Friday, May 28, 2010

Q3 Results - first thoughts and update post analysts' call

Edit post analysts call:
Not much new came out of United's call with analysts.  One point worth noting is that Edward Woodward reiterated the club's "guidance" (a term for a steer given to markets by a company on a particular subject) of net transfer spend of around £25m each financial year.

Up to 31st March this year, the reported net cash transfer spend is £32m.  Foster has since been sold (for around £4m) so the net number is now around £28m.  The "guidance" would suggest no more signings between now and the end of June.

From July, there is theoretically a lot of money available to Sir Alex, including the 2010/11 £25m budget and the Ronaldo money.  The club also has a further £75m credit facility available.  Add that lot up and you get firepower almost as massive as City's.

Of course moaning people like me think that a big chunk of that money will go off to pay some of the PIKS. Only time will tell.

The only other feature of the call was an unwillingness to be drawn on how renewals were going.  Quelle surprise.....

Links to Q3 results:

Figures here
Presentation here

New information from today's figures:

"Net finance charges for the three months ended 31 March 2010 were impacted by an exceptional £40.7 million loss on interest rate swaps related to our previous senior bank facilities. As disclosed in the bond Offering Memorandum, the swaps were linked to the previous bank facilities and the loss crystallised upon repayment of our bank loans."

So unwinding the swap cost £40.7m. The original estimate in the bond prospectus was £35m. The swap was only in place because of the bank debt the club previously had. Under the bank covenants, at least half the debt had to be "hedged". The club chose to hedge almost all of it, a bad mistake as rates fell sharply.

Other points:
Matchday
Turnover up £3.7m (4.6%) in the nine months vs. last year, all due to playing two more league home games during the period (but one fewer domestic cup game). Obviously we played two fewer home league games compared to the year before in the final three months. So matchday income for the year will be flattish.

Media
Turnover up £23.3m (26.7%) for the nine months. All due to the better CL deal that kicked in for the 2009/10 season.

Commercial
Nine months turnover up £6.1m (11.8%). This is the impact of the new platinum sponsors the London commercial office have been securing.

So robust revenue on the media and commercial side, stagnating matchday income.

Costs
Staff costs up £6.7m (7.6%) for the nine months - all related to pay rises.
Other costs up £0.6m (1.4%). Good cost control.

I take it from these numbers that the Glazers have not yet taken the £6m management fees for the year to which they are "entitled".

Interest
The last quarters to include interest charges for the old bank loans saw a net finance charge of £29.2m for the nine months (before adding the swap unwind cost mentioned above). That's an annualised £38.9m per annum, below the annual cost bond interest cost of £45m the club will now be paying.

Cash
Q3 is a cash negative quarter for the club and there was a working capital outflow of £18.5m (£52.3m for the nine months).
Net cash spend on players for the nine months was £32.4m. This covers the net spend since 30 June 2009 remember, so that includes Valencia, Obertan, Diouf, Smalling and probably "Chicharito" but excludes the Ronaldo sale.
The club spent £3.3m on the stadium during the nine months.
The net impact of the bond issue/bank debt repayment was a cash outflow of £16m for the nine months - issue costs etc.
£12.7m of the £40.7m of swap cancellation costs were paid out in cash during the quarter, the rest is still to come.

Balance sheet
With the cash outflows, cash on the balance sheet fell from £122.1m at 31st December to £95.9m at 31st March. The Ronaldo money is still safely tucked away. I believe it will be used to partially repay the PIKS. You can make up your own minds.
The gross debt is £520.9m, primarily the bonds. This does not include the PIKS (in RFJV) which will currently total c. £220m.

Initial summary
A well run football club, benefiting from better TV deals and new sponsorship deals. No growth in matchday income. Wage costs are still rising well above inflation.

Below the football club sit some very nasty financials. A £45m annual interest bill soaks up half the EBITDA, the £41m swap closure costs is half the Ronaldo proceeds on it's own. A totally pointless waste of money. Lurking, unseen in these figures, are the PIKS rising at 14.25% pa.

More later.....