30 September 2003 MANCHESTER UNITED PLC Preliminary Results for the twelve months ended 31 July 2003 Highlights Group turnover up 18% to £173.0 million (2002: £146.1 million) – benefiting from additional games from cup successes, the new Nike partnership and hosting of Champions League Final Group operating profit before player amortisation and disposals and exceptionals up 45% to £50.0 million (2002: £34.5 million) Profit before tax increased by 22% to £39.3 million (2002: £32.3 million) –gains from player disposals down £4.5m from 2002 Earnings per share up 20% to 11.5p (2002 9.6p) Total basic dividend up 19% to 2.50p (2002: 2.10p) – the 12th consecutive year of progressively increased dividend Special dividend of 1.5p based on strong operating result and tax provision release (2002: 1.0p) Debt free balance sheet, net cash of £28.6 million (2002: £0.9 million net cash) Premiership champions for 8th year in 11. Progress into the quarter-finals of the UEFA Champions League for the seventh successive season – a record in Europe David Gill, Chief Executive, commented: “These results reflect the significant success that Manchester United has achieved both on and off the field. We have continued to leverage our global brand through our partnerships with Nike, Vodafone and our Platinum sponsors and to grow our knowledge of our fan base. Looking ahead, we will maintain our focus on achieving playing success while delivering continued strong performances from our commercial operations.” Enquiries: David Gill, Chief Executive Tel: 020 7251 3801 (on 30.09.03) Nick Humby, Group Finance Director Tel: 0161 868 8325 (thereafter) Paddy Harverson, Director of Communications Manchester United PLC James Murgatroyd Tel: 020 7251 3801 James Leviton Finsbury Chairman's Statement Strong Performance Over the past twelve months Manchester United has continued to deliver a strong performance both as a team and as a business. The successes have been achieved against a background of weak macro economic conditions and uncertain financial markets which have been amplified in the football industry as a whole by its high levels of debt and over-dependence on media revenues. Manchester United has differentiated itself through its results both on and off the pitch. Team Success The team emphatically answered its critics by remaining unbeaten in the Premiership from the start of 2003 to win the club’s 8th Premiership title in 11 years. The team reached the UEFA Champions League Quarter Finals for the seventh successive season - the best record of any team in Europe - before losing to Real Madrid in arguably the best tie in the competition. We also reached our first Worthington Cup Final in nine years. Our loyal fans have once again showed tremendous support for the team with sell out crowds at virtually every one of our 33 first team matches at Old Trafford. We appreciate the contribution that this support makes to our team’s and business success. Strengthening the Squad During the off-season we have been exceptionally active in making progress on one of our core strategic goals, to maintain the playing success of the team. The sales of David Beckham and Juan Sebastian Veron, the release of David May and Laurent Blanc at the end of their contracts and the acquisitions of Tim Howard, Eric Djemba Djemba, David Bellion, Kleberson and Cristiano Ronaldo, were all important steps. They have strengthened the playing squad and equipped the manager, Sir Alex Ferguson, with the players he needs to keep the club challenging for major trophies. These transfers have decreased the average age of the squad to 25 and have also reduced average player wages. I would like to express my appreciation of the contribution made by the players who have left, in particular David Beckham who has been with the club since he was 16 and played a key part in our successes over the last decade. Excellent Financial Results Our financial results have benefited from the additional games at Old Trafford (33 compared to 27 last season) as a result of cup successes, the start of the new Nike partnership, and strong contributions from the UEFA Champions League Final at Old Trafford and our pre-season tour to the USA. Group turnover of £173m was 18% up on the previous year. £8.5m (2002 £1.3m) was produced by our domestic cup runs, £27.6m (2002 £29.9m) from our participation in the UEFA Champions League, £4.7m from the USA tour and hosting the UEFA Champions League final. In addition, the first year of our new Nike contract is worth an additional £3.5m above the level guaranteed for the 2nd year onwards of £20.7m. Aside from these factors the underlying revenues excluding cup success were £128.7m, which was 12% up on a like for like basis on the previous year, as a result of the new Nike and Platinum sponsor contracts and higher UK TV revenues. The ratio of wages costs to turnover was 46% for the year, well within our target of 50% of turnover as a result of continued financial discipline and the strong cup performances. Absolute wages went up by £8.7m, a rise of 12%, reflecting the new contractual commitments made in the prior year and higher bonuses from our success. Group Operating Profit before Exceptionals, Player Trading and Amortisation was £50.0m, 45% above the previous year, benefiting from strong additional contributions from the new Nike partnership of £14.8m (compared to the previous arrangements), a total of £3.0m from the UEFA Champions League final and USA tour and the domestic cup games of £3.6m (2002 £1.1m). The UEFA Champions League games contributed 45% (2002 73%) of these profits. Player Trading Profits The Player Trading Profits were £12.9m (2002 £17.4m). The major element of this was £15.9m for David Beckham. This is calculated based on the unconditional proceeds of 25m Euro, less costs of the transaction and the discount paid to our bank to receive this sum on 2nd September 2003 as opposed to over the four years originally agreed with Real Madrid. This profit, together with additional receipts from Blackburn for the sale of Andrew Cole and Dwight Yorke, was offset by the provision for the loss on the sale of Veron to Chelsea of £4.5m. Increased Profit after Tax The Profit after tax was £29.8m (2002 £25.0m) with the underlying tax rate of 32.4 per cent being reduced by 8.8 percentage points as a result of the release of £3.4m provisions mainly in respect of a property transaction which took place in 1996. Strong cash generation The excellent financial results and continued discipline over costs and cash management have strengthened our balance sheet further. At the year-end we had cash and deposits of £28.6m. We spent £4.2m on capital projects, net of disposals, and £7.9m in net player acquisition during the year with additional commitments to spend up to £23.9m on the five players we have bought in this summer. The balance sheet includes debtors of £23.4m principally from the sales of Beckham (received on 2nd September) and Stam (due during the 2004/5 financial year), which together with a net £12m from the sale of Veron means we have total unconditional receipts of £35.4m over the next two years. Our cash generation will enable us to continue to strengthen the squad as necessary without the use of debt. We completed the sale of the Golden Tulip hotel investment and recorded a profit on disposal of £0.4m in the second half year. Further conditional payments could be received depending on the release of monies retained for potential warranty claims. Demanding Year for Our Staff The staging of 33 home Manchester United games, a FA cup semi-final, the UEFA Champions League Final, the Super League Grand Final and a Bon Jovi concert, made the year a demanding one for our staff. They have delivered each event with great skill and success. We are delighted to have introduced a new profit-sharing scheme for the staff with effect from this year, which enables them to share in the financial success that these extra games and events bring. OFT Decision Manchester United was disappointed that the Office of Fair Trading has decided that its limited involvement in the exchange of price information with Umbro for the short period of May to September 2000 had the object or effect of maintaining prices for replica shirts. The fine of £1.65 million has been fully provided for in these results as an exceptional item. Manchester United believes that there are strong grounds to appeal certain aspects of the OFT findings and therefore it has launched an appeal against these aspects to the Competition Appeal tribunal. Manchester United intends to make no further public comment on the matter until the completion of the appeal process. Board Changes Martin Edwards stepped down from the PLC Board on 29 November 2002 and as Chairman of the football club in May after a long association since 1970. We would like to repeat our thanks to Martin for his many contributions to the Club over the years. In addition, Peter Kenyon resigned as Chief Executive in September 2003 and the Board appointed David Gill, the Group Managing Director, as his replacement, with immediate effect. The Board would again like to record its thanks to Peter for his significant contribution to our success over the last 6 years. Improved Shareholder Returns The success of the Group over the last year has seen a significant re-rating of our shares which have risen over 80% since September last year. We continue to work to deliver value to our shareholders. The Board has recommended a final basic dividend of 1.83p per share, making a total basic dividend for the year of 2.5p per share, 19 per cent above last year. This is the 12th consecutive year of increased dividend. Last year we announced our policy to consider special dividends depending on the overall profitability of the Group. As a result the Board recommends a special dividend of 1.5p per share (2002 1.0p per share) based on the excellent operating result and the tax provision release referred to above, together with the strong cash position of the Group. No part of this dividend is dependent on this year’s player trading profits, since the Board intends that the cash generated from these sales will be reinvested in the playing squad, to help maintain the playing success. The Board has also decided that in future years any interim basic dividend will normally be 50% of the previous year’s total basic dividend. This split will more closely reflect the level of profits earned in the first half of each year. Strategy for Growth Our strategy for growth remains on course. The four main themes of this strategy are: - Maintaining the team’s playing success The changes to the squad seen in the summer have reduced the average age to 25 (27 last year) and provided the Manager with greater depth and more options for team selection. Our academy structure continues to produce young prospects who may have the potential to break through into the first team. Developing the value of media rights The recently announced outcome of the invitation to tender for domestic FA Premier League TV rights for the period 2004/05 to 2006/07 has removed some of the uncertainty over the value of the core media rights. However, we are continuing to look for ways to exploit additional and exclusive content by creating club products that compliment the core FAPL offering and distributing them through our own media channels, which include MU Interactive, MU Mobile and MU Pictures. Leveraging the global brand The relationship with Nike has taken our brand strategy forward significantly during the year with the launch of the new home shirt in 58 territories and over 2.5 million replica shirts (home, away and third strip) sold in the year. Over 40 per cent of the Nike Merchandising sales were generated outside the UK. The pre-season tour in the USA was very successful, building on our fan base there and our partner relationships. Over the four games 270,000 tickets were sold. Converting more fans to customers Our focus on improving our service to our fans and building our relationship with them remains a company-wide objective. The Customer Relationship Management system is now fully operational with 1.9 million fan records on the database, towards our target of 3.5 million fan records by the end of 2005. We continue to learn about our fans’ interests and develop products and services for them. The launch, in June, of our One United membership scheme led to 125,000 new members by 31 July 2003 compared to 87,000 members at the same time last year. In August we also launched the new Red Cinema concept in Salford Quays, near the Old Trafford stadium, as another new service for our fans. Outlook We started the 2003/04 season full of confidence after the four successful wins in the US against high quality opposition. Our victory over Arsenal in the Charity Shield was satisfying but was overshadowed by the tragic death the day before of our young player, Jimmy Davis, in a car accident. The manager and the players remain focused on maintaining the team’s success in the Premiership and progressing further in Europe. Our whole business is working hard to grow core revenues and profits. The close season player trading activity has ensured that the Group will maintain total wages costs below our target of 50 per cent of turnover. We expect wages for 2003/04, for the same level of success, to be no higher than in 2002/03. Manchester United has never been in a more robust financial position and the Board looks forward to the rest of the season with optimism about further playing success. That success, combined with our business development initiatives and the Group's financial strength, will enable the Group to continue to generate value for our shareholders. MANCHESTER UNITED PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 JULY 2003 2003 2002 Restated (note 1) Operations excluding player Player amortisation and amortisation trading and trading Total Total Notes £'000 £'000 £'000 £'000 Turnover: Group and share of joint 174,936 - 174,936 148,070 venture Less: share of joint venture (1,935) - (1,935) (2,008) Group turnover 2 173,001 - 173,001 146,062 Operating expenses – other 3 (123,015) (21,018) (144,033) (129,230) Operating expenses - exceptional costs 4 (2,197) - (2,197) (1,414) Total operating expenses (125,212) (21,018) (146,230) (130,644) * EBITDA 55,072 - 55,072 40,750 Depreciation (7,283) - (7,283) (7,685) Amortisation - (21,018) (21,018) (17,647) Group operating profit/(loss) 47,789 (21,018) 26,771 15,418 Share of operating loss in: - Joint venture (407) - (407) (501) - Associate (47) - (47) (3) Total operating profit: Group and 47,335 (21,018) 26,317 14,914 share of joint venture and associates Profit on disposal of associate 409 - 409 - Profit on disposal of players - 12,935 12,935 17,406 Profit/(loss) before interest and taxation 47,744 (8,083) 39,661 32,320 Net interest (payable)/receivable (316) 27 Profit on ordinary activities before taxation 39,345 32,347 Taxation 5 (9,564) (7,308) Profit for the year 29,781 25,039 Dividends 6 (10,391) (8,053) Retained profit for the year 19,390 16,986 Basic and diluted earnings per 7 11.5 9.6 share (pence) Basic and diluted adjusted 7 14.3 10.2 earnings per share (pence) * Earnings before interest, tax, depreciation and amortisation of intangible fixed assets. The results for both the current and prior period derive from continuing activities. There were no recognised gains and losses other than stated above and therefore no statement of recognised gains and losses has been presented. MANCHESTER UNITED PLC CONSOLIDATED BALANCE SHEET At 31 July 2003 2003 2002 Notes £'000 £'000 Fixed assets Intangible assets 8 55,299 82,209 Tangible assets 125,526 128,329 Loan to joint venture 1,000 1,000 Investment in associates 189 789 Investment in own shares 415 - 182,429 212,327 Current assets Stocks 208 196 Debtors – amounts falling due within one year 9 30,756 30,744 Debtors – amounts falling due after more than one year 9 13,219 1,535 Intangible asset held for resale 11,941 - Cash at bank and in hand 28,576 933 84,700 33,408 Creditors - amounts falling due within one year 10 (50,202) (53,459) Net current assets/(liabilities) 34,498 (20,051) Total assets less current liabilities 216,927 192,276 Creditors - amounts falling due after one year 11 (2,391) (688) Provision for liabilities and charges Deferred taxation (5,506) (5,247) Investment in joint venture: - Share of gross assets 375 391 - Share of gross liabilities (4,641) (3,812) (4,266) (3,421) Accruals and deferred income Deferred grant income (1,011) (1,194) Other deferred income (46,920) (44,283) Net assets 156,833 137,443 Capital and reserves Share capital 25,977 25,977 Other reserve 500 500 Profit and loss account 12 130,356 110,966 Equity Shareholders' funds 13 156,833 137,443 MANCHESTER UNITED PLC CONSOLIDATED CASHFLOW STATEMENT For the year ended 31 July 2003 2003 2002 Notes £'000 £'000 £'000 £’000 Net cash inflow from operating activities 57,939 42,807 Returns on investments and servicing of finance Interest received 316 521 Interest paid (167) (445) Net cash inflow from returns on investments and servicing of finance 149 76 Taxation paid (10,602) (9,433) Capital expenditure and financial investment Proceeds from disposal of players' registrations 11,122 13,006 Purchase of players' registrations (18,983) (25,089) Sale of tangible fixed assets 2,235 1,165 Purchase of tangible fixed assets (6,425) (15,088) Investment in own shares (623) - Net cash outflow from capital expenditure and financial investment (12,674) (26,006) Acquisitions and disposals Proceeds from sale of investment in associated company 962 - Net cash inflow from acquisitions and disposals 962 - Equity dividends paid (8,131) (5,274) Increase in cash in the year 14 27,643 2,170 Net cash generated from operating activities Operating profit 26,771 15,418 Depreciation charges 7,283 7,685 Amortisation of players' registrations 21,018 17,647 Amortisation of investment in own shares 208 - Profit on disposal of tangible fixed assets (691) (150) Grants released (183) (216) (Increase)/decrease in stocks (12) 2,013 (Increase)/decrease in debtors (5,357) 1,470 Increase/(decrease) in creditors and deferred income 8,902 (1,060) Net cash inflow from operating activities 57,939 42,807 MANCHESTER UNITED PLC NOTES 1 Accounting policies The principal accounting policies of the Group have remained unchanged from those set out in the 2002 Report and Accounts. Commercial turnover includes the minimum guarantee from Nike under the sponsorship and licencing st contract which commenced on 1 August 2002. Additional income receivable under the profit-sharing arrangements contained in the agreement will only be taken to profit once it is probable that it will not be recouped from future minimum guarantees. Profit and Loss account presentation The profit and loss account presentation has been changed from Format 1 (which analyses operating costs by function) to Format 2 (which analyses operating costs by type), both of which are permitted by the Companies Act 1985. In the opinion of the directors, Format 2 better reflects the nature of the Group’s operations following the transfer of its merchandising operations to Nike. Prior period comparatives have been reformatted with no change to operating profit. Restatement of operating expenses Professional fees incurred in 2002 relating to the OFT enquiry into the pricing of replica kit amounting to £550,000, previously disclosed in other operating expenses, have been re-classified as exceptional operating expenses as further costs, exceptional in nature and relating to this matter, have been incurred in 2003. 2 Turnover 2003 2002 £'000 £'000 Match day 70,593 56,253 Media 56,218 51,948 Commercial 46,190 37,861 173,001 146,062 3 Operating expenses - other 2003 2002 £'000 £'000 Restated Operations excluding player amortisation and trading: Staff costs 79,517 70,812 Depreciation 7,283 6,923 Operating lease costs - land and buildings 754 307 Other operating charges 36,118 33,410 Auditors' remuneration: audit services 60 55 Auditors' remuneration: non-audit services 157 442 Grants released (183) (216) Profit on disposal of tangible fixed assets (691) (150) 123,015 111,583 Player trading and amortisation: Amortisation of players' registrations 21,018 17,647 144,033 129,230 4 Operating expenses - exceptional costs 2003 2002 £'000 £'000 Restated OFT enquiry into price fixing of replica football kit 1,693 550 Share of deficit on Football League Pension and Life Assurance Scheme 504 - Restructuring of merchandising operations - 864 2,197 1,414 The charge of £1,693,000 (2002 £550,000) relating to the OFT enquiry comprises a fine of £1,652,000 (2002 £nil) and professional fees of £41,000 (2002 £550,000 previously disclosed in other operating charges). The charge of £864,000 relating to the restructuring of the merchandising operations in 2002 comprises accelerated depreciation charges charges on fixed assets of £762,000 and redundancy costs of £102,000. 5 Taxation 2003 2002 £'000 £'000 Corporation tax at 30% (2002 - 30%) on the profit for the year 12,753 11,950 Adjustment in respect of previous years (3,448) (3,500) Total current tax 9,305 8,450 Deferred taxation: origination and reversal of timing differences 51 (1,614) Adjustment in respect of previous years 208 472 Total deferred tax 259 (1,142) Tax on profit on ordinary activities 9,564 7,308 The tax rate for the year is lower than the standard rate of corporation tax in the UK (30%) mainly due to an adjustment in respect of previous years of £3,140,000 which arose Following the resolution of the tax treatment of a property transaction completed in 1996. 6 Dividends 2003 2002 £'000 £'000 Interim paid of 0.67 pence per share (2002 - 0.64 pence per share) 1,741 1,663 Proposed final of 1.83 pence per share (2002 - 1.46 pence per share) 4,754 3,792 Proposed special of 1.50 pence per share (2002 - 1.00 pence per share) 3,896 2,598 10,391 8,053 Shareholders are advised that the shares are expected to be marked ex-dividend on 8 October 2003 and the final and special dividends will be paid on 21 November 2003 to those registered on 10 October 2003. 7 Earnings per ordinary share The calculation of earnings per share is based on the profit for the year and the weighted average number of ordinary shares in issue for the year of 259,276,711 (2002 - 259,768,040). Share options outstanding at each year end have no dilutive effect on the stated earnings per share. An adjusted earnings per share figure has been calculated in addition to the earnings per share required by FRS 14, 'Earnings per Share' and is based on earnings excluding the effect of exceptional charges and player trading. It has been calculated to allow the shareholders to gain a clearer understanding of the trading performance of the Group. Details of the adjusted earnings per share are set out below: 2003 2002 Earnings Earnings Earnings Earnings after tax per after tax per share share £,000 p £,000 p Restated Basic and diluted earnings per share 29,781 11.5 25,039 9.6 Exceptional costs 1,538 0.6 1,218 0.5 Amortisation of players' registrations 14,713 5.7 12,353 4.8 Profit on disposal of players' registrations (9,055) (3.5) (12,184) (4.7) Adjusted earnings per share 36,977 14.3 26,426 10.2 8 Intangible fixed assets £'000 Cost of players' registrations At 1 August 2002 108,427 Additions 10,577 Disposals (2,257) Transfer to asset held for resale (27,448) At 31 July 2003 89,299 Amortisation of players' registrations At 1 August 2002 26,218 Charge for the year 21,018 Provision for loss on disposal 4,528 Disposals (2,257) Transfer to asset held for resale (15,507) At 31 July 2003 34,000 Net book value of players' registrations At 31 July 2003 55,299 At 31 July 2002 82,209 9 Debtors 2003 2002 £'000 £'000 Amounts falling due within one year Trade debtors 14,255 20,617 Other debtors 306 830 Prepayments and accrued income 16,195 9,297 30,756 30,744 Amounts falling due after more than one year Trade debtors 12,284 1,500 Other debtors 935 35 13,219 1,535 43,975 32,279 Trade debtors include transfer fees receivable from other football clubs of £23,398,000 (2002 - £17,185,000) of which £11,985,000 (2002 £1,500,000) is receivable after more than one year. 10 Creditors - amounts falling due within one year 2003 2002 £'000 £'000 Trade creditors 12,579 21,579 Corporation tax 8,516 9,813 Social security and other taxes 8,690 4,711 Other creditors - pensions 277 362 Accruals 11,490 10,604 Dividends proposed 8,650 6,390 50,202 53,459 Trade creditors include transfer fees payable to other football clubs of £6,069,000 (2002 - £13,631,000). 11 Creditors - Amounts falling due after more than one year 2003 2002 £'000 £'000 Trade creditors 1,500 - Other creditors - pensions 891 688 2,391 688 12 Profit and loss account 2003 2002 £'000 £'000 At 1 August 110,966 93,980 Profit for the year 19,390 16,986 At 31 July 130,356 110,966 13 Reconciliation of movements in equity shareholders' funds 2003 2002 £'000 £'000 Profit for the year 29,781 25,039 Dividends (10,391) (8,053) Net addition to shareholders' funds 19,390 16,986 Opening equity shareholders' funds 137,443 120,457 Closing equity shareholders' funds 156,833 137,443 14 Reconciliation of net cash inflow to movement in net funds 2003 2002 £'000 £'000 Increase in cash in the period 27,643 2,170 Opening net funds/(debt) 933 (1,237) Closing net funds 28,576 933 15 Analysis of changes in net funds At 1 August Cash At 31 July 2002 flows 2003 £'000 £'000 £'000 Cash at bank and in hand 933 27,643 28,576 16 Additional information a. The balance sheet at 31 July 2003 and the profit and loss account, cashflow statement and associated notes for the year then ended have been extracted from the Group's 2003 statutory financial statements upon which the auditors opinion is unqualified and does not include any statement under Section 237 of the Companies Act 1985. The figures for the year ended 31 July 2002 are extracted from the statutory accounts filed with the Registrar of Companies and which contained an unqualified audit report. The Group's full Report and Accounts for the year ended 31 July 2003 will be filed with the Registrar of Companies in due course. b. The Annual General Meeting is to be held in the Manchester Suite, North Stand, Old Trafford, Manchester, M16 0RA at 11 am on 14 November 2003. The full Report and Accounts will be posted to shareholders on 15 October 2003. c. This statement constitutes non statutory accounts within the meaning of Section 240 of the Companies Act 1985 and was approved by the Directors and agreed with the Company's auditors, PricewaterhouseCoopers LLP, on 30 September 2003.
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