receivable balance of £64,929,000 (2023: £53,470,000), £59,845,000 (2023: £42,309,000) relates to amounts receivable from various other football clubs in relation to player trading. Management considers that, based on historical information about default rates, the current strength of relationships (a number of which are recurring long term relationships), and forward-looking information, the credit quality of trade receivables and other receivables that are neither past due nor impaired, and for contract assets, is good. Trade receivables that are past due but not impaired relate to independent customers for whom there is no recent history of default. Accordingly, the identified provision for impairment for these receivables was immaterial. The identified provision for impairment of trade receivables that are past due and impaired is 100%. The closing provision for impairment of trade receivables as of 30 June 2024 reconciles to the opening provision for impairment as follows: 2024 2023 £’000 £’000 Provision as of 1 July 16,259 12,240 Increase/(decrease) in provision recognized in profit or loss during the year 387 (72) Unused amount reversed – cash received (111) (535) Receivables written off during the year as uncollectible (1) (12,228) (127) Receivables offset against contract liabilities - deferred revenue 6,665 4,724 Foreign exchange gains on retranslation recognized in profit or loss during the year 13 29 Provision as of 30 June 10,985 16,259 (1) This balance includes receivables immediately written off as part of a contract variation signed with a commercial partner. Trade receivables and contact assets are written off when there is no reasonable expectation of recovery. The creation and release of provision for impaired receivables have been included in ‘other operating expenses’ in the statement of profit or loss. While other receivables, favorable derivative financial instruments, and cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified provision for impairment on these items was immaterial. c) The Group’s policy is to maintain a balance of continuity of funding and flexibility through the use of secured term loan facilities, senior secured notes and other borrowings as applicable. The annual cash flow is cyclical in nature with a significant portion of cash inflows ordinarily being received prior to the start of the playing season. Ultimate responsibility for liquidity risk management rests with the executive directors of Manchester United plc. The directors use management information tools including budgets and cash flow forecasts to constantly monitor and manage current and future liquidity. 30 Financial risk management (continued) 30.1 Financial risk factors (continued) c) Liquidity risk (continued) Cash flow forecasting is performed on a regular basis which includes rolling forecasts of the Group’s liquidity requirements to ensure that the Group has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants on any of its borrowing facilities. The Group’s borrowing facilities are described in Note 25. Financing facilities have been agreed at appropriate levels having regard to the Group’s operating cash flows and future development plans. Surplus cash held by the operating entities over and above that required for working capital management are invested by Group finance in interest bearing current accounts or money market deposits. As of 30 June 2024, the Group held cash and cash equivalents of £73,549,000 (2023: £76,019,000). The table below analyses the Group’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows including interest and therefore differs from the carrying amounts in the consolidated balance sheet. Less than 1 Between 1 Between 2 year and 2 years and 5 years Over 5 years £’000 £’000 £’000 £’000 Trade and other payables excluding social security and other taxes (1) 225,657 113,748 81,937 — Borrowings 57,665 27,665 567,432 — Lease liabilities 1,619 1,277 2,930 6,698 284,941 142,690 652,299 6,698 Non-trading derivative financial instruments (2) Cash outflow 2,622 2,916 2,969 — At 30 June 2024 287,563 145,606 655,268 6,698 Trade and other payables excluding social security and other taxes (1) 216,555 84,851 90,720 — Borrowings 121,835 24,883 394,092 190,177 Lease liabilities 1,965 1,142 2,839 7,700 340,355 110,876 487,651 197,877 Non-trading derivative financial instruments (2) Cash outflow 847 531 865 — Cash inflow (4,172) (18) (113) — At 30 June 2023 337,030 111,389 488,403 197,877 (1) Social security and other taxes are excluded from trade and other payables balance, as this analysis is required only for financial instruments. (2) Non-trading derivatives are included at their fair value at the reporting date. 30 Financial risk management (continued) 30.2 Hedging activities The Group uses derivative financial instruments to hedge certain exposures, and has designated certain derivatives as hedges of cash flows (cash flow hedge). The Group hedges the foreign exchange risk on contracted future US dollar revenues whenever possible using the Group’s US dollar net borrowings as the hedging instrument. The foreign exchange gains or losses arising on re-translation of the Group’s US dollar net borrowings used in the hedge are initially recognized in other comprehensive income, rather than being recognized in the statement of profit or loss immediately. Amounts previously recognized in other comprehensive income and accumulated in the hedging reserve are subsequently reclassified into the statement of profit or loss in the same accounting period, and within the same statement of profit or loss line (i.e. commercial revenue), as the underlying future US dollar revenues, which given the varying lengths of the commercial revenue contracts will be between July 2024 to June 2029. The foreign exchange gains or losses arising on re-translation of the Group’s unhedged US dollar borrowings are recognized in the statement of profit or loss immediately (within net finance income/costs). The table below details the net borrowings being hedged at the reporting date: 2024 2023 $’000 $’000 USD borrowings 650,000 650,000 Hedged USD cash (9,500) (57,500) Net USD debt 640,500 592,500 Hedged future USD revenues (172,500) (52,000) Unhedged USD borrowings (1) 468,000 540,500 Closing exchange rate 1.2643 1.2716 (1) A further portion of the profit and loss exposure (within net finance income/costs) on unhedged USD borrowings is naturally offset by the fair value of foreign exchange based embedded derivatives in host Commercial revenue contracts. The Group also ordinarily seeks to hedge the majority of the foreign exchange risk on revenue arising as a result of participation in UEFA club competitions, either by using contracted future foreign exchange expenses (including player transfer fee commitments) or by placing forward foreign exchange contracts, at the point at which it becomes reasonably certain that it will receive the revenue. The Group also seeks to hedge the foreign exchange risk on other contracted future foreign exchange expenses using available foreign exchange cash balances and forward foreign exchange contracts. 30 Financial risk management (continued) 30.2 Hedging activities (continued) Details of movements on the hedging reserve are as follows: Future US dollar Interest Total, Total, revenues rate swap Other before tax Tax after tax £’000 £’000 £’000 £’000 £’000 £’000 Balance at 1 July 2021 1,340 (5,121) (77) (3,858) (6,578) (10,436) Exchange differences on hedged foreign exchange risks (1,733) — 300 (1,433) — (1,433) Reclassified to profit or loss (770) — (228) (998) — (998) Change in fair value — 7,579 — 7,579 — 7,579 Tax relating to above — — — — (1,287) (1,287) Movement recognized in other comprehensive income (2,503) 7,579 72 5,148 (1,287) 3,861 Reclassified — — 7,525 7,525 — 7,525 Balance at 30 June 2022 (1,163) 2,458 7,520 8,815 (7,865) 950 Exchange differences on hedged foreign exchange risks 1,004 — 1,084 2,088 — 2,088 Reclassified to profit or loss 287 — (20) 267 — 267 Change in fair value — 1,715 — 1,715 — 1,715 Tax relating to above — — — — (1,018) (1,018) Movement recognized in other comprehensive income 1,291 1,715 1,064 4,070 (1,018) 3,052 Balance at 30 June 2023 128 4,173 8,584 12,885 (8,883) 4,002 Exchange differences on hedged foreign exchange risks (880) — (3,602) (4,482) — (4,482) Reclassified to profit or loss 332 — 1,654 1,986 — 1,986 Change in fair value — (4,173) — (4,173) — (4,173) Tax relating to above — — — — 1,667 1,667 Movement recognized in other comprehensive income (548) (4,173) (1,948) (6,669) 1,667 (5,002) Balance at 30 June 2024 (420) — 6,636 6,216 (7,216) (1,000) Based on exchange rates existing as of 30 June 2024, a 10% appreciation of the UK pounds sterling compared to the US dollar would have resulted in a credit to the hedging reserve in respect of future US dollar revenues of approximately £12,409,000 (2023: credit of £3,717,000) before tax. Conversely, a 10% depreciation of the UK pounds sterling compared to the US dollar would have resulted in a debit to the hedging reserve in respect of US dollar future revenues of approximately £15,166,000 (2023: debit of £4,543,000) before tax. Summary of hedging reserve The Group’s hedging reserve comprises of two separate hedging reserves, the cash flow hedge reserve and the cost of hedging reserve. Details of balances in each reserve (net of tax) are shown below. At 30 June 2024 At 30 June 2023 £’000 £’000 Cash flow hedge reserve (1,882) 2,815 Cost of hedging reserve 882 1,187 Total hedging reserve (1,000) 4,002 30 Financial risk management (continued) 30.3 Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to shareholders through the optimisation of the debt and equity balance. Capital is calculated as “equity” as shown in the balance sheet plus net debt. Net debt is calculated as total borrowings (including current and non-current borrowings as shown in the balance sheet) less cash and cash equivalents and is used by management in monitoring the net indebtedness of the Group. A reconciliation of net debt is shown in Note 27.2. As of 30 June 2024, the Group had total borrowings of £546.6 million (2023: £613.3 million). As described in Note 25 above, the Group’s revolving facilities, the secured term loan facility and the note purchase agreement governing the senior secured notes each contain certain covenants that restrict the activities of Red Football Limited and its subsidiaries. As of 30 June 2024, the Group was in compliance with all covenants under its revolving facilities, the secured term loan facility and the note purchase agreement governing the senior secured notes. |
