Falling profits, rising hopes

Fresh from their latest footballing triumphs in Europe, Manchester United face an altogether tougher test on Tuesday when directors are due to unveil the first set of trading figures since the company gained a #1 billion stock market valuation.

Despite the recent euphoria over future prospects, the figures for the six months to the end of January are unlikely to make for cheerful reading as investors discover the true costs of holding on to star players such as Ryan Giggs, David Beckham and Roy Keane as well as a lucrative new contract for manager Sir Alex Ferguson. Increased wage bills, together with the rising cost of depreciating transfer values of players, are expected to see a sharp rise in expenses at a time when revenues will be trimmed as a result of the decision to withdraw from the English FA Cup.

The whole team will depreciate by #13 million over the next year, up from #8m last year, says brokers Merrill Lynch.

As a result, brokers are bracing themselves for news of a profits downturn from #12.8m to around the #11m mark, with a sharper fall expected to come in the closing months of the season.

Stockbrokers at Merrill Lynch, who are still fans of the shares, say that full year profits could tumble from #24.2m to as little as #13m on their most pessimistic assumptions, although the figure would be nearer #20m if the club go on to win both the English Premier League and the European Champions Cup.

Enthusiasts say this year's profit drop is a small price to pay if it means the club can continue at the forefront of European football and develop the world appeal of its brand.

As an indication, a new club store recently opened in Singapore and others are set to follow in Indonesia and Taiwan where a recent promotion with Coca-Cola led to 10 million contestants competing for the chance to visit Old Trafford.

The real impetus behind future growth, however, lies in the communication field where the club is poised to make still more cash from the battle for Premier League television rights.

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