Financial ReportNotes to the Consolidated Financial Statements Manchester City FC

Notes to the Consolidated
Financial Statements

1 - Accounting policies

The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Group’s financial statements.

Basis of preparation

The financial statements have been prepared in accordance with applicable accounting standards and under the historical cost convention as modified by the revaluation of certain tangible fixed assets and are in accordance with applicable accounting standards.

The Group is reliant on its ultimate parent undertaking, Abu Dhabi United Group Investment & Development, for its continued financial support. It has received written confirmation from its ultimate parent undertaking that sufficient funds will be provided to finance the business for at least 12 months from the date of approval of the financial statements. Based on discussions with the ultimate owner and formal confirmation of support, the Directors continue to adopt the going concern basis in preparing the financial statements.

Basis of consolidation

The consolidated financial statements include the financial statements of the Manchester City Limited (‘the Group’) and its subsidiary undertakings up to 31 May 2015. The acquisition method of accounting has been adopted.

Related party transactions

As the Company is a wholly owned subsidiary of City Football Group Limited, the Company has taken advantage of the exemption contained in FRS 8 and has therefore not disclosed transactions or balances with wholly owned entities which form part of the group. The consolidated financial statements of the ultimate UK parent company City Football Group Limited, within which this company is included, can be obtained from Companies House.

Turnover

Turnover represents amounts receivable by the Group, excluding Value Added Tax and transfer fees, in respect of TV income, gate receipts, commercial activities relating to the Club and donations. Advanced season ticket sales are included within deferred income and released to turnover in the relevant season.

Advanced match revenue is included within deferred income and is recognised over the period of the football season as games are played. Commercial and other partnership revenues are included within deferred income and are recognised over the life of the relevant contracts.

Fixed assets and depreciation

Depreciation is provided to write off the cost or valuation less the estimated residual value of tangible fixed assets by equal instalments over their estimated useful economic lives as follows:

Freehold buildings   -   2% straight line
Long leasehold buildings   -   estimated useful economic life of the asset
Short leasehold buildings   -   estimated useful economic life of the asset
Fixtures and fittings   -   10% straight line
Computer equipment   -   25% straight line

Cost includes directly attributable finance costs.

These rates are designed to write off the assets to their residual values over their estimated useful lives.

FRS 15 requires fixed assets which are carried at revalued amounts to be shown at their current value at the balance sheet date. To achieve this the Etihad Stadium, held within long leasehold land and buildings, is subject to a full valuation on a depreciated replacement cost basis every five years with an interim valuation carried out in the third year of this cycle.

Where the Company’s websites are expected to generate future revenues in excess of costs of development then these costs are capitalised.

Investments

Investments held as fixed assets are stated at cost less any provision for impairment. Provisions in the Company are made to ensure the net assets of the Company do not exceed that of the Group.

Intangible assets

The costs associated with the acquisition of players’ registrations are capitalised as intangible fixed assets. These costs are fully amortised over the contract period on a straight line basis. Impairments in value below the amortised value are provided for when the carrying amount exceeds the amount recoverable through use or sale.

Signing on fees

Signing on fees are charged to the profit and loss account over the life of the player’s contract.

Deferred tax

Deferred tax is recognised without discounting in respect of all timing differences between the treatment of certain items for taxation and accounting purposes which have arisen but not reversed by the balance sheet date except as otherwise required by FRS 19.

No deferred tax asset has been recognised as at 31 May 2015 as in the Group’s opinion it is unlikely that there will be sufficient taxable profits arising in the foreseeable future for the asset to be recovered.

Leases

Where the Group enters into a lease which entails taking substantially all the risks and rewards of ownership of an asset, the lease is treated as a ‘finance lease’. The asset is recorded in the balance sheet as a tangible fixed asset and is depreciated over its estimated useful life or the term of the lease, whichever is shorter. Future instalments under such leases, net of finance charges, are included within creditors. Rentals payable are apportioned between the finance element, which is charged to the profit and loss account, and the capital element which reduces the outstanding obligation for future instalments.

All other leases are accounted for as ‘operating leases’ and the rental charges are charged to the profit and loss account on a straight line basis over the life of the lease.

Capital grants

Grants receivable in respect of capital expenditure are treated as deferred income and released to the profit and loss account over a future period. This period will equal the economic life of the assets to which the grants relate in order to match the income to the depreciation charged on those assets. Deferred grant income in the balance sheet represents total grants received less amounts credited to the profit and loss account.

Foreign currency transactions

Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the contracted rate or the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the profit and loss account.

Pensions

The Club is a member of the Football League Pension and Life Assurance Scheme which has been closed for new employees. All pension schemes are defined contribution schemes and all contributions are charged to the profit and loss account as they become payable.

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2 - Turnover

  Year ended
31 May 2015
£000
Year ended
31 May 2014
£000
Matchday 43,330 47,457
Broadcasting - UEFA 32,860 31,329
Broadcasting - All Other 102,566 101,910
Other commercial activities 173,010 165,816
  351,766 346,512

All turnover originates in the United Kingdom. The Group has one activity which is the operation of a professional football club and therefore a segmental analysis has not been provided. All of the results for this activity are included within the primary statements.

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3 - Operating profit / (loss)

  Year ended
31 May 2015
£000
Year ended
31 May 2014
£000
Other operating income    
Other operating income 800 1,775
  800 1,775
Operating expenses    
Direct cost of sales and consumables 6,406 8,988
Remuneration of auditors and its associates:    
 — Audit fees 46 44
 — Tax services 11 38
 — Other services 62 7
Hire of other assets – operating leases 118 168
Capital grants released and amortised (170) (116)
Other external charges 69,223 58,630
UEFA settlement - 16,260
Insurance proceeds - (6,670)
Staff costs (Note 5) 193,821 205,044
Amortisation of player registrations 70,291 76,484
Loss on disposal of fixed assets 1,719 -
Depreciation of tangible fixed assets:    
 — Owned 6,892 5,277
 — Leased 2,194 2,006
  350,613 366,160
     
Operating profit/(loss)    
Operating profit before player trading 72,244 58,611
Amortisation of player registrations (70,291) (76,484)
  1,953 (17,873)

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4 - Directors’ remuneration

  Year ended
31 May 2015
£000
Year ended
31 May 2014
£000
Directors’ emoluments - -
Company contributions to money purchase pension schemes - -
Amounts paid to third parties in respect of Directors’ services - 5

No directors were paid in the year (2014: £nil) and no Company pension contributions were made (2014: £nil).

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5 - Staff numbers and costs

The average number of persons employed by the Company (including Directors) during the financial year, analysed by category, was as follows:

Number of employees Year ended
31 May 2015
£000
Year ended
31 May 2014
£000
Football staff - including players 145 112
Commercial/administration staff 175 202
  320 314

The aggregate payroll costs of these persons were as follows:

  £000 £000
Wages and salaries 168,718 179,021
Social security costs 24,562 25,288
Other pension costs 541 735
  193,821 205,044

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6 - Interest receivable and similar income

  Year ended
31 May 2015
£000
Year ended
31 May 2014
£000
Bank interest 30 51
Other - 1
  30 52

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7 - Interest payable and similar charges

  Year ended
31 May 2015
£000
Year ended
31 May 2014
£000
Bank loans and overdrafts 1,274 798
Other loans 5 -
Finance lease interest - 162
  1,279 960

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8 - Taxation

(a) Analysis of the tax (credit)/charge in the year:

  Year ended
31 May 2015
£000
Year ended
31 May 2014
£000
Current tax    
UK corporation tax at 21% (2014: 23%)
on profits for the year
- -
Adjustments in respect of prior years (380) -
Tax on profits from ordinary activities (380) -

(b) Factors affecting tax charge for the year:

The current tax charge for the year varies from the standard rate of corporation tax in the UK of 21% (2014: 23%). The differences are explained below:

  Year ended
31 May 2015
£000
Year ended
31 May 2014
£000
Profit/(loss) on ordinary activities before taxation 10,369 (22,929)
Profit/(loss) on ordinary activities multiplied by standard rate of corporation
tax in the UK of 21% (2014: 23%)

2,160

(5,197)
Effects of:    
 — Expenses not deductible for tax purposes 87 3,762
 — Fixed asset timing differences 332 1,501
 — Other permanent differences 497 -
 — Additional deduction for land remediation expenditure (10) -
 — Tax losses utilised in the period (2,999) -
 — Adjustments in respect of prior periods (380) -
 — Differences between capital allowances and depreciation 30 -
 — Other timing differences (31) (389)
 — Tax losses incurred in the year - 323
 — Income not taxable for tax purposes (66) -
Current tax credit for the year (380) -

The Company has corporation tax losses available for carry forward of approximately £611 million (2014: £614 million).


c) Factors that may affect future tax charges:

The Company expects its effective tax rate in future years to be less than the standard rate of corporation tax in the UK due principally to the amount of tax losses available to be set off against future taxable profits.

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9 - Company results

The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented its own profit and loss account in these financial statements. The Company profit for the year includes a profit after tax of £19,618,000 (2014: £22,929,000 loss) which is dealt with in the financial statements of the parent company.

10 - Intangible fixed assets

Group
Amounts paid for players’ registrations:

£000
Cost  
As at 1 June 2014 440,444
Additions 98,258
Disposals (128,143)
As at 31 May 2015 410,559
   
Amortisation  
As at 1 June 2014 233,180
Amortisation of player registrations 70,291
Disposals (87,067)
As at 31 May 2015 216,404
   
Net book value  
As at 31 May 2015 194,155
As at 1 June 2014 207,264

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11 - Tangible fixed assets

Group Land and
Buildings
(Freehold)
£000
Land and
Buildings
(Short
Leasehold)
£000
Land and
Buildings
(Long
Leasehold)
£000
Assets under
course of
construction
£000
Fixtures,
Fittings &
Equipment
£000
Total
£000
Cost/valuation            
As at 1 June 2014 59,833 2,288 141,233 126,490 38,315 368,159
Additions 19,941 - 5 30,292 12,086 62,324
Disposals - - - - (6,813) (6,813)
Reclassification 110,227 - - (110,488) 261 -
Revaluation - - 8,869 - - 8,869
As at 31 May 2015 190,001 2,288 150,107 46,294 43,849 432,539
             
Depreciation            
As at 1 June 2014 1,775 637 3,537 - 15,900 21,849
Charge for the year 1,428 74 2,120 - 5,464 9,086
Disposals - - - - (5,094) (5,094)
As at 31 May 2015 3,203 711 5,657 - 16,270 25,841
             
Net book value            
As at 31 May 2015 186,798 1,577 144,450 46,294 27,579 406,698
As at 1 June 2014 58,058 1,651 137,696 126,490 22,415 346,310

The following information relates to tangible fixed assets carried on the basis of revaluations in accordance with FRS 15 ‘Tangible fixed assets’:

  2015
£000
At depreciated replacement cost 194,148
Aggregate depreciation thereon (5,381)
Net book value 188,767
   
Historical cost of revalued assets 127,125
Aggregate depreciation thereon (12,417)
Historical cost net book value 114,708

Tangible fixed assets are shown at their original cost to the Group with the exception of the Etihad Stadium. A full valuation was obtained by the Directors as at 31 May 2015 from GVA Grimley Ltd on a depreciated replacement cost basis and was made in accordance with the Royal Institute of Chartered Surveyors’ Asset Statements of Valuation Practice and Guidance Notes. The results of this new valuation have subsequently been incorporated into the financial statements.

No deferred tax is provided on timing differences arising from the revaluation of fixed assets unless, by the balance sheet date, a binding agreement to sell the assets has been entered into and it is unlikely that any gain will be rolled over.

The net book value of fixed assets at 31 May 2015 includes £188,767,015 (2014: £135,800,000) in respect of assets on finance lease or hire purchase. Depreciation for the year on these assets was £2,088,072 (2014: £1,865,000).

The cumulative amount of interest capitalised in the total cost of tangible fixed assets amounts to £283,000 (2014: £283,000).

Finance Lease on Etihad Stadium

On 5 August 2003 Maine Road was exchanged for a 250 year leasehold interest in the Etihad Stadium. Rental payments are made quarterly. The lease has been treated as a finance lease, with the lease premium and the net present value of future rental obligations capitalised.

A finance lease creditor equal to the future obligations under the lease has been established. In calculating the future obligations an interest rate of 7.57% and an estimated long term inflation rate of 2.5% have been applied.

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12 - Fixed asset investments

Company Shares in
Subsidiary
Undertakings
£000
Cost  
As at 1 June 2014 1,219,190
Additions 84,300
As at 31 May 2015 1,303,490
   
Provision  
As at 1 June 2014 646,857
Additions -
Reversal of impairment (19,618)
As at 31 May 2015 627,239
   
Net book value  
As at 31 May 2015 676,251
As at 1 June 2014 572,333
Subsidiary undertakings Principle activities Proportion of voting rights and
share capital held
Manchester City Football Club Limited Professional Football Club 100%
Manchester City Investments Limited * Issuer of Loan Notes 100%

All companies are incorporated in England and Wales.
* denotes indirect investments.

During the year ended 31 May 2015, Manchester City Property Limited was renamed City Football Academy Manchester Limited and Manchester City Developments Limited was renamed City Football Image Rights Limited. Both entities were transferred to City Football Group Limited, the parent company of Manchester City Limited for a nominal fee of £1 with no profit or loss on disposal.

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13 - Debtors

 
 
 
 
Group
 
 
Company
 
  2015
£000
2014
£000
2015
£000
2014
£000
Amounts falling due within one year        
Trade debtors 32,584 82,615 - -
Debtors arising from player transfers 41,976 11,248 - -
Amounts owed by group undertakings (Note 28) 39,810 34,930 - -
Amounts owed by related party undertakings (Note 28) - 623 - -
Other debtors 21 78 - -
Prepayments and accrued income 60,031 47,462 - -
  174,422 176,956 - -
Amounts falling due after more than one year        
Trade debtors 5,625 11,250 - -
Debtors arising from player transfers 19,618 10,309 - -
Other debtors 530 1,314 - -
  25,773 22,873 - -
Total debtors 200,195 199,829 - -

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14 - Creditors: due within one year

 
 
 
 
Group
 
 
Company
 
  2015
£000
2014
£000
2015
£000
2014
£000
Obligations under finance leases (Note 16) 331 315 - -
Trade creditors 2,801 4,040 - -
Creditors arising from player transfers 19,871 9,484 - -
Amounts owed to group undertakings 101 2,084 - -
Amounts owed to related party undertakings 5,105 4,937 - -
Other creditors including tax and social security 13,720 14,906 - -
Accruals 56,030 81,218 - -
  97,959 116,984 - -

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15 - Creditors: due after more than one year

 
 
 
 
Group
 
 
Company
 
  2015
£000
2014
£000
2015
£000
2014
£000
Obligations under finance leases (Note 16) 66,669 67,000 - -
Creditors arising from player transfers 8,721 2,910 - -
  75,390 69,910 - -

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16 - Borrowings

Group


Maturity of debt:
Finance
Leases
£000
2015
Total
£000
2014
Total
£000
Within one year 331 331 315
Between one and two years 347 347 331
Between two and five years 1,151 1,151 1,096
After more than five years 65,171 65,171 65,573
  67,000 67,000 67,315

Finance Leases

Obligations under finance leases include future obligations under the lease of the Etihad Stadium.
Details are provided within note 11.

The maturity of obligations under finance leases and hire purchase contracts is as follows:

  2015
£000
2014
£000
Within one year 3,550 3,550
In the second to fifth year 14,200 14,200
Over five years 157,375 160,925
Less future finance charges (108,125) (111,360)
  67,000 67,315

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17 - Deferred income

 
 
 
 
Group
 
 
Company
 
  2015
£000
2014
£000
2015
£000
2014
£000
Within one year:        
Deferred income 25,127 14,459 - -
Deferred credit for capital grants 45 45 - -
  25,172 14,504 - -
         
More than one year:        
Deferred income - - - -
Deferred credit for capital grants 1,028 1,073 - -
  1,028 1,073 - -
Total deferred income 26,200 15,577 - -

Deferred credit for capital grants

The movements in deferred credit for capital grants during the year were as follows:

  £000
At 1 June 2014 1,118
Grants released in year (45)
At 31 May 2015 1,073

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18 - Called up share capital

The authorised and issued share capital at the beginning and end of the year is as follows:

  2015
£000
2014
£000
Issued and called up    
651,028,873 (2014: 611,264,723) Ordinary shares of 10p each – fully paid 65,103 61,127
20 (2014: 20) Ordinary shares of 10p each – 2.5p paid - -
49,998 (2014: 49,998) Redeemable deferred shares of £1 each – 25p paid 12 12
  65,115 61,139

During the year 39,764,150 ordinary shares of 10p each were issued for a consideration of £2.12 per share. The total consideration was £84.3m and the premium of £80.3m has been included in the share premium account (see note 19).

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19 - Reserves

  Share Premium
Group and
Company
£000
Revaluation
Reserve
Group
£000
Profit &
Loss Account
Group
£000
Profit &
Loss Account
Company
£000
At 1 June 2014 1,152,069 44,686 (685,561) (640,875)
Retained loss for the year - - 10,749 19,618
Issue of shares 80,324 - - -
Revaluation in the year - 8,869 - -
At 31 May 2015 1,232,393 53,555 (674,812) (621,257)

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20 - Contingent liabilities

Additional transfer fees, signing on fees and loyalty bonuses of £112,918,000 (2014: £100,563,000) that will become payable upon the achievement of certain conditions contained within player and transfer contracts if they are still in the service of the Club on specific future dates are accounted for in the year in which they fall due for payment.

21 - Reconciliations of movement in shareholders’ funds

 
 
 
 
Group
 
 
Company
 
  2015
£000
2014
£000
2015
£000
2014
£000
Profit/(loss) for the financial year 10,749 (22,929) 19,618 (22,929)
Revaluation adjustment 8,869 - - -
Issue of shares 84,300 160,000 84,300 160,000
Net increase in shareholders’ funds 103,918 137,071 103,918 137,071
Opening shareholders’ funds 572,333 435,262 572,333 435,262
Total closing shareholders’ funds 676,251 572,333 676,251 572,333

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22 - Pensions

The Company is a member of The Football League Limited Pension and Life Assurance Scheme, a pension scheme providing benefits based on final pensionable pay. As the Company is unable to identify its share of the scheme assets and liabilities on a consistent and reasonable basis, as permitted by FRS 17 ‘Retirement benefits’, the scheme has been accounted for in these financial statements as if the scheme was a defined contribution scheme.

At 31 May 2015 a Minimum Funding Requirement Deficit was identified in the scheme, of which £230,644 (2014: £316,436) was allocated to the Company.

A full actuarial valuation was carried out at 31 August 2014 and was updated for FRS 17 purposes by a qualified independent actuary. The contribution for the year was £63,857 (2014: £63,857).

23 - Commitments

The annual commitments under non-cancellable operating leases are set out below.


Expiring:
2015
£000
2014
£000
Within one year 1 67
Within two and five years - 4
After five years - -
  1 71

The capital commitments contracted but not provided for are as follows:

  2015
£000
2014
£000
Contracted but not provided for 10,036 47,905

The capital commitments represent contracted amounts in relation to the construction of the City Football Academy and the expansion of the Etihad Stadium.

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24 – Reconciliation of operating profit/(loss) to net cash inflow from operating activities

  2015
£000
2014
£000
Operating profit/(loss) 1,953 (17,873)
Amortisation and impairment of players’ registrations 70,291 76,484
Depreciation 9,086 7,283
Loss on sale of fixed assets 1,719 -
Decrease/(increase) in debtors 35,929 (29,985)
Decrease in creditors (16,041) (8,429)
Release and amortisation of grants (45) (53)
Net cash inflow from operating activities 102,892 27,427

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25 - Reconciliation of net cash flow to movement in net cash/(debt)

  2015
£000
2014
£000
Increase in cash in the year 53,351 7,356
Net cash inflow from movement in debt 315 299
Movement in net debt resulting from cash flows 53,666 7,655
Other non-cash changes - -
Opening net debt position (45,914) (53,569)
Closing net cash/(debt) position 7,752 (45,914)

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26 - Analysis of changes in net cash/(debt)

  As at 1 June 2014
£000
Cash flow
£000
As at 31 May 2015
£000
Cash at bank and in hand 21,401 53,351 74,752
Movement in net cash position in the year 21,401 53,351 74,752
Debt due within one year - - -
Debt due after one year - - -
Net cash (excluding finance leases) 21,401 53,351 74,752
Finance leases (67,315) 315 (67,000)
  (45,914) 53,666 7,752

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27 - Financial instruments and risk management

The Group’s financial instruments comprise borrowings, cash and liquid resources, and various items such as trade debtors and trade creditors that arise directly from its operations. The main purpose of the financial instruments is to finance the Company’s operations. It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments shall be undertaken.

The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk and foreign exchange risk. The Board reviews and agrees policies for managing each of these risks. These policies have remained unchanged since the prior year.

Interest rate risk profile of financial assets and liabilities

The Company has no financial assets, other than short-term debtors and an amount of cash at bank. The interest rate risk profile of the Company’s financial liabilities as at 31 May 2015 was:

  Total


£000
Floating rate
financial
liabilities
£000
Fixed rate
financial
liabilities
£000
Non-Interest
financial
liabilities
£000
As at 31 May 2015 67,000 - 67,000 -
As at 31 May 2014 67,315 - 67,315 -

The fixed rate liabilities comprise finance lease obligations of £67,000,000 as detailed in note 16.

The maturity profile of the Company’s financial liabilities as at 31 May 2015 is shown in note 16.

The carrying values of financial assets and financial liabilities approximate to their fair values.

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28 - Related party transactions

Transactions with subsidiaries of City Football Group Limited

Transactions during the year ended 31 May 2015 with New York City Football Club LLC, a fellow subsidiary of City Football Group Limited, consisted of loans totalling £70,000 (2014: £308,000), which are included in debtors due within one year and the provision of services of £58,000 (2014: £nil).

Transactions during the year ended 31 May 2015 with Melbourne City Football Club Pty Limited, a fellow subsidiary of City Football Group Limited, consisted of a cost recharges totalling £117,000 (2014: £nil), which are included in debtors due within one year.

Transactions with Brookshaw Developments Limited

During the year, tangible assets consisting of land and buildings with a net book value of £2,158,000 were purchased from Brookshaw Developments Limited, a company also owned by Abu Dhabi United Group Investment & Development and a balance of £5,105,000 (2014: £4,937,000) is included in creditors due within one year.

29 - Post balance sheet events

As at the date of signing the Directors’ Report, since the year-end the football registrations of Raheem Sterling (from Liverpool FC), Fabian Delph (from Aston Villa FC), Nicolas Otamendi (from Valencia CF) and Patrick Roberts (from Fulham FC) have been acquired. The football registrations of Karim Rekik (to Olympique de Marseille), Edin Dzeko (to AS Roma), Marcos Mesquita-Lopes (to AS Monaco) and Dedryck Boyata (to Celtic FC) have been sold. The net expenditure on these transactions was approximately £68.3m.

30 - Ultimate parent company

As at the 31 May 2015 the Group’s parent undertaking was City Football Group Limited, a company incorporated in England and Wales. The Group’s ultimate parent undertaking was Abu Dhabi United Group Investment & Development, a company registered in Abu Dhabi and wholly owned by His Highness Sheikh Mansour bin Zayed Al Nahyan.

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