“We’re absolutely not satisfied”

Borussia Dortmund 11 June 2018 Update
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Borussia Dortmund

“We’re absolutely not satisfied”

Revised forecasts

Travel & leisure

11 June 2018

Price

€5.90

Market cap

€543m

Net cash (€m) at March 2018 including finance leases

42.5

Shares in issue

92.0m

Free float

60.1%

Code

BVB

Primary exchange

Frankfurt

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

6.5

(2.3)

(8.2)

Rel (local)

7.7

(5.5)

(8.6)

52-week high/low

€8.3

€4.9

Business description

The group operates Borussia Dortmund, a leading German football club, who were DFB Cup winners in 2016/17 and competed in this season’s UEFA Champions and Europa Leagues (Champions League quarter-finalists in 2016/17).

Next events

Edison Zürich roadshow

15 June 2018

International Champions Cup in US

20 – 25 July 2018

FY18 final results

Late August 2018

Analysts

Richard Finch

+44 (0)20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

Borussia Dortmund is a client of Edison Investment Research Limited

While uncertainty about a head coach and Champions League qualification has been satisfactorily resolved, there is no denying the challenge for Borussia Dortmund (BVB) in making a fresh start after its most difficult season since near-bankruptcy. Without pre-empting new coach Favre, who takes over in July, radical change in the squad make-up and size has already been indicated by management. Likely enhanced transfer activity should therefore support our FY19 EBITDA forecast despite lower pre-transfer income expectations (still up 11%) on greater clarity of Champions League payout. However, for the current year no such transfer offset is assumed (admittedly cautious), hence our 13% EBITDA downgrade.

Year end

Revenue* (€m)

EBITDA
(€m)

PBT**
(€m)

EPS**
(€)

DPS
(€)

EV/EBITDA
(x)

06/16

281.3

86.7

73.8

0.68

0.06

5.8

06/17

328.4

74.1

61.1

0.56

0.06

6.8

06/18e

315.0

117.0

100.0

0.92

0.06

4.3

06/19e

350.0

87.0

73.0

0.68

0.06

5.8

Note: *Before player transfer income **PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Q3: Tough going on and off the pitch

After the early Christmas gift of immediate wins under coach Stöger, the quarter to March saw renewed stability flatter to deceive, culminating in a bumpy Europa League run and a 6-0 “thrashing” by Bayern. This was reflected in flat pre-transfer revenue, despite two more home matches (eight against six). Broadcasting was redeemed by the new deal on domestic TV marketing, which made up for no Champions League and DFB Cup. While advertising was again encouraging (up 8%), marked by new Champion Partners, there was a further fall in merchandising (down 17%). By contrast, a resurgent EBITDA (€44.6m vs €0.7m) was testament to Dortmund’s sustained ability to generate high levels of transfer income (€73m, notably from the sale of Aubameyang to Arsenal).

Caution in order but likely salved by transfers

While squad rebuilding may well elicit transfer gains, we now highlight our lower operating expectations. As shown on page 2, there is a small cut in our pre-transfer revenue forecasts (5% this year and 7% next).This reflects the recent troubled season and for FY19e a better view of Champions League distribution after UEFA clarification. For the year just ending, this drives an EBITDA downgrade of €18m, assuming no material pre-year end dealings. However, for FY19e, as change is in the air, we are now more positive about transfer gains and labour costs (conceivably lower, for a change), hence our marginally raised EBITDA forecast.

Valuation: Fair

Caution apart, coach Favre’s record of player development (not least of Reus and Piszczek at Gladbach and Hertha respectively) and the availability of significant funds for reinvestment make for exciting opportunity. News of c 50,000 season ticket requests alone shows the enduring brand and financial strengths of BVB.

Revenue and profit analysis

Exhibit 1: Revenue and profit analysis

Year end June (€m)

H117

Q317

Q417

FY17

H118

Q318

Q418e

FY18e

FY19e

Home matches

Bundesliga

8

4

5

17

8

6

3

17

17

Champions League

3

1

1

5

3

-

-

3

4

Europa League

-

-

-

-

-

2

-

2

-

Domestic cups

2

1

-

3

1

-

-

1

2

Away matches:

Champions League

3

1

1

5

3

-

-

3

4

Europa League

-

-

-

-

-

2

-

2

-

Domestic cups

1

1

1+Final

3+Final

3

-

-

3

3

Revenue

Match operations:

Bundesliga

12.9e

6.3e

7.7e

27.0

13.1e

9.1e

4.8e

27.0

27.5

Champions League

5.7e

1.9e

1.9e

9.5

5.9e

-

-

5.9

8.0

Europa League

-

-

-

-

-

3.4e

-

3.4

-

Domestic cups

2.1e

1.2e

2.0e

5.3

1.7e

-

-

1.8

3.5

Other

1.6e

0.4e

0.2e

2.2

3.1e

0.3e

0.9e

4.3

2.5

Total

22.3

9.8

11.8

43.9

23.8

12.8

5.8

42.4

41.5

Broadcasting:

Bundesliga

32.5

16.2

17.4

66.1

43.4

21.6

23.0

88.0

92.0

Champions League

33.6

8.1

8.4

50.1

27.4

-

-

27.4

53.0

Europa League

0.9

-

-

0.9

-

2.9

-

2.9

-

Domestic cups

1.3

1.5

5.8

8.6

3.3

-

-

3.3

4.5

Total

68.3

25.8

31.7

125.8

74.1

24.5

23.0

121.6

149.5

Advertising

40.1

20.7

26.6

87.4

45.2

22.3

26.5

94.0

96.0

Merchandising

23.2

6.5

9.8

39.5

19.4

5.5

8.1

33.0

36.0

Catering/other

15.2

7.4

9.3

31.9

13.0

5.7

5.3

24.0

27.0

Revenue before transfers

169.0

70.3

89.1

328.4

175.6

70.9

68.5

315.0

350.0

Transfers

45.2*

1.0

31.1

77.3

136.2**

72.6***

6.2

215.0

90.0****

Total revenue

214.2

71.3

120.2

405.7

311.8

143.5

74.7

530.0

440.0

Other operating income

1.7

0.3

2.2

4.2

2.8

0.2

2.0

5.0

5.0

Labour costs

(82.2)

(41.7)

(54.0)

(177.9)

(94.3)

(45.0)

(50.7)

(190.0)

(180.0)

Share of revenue

49%

59%

61%

54%

54%

63%

74%

60%

51%

Material costs

(14.4)

(4.7)

(6.8)

(25.9)

(12.3)

(4.2)

(5.5)

(22.0)

(24.0)

Other operating costs

(69.3)

(24.4)

(38.3)

(132.0)

(124.2)

(49.9)

(31.9)

(206.0)

(154.0)

EBITDA

49.9

0.7

23.5

74.1

83.9

44.6

(11.5)

117.0

87.0

Source: Edison Investment Research. Note: ▲ Assuming Champions League round of 16 and DFB Cup semi-final. *Including disposal of Mkhitaryan. **Including disposals of Dembélé, Bender, Mor and Bartra. ***Including disposal of Aubameyand. ****Notional (assumed average of transfer revenue of three previous years excluding ‘exceptional’ Dembélé and Aubameyang transactions).


Exhibit 2: Financial summary

€'000s

2016

2017

2018e

2019e

June

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

376,300

405,700

530,000

440,000

EBITDA

 

 

86,700

74,100

117,000

87,000

Operating Profit (before amort. and except.)

75,900

62,600

105,000

75,000

Intangible Amortisation

(32,000)

(51,900)

(60,000)

(60,000)

Exceptionals

(7,500)

(100)

0

0

Other

0

0

0

0

Operating Profit

36,400

10,600

45,000

15,000

Net Interest

(2,100)

(1,500)

(5,000)

(2,000)

Other financial items

0

0

0

0

Profit Before Tax (norm)

 

 

73,800

61,100

100,000

73,000

Profit Before Tax (FRS 3)

 

 

34,300

9,100

40,000

13,000

Tax

(4,900)

(900)

(5,000)

(1,000)

Profit After Tax (norm)

62,700

51,900

85,000

62,100

Profit After Tax (FRS 3)

29,400

8,200

35,000

12,000

Minority interests

0

0

0

0

Net income (normalised)

62,700

51,900

85,000

62,100

Profit after tax (FRS3)

29,400

8,200

35,000

12,000

Average Number of Shares Outstanding (m)

92.0

92.0

92.0

92.0

EPS - normalised (c)

 

 

68.2

56.4

92.4

67.5

EPS - (IFRS) (c)

 

 

32.0

8.9

38.0

13.0

Dividend per share (c)

6.0

6.0

6.0

6.0

EBITDA Margin (%)

23.0

18.3

22.1

19.8

Operating Margin (before GW and except.) (%)

20.2

15.4

19.8

17.0

BALANCE SHEET

Fixed Assets

 

 

302,800

354,900

371,000

368,000

Intangible Assets

65,300

141,500

163,000

158,000

Tangible Assets

188,400

184,700

178,000

175,000

Investments

49,100

28,700

30,000

35,000

Current Assets

 

 

121,800

123,700

129,000

137,000

Stocks

10,200

9,000

8,000

8,000

Debtors

51,100

48,800

36,000

40,000

Cash

51,700

49,300

60,000

59,000

Other

8,800

16,600

25,000

30,000

Current Liabilities

 

 

(78,800)

(140,900)

(135,000)

(136,000)

Creditors

(76,200)

(130,600)

(133,000)

(134,000)

Short term borrowings

0

0

0

0

Finance leases

(2,600)

(10,300)

(2,000)

(2,000)

Long Term Liabilities

 

 

(36,200)

(25,400)

(24,000)

(22,000)

Long term borrowings

0

0

0

0

Finance leases

(19,000)

(8,700)

(7,000)

(7,000)

Other long term liabilities

(17,200)

(16,700)

(17,000)

(15,000)

Net Assets

 

 

309,600

312,300

341,000

347,000

CASH FLOW

Operating Cash Flow

 

 

44,400

12,200

(29,000)

2,000

Net Interest

(1,400)

(2,000)

(3,800)

(2,200)

Tax

(300)

(5,500)

(3,000)

(6,000)

Capex

(9,400)

(8,100)

(8,000)

(9,300)

Acquisitions/disposals

(20,500)

9,100

70,000

20,000

Financing

(7,700)

0

0

0

Dividends

(4,600)

(5,500)

(5,500)

(5,500)

Net Cash Flow

500

200

20,700

(1,000)

Opening net debt/(cash)

 

 

(29,600)

(30,100)

(30,300)

(51,000)

Finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net debt/(cash)

 

 

(30,100)

(30,300)

(51,000)

(50,000)

Source: Company accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Borussia Dortmund and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

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295 Madison Avenue, 18th Floor

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US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Borussia Dortmund and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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