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Manchester United(MANU) - 2022 Q2 - Quarterly Report

Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial performance, highlighting revenue recovery, operating expense changes, liquidity, debt, and cash flows General Information and COVID-19 Impact Manchester United saw significant revenue recovery in 2021/22 due to fans returning to full-capacity stadiums, despite some match postponements from the Omicron variant - The company has developed a leading global sports brand with a community of 1.1 billion fans and followers, attracting major global sponsors like adidas, TeamViewer, and Tezos5 - For the 2021/22 season, Old Trafford stadium welcomed back fans at full capacity, a significant change from the prior period where matches were played behind closed doors6 - The Omicron variant surge in December 2021 resulted in the postponement of two Premier League matches (one home, one away)6 Results of Operations The company's results for the three and six months ended December 31, 2021, show Matchday revenue recovery, offset by lower Broadcasting revenue and increased operating expenses Three months ended 31 December 2021 Total revenue for the three months ended December 31, 2021, grew 7.3% to £185.4 million, driven by Matchday revenue, offset by lower Broadcasting revenue and increased operating expenses Financial Performance for the Three Months Ended Dec 31 | Metric | 2021 (£ millions) | 2020 (£ millions) | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | 185.4 | 172.8 | 7.3% | | Commercial revenue | 64.4 | 62.6 | 2.9% | | Broadcasting revenue | 86.4 | 108.7 | (20.5)% | | Matchday revenue | 34.6 | 1.5 | 2,206.7% | | Total operating expenses | (179.7) | (138.6) | 29.7% | | Employee benefit expenses | (97.7) | (81.7) | 19.6% | - Matchday revenue surged by £33.1 million (2,206.7%) as all eight home games were played in front of a full capacity crowd, whereas all ten home games in the prior year quarter were behind closed doors13 - Employee benefit expenses increased by 19.6% to £97.7 million due to investment in the first team playing squad14 - Exceptional items of £10.0 million were recorded, which included compensation to the former men's first team manager and coaching staff for loss of office16 Six months ended 31 December 2021 Total revenue for the six months ended December 31, 2021, increased 10.7% to £311.9 million, driven by Matchday revenue, offset by lower Broadcasting revenue and higher operating expenses Financial Performance for the Six Months Ended Dec 31 | Metric | 2021 (£ millions) | 2020 (£ millions) | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | 311.9 | 281.8 | 10.7% | | Commercial revenue | 128.8 | 122.3 | 5.3% | | Broadcasting revenue | 129.7 | 156.3 | (17.0)% | | Matchday revenue | 53.4 | 3.2 | 1,568.8% | | Total operating expenses | (333.8) | (262.1) | 27.4% | | Employee benefit expenses | (186.2) | (153.6) | 21.2% | - Matchday revenue increased by £50.2 million (1,568.8%) as all thirteen home games were played in front of a full capacity crowd, compared to all fifteen home games being played behind closed doors in the prior year period24 - Broadcasting revenue decreased by 17.0% primarily due to playing nine fewer home and away games across all competitions, following the completion of the 2019/20 season competitions in the prior year period23 - Employee benefit expenses increased by 21.2% to £186.2 million due to investment in the first team playing squad26 Liquidity and Capital Resources The company's liquidity is supported by operating cash flow, player sales, and borrowing facilities, with £87.4 million cash and £100 million undrawn facilities, covering key requirements - Primary cash requirements stem from player transfer fees, capital expenditure, interest payments, employee expenses, and dividends32 - As of December 31, 2021, the company had cash resources of £87.4 million and access to £100 million in undrawn revolving facilities33 - A semi-annual cash dividend of $0.09 per share was paid on January 7, 202234 Cash Flow For the six months ended December 31, 2021, net cash inflow from operating activities decreased, with investing activities resulting in an outflow and financing activities providing an inflow Summary of Cash Flows for the Six Months Ended Dec 31 | Cash Flow Activity | 2021 (£ millions) | 2020 (£ millions) | | :--- | :--- | :--- | | Net cash inflow from operating activities | 32.1 | 61.3 | | Net cash outflow from investing activities | (83.4) | (90.7) | | Net cash inflow from financing activities | 28.4 | 59.2 | | Net (decrease)/increase in cash | (22.9) | 29.8 | - Net capital expenditure on intangible assets (primarily player registrations) was £77.9 million for the six-month period, a decrease from £86.6 million in the prior year44 - Financing activities included a £40.0 million drawdown on revolving facilities and a dividend payment, compared to a £60.0 million drawdown in the prior year45 Indebtedness The company's principal debt includes $425 million senior secured notes, a $225 million term loan, and £100 million drawn revolving facilities, with all debt covenants met Principal Indebtedness as of Dec 31, 2021 | Instrument | Outstanding Principal | Maturity Date | | :--- | :--- | :--- | | Senior Secured Notes | $425.0 million | June 25, 2027 | | Secured Term Loan Facility | $225.0 million | August 6, 2029 | | Revolving Facilities (Drawn) | £100.0 million | April/July 2025 | - The company was in compliance with its consolidated EBITDA covenant of not less than £65 million as of December 31, 20214853 Off Balance Sheet Arrangements & Contractual Obligations The company's off-balance sheet arrangements include £122.4 million in contingent transfer fees and £989.0 million in total contractual cash flow obligations as of December 31, 2021 - The maximum additional amount payable for contingent transfer fees was £122.4 million as of December 31, 202160 Summary of Contractual Obligations as of Dec 31, 2021 | Obligation Type | Total Contractual Cash Flows (£'000) | | :--- | :--- | | Debt obligations | 674,612 | | Lease obligations | 5,639 | | Purchase obligations | 308,778 | | Total | 989,029 | Interim Consolidated Financial Statements This section presents the interim consolidated financial statements, including profit/loss, comprehensive income, balance sheet, changes in equity, cash flows, and detailed notes Interim Consolidated Statement of Profit or Loss For the six months ended December 31, 2021, the company reported a net loss of £16.9 million, primarily due to increased operating expenses and unfavorable net finance costs Profit or Loss Summary for the Six Months Ended Dec 31 | Metric | 2021 (£'000) | 2020 (£'000) | | :--- | :--- | :--- | | Revenue | 311,901 | 281,822 | | Operating profit/(loss) | (4,761) | 21,373 | | Net finance (costs)/income | (17,126) | 19,723 | | (Loss)/profit for the period | (16,941) | 33,558 | | Basic (loss)/earnings per share (pence) | (10.39) | 20.60 | Interim Consolidated Statement of Comprehensive Income For the six months ended December 31, 2021, the company reported a total comprehensive loss of £16.1 million, including a net loss of £16.9 million, partially offset by other comprehensive income Comprehensive Income Summary for the Six Months Ended Dec 31 | Metric | 2021 (£'000) | 2020 (£'000) | | :--- | :--- | :--- | | (Loss)/profit for the period | (16,941) | 33,558 | | Other comprehensive income, net of tax | 875 | 19,036 | | Total comprehensive (loss)/income | (16,066) | 52,594 | Interim Consolidated Balance Sheet As of December 31, 2021, total assets were £1,365.9 million, with £812.3 million in intangible assets and £87.4 million cash, while total liabilities reached £1,119.1 million Key Balance Sheet Items | Metric | 31 Dec 2021 (£'000) | 30 June 2021 (£'000) | | :--- | :--- | :--- | | Total Assets | 1,365,858 | 1,260,310 | | Intangible Assets | 812,252 | 754,467 | | Cash and cash equivalents | 87,434 | 110,658 | | Total Liabilities | 1,119,113 | 987,798 | | Borrowings (Total) | 582,237 | 530,236 | | Total Equity | 246,745 | 272,512 | Interim Consolidated Statement of Changes in Equity Total equity decreased by £25.8 million from June 30, 2021, to December 31, 2021, primarily due to the £16.9 million net loss and £10.7 million in dividends paid - Total equity decreased by £25.8 million during the six-month period, from £272.5 million to £246.7 million76 - The main contributors to the decrease in equity were the net loss for the period (£16.9 million) and dividends paid (£10.7 million)76 Interim Consolidated Statement of Cash Flows For the six months ended December 31, 2021, the company reported a net decrease in cash of £22.9 million, with operating inflow offset by investing outflow and financing inflow Cash Flow Summary for the Six Months Ended Dec 31 | Metric | 2021 (£'000) | 2020 (£'000) | | :--- | :--- | :--- | | Net cash inflow from operating activities | 32,069 | 61,271 | | Net cash outflow from investing activities | (83,402) | (90,690) | | Net cash inflow from financing activities | 28,483 | 59,180 | | Net (decrease)/increase in cash | (22,850) | 29,761 | Notes to the Interim Consolidated Financial Statements The notes detail accounting policies, revenue disaggregation, exceptional items, intangible assets, borrowings, debt covenants, and significant contingent liabilities Basis of Preparation and Accounting Policies (Notes 2 & 3) The interim financial statements are prepared on a going concern basis, supported by £87.4 million cash and £100 million undrawn revolving facilities - The financial statements are prepared on a going concern basis, with management concluding the Group can meet its obligations for at least 12 months following the report date8386 - As of December 31, 2021, the Group had cash resources of £87.4 million and access to £100 million in undrawn revolving facilities84 Revenue from Contracts with Customers (Note 6) Revenue is disaggregated into Commercial, Broadcasting, and Matchday streams, with Broadcasting being the largest contributor at £129.8 million for the six months ended December 31, 2021 Revenue by Component for the Six Months Ended Dec 31 | Revenue Stream | 2021 (£'000) | 2020 (£'000) | | :--- | :--- | :--- | | Commercial | 128,773 | 122,314 | | Broadcasting | 129,755 | 156,302 | | Matchday | 53,373 | 3,206 | | Total | 311,901 | 281,822 | Exceptional Items (Note 8) Exceptional items totaled £10.0 million, primarily comprising £9.1 million in compensation for a former manager and £0.9 million for a pension scheme deficit - A £9.1 million charge was recorded for compensation paid to a former men's first team manager and coaching staff for loss of office113 - An additional £0.9 million was charged related to a deficit in the Football League pension scheme, based on the latest actuarial valuation113114 Intangible Assets (Note 17) As of December 31, 2021, intangible assets totaled £812.3 million, including goodwill and player registrations, with £144.3 million in additions and £72.5 million in amortization Intangible Assets Breakdown as of Dec 31, 2021 | Asset Type | Net Book Value (£'000) | | :--- | :--- | | Goodwill | 421,453 | | Registrations | 385,505 | | Other intangible assets | 5,294 | | Total | 812,252 | - Additions to player registrations in the six-month period amounted to £144.3 million144 Borrowings (Note 26) Total borrowings as of December 31, 2021, were £582.2 million, including senior secured notes, a term loan, and drawn revolving facilities, with all debt covenants met Borrowings Breakdown as of Dec 31, 2021 | Instrument | Amount (£'000) | | :--- | :--- | | Senior secured notes | 312,318 | | Secured term loan facility | 164,734 | | Revolving credit facilities | 100,000 | | Accrued interest | 5,185 | | Total | 582,237 | - The Group has £100 million in outstanding loans and £100 million in borrowing capacity under its revolving facilities177 Contingent Liabilities and Contingent Assets (Note 31) The company's contingent liabilities include £122.4 million in potential transfer fees and ongoing discussions with UK tax authorities regarding player-related tax matters - Maximum potential contingent transfer fees payable were £122.6 million, dependent on conditions such as player appearances, team success, and individual awards196197 - The Group is in active discussions with UK tax authorities over player-related tax matters, which represents a potential future liability199