Manchester United PLC (MANU) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Manchester United's fourth-quarter and 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.

(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 estimates or forward-looking statements should be considered in conjunction with the cautionary notes 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 Mr. Ed Woodward, Executive Vice Chairman of Manchester United. Please go ahead, sir.

Thank you very much operator, and thank you everyone for joining us today for our full-year results call. With me on the call today are Michael Bolingbroke, our Chief Operating Officer, Hemen Tseayo, Head of Corporate Finance, and Samantha Stewart, who joined us in June as Head of Investor Relations. A lot has happened since our IPO last year, and we are delighted with our achievements in our first year as a listed company. On the pitch, our club excelled and delivered yet another Premier League Title, a record 20th English League title. Off the pitch, we've also set records by generating higher revenues than ever before, as our commercial business delivered an impressive 30% growth, with sponsorship revenues up an outstanding 44%.

The past few months since our last call have been particularly eventful. Sir Alex Ferguson announced his retirement after an unparalleled 26-year career at the club, during which he won 38 trophies. As we pay tribute to Sir Alex and his remarkable achievements, we are delighted to welcome David Moyes as our new manager, who Sir Alex strongly endorses as his successor. We are delighted to have David on board, as his experience, integrity, and outstanding work ethic make him a perfect fit for this club. He's already won our first trophy of the season, our 20th FA Community Shield Trophy, in August.

Our commercial business continues to be a strong engine of growth, since the balance sheet dated June 1, we've signed on now several new deals, welcoming two new global partners. Aeroflot is our international airline partner and Bulova is our timepiece partner. Four new regional partners, Pepsi as our soft drinks partners in seven territories in Asia, tires partners, including Federal Tyres in Taiwan and Russia, Apollo Tyres in four countries, and finally Manda Fermentation, our nutritional supplements partner in Japan. We've also added 10 financial services, telecom and MUTV deals, including the renewal of MBNA in the UK, and new deals with Commercial Bank of Qatar, Emirates NBD, INVEX Bank in Mexico, Skynet and TV 2 as MUTV partners in Myanmar and Norway and True group as a mobile MUTV partner in Thailand.

Since acquiring the remaining stake in MUTV from BSkyB earlier in 2013, we've made good progress on our digital media assets. In May, we hired David Sternberg, a former Fox Sports executive to guide our new digital media strategy and platform expansion. Over the past two months, we have successfully launched on both Twitter and Sina Weibo, as well as official pages on Google Plus, Instagram and Renren. Here are some statistics I would like to share with you.

On Twitter, as of today at 9 o'clock this morning, UK time, we had 994,000 followers, making it the fastest-growing sports feed on Twitter over the first month post-launch. We're hoping to reach 1 million sometime later today. We are the first fastest-growing presence on Twitter in the first 24 hours after only the Pope and the Clintons. On Sina Weibo, we have 1.1 million followers, and United was the fastest-growing sports team on the platform, in the first month post-launch, with twice the rate of growth as the second fastest club previously. Also, we became the number one Premier club on Instagram within 24 days of launching our club page.

On international broadcast rights, the Premier League has not yet publicly released the total size of the new deal, but indications are that the clubs will be getting an increase around 35% to 38% on the previous three-year deal. On the pitch, we've also strengthened the first team through the acquisition of Fellaini and Evra, and Wilfried Zaha joins the squad to be on loan with his former club since the acquisition in January. With no player disposals, we not only have just a strong squad, but also a very deep one, and well-positioned for the season ahead. We continue to make significant investments in talent and infrastructure to grow our business. A year ago we successfully opened our Hong Kong office, and have been very happy with the pace and quality of the partnerships we've entered into in Asia.

During the IPO raise share last year we walked you through how we would use a scalpel rather than a spade when segmenting on our sponsorship opportunities across categories and countries. We believe that many categories can generate a higher profitability when explored on a regional, rather than a global basis. For instance, with soft drinks, we have three partnerships covering nine countries, and with players, we also have three partnerships covering seven countries. We remain convinced there are huge commercial opportunities out there, both in terms of categories as well as countries, and we are excited about the growth ahead.

Before I turn the call over to Michael to discuss our financial performance, you will be aware that in June we refinanced all our sterling bonds and a small portion of our US dollar bonds with a new cheaper term loan, resulting in interest savings of around GBP10 million per year. This transaction highlights the robustness of our balance sheet and strength of our underlying business. Michael, over to you.

Thank you, Ed, and good morning everyone. I'm going to focus my remarks on the full-year numbers, as the seasonal nature of our business doesn't lend itself to single-quarter analysis without significant explanation or understanding. Furthermore, as I have mentioned before in previous calls, unless I mention otherwise, all figures are in UK sterling. We've announced our fiscal 2013 results today with revenue up 13.4% to GBP363.2 million, and adjusted EBITDA up 18.6% to GBP108.6 million. In the top half of our guidance range, and reflecting, in particular, strong performances in our commercial and our Matchday businesses.

We've added the new metrics of adjusted net income, and adjusted EPS. As we believe in assessing the comparative financial performance of the business, it is useful to strip out the distorting effects of material charges and credits related to one-off transactions, such as the IPO, including the associated recognition of deferred tax assets or liabilities, the repurchase of a portion of our US dollar bonds in September, and the refinancing in June. Then, to apply a normalized tax rate, of the US statutory rate of 35% for both the current and the prior periods. There is a reconciliation to these numbers in the earnings release. Adjusted net income grew 282.2% to GBP17.2 million, and adjusted earnings per share increased 266.7% to GBP0.11. This highlights the improved underlying financial performance of the business.

Instead of going to every item in our P&L, I think what might be more useful would be to highlight key metrics on which you should focus. Firstly, our EBITDA margins improved 1.4% to 30%, as our commercial business grew strongly. In 2012-2013, it represented 42% of our total revenues. That's the commercial business, represented 42% of our total revenues, versus 36.7% last year. Now, within the commercial business, retail, merchandising, apparel and product licensing revenue grew 14.2%, and new media and mobile revenue grew 11.1%, while sponsorship revenue increased by 44.1% to GBP90.9 million, due to the addition of new global and regional partnerships and renewals at improved rates.

Broadcast revenues were down very modestly, due to the market pool element of our champions league distributions for fiscal 2013 being based on a 25% share for finishing second in the premier league in the prior season, versus a 40% share in fiscal 2012 for winning the premier league in 2011. 2013's share should have been 30%, but for the unusual circumstances of Chelsea winning the Champions League in 2012, but then finishing fifth in the English Premier League. Their required inclusion caused a dilution of the payments to other participants.

Now, Matchday revenues were up 10.5% to GBP109.1 million, as we hosted five home Domestic Cup matches in fiscal 2013, compared to only one in fiscal 2012. We also hosted a number of matches during the 2012 Olympic Games. Operating expenses increased 8.8%, as we've increased staff numbers to support the expansion of our commercial business and had higher variable costs associated with a greater number of Domestic Cup games. Overall, we generated an operating profit of GBP62 million in the year, and that is an increase of 38.2% over the same period last year. Net finance costs for the year increased GBP21.3 million to GBP70.8 million, and this is primarily due to the premium paid on the redemptions of senior secured notes in 2013, and the retirement of notes following the IPO. Clearly, following these actions, our underlying run rate will be lower in 2014, and I'll provide guidance on that when discussing our outlook.

With regards to the tax line, we recognized a large tax credit during the quarter of GBP134 million. But, I want to highlight that this is a non-cash credit, which relates to the recognition of US deferred tax assets as a result of reorganization transactions related to the IPO. In the past, we've discussed cash flow and balance sheet statements, but since we provided detailed information in the release, we will save that time, and allow a longer period for your questions. First, turning to the outlook for fiscal 2014, we currently expect total revenues to be in the range of GBP420 million to GBP430 million, and for our adjusted EBITDA to be in the range of GBP128 million to GBP133 million.

I'd also like to give some color on a few other items that you may find instructive when modeling our company. We currently expect amortization of player registrations to be approximately GBP49 million, and as you know, this can change if we either extend the players' contracts or, obviously, buy or sell a player. We currently expect interest expense of approximately GBP26 million for the fiscal year 2014. Now, regarding our tax rate, excluding the impact of truing up our estimates of the step-up element to the deferred tax asset, we expect our effective tax rate to be approximately 35% for 2014. This will vary, subject to the relative magnitude of permanent differences. I'll now turn the call back to Ed for closing comments.

Thank you, Michael. We remain very excited about our business and its great potential. As we mentioned before, the value of live sports continues to increase, which should lead to far greater broadcasting revenues. Disney's CEO recently reminded everyone during their earnings call that most sporting events are watched live, and are DVR-proof making it incredibly valuable to advertisers, as well as cable operators. I also want to share a quote Rupert Murdoch used during analyst day in August 2013. There's a reason sports cost a lot. It's the most important content on television, period. This is the content that drives new technologies, defies manipulation, and advertisers crave. We couldn't agree more.

Many of you will have taken a subway in New York recently or walked around Times Square, and encountered all the recent NBC ads for the Premier League. The early statistics look very encouraging. NBC reported that they had the highest viewership of the games broadcast during the opening weekend, and showed viewership growth of 78% above the ESPN and Fox Soccer average for their opening weekend last year. The peak viewership for the first Manchester United game against Chelsea a couple of weeks ago was broadcast in the middle of the afternoon on a Monday in August, was NBC's biggest weekday afternoon audience since the Olympics. We are encouraged by the statistics and the potential growth in the US market. With regard to Nike, the renegotiation of a deal we entered into in 2001 presents a great opportunity, and we believe the repricing at current market rates will be attractive. Discussions with Nike are ongoing, and as we previously stated, as soon as we have news, we will share it with you.

I'd like to reiterate that we continue to make a lot of progress on digital media. The new platform is due to launch in late 2014, with meaningful revenue contribution likely starting in 2015, 2016. We are working hard to refine our strategy and won't rush to launch until we are ready. Our Facebook following continues to grow at an incredible rate, as does our CRM database, demonstrating the strength of our brand, and the depth of our loyal following of 659 million fans worldwide.

I recognize that player costs and financial fair play remain hot topics as transfer fees hit record levels this summer. As we have said, and we continue to believe, FFP will have a positive impact in the long-term, and already we've seen many actions taken by UEFA to sanction teams that have breached the rules. Let me share with you some of the recent takeaways from the UCA meeting I attended last week. Five clubs that had qualified did not receive a license from UEFA for this year's European competitions. Part of the financial fair play rules require simple creditors to be paid on time. These rules started earlier in the breakeven test, and began two years ago. These overdue payables have reduced from EUR57 million in 2011 to just EUR9 million in 2013, demonstrating that clubs are reacting to the financial fair play rules.

Wage growth overall has slowed, and for the first time in years, it's been eclipsed by revenue growth. The latest figures show a EUR600 million reduction in aggregate losses of Europe's First Division clubs in the last financial year, after six years of increasing losses. We will continuously look at ways of making our team even more powerful, while managing closely the cost side. We expect overall wages in financial year 2014 to be up in the low mid-teens percent, due to a mixture of increasing staff headcount and step-ups in player costs from new and existing players.

So, in summary, we are excited about the year ahead, and we look forward to sharing our accomplishments with you during 2014. Thank you, and we are ready to turn to questions, now, operator. Thank you.

(Operator Instructions)

Brian Russo from Deutsche Bank.

Now that it's apparent Nike hasn't taken advantage of the exclusive negotiating window, I was hoping you can give us your latest thoughts on a kit sponsorship and how should we think about the timing of a potential new deal? Thanks.

Thanks. I said earlier on where we were, and I'm not going to give much more. Negotiations with Nike are ongoing. We'll update you when we have something more to say on that.

Okay. Thanks.

Randy Konik from Jefferies.

Can you just give us a little thought process around the digital media side, with MANU TV coming in? Just what are your plans there and how should we be thinking about that business rolling out in the future? On the commercial -- and then just on the commercial revenue side of things, any change in terms of additional product categories or additional sponsorship categories you've been thinking about? Do you still foresee the split of geographically, where these sponsorships are coming from to really acceleration in a large way in Asia? Just trying to get some thoughts process around where we should be thinking about that commercial segment in the next 12 to 18 months? Thanks.

Digital media, first of all, your question about how we are viewing the rollout. I think we have done two major things in 2013. The first being buying back the MUTV share that Sky Television owned. That resulted in for the first time us having, obviously, full operational control of our TV station and as a result of that we've been putting in place a lot of changes within that organization. And indeed, investing in infrastructure around it, which includes HD.

The second thing that we've done, obviously, is to hire David Sternberg, who will act as a lightning rod, the person leading, bringing all these pieces together within our wider media businesses to generate the digital media products as we've described to you in the last year or so. The actual development of the products, the rollout of it, nothing has materially changed with regards to the overall strategy. You will see some early parts with regard to some of the social media launches that we've done, and that's all part of this approach. We expect that the actual products will be launched towards the latter part of 2014, and as I mentioned a few minutes ago, no meaningful revenue, emphasis on the word meaningful, until 2015, 2016.

Your second question was commercial revenues from a category perspective and a geographic perspective. We monitor this all the time. There are opportunities that will pop up, and sometimes aren't even on our list of core 93 that we've identified some time ago. There is -- that really hasn't changed -- hasn't developed further, because obviously, that is already a vast market from an industry perspective that we can go after. Geographical split, I think we've been learning a lot with regard to Asia. I think we are smarter now about how rich, in terms of opportunity from our perspective, the various Asian markets are, having been at the coal face from a regional perspective for pretty much a year now, with the team over in Hong Kong. So, we are better up the curve with regard to which of those markets we would start a new regional product category.

I think the US remains a very big opportunity for us. We have plans in place to roll out and indeed are rolling out, some of the regional deals that we've done in Asia, those categories across America and the rest of the world. So, again, as ever, Randy, I'm not going to give you a guide to how many territories or categories that we expect to deliver in the next 12 to 18 months. But rest assured there are still a great opportunity out there for us, as evidenced by the number of deals that we've announced since the balance sheet date. Two global deals, four regional deals and 10 financial services and media deals.

Michael Senno from Credit Suisse.

I had a question following the refinancing earlier this year. You still have some -- the dollar denominated debt at high yield. Is there any thought on another refinancing that would yield some additional interest savings? In addition, you also, I believe, filed a shelf this morning. I just wondered if there was any timing and thoughts on the secondary offering that is mentioned in that shelf filing? Thanks.

Thanks, Michael. On the refinancing, we are always discussing the market with the lead banks out there and obviously, keep our finger on the pulse in that regard, looking at what products might make sense to consider refinancing. We've got the step down of the coupon in February 2014. So it's probably unlikely we would do anything before then. All I can say at this point, is there are no plans around refinancing that final piece. Hopefully we will be able to give you some more color on that in future earnings calls.

The second question, on the shelf. That is very much ordinary course. As we sit here today, there are no imminent plans around a secondary, or indeed, primary, or indeed, a public security issuance from a debt perspective. Again, on that, we will obviously inform you if there are plans, but as we sit here today, there aren't.

Thank you.

(Operator Instructions)

Bryan Goldberg from Merrill Lynch.

Just two quick ones. One, is on the US market. It's big from a media spend standpoint, also from a potential fan base standpoint. English Premier League teams are historically just under-penetrated here. What are your current thoughts, with respect to targeting the US market opportunity, and what is the best pathway in for the franchise?

So, you're absolutely right. It's underpenetrated. Very, very big media market, the most developed sports market in the world. I think, in particular, from a merchandise perspective, that stands out as the biggest in the world, relative to Europe, when you compare it to other metrics like media or sponsorship. For us, we think the best pathway here is to -- we are being deliberately measured about the US. We obviously have plans around an office. We don't want to do deals that are quick and wrong and tie us up, that we regret afterwards. We're doing a lot of desktop work, a lot of work behind the scenes, if you like, with regard to opportunities there -- you can look at the US market as one whole market. You can look at it as a regional market within the US, or even by city, which clearly is how the NFL teams monetize their brands, on a restricted 75-mile radius of their cities.

We are tracking a lot of research in the US, as well. And anecdotally, we've seen in the last three years or so, the number of people watching Manchester United going up by between 30% and 35% each year over that period of time. So, we believe that there has been an inflection point, possibly 2010, 2011, where the interest levels in football have increased. It's moving away from being a niche sport and much more moving into the territory of competing with some of the top sports in the country. We've seen research done, for example, that shows that it's the second-most popular sport to watch on television for 12 to 24 year-olds within the United States.

Thanks. My second question is just on the fiscal 2014 outlook. I just want to confirm, and I apologize if you already talked about this. Does the guidance assume status quo with the existing Nike relationship? Then, if there's any way you could help us think about or quantify what is -- how much of the profit share element of the deal is potentially recognizable for you, at this point? To the extent you were to renew the deal earlier than its full life?

Thanks. So, yes, it does assume status quo. There's no assumption in there about a renewal, which could bring to boost to the numbers. One being a catch-up of unrecognized profit to date that has been recognized, and secondly, an increase in the amount that Nike would be paying us for a portion of the year or the entire year. The second part to your question is with regard to the profit share. You've seen the numbers that we put in the F-1 and how that's been tracking up. Those numbers are in the range of low teens now in terms of profit share we expect to recognize this year.

Thank you very much.

We now have a follow-up from Brian Russo.

One more follow-up. As we look over the long-term, your Company has a pretty compelling free cash flow generation profile. So, I would like to get your latest thoughts on potential capital return strategy in the future.

Thanks, Brian. We also always, obviously looking at the future growth of the business over many, many years, and clearly recognize what you just articulated. As things stand, there is no update for you with regard to a capital return plan or policy. But we recognize in our GC Premier Management Board perspective, the use of cash has various uses. We don't expect to be building up large levels of cash on the balance sheet in the future. But as things stand, I can't guide you with regard to a current or a future intended policy with that in mind.

And there's no specific kind of leverage target that you think about, is there?

Correct. We're comfortable with the leverage levels where we are.

Perfect. Thank you.

(Operator Instructions)

We have no further questions at this time. I would now like to hand the conference back to Mr. Woodward for closing remarks. Please go ahead, sir.

Thank you. Just to say thank you very much for everybody's time on the call today. We look forward to speaking to you in a couple months with our Q1 results. Thank you.

Thank you very much. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating, and you may now disconnect.