CHAIRMAN'S REPORT
The first six months of this year have been an extraordinary
period and I must pay tribute to the commitment of all our
staff during this challenging time. Our best ever start to
the Premiership has been overshadowed by our early exit from
the UEFA Champions League and disappointing recent form in
the Premiership. Despite a number of issues off the pitch,
we have remained focused on our business plan and produced a
strong set of half-year financial results.
Excellent financial performance
Total turnover was £92.4 million, marginally below last
year. Although there were eight fewer home games, television
media revenue from the UEFA Champions League largely offset
the lower match day revenue. Group operating profit which
excludes player trading was £25.9 million, up 27 per cent on
last year as a result of the change in revenue mix from
lower margin home games to higher margin media revenues.
Total wages were 41 per cent of turnover, compared with 43
per cent last year and are expected to remain below our
target of 50 per cent for the year. These higher operating
profits resulted in profit before tax increasing to £26.8
million (2003 £20.3 million). The effective tax rate on
these profits was 30.4% (2003 31%).
Change in revenue mix
The total revenues of £92.4 million (2003 £92.6 million)
consist of Match day revenues of £36.3 million (2003 £42.9
million), Media revenues of £33.4 million (2003 £26.9
million) and Commercial revenues of £22.7 million (2003
£22.8 million). In the first six months there were twelve
FAPL home games (2003 thirteen games), three UEFA Champions
League games (2003 five games) and no domestic cup games
(2003 five games).
Media revenues rose by 24 per cent as a result of increases
in the third and final year of the current FAPL domestic TV
contract and also the significant rise in the UEFA Champions
League English Media pool, which with Sky joining ITV in
covering all the games, has increased from 62 million Swiss
Francs to 87 million Swiss Francs. Manchester United’s share
was also higher as a result of both winning the Premiership
in 2002/3 (compared to third place in 2001/2) and there
being only three English teams competing (compared to four
in 2002/3).
Commercial revenue reflects the increase in the last year of
the current four-year Vodafone deal offset by the absence of
the one-off contractual revenues from Nike in 2002/3, the
first year of our new partnership.
Lower operating expenses
The total wage cost in the first six months was £37.7
million (2003 £39.7 million), a 5 per cent fall, reflecting
the impact of the summer player trading activity. Other
operating expenses have reduced by 16 per cent, mainly as a
result of the absence of revenue shares on domestic cup
games included in operating costs.
The amortisation charge in the first six months was £10.6
million (2003 £10.7 million) with the elimination of charges
for Veron being offset by new charges for the players
acquired in the summer. In the second half, amortisation
will be increased by the inclusion of amortisation on the
acquisition of Louis Saha although this will be partially
offset by a reduced charge for Ruud Van Nistelrooy following
his contract extension to June 2008.
Strong cash balance
Net cash at 31 January 2004 was £23.5 million (July 2003
£28.6 million). Strong operating cash flow of £19.6 million
and low capital expenditure in the first half were offset by
£12.9 million of net cash outflow on transfers (2003 £1.0
million inflow) and dividend and taxation payments. In
addition, £4.2 million was received following the exercise
of share options during the period. The net cash outflow on
transfers in the period is set out in note 13 to the interim
results.
Interim Dividend
In accordance with the policy set out in our results for the
year to 31 July 2003, we have, commencing this year, set the
interim dividend based on fifty per cent of the total basic
dividend for the previous year. As a result, an interim
dividend of 1.25 pence per share will be paid on 14 May 2004
(2003 0.67 pence).
Sir Roy Gardner, Manchester United PLC Chairman, continues
his review of the six months ending 31 January 2004. He
starts his Operational Review by discussing the new domestic
TV deals:
period and I must pay tribute to the commitment of all our
staff during this challenging time. Our best ever start to
the Premiership has been overshadowed by our early exit from
the UEFA Champions League and disappointing recent form in
the Premiership. Despite a number of issues off the pitch,
we have remained focused on our business plan and produced a
strong set of half-year financial results.
Excellent financial performance
Total turnover was £92.4 million, marginally below last
year. Although there were eight fewer home games, television
media revenue from the UEFA Champions League largely offset
the lower match day revenue. Group operating profit which
excludes player trading was £25.9 million, up 27 per cent on
last year as a result of the change in revenue mix from
lower margin home games to higher margin media revenues.
Total wages were 41 per cent of turnover, compared with 43
per cent last year and are expected to remain below our
target of 50 per cent for the year. These higher operating
profits resulted in profit before tax increasing to £26.8
million (2003 £20.3 million). The effective tax rate on
these profits was 30.4% (2003 31%).
Change in revenue mix
The total revenues of £92.4 million (2003 £92.6 million)
consist of Match day revenues of £36.3 million (2003 £42.9
million), Media revenues of £33.4 million (2003 £26.9
million) and Commercial revenues of £22.7 million (2003
£22.8 million). In the first six months there were twelve
FAPL home games (2003 thirteen games), three UEFA Champions
League games (2003 five games) and no domestic cup games
(2003 five games).
Media revenues rose by 24 per cent as a result of increases
in the third and final year of the current FAPL domestic TV
contract and also the significant rise in the UEFA Champions
League English Media pool, which with Sky joining ITV in
covering all the games, has increased from 62 million Swiss
Francs to 87 million Swiss Francs. Manchester United’s share
was also higher as a result of both winning the Premiership
in 2002/3 (compared to third place in 2001/2) and there
being only three English teams competing (compared to four
in 2002/3).
Commercial revenue reflects the increase in the last year of
the current four-year Vodafone deal offset by the absence of
the one-off contractual revenues from Nike in 2002/3, the
first year of our new partnership.
Lower operating expenses
The total wage cost in the first six months was £37.7
million (2003 £39.7 million), a 5 per cent fall, reflecting
the impact of the summer player trading activity. Other
operating expenses have reduced by 16 per cent, mainly as a
result of the absence of revenue shares on domestic cup
games included in operating costs.
The amortisation charge in the first six months was £10.6
million (2003 £10.7 million) with the elimination of charges
for Veron being offset by new charges for the players
acquired in the summer. In the second half, amortisation
will be increased by the inclusion of amortisation on the
acquisition of Louis Saha although this will be partially
offset by a reduced charge for Ruud Van Nistelrooy following
his contract extension to June 2008.
Strong cash balance
Net cash at 31 January 2004 was £23.5 million (July 2003
£28.6 million). Strong operating cash flow of £19.6 million
and low capital expenditure in the first half were offset by
£12.9 million of net cash outflow on transfers (2003 £1.0
million inflow) and dividend and taxation payments. In
addition, £4.2 million was received following the exercise
of share options during the period. The net cash outflow on
transfers in the period is set out in note 13 to the interim
results.
Interim Dividend
In accordance with the policy set out in our results for the
year to 31 July 2003, we have, commencing this year, set the
interim dividend based on fifty per cent of the total basic
dividend for the previous year. As a result, an interim
dividend of 1.25 pence per share will be paid on 14 May 2004
(2003 0.67 pence).
Sir Roy Gardner, Manchester United PLC Chairman, continues
his review of the six months ending 31 January 2004. He
starts his Operational Review by discussing the new domestic
TV deals:
On 8 August 2003 the FAPL announced the outcome of the new
media domestic contracts, for a total value of £1.3 billion
over three seasons commencing in 2004/5 in line with the
current contract. In a difficult media market we regard this
as a positive outcome for the Premiership. However, it will
clearly lead to a reduction in our domestic media revenues
next year of up to 15 per cent as a result of the increased
total number of games being shown live and the even phasing
of the contract payments over the next three years, which
contrasts to the rising contract values we enjoyed over the
last three years.
Vodafone Sponsorship
media domestic contracts, for a total value of £1.3 billion
over three seasons commencing in 2004/5 in line with the
current contract. In a difficult media market we regard this
as a positive outcome for the Premiership. However, it will
clearly lead to a reduction in our domestic media revenues
next year of up to 15 per cent as a result of the increased
total number of games being shown live and the even phasing
of the contract payments over the next three years, which
contrasts to the rising contract values we enjoyed over the
last three years.
Vodafone Sponsorship
On 1 December 2003, we announced our new four-year shirt
sponsorship deal with Vodafone, which commences in June
2004. This new £36 million deal is worth 20 per cent more
than the previous four-year deal, reflecting the success of
the partnership and the potential for further co-operation
in the future. We are jointly developing our mobile business
to launch new services from the beginning of the 2004/5
season.
Transfers Review
sponsorship deal with Vodafone, which commences in June
2004. This new £36 million deal is worth 20 per cent more
than the previous four-year deal, reflecting the success of
the partnership and the potential for further co-operation
in the future. We are jointly developing our mobile business
to launch new services from the beginning of the 2004/5
season.
Transfers Review
In January, certain transfers came under intense media
speculation. All our transactions are completed in
accordance with FIFA, FA and FAPL rules and are subject to
Board review and approval where appropriate. Nevertheless
the Board requested that Nick Humby, Group Finance Director,
carry out an internal review of recent transfers with a
view to recommending, if necessary, changes in our internal
procedures. The review is making good progress and we expect
to announce our conclusions before the end of the season.
Ferdinand’s Drug Test
speculation. All our transactions are completed in
accordance with FIFA, FA and FAPL rules and are subject to
Board review and approval where appropriate. Nevertheless
the Board requested that Nick Humby, Group Finance Director,
carry out an internal review of recent transfers with a
view to recommending, if necessary, changes in our internal
procedures. The review is making good progress and we expect
to announce our conclusions before the end of the season.
Ferdinand’s Drug Test
In September Rio Ferdinand missed a routine drugs test at
our Carrington training ground and was given an eight-month
ban, which has been upheld on appeal. The Club was
disappointed with this decision, but has decided to put this
very unfortunate incident behind us and look forward to his
return during the 2004/5 season. To prevent a recurrence of
this incident, which the player and Club regret, we have
refined our internal procedures and contributed to the FA’s
review of their procedures and disciplinary process.
Barthez Contract
our Carrington training ground and was given an eight-month
ban, which has been upheld on appeal. The Club was
disappointed with this decision, but has decided to put this
very unfortunate incident behind us and look forward to his
return during the 2004/5 season. To prevent a recurrence of
this incident, which the player and Club regret, we have
refined our internal procedures and contributed to the FA’s
review of their procedures and disciplinary process.
Barthez Contract
Manchester United has reached agreement with Fabien Barthez
to terminate his contract with the Club with effect from 30
June 2004. Barthez joined Manchester United in June 2000
from AS Monaco and was contracted to the Club until June
2006. As a result of this agreement, the second half results
will include a write-off of the un-amortised balance of the
original registration cost and compensation to the player on
termination. The total charge will be £5 million. Barthez
has been on loan to Olympique de Marseille since 1 January
2004.
Professor Sir Roland Smith
to terminate his contract with the Club with effect from 30
June 2004. Barthez joined Manchester United in June 2000
from AS Monaco and was contracted to the Club until June
2006. As a result of this agreement, the second half results
will include a write-off of the un-amortised balance of the
original registration cost and compensation to the player on
termination. The total charge will be £5 million. Barthez
has been on loan to Olympique de Marseille since 1 January
2004.
Professor Sir Roland Smith
It was with great sadness that we learned of the death of
Professor Sir Roland Smith, who passed away last
November. He was PLC Chairman from 1991 when the Club
floated on the Stock Exchange until his retirement in March
2002. Sir Roland was instrumental in shaping the Club
following flotation and one of the main driving forces
behind our success. The Board would like to publicly
reiterate its appreciation of his work.
The Outlook
Professor Sir Roland Smith, who passed away last
November. He was PLC Chairman from 1991 when the Club
floated on the Stock Exchange until his retirement in March
2002. Sir Roland was instrumental in shaping the Club
following flotation and one of the main driving forces
behind our success. The Board would like to publicly
reiterate its appreciation of his work.
The Outlook
Our four strategies for growing the business remain
unchanged.
unchanged.
The playing squad has been strengthened by the
acquisition of Louis Saha for £12.8 million from Fulham, the
contract extension for Ruud Van Nistelrooy and the pre-
contract agreement with Liam Miller who will join us from
Celtic in July. In addition, we were delighted to secure
the new rolling contract with our Manager, Sir Alex
Ferguson, in January. These commitments are critical to the
stability of our business and to maintaining the playing
success of our squad.
acquisition of Louis Saha for £12.8 million from Fulham, the
contract extension for Ruud Van Nistelrooy and the pre-
contract agreement with Liam Miller who will join us from
Celtic in July. In addition, we were delighted to secure
the new rolling contract with our Manager, Sir Alex
Ferguson, in January. These commitments are critical to the
stability of our business and to maintaining the playing
success of our squad.
The appointment of Andy Anson, as Commercial Director,
will strengthen the delivery of our brand based commercial
strategy, which was boosted in the period by the renewal of
the Vodafone sponsorship. In addition, the Nike partnership
continues to create value, as exhibited by the successful
launch of the black away and white third strips.
will strengthen the delivery of our brand based commercial
strategy, which was boosted in the period by the renewal of
the Vodafone sponsorship. In addition, the Nike partnership
continues to create value, as exhibited by the successful
launch of the black away and white third strips.
The development of our own media rights was enhanced by
the new deal with Getty Pictures to distribute exclusive
images from Old Trafford and by the increase in subscribers
to our broadband service mu.tv to 10,000 (4,500 at July
2003).
the new deal with Getty Pictures to distribute exclusive
images from Old Trafford and by the increase in subscribers
to our broadband service mu.tv to 10,000 (4,500 at July
2003).
In converting fans to customers we signed up 175,000 fans
to the new One United membership annual scheme and currently
provide over 100,000 fans with MU Finance services. In
addition, we are delighted to be able to return to the USA
in July 2004 for another 3 game tour.
Possible Stadium Expansion
to the new One United membership annual scheme and currently
provide over 100,000 fans with MU Finance services. In
addition, we are delighted to be able to return to the USA
in July 2004 for another 3 game tour.
Possible Stadium Expansion
Old Trafford continues to attract capacity crowds and we
have been looking at ways to provide access for more of our
fans. We are today outlining plans, subject to planning
permission, technical development and Board approval, of
construction contracts to develop the North East and North
West Quadrants of the stadium. This will not only increase
the overall capacity of the stadium to 75,000, but also
increase the range and quantity of the hospitality and
executive facilities (adding an estimated 3,000 square
metres of hospitality capacity) for use on match days and
non match days. If it proceeds, this project will cost up
to £45 million and take two years to complete. The earliest
that the new facilities are likely to be available is for
the 2006/7 season, but we do not anticipate any disruption
to the current capacity during this time.
Offer Period
have been looking at ways to provide access for more of our
fans. We are today outlining plans, subject to planning
permission, technical development and Board approval, of
construction contracts to develop the North East and North
West Quadrants of the stadium. This will not only increase
the overall capacity of the stadium to 75,000, but also
increase the range and quantity of the hospitality and
executive facilities (adding an estimated 3,000 square
metres of hospitality capacity) for use on match days and
non match days. If it proceeds, this project will cost up
to £45 million and take two years to complete. The earliest
that the new facilities are likely to be available is for
the 2006/7 season, but we do not anticipate any disruption
to the current capacity during this time.
Offer Period
Both Cubic Expression Company Limited (“Cubic”) and the
Malcolm I Glazer Family Limited Partnership (“Glazer”) have
recently increased their shareholdings in the Company. As
at 29 March 2004, Cubic held 28.89% and Glazer held 16.69%
of the issued share capital of the Company. Glazer released
an announcement on 16 February 2004 that put the Company
into an “offer period” as defined in the City Code on
Takeovers and Mergers. I wrote to shareholders on this
matter on 17 February 2004. The Board can confirm that, as
at 29 March 2004, it had not received any approach by either
of these major shareholders or indeed from any other party
regarding a possible takeover offer for the Company.
We are committed to maintaining constructive relationships
with all our shareholders and will continue to respond to
any concerns or issues that may arise.
Building on our success to date, and with the continued
support from our manager, players, staff and business
partners alike, the Board and I remain confident that
Manchester United remains on track to continue delivering
strong performance both on and off the field.
Malcolm I Glazer Family Limited Partnership (“Glazer”) have
recently increased their shareholdings in the Company. As
at 29 March 2004, Cubic held 28.89% and Glazer held 16.69%
of the issued share capital of the Company. Glazer released
an announcement on 16 February 2004 that put the Company
into an “offer period” as defined in the City Code on
Takeovers and Mergers. I wrote to shareholders on this
matter on 17 February 2004. The Board can confirm that, as
at 29 March 2004, it had not received any approach by either
of these major shareholders or indeed from any other party
regarding a possible takeover offer for the Company.
We are committed to maintaining constructive relationships
with all our shareholders and will continue to respond to
any concerns or issues that may arise.
Building on our success to date, and with the continued
support from our manager, players, staff and business
partners alike, the Board and I remain confident that
Manchester United remains on track to continue delivering
strong performance both on and off the field.