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MANCHESTER UNITED

MATERIALS FOR DISCUSSION

MANCHESTER UNITED MATERIALS FOR DISCUSSION

Table of Contents

Executive Summary Consumer Industry Overview Company Considerations

Share price performance Recent Corporate Actions Operating Performance Valuation

Trade Idea

Table of Contents •   Executive Summary •   Consumer Industry Overview •   Company Considerations

EXECUTIVE SUMMARY

This presentation evaluates the consumer services industry in which Manchester United (“Man U”) operates

In this analysis, I have identified the fundamental drivers of the industry and company evaluate the intrinsic price of Man U’s shares using a fully integrated financial statements forecast model and discounted cash flow

valuation

I have observed the following key drivers with respect to the company’s operating performance:

 

MANU Is revalidated its brand through successful long term annuity deal with Chevrolet despite not

qualifying for the Champions League in FY15 Expect the commercial segment to generate over 50% of sales over the next five years

Man U has continued to improve its financial position through operational and financial improvements

 

Traditional revenue streams will be overtaken by commercial segment which includes sponsorships and marketing

Gearing ratios expected to decline annually from FY14-18E

Over the last 12months, the company’s share price has remained stable relative to its consumer brands competitors including Tumi, Hermes and Michael Kors

On a DCF basis, the company is intrinsically valued at $21,6 per share. Manchester United shares are currently trading on the New York Stock Exchange at a discount: $18,7 per share implying potential value upside of 16,1%

EXECUTIVE SUMMARY •   This presentation evaluates the consumer services industry in which Manchester United (“Man

CONSUMER INDUSTRY OVERVIEW

CONSUMER INDUSTRY OVERVIEW

Company Description

Manchester United is one of the most popular and successful sports teams in the world playing the most popular sport: football. The team was founded in 1878 and has a track record of success on the field which has led it to become a powerful brand with a global community of 659 million followers.

This significant global community provides Manchester United with a worldwide platform to generate significant revenue from multiple sources including:

Sponsorship

Merchandising,

Product licensing,

New media & mobile, broadcasting

Matchday

Company Description Manchester United is one of the most popular and successful sports teams in the

Man U - Competitive Landscape

High Growth Consumer Brands

Hermes

Under Armour

Lululemon

Michael Kors

Tumi

Man U - Competitive Landscape High Growth Consumer Brands •   Hermes •   Under Armour
Man U - Competitive Landscape High Growth Consumer Brands •   Hermes •   Under Armour

Sponsorship Strengths

Brand Ownership

Control of intellectual property and brand

Direct relationships with partners

Innovation of Rights

Broad sponsorship assets •New rights and platforms •Geographic segmentation to protect exclusivity

Data and Insights Driven Culture

Analytical framework •Independent data sources and verification

Fan data and segmentation, TV audience data, web analytics

Professional

Approach

Rigorous prospecting and research •Premium sales packs and presentations •Professional marketing support

Sponsorship Strengths Brand Ownership •   Control of intellectual property and brand •   Direct relationships

SWOT Analysis

Strengths

Weaknesses

Opportunities

Threats

Brand value – Chevrolet deal in FY 14 •Strong player base •650 m loyal fan base

Did not qualify for the Champions League •New manager •Poor playing performance •No Nike Deal renewal

Champions league qualification next season •Van Gaal •Secured new contract with Wayne Rooney

Brand value distraction •Social media strategy underperformance

SWOT Analysis Strengths Weaknesses Opportunities Threats •   Brand value – Chevrolet deal in FY 14

COMPANY

CONSIDERATIONS

COMPANY CONSIDERATIONS

Key Company Considerations

MANU Is revalidated its brand through successful long term annuity deal with Chevrolet

Expect the commercial segment to generate over 50% of sales over the next five years

Deleveraging: Man U continues to improve its capital structure

Social Media Strategy requires significant investment

Player wage growth inflation Nike deal not renewed

Key Company Considerations •   MANU Is revalidated its brand through successful long term annuity deal

Share Price Performance vs Competitors (Last 12 Months)

Share Price Performance vs Competitors (Last 12 Months)
Share Price Performance vs Competitors (Last 12 Months)
Share Price Performance vs Competitors (Last 12 Months)

Financial Forecasts

Sales is expected to rise y-o-y between FY14-18E from $432m to $640m owing to its strength in Man U’s commercial segment

Profitability margins are expected to improve from 17,0% to 22,7% in EBIT and expand to 14% in Net Income over the period due to eciency improvements

Sales & Growth (‘14-’18)

Sales Growth (%) 700 640 30% 27.4% 617.3 25% 600 533.4 20% 18.7% 500 15.7% 431.1
Sales
Growth (%)
700
640
30%
27.4%
617.3
25%
600
533.4
20%
18.7%
500
15.7%
431.1
15%
418.7
10%
400
5%
3.7%
300
0%
-2.9%
200
-5%
2014E
2015E
2016E
2017E
2018E

EBIT & Margin (‘14-’18)

EBIT Margin (%) 200 25% 22.7% 145.3 21.5% 132.7 150 20% 17.5% 17.0% 93.3 100 73.3
EBIT
Margin (%)
200
25%
22.7%
145.3
21.5%
132.7
150
20%
17.5%
17.0%
93.3
100
73.3
15%
44.0
10.5%
50
10%
0
5%
2014E
2015E
2016E
2017E
2018E
Profit & Margin (‘14-’18)
Profit
Margin (%)
90.9
100
15%
82.3
14%
13%
80
11%
10%
56.6
10%
60
43.1
40
6%
24.2
5%
20
0
0%
2014E
2015E
2016E
2017E
2018E
Financial Forecasts •   Sales is expected to rise y-o-y between FY14-18E from $432m to $640m

Key Financial Metrics - Gearing

Man U’s gearing

will continue to

reduce substantially over the forecast period from 1,97x to 0,65x

in net debt / EBITDA

 

Improving

financial

position

will

strengthen its debt capacity and

enhance

credit

risk

for any

expansionary initiatives in the near term

Net Debt / (Cash) - $M

319.2 258.2 248.4 209.3 133.5 2014E 2015E 2016E 2017E 2018E
319.2
258.2
248.4
209.3
133.5
2014E
2015E
2016E
2017E
2018E

Net Debt / EBITDA

2.22x 1.97x 1.60x 1.09x 0.65x 2014E 2015E 2016E 2017E 2018E
2.22x
1.97x
1.60x
1.09x
0.65x
2014E
2015E
2016E
2017E
2018E

Debt / Equity

77% 73% 66% 58% 51% 2014E 2015E 2016E 2017E 2018E
77%
73%
66%
58%
51%
2014E
2015E
2016E
2017E
2018E

Headline Operational Metrics

650 m loyal fan base (50% Asia-Pacific)

Company is growing total sales at 15.7% in FY17 and 3.7% in FY18

Commercial division is the fastest growing segment - will generate over 50% of total sales in FY15

Follower Base by Region Asia-Pacific Americas Europe MEA 26% 49% 14% 11%
Follower Base by Region
Asia-Pacific Americas
Europe
MEA
26%
49%
14%
11%

Revenue Breakdown by Division

Matchday Commercial Broadcas>ng 100% 28% 26% 28% 32% 32% 32% 33% 80% 60% 42% 37% 43%
Matchday
Commercial Broadcas>ng
100%
28%
26%
28%
32%
32%
32%
33%
80%
60%
42%
37%
43%
52%
51%
50%
49%
40%
20%
31%
30%
25%
22%
21%
18%
18%
0%
2012
2013
2014
2015E
2016E
2017E
2018E

Commercial Sales Development ($m)

300 250 269 200 221 185 150 153 100 118 103 50 0 2011 2012 2013
300
250
269
200
221
185
150
153
100
118
103
50
0
2011
2012
2013
2014
2015E
2016E
Headline Operational Metrics •   650 m loyal fan base (50% Asia-Pacific) •   Company is

Sponsorship Deal History

 

Announced Date

Term

Comments

Value

 

BSkyB and British Telecom Announced in July 2012

  • 2 years from 2014

70% higher than previous deal of £1.77B

£3.0B

 

GM Chevrolet Announced 7/30/12, for start of the 2014/15 season

  • 7 year term

Shirt Future Sponsor

£45m/year

 

AON Announced 5/24/09, for start of the 2010/11 season

  • 4 year term

Shirt Current Sponsor

£20m/year

Nike 13-year contract was

Renew the

Previous Kit Sponsor

£25M/year

signed in 2001

contract

Sponsorship Deal History Announced Date Term Comments Value BSkyB and British Telecom Announced in July 2012

TRADE IDEA

TRADE IDEA

Valuation Considerations

To evaluate the fundamental value of Manchester United’s shares, I have built a 5-year discounted cash flow forecast for FY14-18E, incorporating my key assumptions about the future potential of the company

Key assumptions used include:

WACC: 9,6% Long-term growth rate: 3,5% Net Debt Position as at 30 June 2013: $389m No. outstanding shares: 39m

On a DCF basis, the company is intrinsically valued at $21,6. Manchester United shares are currently trading on the New York Stock Exchange at a discount: $18,7 per share (upside of 16,1%)

This implies FY’15E EV/EBITDA multiple of 10,6x

Applying dierent assumptions for terminal growth and WACC our valuation ranges from $19,1-24,5

Terminal

Growth

(%)

WACC (%)

21,6
21,6
4,0% 5,0% 3,0% 2,0% 4,5% 3,5% 2,5%
4,0%
5,0%
3,0%
2,0%
4,5%
3,5%
2,5%
10,6% 10,1% 9,6% 8,6% 9,1%
10,6%
10,1%
9,6%
8,6%
9,1%
22,1 19,6 17,5 24,5 21,6 19,1 27,3 23,9 21,1 20,6 30,8 20,5 28,0 35,9 26,7 22,8
22,1
19,6
17,5
24,5
21,6
19,1
27,3
23,9
21,1
20,6
30,8
20,5
28,0
35,9
26,7
22,8
22,7
23,3
16,0
16,4
17,0
18,4
41,5
14,3
14,7
30,1
20,1
18,6
15,6
17,9
13,2
31,5
26,1
35,1
25,1
Valuation Considerations •   To evaluate the fundamental value of Manchester United’s shares, I have built

Discounted Cash Flow Analysis

Financial Year (Dec. Year end)

2013

2014

2015

2016

2017

2018

Terminal Period

Total Turnover

363

431

419

533

617

640

growth (%)

18,7%

-2,9%

27,4%

15,7%

3,7%

EBIT

62

73

44

93

133

145

margin (%)

17,1%

17,0%

10,5%

17,5%

21,5%

22,7%

Depreciation & Amortisation

119,0

88,5

72,6

61,8

58,9

59,9

Tax

(21,7)

(25,7)

(15,4)

(32,7)

(46,5)

(50,8)

Capital Expenditure

13,0

43,1

41,9

53,3

61,7

64,0

Capex/Sales (%)

-3,6%

-10,0%

-10,0%

-10,0%

-10,0%

-10,0%

Working Capital

0,0

(26,4)

0,5

(4,5)

(3,3)

(0,9)

Working Capital / Sales (%)

0,0%

6,1%

-0,1%

0,8%

0,5%

0,1%

Free Cash Flow

146,3

66,7

59,8

64,7

80,1

89,4

89,4

Discount Factor

0,91

0,83

0,76

0,69

0,63

0,63

Terminal Value

1 517

Present Value

60,82

49,78

49,15

55,54

56,54

959

Enterprise Value (m)

1 231

 

Net Debt as at (Dec 2013)

389

Market Capitalisation (m)

842

 

No. Shares (m)

39

Share Price ($)

21,6

 
Discounted Cash Flow Analysis Financial Year (Dec. Year end) 2013 2014 2015 2016 2017 2018 Terminal

APPENDIX

APPENDIX

Operating Assumptions

Sales

Actual

Actual

Actual

Forecast

Forecast

Forecast

Forecast

Forecast

 

Matchday

98,8

109,2

108,3

91,6

109,6

113,2

115,0

Commercial

117,5

152,5

185,8

216,8

273,7

309,1

315,0

Broadcasting

104

101,5

137,0

110,3

150,1

195,0

210,0

Total

320,3

363,2

431,1

418,7

533,4

617,3

640,0

 

13,4%

18,7%

-2,9%

27,4%

15,7%

3,7%

Divisional Revenue Split

Matchday

31%

30%

25%

22%

21%

18%

18%

Commercial

37%

42%

43%

52%

51%

50%

49%

Broadcasting

32%

28%

32%

26%

28%

32%

33%

Divisional Revenue Growth

Matchday

10,5%

-0,8%

-15,4%

19,7%

3,3%

1,6%

Commercial

29,8%

21,8%

16,7%

26,2%

12,9%

1,9%

Broadcasting

-2,4%

35,0%

-19,5%

36,1%

29,9%

7,7%

Operating Assumptions Sales Actual Actual Actual Forecast Forecast Forecast Forecast Forecast Matchday 98,8 109,2 108,3 91,6

Financial Assumptions

Manchester United

Hist.

Hist.

Hist.

Proj.

Proj.

Proj.

Proj.

Proj.

Financial Assumptions

30.06.2011

30.06.2012

30.06.2013

30.06.2014

30.06.2015

30.06.2016

30.06.2017

30.06.2018

Income statement

 

Sales growth

13,4%

       

10,0%

COGS as % of sales

0,0%

0,0%

0,0%

0,0%

0,0%

0,0%

0,0%

Annual depr. as % of previous PPE

48,0%

35,0%

35,0%

35,0%

35,0%

35,0%

SG&A as % of sales

0,0%

0,0%

0,0%

0,0%

0,0%

0,0%

0,0%

Amortization of other intangibles amount

0,0

0,0

0,0

0,0

0,0

0,0

0,0

Non-recurring items amount

0,0

0,0

0,0

0,0

0,0

0,0

0,0

Effective tax rate

35,0%

35,0%

35,0%

35,0%

35,0%

Shareholder info

 

Diluted weighted average shares outstanding

155,4

163,8

163,8

163,8

163,8

163,8

163,8

Dividend per share growth rate

(100,0%)

0,0%

0,0%

0,0%

0,0%

0,0%

Balance sheet: current assets

 
 

Accounts receivable as % of sales

23,2%

18,9%

18,9%

18,9%

18,9%

18,9%

18,9%

Inventories % of COGS

0,0%

0,0%

0,0%

0,0%

0,0%

Other current assets % of sales

0,3%

0,1%

0,0%

0,0%

0,0%

0,0%

0,0%

Balance sheet: non-current assets

 
 

Capital expenditures % of sales

0,0%

3,6%

10,0%

10,0%

10,0%

10,0%

10,0%

Other assets % of sales

5,4%

44,3%

44,3%

44,3%

44,3%

44,3%

44,3%

Balance sheet: liabilities

 

Accounts payable and accruals % of COGS

21,6%

15,0%

15,0%

15,0%

15,0%

15,0%

 
 

Other long-term liabilities % of sales

19,1%

15,5%

0,0%

0,0%

0,0%

0,0%

0,0%

Balance sheet: equity

end

Common stock amount

249,7

318,1

318,1

318,1

318,1

318,1

318,1

Share repurchases $ amount (show as positive)

0,0

0,0

0,0

0,0

0,0

Debt (£/$ amount)

 

Loans due for repayment

0,0

0,0

0,0

0,0

0,0

Other long-term debt repayment

0,0

0,0

0,0

0,0

0,0

Interest Rate (%)

 

Short term debt

3,00%

3,00%

3,00%

3,00%

3,00%

Loans due for repayment

2,00%

2,00%

2,00%

2,00%

2,00%

Other long-term debt repayment

0,00%

0,00%

0,00%

0,00%

0,00%

Cash

1,00%

1,00%

1,00%

1,00%

1,00%

Financial Assumptions Manchester United Hist. Hist. Hist. Proj. Proj. Proj. Proj. Proj. Financial Assumptions 30.06.2011 30.06.2012

Income Statement

Manchester United Hist. Hist. Hist Proj. Proj. Proj. Proj. Proj. Income Statement 30.06.2011 30.06.2012 30.06.2013 30.06.2014
Manchester United
Hist.
Hist.
Hist
Proj.
Proj.
Proj.
Proj.
Proj.
Income Statement
30.06.2011
30.06.2012
30.06.2013
30.06.2014
30.06.2015
30.06.2016
30.06.2017
30.06.2018

Net Sales

0,0

320,3

363,2

431,1

418,7

533,4

617,3

640,0

COGS

0,0

0,0

0,0

0,0

0,0

SG&A

(357,8)

(374,7)

(440,1)

(484,6)

(494,7)

EBIT

63,3

44,9

62,0

73,3

44,0

93,3

132,7

145,3

Depreciation

87,0

105,0

119,0

88,5

72,6

61,8

58,9

59,9

Amortization

0,0

0,0

0,0

0,0

0,0

EBITDA

161,8

116,6

155,2

191,6

205,2

Non-recurring items

0,0

0,0

0,0

0,0

0,0

Interest Income

0,8

0,9

1,2

1,5

2,1

Interest Expense

7,7

7,5

7,5

7,5

7,5

Profit before taxes

66,3

37,3

87,0

126,7

139,8

Taxes

3,3

23,2

13,1

30,5

44,3

48,9

Profit after tax

0,0

0,0

43,1

24,2

56,6

82,3

90,9

Net income

0,0

0,0

43,1

24,2

56,6

82,3

90,9

Shareholder information

Diluted weighted average shares outstanding

155,4

163,8

163,8

163,8

163,8

163,8

163,8

Diluted earnings per share

$0,00

$0,00

$0,26

$0,15

$0,35

$0,50

$0,55

Dividends per share

$0,06

$0,00

$0,00

$0,00

$0,00

$0,00

$0,00

Dividends

10,0

0,0

0,0

0,0

0,0

0,0

0,0

Income Statement Manchester United Hist. Hist. Hist Proj. Proj. Proj. Proj. Proj. Income Statement 30.06.2011 30.06.2012

Balance Sheet

Manchester United

Hist.

Hist.

Hist.

Proj.

Proj.

Proj.

Proj.

Proj.

Balance Sheet

30.06.2011

30.06.2012

30.06.2013

30.06.2014

30.06.2015

30.06.2016

30.06.2017

30.06.2018

Assets

Current assets

 

Cash and cash equivalents

70,6

94,4

58,3

119,3

129,1

168,2

244,0

Trade and other receivables

74,2

68,6

81,4

79,1

100,8

116,6

120,9

Current Tax receivables

2,5

0,0

0,0

0,0

0,0

0,0

0,0

Other current assets

1,0

0,3

0,0

0,0

0,0

0,0

0,0

Total current assets

148,2

163,3

139,8

198,4

229,9

284,8

364,9

Non-current assets

 
 

Net PP&E

247,9

252,8

207,4

176,7

168,2

171,1

175,2

Goodwill

421,5

421,5

421,5

421,5

421,5

421,5

421,5

Other intangibles

112,4

119,9

119,9

119,9

119,9

119,9

119,9

Other assets

17,2

160,8

190,9

185,4

236,1

273,3

283,3

Total assets

947,1

1 118,3

1 079,4

1 101,8

1 175,6

1 270,5

1 364,8

Liabilities

Current liabilities

 
 

Short term debt

15,6

11,8

0,0

0,0

0,0

0,0

0,0

Accounts payable and accruals

83,6

78,5

64,7

62,8

80,0

92,6

96,0

Accrued income taxes

128,5

146,3

146,3

146,3

146,3

146,3

146,3

Total current liabilities

227,8

236,5

211,0

209,1

226,3

238,9

242,3

Non-current liabilities

 
 

Total long-term debt

421,2

377,5

377,5

377,5

377,5

377,5

377,5

Other long-term liabilities

61,1

56,4

0,0

0,0

0,0

0,0

0,0

Equity

Total liabilities

710,1

670,4

588,4

586,6

603,8

616,4

619,8

Common stock

249,7

318,1

318,1

318,1

318,1

318,1

318,1

Retained earnings

(12,7)

129,8

172,9

197,2

253,8

336,1

426,9

Treasury stock

0,0

0,0

0,0

0,0

0,0

0,0

0,0

Total equity

237,0

448,0

491,0

515,3

571,9

654,2

745,0

Total Liab.& Equity

947,2

1 118,3

1 079,5

1 101,9

1 175,6

1 270,6

1 364,8

Balance?

OK

OK

OK

OK OK OK OK
OK
OK
OK
OK

Cash Flow Statement

Manchester United Hist. Hist. Hist. Proj. Proj. Proj. Proj. Proj. Cash Flow Statement 30.06.2011 30.06.2012 30.06.2013
Manchester United
Hist.
Hist.
Hist.
Proj.
Proj.
Proj.
Proj.
Proj.
Cash Flow Statement
30.06.2011 30.06.2012 30.06.2013 30.06.2014 30.06.2015 30.06.2016 30.06.2017 30.06.2018

Net Income

43,1

24,2

56,6

82,3

90,9

Depreciation

87,0

105,0

119,0

88,5

72,6

61,8

58,9

59,9

Amortisation

0,0

0,0

0,0

0,0

0,0

Change in OWC

(26,4)

0,5

(4,5)

(3,3)

(0,9)

Change in other assets

(30,1)

5,5

(50,8)

(37,1)

(10,0)

Change in other liabilities

(56,4)

0,0

0,0

0,0

0,0

Cash from Operating Activities

18,8

102,8

63,2

100,8

139,8

Capex

43,1

41,9

53,3

61,7

64,0

Cash from Investing Activities

-43,1

-41,9

-53,3

-61,7

-64,0

Change in Common Stock

0,0

0,0

0,0

0,0

0,0

Change in Treasury Stock

0,0

0,0

0,0

0,0

0,0

Dividends

0,0

0,0

0,0

0,0

0,0

Long Term Debt Repayment

0,0

0,0

0,0

0,0

0,0

Cash from Financing Activities

(0,0)

0,0

0,0

0,0

0,0

Net Cash Flow

(24,4)

61,0

9,8

39,1

75,8

Beginning Cash

82,7

58,3

119,3

129,1

168,2

Ending Cash

82,7

58,3

119,3

129,1

168,2

244,0

Cash Flow Statement Manchester United Hist. Hist. Hist. Proj. Proj. Proj. Proj. Proj. Cash Flow Statement

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