Borussia Dortmund: Q4 Success, But At A Price
Edison | Jul 16, 2015 01:32AM ET
Costs!
Higher than expected costs for Borussia Dortmund GmbH & Co KGaA (XETRA:BVB), driven by H2 on-field recovery, suggest that our forecast of broadly maintained pre-transfer EBITDA in the year just ended may now be met only thanks to a Champions League revenue loss insurance claim (our estimate €10m), for which we had not previously accounted. However, we are encouraged by continuing top-line buoyancy and the prospect of underlying profit resilience in FY16 despite no Champions League. Initial reaction to new coach Thomas Tuchel seems very positive, eg key players Gündogan and Hummels deciding to stay.
Q4: Success at a price
Although Dortmund ended the year on a strong note with Europa League qualification and progress to the German Cup Final, we now envisage a c 11% increase in labour and operating costs in the quarter to June, which threatens a marked reduction in like-for-like pre-transfer EBITDA, our key metric, ie €4m against €13m in Q414. As evident in Exhibit 1, this is at odds with preceding quarters and thus attributed by management to pressures associated with key player retention and variable expenses associated with progress to the Cup Final, eg player bonuses, advertising agency commissions, administration and match operations. In mitigation, there should be the unexpected benefit (our estimate €10m) of a “negative outcome” insurance claim to recover income lost by failing to qualify for the Champions League for the first time since 2010. Consequently, full year headline pre-transfer EBITDA may slightly exceed FY14.
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