Manchester United PLC (MANU) 2020 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Manchester United Fourth Quarter and Full Year Earnings Conference Call. (Operator Instructions) We would also like to remind everyone this conference call is being recorded.

Before we begin, we would like to inform everyone that this conference call will include estimates and forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from these statements. Any such statements or forward-looking statements should be considered in conjunction with the cautionary note in our earnings release regarding forward-looking statements and risk factor discussions in our filings with the SEC. Manchester United plc assumes no obligation to update any of the estimates or forward-looking statements.

I will now turn the conference over to the Executive Vice Chairman of Manchester United, Mr. Ed Woodward. Please go ahead, sir.

Thank you, and thank you to everybody for joining us today. We're looking back today on what's been one of the most extraordinary and challenging seasons in recent history, and I'm proud of the way the club continues to respond. There are still big challenges and uncertainties ahead as the COVID-19 pandemic continues to disrupt our way of life across the globe. This disruption is clear to see in the financial results that we're announcing today, and we expect the impact to remain visible for quite some time to come.

However, the past year has also demonstrated the underlying strength and resilience of the club, the special role that sports plays in our societies and the meaningful impact the club can make in our communities through this period of adversity. On the field, we will never be satisfied at Manchester United unless we are winning trophies, but our third-place finish in the Premier League and strong cup runs last year showed us that while there is more hard work ahead and the path is not always smooth, we are making progress. We have a clear strategy under Ole to build a successful committed team with a core of homegrown talent blended with high-quality recruits that plays fast flowing attacking football.

To that end, we are pleased with our recent additions to the first team squad of Donny van de Beek and Alex Telles, 2 players we've been tracking as part of our recruitment process for a long period of time. And Edinson Cavani, a top striker who adds a proven new option to our forward line. We also welcome Facundo Pellistri and Amad Diallo, who will join in January, 2 exciting young prospects who we've also been scouting extensively.

Added to the arrival of Bruno Fernandes earlier this year, these recruits underscore our continued commitment to strengthening the squad and take our net investment in new players since summer 2019 to over EUR 200 million, more than any other major European club over that time frame.

We also continue to invest strongly in our thriving academy whose graduates make up 1/3 of our current first team squad. The pipeline of new talent looks as exciting as ever, with Ole giving first-team debuts to 8 academy graduates last season, the highest number since the Busby Babes were breaking through 6 to 8 years ago. This faith in youth remains an integral part of our identity of the club. Even with the addition of some more experienced players this month, our squad remains one of the youngest in the Premier League with an average age of 25. This means the team has potential for significant further improvement as our young players develop and mature.

We are also tremendously excited by the progress being made by our women's team under Casey Stoney, following the arrival of several new players this summer, including Tobin Heath and Christen Press to -- both 2 time World Cup winners with the U.S. National Team. While our commitment to investment remains, it must be balanced with recognition of the extraordinarily challenging environment facing us and all football clubs at this time.

Let me share a few initial observations on this summer's transfer window that finished recently. Gross transfer spend across the big 5 European Leagues was down about 40% this summer, driven by both the lower volume of transactions and lower average fees. The contraction was also felt at the top end of the market with no transactions over EUR 100 million for the first time in 5 years, and an almost 30% reduction in the average fee for the top 30 transfers. There was a material increase in the share of free transfers and loans, which were up 20% and 30%, respectively. At a club level, many of our peers were cautious with Real Madrid, Barcelona, Bayern Munich, Juventus and PSG, having combined net spend of EUR 9 million.

Of course, there were 1 or 2 outliers the other way, most notably Chelsea, who are making up for not being able to be active during their transfer band from summer of 2019, but we need to look across multiple windows to gain a clearer perspective. And as I mentioned earlier, our aggregate net investment over the last 3 transfer windows compares very favorably with our peers. The bottom line is we are investing, and we will continue to invest to back our manager.

More recently, you may have read about the discussions taking place within English Football about plans to address the near-term for the financial predicament created by the pandemic for clubs in the lower leagues. We've been playing an active role in those discussions because we strongly believe in supporting the English football pyramid, both in the short-term to address the issues created by COVID-19, and in the long term, to improve financial sustainability at all levels of the game.

There will always be intense debate around any changes to the structure of football just as there was before the formation of the Premier League 28 years ago. Now at this critical juncture for the game, we must ensure that the huge success of the Premier League is reinforced while ensuring that the wider football pyramid continues to thrive in a rapidly changing media environment. Achieving this will require strategic vision and leadership. We are pleased that the Premier League is committed to work together on a plan for the future structures and financing of English football. Now it must deliver on that promise, and we are committed to playing a leading role in pushing that process towards a successful outcome.

Another crucial issue for the whole of football is the reopening of stadiums to spectators as soon as the government allows. While the situation in Greater Manchester and the U.K. as a whole continues to evolve, our plans for the return of fans are well advanced, and we are confident of ours and the whole league's ability to welcome them back in a safe, bio-secure environment.

Crowds have been permitted to return to varying degrees in over 200 European -- sorry, 20 European countries, albeit with significant capacity restrictions to allow for social distancing, and we urge the U.K. government to follow these positive examples as soon as it is safe to do so. While we recognize that public health must always be a priority, what is needed is consistency of approach. If people are allowed to sit on an airplane for hours or in the cinema or even watch football in a cinema, then why are they not allowed inside the stadium environment, which is professionally managed and controlled. If indoor concerts are allowed, why should outdoor, socially-distanced football fans be treated differently. Fans are the bedrock of this game, and some of the inconsistencies out there are frustrating for them and indeed for the clubs.

Despite severe near-term pressures created by the pandemic, we do remain optimistic about the medium to long term. Demand for live football around the world is strong, and our sustainable commercial model means we are very well placed to harness that growth, while continuing to pursue what will always be our #1 priority, delivering success, entertainment and trophies on the pitch.

I'll now hand over to our Group Managing Director, Richard Arnold, who will update you on our key business activities. Thank you.

Thank you, Ed, and thank you to everyone for joining us today. Resilience is a trait closely associated with Manchester United. And since we last spoke in May, that trade has been needed and demonstrated once again. Cliff will walk you through the impact that COVID-19 has had in our revenue streams and the continued impact we expect into fiscal 2021, but I'd like to share a few insights into how we face this challenge.

First, throughout the fourth quarter, we continue to use our global platform to raise awareness and provide assistance to those in need, in our surrounding communities across the U.K. and internationally. We stepped up our efforts via our Manchester United Foundation by supporting local food banks, providing meals for the NHS, making cash donations to partner schools, teaming up with supporters' clubs and launching a fundraising contribution -- fundraising campaign.

Contributions to date for that are already over GBP 1 million and climbing. And as we highlighted in May, we're appreciative of the generosity of our players and our colleagues who've donated their time and energy, and it is our intent that these efforts will inspire more sustainable long-term support for our community. We're also incredibly proud of the individual effort of Marcus Rashford, who served as an exemplary Red, both on and off the pitch this year by using his platform to bring incredible awareness to a cause that is very dear to his heart, child hunger. Marcus was successful in not only championing this very important cause and bringing considerable awareness to the plight of many U.K. school children, who are suffering during this pandemic, but he also campaigned for and successfully achieved change that affected children across the whole country.

We also wanted to take a moment this morning to discuss the diversity and inclusion initiatives at club. Whilst this is a topic that is rightly moving to the forefront of conversations in boardrooms across every industry, we're proud that we've been leading and executing in this area within our organization over many years. Whilst we acknowledge that there is clearly no room for complacency, our All Red All Equal initiative, which commenced in 2016, is the most visible example and is both a guiding principle and remains a vital annual campaign for the club. We are committed to striving for real change within the industry on and off the pitch, both through our own campaigns and through the support of other organizations.

So turning to our business. We have needed and been able to continue to strengthen our digital and media capabilities during the pandemic. This meant we achieved higher engagement levels relative to last year across all platforms during the fourth quarter. To highlight a few stats, despite the pandemic, our total reach from April through the end of the season in July improved by high single digits against the prior season. On our owned and operated platforms, June and July represented record months for engagement on our mobile app, whilst it was also a record year on our social channels as we achieved over 1.1 billion social interactions, higher than any season previously and 24% higher than last season.

This engagement, in turn, contributed directly to stronger e-commerce conversion levels. Whilst our mega store reopened on June 15, foot traffic has remained depressed relative to last year obviously, given the absence of fans of Old Trafford home matches and to a lesser extent, the continued closure of our museum and tour operations. However, our e-commerce business with Fanatics has performed ahead of expectations, and we plan to accelerate our e-commerce initiatives throughout fiscal 2021.

Turning now to our sponsorship business, fiscal year 2020 was a solid year. And despite the pandemic, it was one of the busiest in the club's history for our sponsorship team. Over the year, we signed 8 new sponsorship deals with partners, including Lego, Mondelez and Visit Malta. Manchester United's commercial strength drives not least from its strong and effective commercial partnerships. Pandemic proved an opportunity to demonstrate resilience in delivering to our partners. In particular, migrating to delivering digital campaigns in the absence of games. As a result of this, we've also renewed 8 partnerships.

Whilst we remain in the midst of this pandemic, we are mindful of the current tenuous macro backdrop affecting our partners, and we've been working very closely with them to support their activities through these challenging times. To that end, due to the disruption caused by the pandemic, we entered into a variation agreement with General Motors to extend our current shirt sponsorship agreement for 6 months.

Though we can't provide any certainty at this time regarding the price -- precise timing of the return of our supporters to Old Trafford, due to the very fluid nature of recent coronavirus developments in the U.K., we do remain optimistic. In the meantime, we continue to prepare to welcome back our supporters with hygiene and social distancing protocols as health and safety obviously remains a top priority. Further, we have used the downtime to explore and implement upgrades that we believe will serve to enhance our supporters' in-stadium experience, such as contactless entry with mobile ticketing.

I also want to take a moment to highlight the club's commitment to our supporters in China. Since our first friendly match on the mainland in 1975, Manchester United has established a significant fan and follower base in the region. Earlier in the fiscal year, we announced a strategic partnership with Alibaba, which includes the Youku platform, and we are now producing more localized Chinese content than ever before. We are also the first and only club to reach 10 million Weibo followers, and we are also the most engaged club on both the Weibo and WeChat platforms.

We remain committed to providing our passionate supporters in the country with highly engaged club content. As you're aware, in August, the Premier League terminated its deal with its China broadcast partner, Suning's PPTV. The league entered into a 1-year contract with Tencent, while the league searches for a new long-term partner. This means that the club has its games and content on -- shown on both of the 2 largest digital platforms as well as the expectation of linear broadcasting.

Together with the exciting progress on the Harves experience centers, this puts us in a strong position for future engagement with our fans in China.

Finally, as Ed highlighted, the near-term economic environment remains challenging, but there remains much to be optimistic about regarding our long-term prospects. We'll be relentlessly pursuing the growth opportunities that remain for our brand. The strong commercial engine of this club, driven by our commitment to delivering the engagement our fans crave and demand, is what ultimately fuels our ability to continuously and sustainably reinvest in the team.

With that, I'll now turn the call over to our CFO, Cliff Baty, to review our results and discuss our financial outlook in more detail. Cliff?

Thank you, Richard. Firstly, I'll talk through our fiscal year results, which have been impacted by COVID-19 pandemic, and then I'll provide some details of the upcoming fiscal year. However, we will not be providing EBITDA guidance today.

As a reminder, year-on-year comparisons relative to fiscal 2019 have been impacted by nonparticipation in the Champions League as well as the number of games played in the year. In terms of headline figures, total revenues for the period were GBP 509 million, down GBP 118.1 million versus last year due to the impact of COVID-19, particularly on Broadcasting and Matchday revenues. Adjusted EBITDA was GBP 132.1 million, down GBP 53.7 million from prior year. Overall, we estimate the impact of COVID-19 on total FY '20 revenues was GBP 70 million, of which GBP 40 million were lost from Matchday closures, Premier League rebates and impact on our Megastore and other operations. The remaining GBP 30 million relates to Broadcasting revenues from the '19/'20 season's matches, which were played in July and August, those revenues will be recognized in the current year.

We estimate that the adjusted EBITDA outcome for FY '20, had COVID-19 not occurred, would have been an additional GBP 60 million, delivering a total adjusted EBITDA of slightly over GBP 190 million, comfortably ahead of our previous guidance range.

Turning to the key items in the results. Total commercial revenues were GBP 279 million with Sponsorship revenues of GBP 182.7 million, 5.6% higher than the prior year. This reflects the underlying growth we saw throughout fiscal 2020. Merchandising and Licensing revenues were GBP 5.8 million below the prior year at GBP 96.3 million reflecting the closure of the Megastore from mid-March through mid-June.

Broadcasting revenues decreased by GBP 101 million to GBP 140.2 million. This reflects both the lower Europa League revenues in FY '20 compared to Champions League in the prior year as well as the impact of 10 matches in the '19/'20 season, including 6 Premier League matches that were played after the period end.

Revenues were also further impacted by rebates to broadcasters, which we estimate totaled GBP 14 million for the full '19/'20 season with around GBP 11 million recognized in FY '20. Matchday revenues for the year decreased by GBP 21 million to GBP 89.8 million, impacted by suspension of matches in March. This meant revenue associated with 4 home Premier League games and the Europa League Round of 16 match was lost.

Moving down the income statement. Operating expenses, excluding depreciation, amortization and exceptional items, decreased by 14.6% versus the prior year. This includes wages, which were down 14.5%, primarily due to the contraction -- contractual reduction related to nonparticipation in the Champions League. Other operating expenses for the fiscal year decreased by GBP 16.1 million, reflecting suspension of matches, together with the reduced activity and cost-saving actions taken in response to COVID-19.

Amortization costs were GBP 126.7 million for the fiscal year, a decrease of GBP 2.5 million versus the prior year. Net finance costs for the year were GBP 26 million, an increase of GBP 3.5 million due to foreign exchange movements on the unhedged portion of our U.S. dollar debt. As mentioned in previous quarters, our cash interest costs in U.S. dollars remain broadly consistent year-on-year.

Turning now to our balance sheet. At the end of June, cash balances were GBP 51.5 million down GBP 256.1 million against the prior year. This decrease is comprised of 3 main items: Firstly, as we mentioned throughout the year, player CapEx is elevated in FY '20 by GBP 56 million due to player investments made during the year and the associated accelerated payment profiles. Secondly, the impact of COVID-19, the uncertainty around return to fans to the stadium has meant that the bulk of season ticket monies, which are typically received by the 30th of June, have not been received this year, and we estimate this impact to be over GBP 50 million. Finally, some sponsorship money is normally due prior to 30th of June, relating to the 2021 season, have been agreed to be deferred for some commercial partners that have been impacted by COVID-19. This reduced our cash flows by amount in excess of GBP 80 million. However, a large portion of this has now been received with the remainder June installments during FY '21.

Net debt at the period end was GBP 474.1 million, an increase of GBP 270.5 million compared to the prior year, due to the lower cash balances described together with the impact of unfavorable foreign exchange movements on a U.S. dollar-denominated debt.

In terms of cash liquidity, we now have GBP 200 million of undrawn committed facilities, have increased our available lines by another GBP 50 million. This provides additional flexibility in the current environment.

Now turning to our outlook for the FY '21. In line with many other companies, we are not providing any revenue or EBITDA guidance. The main impact on revenue and EBITDA for FY '21 will be the loss of Matchday and ancillary revenues, should the entire season behind closed doors, together with the loss of our preseason summer tour. As mentioned, this will be partially offset by GBP 30 million of deferred broadcasting revenues relating to season '19/'20 fixtures and our return to the Champions League.

Finally, we expect our committed player CapEx, net cash outflows for this year to be approximately GBP 120 million with amortization of GBP 127 million.

Before we hand the call back to the operator to take your questions, I wanted to make you all aware that we will not be hosting our first quarter conference call when our results are released in mid-November, just a few short weeks from now. Due to the unusual timing this year related to the pandemic, we'll only be issuing a press release with our first quarter financial results. However, we will return to normal conference call cadence for our second quarter report in February.

With that, we are ready to take your questions. Operator?

(Operator Instructions) Today's first question comes from Randal Konik with Jefferies.

Can you hear me?

Yes, we can.

All right. Great. Congrats on the nice win yesterday to start the Champions League. I guess the first question is now Richard, you talked a little bit about some of the changes or adaptations you made in the commercial and sponsorship segment. Let's talk about, I guess, for example, Chevy, you extended the sponsorship by, I think, 6 months. Have you done that with any other partners? And then the other thing I picked up on in your remarks, you talked about shifting some activations to more digital means to kind of give your partners good return on their -- in their partnership investments, et cetera. So give us some perspective on what you've kind of specifically done more there on the digital side kind of help the partners kind of get the great value for their sponsorship. Just curious there.

Thanks, Randy. I think, in some part, the second part of your question answered the first. In the overwhelming majority of individual sponsor cases, what we've done is worked with partners to build commercial strategy, the leverage what is available to us. Obviously, as you indicated, the work that we've done in establishing leadership in our field in terms of our digital engagement techniques with fans, mean that we were able to offer them something that's pretty cutting-edge in the market and very, very effective. And I think that's testament to the work of the team in this area that we were able to do that and also the support that we had from players and others in terms of deriving that content.

Got it. And then anything changes with expirations of deals in terms of the extension of the Chevy deal? I know it's probably just more of a one-off, but anything there that we should be thinking about with other partners or no?

By and large, our partners are no more immune to the macro effects than any other businesses in the world. So you've seen in these results, the work that we've done supporting them, particularly on the cash flow basis. That having been said, equally, we're hugely fortunate that we have some of the best companies in the world as partners. By and large, the majority of those have rebounded very strongly, have traded relatively well through the period. And I think that the renewals we've seen even during this pandemic and literally during this pandemic in the last 3 months have been strong.

And I think that, that's an indication of the high-caliber companies we have as partners and the work that we've been able to do with those partners to drive results in even the most difficult of circumstances.

(Operator Instructions) Today's next question comes from Connor Murphy with Deutsche Bank.

Just a few for me. Can we first just dig into a little more when you're anticipating fans might be able to come back? Any sense of capacity? I know it's a very fluid situation, but just trying to get a sense of how discussions are going? And how that might evolve throughout the season? And then I have a couple of others.

Yes. So as you're aware, we're subject to government regulation, the regulatory environment in this regard. The initial expectation had been that there would be a return to partially filled stadiums starting on the 1st of October, following on from test events that were successfully conducted in August and September. That advice was changed, not because of the effect of what was happening as a result of the partially filled stadia. And in fact, there's a significant track record across Europe for that being executed successfully but because of what was happening in other sectors, particularly around the return to school and university in the background infection rate.

The government guidance had been, at that point in time, that absent what they refer to as the Moonshot, was not to affect -- not to expect full stadia prior to March next year. Where they refer to Moonshot, that is the ability for us to have either variously vaccine programs or quick response testing at mass scales, so the -- and was often referred to as pregnancy type test, where people can achieve certified infection-free attendance. At this point in time, it's unclear as to the probability and timing of those 2 Moonshot items. So we remain subject to the more general situation in terms of the return of fans.

The guidance in respect of the fill rate was a function of distancing, both in the access points to the stadium and in the stadium in itself. And that trended out approximately 30% under the prior regulations, although, again, going back to what I said earlier, the evidence was that the sort of professionally run stadia that had very well-developed protocols in this area meant that there was no evidence at this point that, that was an infection risk.

That's very helpful. And could we dig a little more into this deeper backed European Premier League and what the impetus is? It sounds like supporting lesser teams, but just sort of flesh that out a bit and what the advantages of a larger league would be?

Are you referring to what was in the press yesterday? Or are you referring to what --

Yes.

Okay. I saw the reports on that. And candidly, don't know where that story came from. But there isn't really anything for us to say. We are engaged on a very regular basis through my role within ECA and also on the UCC SA with UEFA. With those 2 entities, ECA and UEFA, talking about potential changes to the Champions League from '24 onwards. You might have read, I think, 2 or 3 days ago in the press, there was a story about whether the Champions League may go to 36 teams. That -- they're the conversations that we are actively involved in. So I can't comment on your question.

Fair enough. And then the last one was, can you talk a little bit about the Premier League's contract in China? And what the expectations are in terms of a new deal? I mean it sounds like you guys have -- it's very popular over there. So I guess your vision would be for a longer-term contract, higher pricing?

Yes. If you heard the call earlier, you'd have heard Richard talk about what happened there. So assuming you're up to speed with regard to that. Absolutely, the plan on the back of getting a fantastic partner in, which is Tencent in China for a -- you could view as a stop-gap period of 1 year. It's pretty incredible actually that they managed to lock that in so quickly. The plan now is to go back to market in due course in a much more measured way and try to do a 4-year deal to get us back, lockstep with the cadence of the cycles. So that will happen in the coming months.

And ladies and gentlemen, this concludes today's question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.