Manchester United PLC (MANU) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Manchester United plc first-quarter fiscal 2013 earnings conference call.

At this time all participants are in a listen only mode. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. (Operator Instructions). I would like to remind everyone that 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 estimate or forward-looking statement 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 Ed Woodward, Executive Vice Chairman of Manchester United. Please go ahead, sir.

Thank you very much, and thank you all for joining us this morning. With me on the call today are Michael Bolingbroke, Chief Operating Officer, and Hemen Tseayo, Head of Corporate Finance.

Our first-quarter results, which included our first 50 days plus as a public company, were highlighted by especially strong commercial revenue growth and represented a very solid start to fiscal 2013. This was a record quarter for Manchester United.

In addition to our successful IPO, the proceeds from which we used to reduce our total debt by 18% since the end of fiscal 2012, the first three months of fiscal 2013 included several significant developments to underscore the strength of the Manchester United brand and indicate the direction this business is headed.

We discussed a number of these during our 2012 year-end call in September, however, a few deserve repeating. First of all, we signed the record share deal with General Motors for Chevrolet to become our new shirt sponsor, starting with the 2014/2015 season and worth $559 million. This amount excludes investment in marketing (technical difficulty) spend in addition to activate those rights.

This also includes two $18.6 million payments in this year and next, which we started to record in our accounts and which contributed to the 24% growth in commercial revenues in the first quarter compared to last year.

We signed several new global, regional and telecom deals in the quarter, 10 in all, including our first ever in the Commonwealth of Independent States, which was with Bakcell in Azerbaijan. We opened our commercial sales office in Hong Kong, the first of its kind for the Club outside the UK. The team we have assembled in Hong Kong will allow us to better strategically target the abundance of growth opportunities that have emerged as a result of the Club's growing popularity in Asia. The early return on this investment is evidenced by our recently announced partnership with a Japanese soft drinks maker, Kagome.

The Hong Kong team has already identified a host of potential new sponsorship prospects across several categories and several countries. We look forward to sharing completed deals in the near future with you.

Old Trafford played its part in a very successful Summer Olympic Games, hosting nine matches, which not only provided our Matchday business with a one-time boost of approximately GBP2.5 million in the first quarter, it also showcased Old Trafford as one of the premier sporting events in the world -- sorry, venues in the world -- and highlighted additional revenue streams that are potentially available to us.

And from a sporting perspective the 2012/2013 current campaign is off to a very good start with the team sitting top of its group in the Champions League, qualified now into the next round, and currently in first place in the Premier League.

Since the first-quarter closed there have been new developments that have further strengthen our conviction about the long-term outlook for this business.

We successfully negotiated the buyout of the final two years of our training shirt deal with DHL, which will now end following the current season. DHL has been a great partner for us and will continue to be our global logistics partner going forward.

Nonetheless, in the light of recent shirt sponsorship deals and other deals, including our own with General Motors, we believe we are in a position to secure a material step-up in the unique training kit deal that we pioneered when we first partnered with DHL a couple of years ago. We've been planning this since the GM shirt deal was completed.

It has been reported that NBC has won the broadcasting rights to the Premier League in the US in a three-year deal worth approximately $250 million. While the total amount of the Premier League international broadcast rights has not yet been finalized, the new US deal represents a significant increase over the previous three-year deal with Fox for about $80 million that will expire at the end of this season.

I will now turn the call over to Michael.

It is Hemen Tseayo. I will continue with the Finance section until Michael Bolingbroke is able to dial back in. Thanks, Ed, and good afternoon everyone, and good morning to those in the United States.

I am going to review our first-quarter 2013 financial results and provide the relevant comparisons with the same period 12 months ago, with explanations as to any material movements. I will then hand back to Ed to provide our guidance for fiscal 2013. And then we will open up the call for questions.

For those of you new to our business, we account from July 1 each year through to June 30 of the following year, as this follows the pattern of the playing season. And so what I refer to fiscal 2013, for example, I am referring to the year ended June 30, 2013. This report, therefore, covers the period July 1, 2012 to September 30, 2012, unless I mention otherwise. All figures are UK pound sterling.

Our first quarter covers a period that includes our preseason tour, the main transfer window, and the start of the Premier League and UEFA Champions League seasons. And from a macro level, I would reinforce what Ed had said. We had a very solid start to the year, both on and off the pitch, and we are confident about our outlook for the future.

Please bear in mind that looking at our business on a quarterly basis, and in particular comparing quarters from different years, can sometimes be misleading due to the timing differences of various games.

Our key metrics are as follows. Total revenue increased to GBP76.3 million from GBP73.8 million in the equivalent quarter last year, an increase of 3.4%. Net income is GBP20.5 million, which compares to a loss of GBP5 million in the first quarter last fiscal, a GBP25.5 million swing.

And adjusted EBITDA, which is the measure we use to monitor ongoing operations, finished at GBP16.3 million, which compares to GBP19.3 million in the prior year, a drop of GBP3 million or 15.5%. This figure of GBP16.3 million is very much in line with our projections.

And at this point I will hand back to Michael Bolingbroke to carry on.

Yes, good morning everybody. My apologies for that slight technical hitch. And thank you for stepping in, Hemen.

So looking now at revenue. Our revenue of GBP76.3 million is most easily done by looking at each of the three sectors -- Commercial, Broadcast and Matchday. Commercial revenue for the year increased 24% to GBP43 million. All three components of Commercial revenue showed material increases.

Firstly, sponsorship. Revenue from sponsorships increased by 32% to GBP27.8 million due to the additional -- due to the addition of new global and regional partnerships and the step-ups in some of our deals.

These figures include partial recognition of the pre-sponsorship payments under our new deal with General Motors Chevrolet totaling $18.6 million this fiscal year. These payments relate to exposure being gained by Chevrolet in the run-up to the period there on our shirt.

Secondly, Retail, Merchandising, Apparel & Product Licensing. Revenue increased here 12% to GBP9.4 million. This increase is as a result of an uplift in the recognized amount of surplus profit generated through our joint venture with Nike.

Finally, New Media and Mobile. Revenue here is also up and increased 12% to GBP5.8 million. This is due to the negotiation of new mobile partnerships, taking the number of countries in which we have a mobile partner now to 44.

So moving to Broadcast revenues. For the period these decreased 37% to GBP13.7 million. It is important to note that this GBP8.2 million decrease was in line with our projections. The majority of this decrease, GBP5.6 million of it, relates to timing differences. In the first quarter we played only one Champions League match compared to two in the first quarter of the prior year. This difference will unwind, of course, in the second quarter.

Secondly, we also received a GBP2 million receipt in Q1 of fiscal 2012 as UEFA finalized their accounts for fiscal 2011. Again, this is a timing difference and we will receive a similar truing-up payment for fiscal 2012 in the second quarter of this year.

And, finally, we have four live Premier League broadcasts in the first quarter compared to six in the prior year. This tends to be a function of the opposition and the other fixtures that are available at the time, so we have every expectation that that number will also balance out over the course of the year.

Now one difference that is permanent is the effect of our coming first in the Premier League in the 2010/2011 season. This meant that 40% of the fixed element of the UEFA market pool was allocated to us during the 2011/2012 season. By contrast coming second in last year's Premier League would have ordinarily meant that this percentage was cut to 30%. However, when Chelsea won the Champions League they gained automatic qualification into the competition even though they finished outside the top four in the Premier League. Our 30% was then cut to 25% as a result of this. So this has caused a comparative difference.

So overall this movement in Broadcast revenues underscores the timing differences that I mentioned occur on a quarter-by-quarter basis. And further when you are just looking at the first quarter in isolation, the relatively low number of games played exacerbates the effect of these differences.

So, finally, Matchday revenues for the year, these increased 13.3% to GBP19.6 million as a result of our hosting nine matches for the Olympic Games. We also played a League Cup game at home, which was played away in the equivalent quarter a year earlier. And although domestic Cup competitions have gate share arrangements, the size of our stadium makes it more lucrative for both teams if we are drawn as the hosting venue, hence an increase in our Matchday revenue for that reason.

With regards to the Olympics, we were obviously delighted to take part in the very successful London games, and are continually exploring other ways to monetize Old Trafford by hosting other events, both sporting and nonsporting. That said, we don't anticipate an event of this size in the first quarter of next year, so please take this one-time benefit into account as you update your models going forward.

Now moving down to operating expenses, these totaled GBP74.8 million for the quarter, an increase of 12.7% on a cost of GBP66.4 million in the previous year. There are three key elements here. Firstly, player and staff compensation; this totaled GBP40.3 million compared to GBP37.9 million in the prior year.

Headcount has increased significantly in this period from 670 to 735, with the growth focused mainly in our commercial areas as we increase the sales force both here and abroad, and the support teams that help clients activate their sponsorship rights. We are also investing in talent to drive our growth in digital media.

It is important to note that our player and staff compensation for the first quarter does not include the full quarterly wage bill associated with all players as a number of players joined the club during the quarter. Therefore, we expect the run rate for this item to be materially higher over the remainder of the year. And for the full year, however, we are still in line with our projections.

It is advisable, therefore, not to extrapolate this quarterly figure over the full year, as an element of this cost base is also linked to games played in the period.

Now, secondly, the variable costs increased by GBP2 million from GBP6.3 million to GBP8.3 million as a result of managing the nine Olympic games that we hosted and the League Cup game that was drawn at home this year. Preseason tour costs were also higher.

Thirdly, we booked GBP3.1 million worth of professional fees related to the IPO as an exceptional charge. There was nothing booked in the equivalent quarter in the previous year.

Now after taking account of the above, and also GBP4.8 million profit on disposal of players registrations, we generated an operating profit in the first quarter of GBP6.3 million.

Net finance costs for the quarter totaled GBP12.4 million, a decrease of GBP6.9 million, 35.9%. There are three main contouring elements behind the movement. The primary reason for the decrease is attributable to the translation of the Company's US dollar denominated senior secured notes at the end of each quarter. This resulted in an unrealized gain of GBP7.6 million in the quarter. We had a loss in the equivalent quarter in the prior year of GBP6.3 million, so the net positive effect is GBP13.9 million.

This was partly offset by a GBP3.3 million increase due to the premiums paid on repurchases of US dollar denominated senior secured notes, and a GBP2.3 million increase in accelerated amortization of debt issue costs on notes repurchased with proceeds from the IPO.

Following the repurchase and retirement of $101.7 million worth of our US dollar bonds, our interest costs run rate for bonds has fallen GBP5.3 million per year to GBP30.8 million per year.

As I detailed on the fiscal 2012 call, these foreign exchange gains and losses are not a cash benefit or charge and could reverse depending on dollar/sterling exchange rate movements. Any gain or loss on a cumulative basis will not be realized until 2017, or earlier if our senior secured notes are refinanced or redeemed prior to their stated maturity.

Note that our exposure to translation risk on FX movements has been reduced following the partial paydown of our US dollar denominated senior secured notes with the proceeds from the IPO.

Now with regard to the tax line, we have a tax credit of GBP26.5 million. The equivalent quarter in the prior year showed a credit of GBP1.4 million. This increase of GBP25.1 million has resulted primarily from the recognition of a deferred tax credit of GBP27 million.

In restructuring the Company following the IPO, the Company's opening tax position was the Glazer family's closing position. And we are still working with our advisors on finalizing the resultant deferred tax effect. So what you see here is our current best estimate and there could be further movement on this figure. And I, of course, will update you on this on our next quarterly call.

So to summarize the overall position, total revenue at, as Ed said, a record of GBP76.3 million; net income at GBP20.5 million; and adjusted EBITDA at GBP16.3 million. This equates to a basic EPS of 13p compared with a basic EPS of minus 3p for the prior year.

Now turning briefly to cash flow and notable balance the movements. Our cash balance at the end of this quarter was GBP52.5 million, and we have access, of course, to a GBP75 million revolving credit facility. We generated GBP9.3 million from operating activities over the three-month period, an increase of GBP10.9 million in the period.

Net capital expenditures on property, plant and equipment for the quarter were GBP3.4 million, consisting mainly of ongoing investments in the team's training facilities at Carrington. This represents a decrease of GBP10.4 million from the same period a year ago, during which we acquired an GBP8.1 million investment property portfolio adjacent to Old Trafford.

Net player and capital expenditure for the first quarter was GBP29.5 million compared with GBP47.1 million a year ago. Expenditures in the current quarter are mainly related to the acquisitions of Shinji Kagawa and Nick Powell, and the first of two payments for the purchase of Robin van Persie.

Net cash generated from financing activities for the quarter was GBP7.6 million, an increase of GBP30.7 million from the GBP23.1 million in cash used in the prior year. The significant increase reflects the GBP70.3 million of proceeds raised through our successful IPO in August.

This leads me to my final piece of commentary. With the proceeds from our IPO we repurchased and retired GBP62.6 million of our senior secured notes, comprising $101.7 million of US denominated notes. As a result, our total borrowings at September 30, 2012, were GBP359.7 million, a decrease of 18% compared with GBP436.9 million at June 30, 2012.

Thank you very much, and I will now turn back to Ed for closing comments.

Thanks, Michael. As indeed all three of us have said, we have been very pleased with how the year has started by on and off the pitch. Based on our first-quarter results and current visibility we remain confident that we can achieve our previously stated targets for fiscal 2013 of revenue between GBP350 million and GBP360 million, and adjusted EBITDA of GBP107 million to GBP110 million. Longer term we remain bullish about the abundance of opportunities that are available to accelerate the growth of this business, especially within the Commercial segment.

Over the past few years we put assets in place, both personnel and systems, that are significantly improving our ability to selectively and strategically monetize the brand. We have already witnessed the early benefits of our Commercial strategies and expect the returns to increase meaningfully as our sponsorship Retail and New Media ventures further unfold in the years ahead.

Operator, we are now ready to take questions.

(Operator Instructions). Randy Konik, Jefferies.

So a couple of questions guys. I guess first on the DHL deal, you gave us some color on your thoughts behind that. So I am just trying to get the -- what happened -- were you getting other competing offers or something for the training kit? I am just trying to get a sense of what happened there. And does this mean that you could look to -- potentially look to renegotiate other global deals, et cetera?

That is my first question. My second question is from an Asia office perspective it sounds like we're going to start to see the benefits of that office opened up. I just wanted to know very simply are the people largely in place in the Asia office?

And related to that, in the US office, or the planned US office, where are we in that regard? When is that going to open?

And then, just lastly, international Broadcast rights, when can we expect to see those announced? Thank you.

Thanks, Randy. I think that is three questions. So the first one on DHL, the planning on this really started post the GM deal, which obviously was done right before the IPO. So we had gone through that process. We are obviously always monitoring the value of our rights. We are talking to a large number of companies at any given point in time. We felt confident that we should look to engage with DHL to try to buy them out, and therefore give us the opportunity to go back to market and improve various terms related to that deal, including amount, duration and indeed the rights package.

So a lot of things really came together for us to make that decision, and after some heavy negotiation we got to that point. So we're very, very happy about that.

We are not planning to, as we sit here today, renegotiate other deals, but obviously as I say, we are -- we feel we are at the forefront of the industry in many regards and we feel we know with some clarity the value of our rights, so we will continue to monitor. Clearly the training kit deal is one of our top principal partnerships, so I think that explains why we have done that deal. I think other global deals we are probably less likely to do in future from a buyout perspective.

The second question relates to the international offices. Yes, we have people in place on the ground doing deals, as we referenced with regard to the Kagome soft drinks deal in Japan, and indeed the large number of processes that are underway across category and across country and region there. So, yes, that is populated with sales and sales support people under Jamie Reigle.

The US office plan that you may have read -- I mean, I think the way I would answer that is say we view the US as a key strategic market for us in all of our main growth areas of the business, so sponsorship, merchandising opportunities going forward, and obviously digital media.

I think the latest stats that we have had around TV viewership show a large number of the US people watching us live, in fact, as much as those that watch us live in the UK. So we view the US as the next natural place for us to open up a regional office, and we will update you as we go through 2013 in that regard.

And the final question, I think, was international Broadcast. I obviously mentioned the NBC deal earlier. Things are filtering through now. There is the China deal that has been done. We would hope to be able to guide you as to where this is coming out on the next call in three months' time, but I can't give you any more clarity than that.

Okay, that is fair. Great, that was very helpful. Thank you.

Michael Senno, Credit Suisse.

I just had a question in regard to a few months back there were some reports that the Premier League teams were all holding meetings over a couple of days to discuss some potential salary restrictions. And I want to see if there is any update on an outcome or a timeframe for that, and if then you had a viewpoint on those proposals?

Yes, the update is we are supportive of proposals broadly mirroring financial fair play, which obviously, we abide by already. And those discussions have developed, and there is indeed a meeting this week with the Premier League, so all of the Premier League teams and the Premier League, to continue to the dialogue around that, but I can't tell you any more than that at this stage.

Okay, and then just one other question in regard to the player cost. It seems like you guys have a pretty good visibility with most of the contracts locked in. Given that there is a significant step-up in the TV rights next year, does that commiserate in a larger than usual step-up in player contract salaries?

Clearly, there is a historic link between Premier League teams making more money from Premier League central funds, and therefore they are having an inflationary impact on players. I think we are very focused on our sales. We have got a lot of unique revenue streams that put us in a different bracket with regard to inflationary pressures in that regard.

To some extent our players and the players that we are looking at comparing themselves to salaries they may get across Europe. So I don't think it is directly necessarily impacts us. We will just continue to maintain a careful control over our player wage inflation and do the best we can in that regard.

So I think it is the kind of thing where you have to see what happens in the next one or two years. We are not saying there won't be inflation in wages, but we think that there other factors that allow us to control it.

Okay, thank you.

(Operator Instructions). Doug Mitchelson, Deutsche Bank.

Hi, this is Brian Russo for Doug. Just a follow-up on the question regarding the Premier League owners in discussions for kind of a stricter version of the financial fair play regulation.

I guess one thing that we are wondering is if a player salary inflation cap or something of that nature were to be put in place wouldn't that put the Premier League at a competitive disadvantage versus some of the other European leagues who say -- whose players wouldn't be restricted to that kind of thing?

I think the key here is to understand what it is trying to achieve. It is not trying to restrict teams from competing for players. I think the reality of the Premier League teams is that we are, as a collective group of 20 clubs, extremely well off relative to other European teams because of the way the collective works.

I think what we are trying to do is just try to impose some parameters around how clubs use the funds that they are receiving on a collective basis, so that we don't end up with a lot of clubs making annual and regular losses.

So I think even with an element of restrictions around that, keeping clubs to a breakeven or restricting in some manner, I think if you compare place by place, team by team come across Europe, we compare very, very favorably. So I think we will continue to attract the top players even with restrictions into the Premier League.

I understand that. I guess my question is it seems like the financial fair play regulations that UEFA has proposed already achieve a lot of the goals that you were talking about. So what, I guess, would be the differences that you are -- at least in initial discussions that the Premier League is having that would differentiate those from what the financial fair play regulations currently are trying to achieve?

There are a number of different parameters that are being discussed, one of which is breakeven. And I think the dialogue will continue, and we will obviously inform you as we progress. The key difference is clearly financial fair play currently [abides] for the teams that are playing in UEFA for competition, so the Champions League and Europa League. So if you finished broadly speaking in the top six, if you win the UEFA Cup you get into those and you have to demonstrate that you comply to get the UEFA license when you send in your half-year results.

So that -- all we are talking about effectively is extending that from the seven or so teams in the Premier League that will have to -- currently have to abide by financial fair play to all 20; that is the key difference.

Understood, thank you very much.

(Operator Instructions). Michael Nathanson, Nomura.

Thanks, I have three. Here is the order. So, the first one is, is there any update on the Nike deal? There are some press reports that perhaps you guys have started talking with them, or even negotiating with them, about the next series of deals. So can you give us an update on Nike first?

Sure. There is no update on Nike. We continue to look forward and do our work sitting down with them, likely to be from the start of February -- there is a six-month -- [you will see a] negotiating window than. But, no, there is no update at this stage.

Okay. And then on Olympics, I think you mentioned GBP2.5 million revenue benefit, right, it was GBP2.5 million? And what is the expenses tied to that revenue? So how much of the expense growth this quarter was tied to the Olympics as well?

Sure, Michael, would you like to answer that?

Yes, the GBP2.5 million for the Olympics, Yes, there was a -- there were cost attached to that of about GBP1.1 million.

Okay, thanks. And then, lastly, you mentioned the ten new sponsorships. I wondered -- taking out GM, because you have already talked about GM, what is the impact of those ten -- call them nine deals -- on revenues this year? So how big is the revenue bucket with those nine deals together?

I'm not going to give guidance on individual deals or even smaller groups of deals like this. What I would say is deals done part way through the year tend to have a lag effect on our numbers. So, for example, if you do a deal in October it maybe that there is a partial year payment if the rights are being delivered in the current season. But you may also find that the actual rights start a year -- first of July the following season.

So it depends what deal has been struck. And so it actually -- the best thing to do is just look at it all in the round, and the best way to do that is look at our commercial numbers quarter-on-quarter to see how they develop. But all I can say is it is clearly a positive thing that we are executing, completing these deals at the rates that we are currently doing.

Okay, and for GM, GM did benefit you in this current quarter?

Correct, so GM we have been quite open about, which is $18.6 million this year and next. So that will be included in the numbers throughout this year.

Okay, thanks.

At this time we have no other questions. I would like to turn the call back over to Mr. Ed Woodward for your final remarks.

So thank you very much everybody for joining us today. And we look forward to updating you on our progress related to quarter two in a few months' time. Thank you very much.

Ladies and gentlemen, this concludes your presentation. You may now disconnect. Have a good day.