Manchester United PLC (MANU) 2014 Q3 法說會逐字稿

Welcome to the Manchester United third-quarter 2014 earnings conference call.

(Operator Instructions)

And we'd like to remind everyone that this conference is being recorded today. Before we begin, we'd would like to inform everyone that this conference call will include estimates or 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'll now turn the conference call over to Ed Woodward, Executive Vice Chairman of Manchester United. Please go ahead, sir.

Thank you, operator. And thank you, everyone, for joining us today. With me on the call are Michael Bolingbroke, Chief Operating Officer and Director; Hemen Tseayo, Head of Corporate Finance; and Samantha Stewart, Head of Investor Relations.

As you may be aware, Michael Bolingbroke will be leaving the Company at the end of June. And his responsibilities, including stadium operations and finance, will be assumed by current members of the Board of Management team. I'd just like to say, Michael, we wish you the best with your new role. And thank you for your all hard work over the last seven years.

Hemen, who many of you may have met at investor conferences or meetings, will take us through the financials. And he and Michael will be available for questions and answers following the prepared remarks.

Before I address this quarter's performance, I'd like to discuss the team's results this season. The 2013-2014 Premier League season, obviously, concluded last weekend. And we finished a very disappointing seventh, which means we will not be playing any European football next season. Be assured that everyone at the Club is working hard to ensure that our performances on the pitch next season will be what we and our fans expect of Manchester United.

As you're aware, we made a managerial change at the end of April. Following David Moyes's departure, Ryan Giggs, the Club's most decorated player, assumed responsibility for the First Team as an interim manager. We're very grateful to Ryan for holding the reins during this period and the exemplary manner in which he has conducted the role.

We're now focused on bringing in a new manager who will help Manchester United return to top of English football and challenging in Europe. We expect to make an announcement in due course. In the meantime, we continue to be active in the transfer market.

Returning now to the third-quarter results -- we have again generated record revenues in EBITDA, reflecting strong performance across all of our businesses. Our Commercial business continues to perform very strongly, with revenues up around 19% and sponsorship revenues up close to 44%.

We announced two new sponsorship deals during the quarter: Aperol, our new global spirits partner; and EuroFood of Thailand, the Club's first confectionary partner in five territories in Asia.

During the quarter, we also launched an official Club smartphone app, developed solely for use in 17 of our telecom partner markets. The app includes content such as news, [fixtures], player profiles, short-form video, a live match center, and links to other Manchester United apps. It's free to download, with a subscription-based premium content section that includes exclusive video footage.

We first released it for an iOS and Android platform, with Nokia BlackBerry and Windows versions being launched in the next few months. This Club app is outperforming any other football club in all of our launched territories. We believe this launch will provide very important lessons for additional media offering, such as user content preferences, subscription price sensitivity, and best marketing channels to drive acquisition.

During the quarter, we also announced details of our US tour this summer. We'll play matches around the United States, starting in Los Angeles. On April 10, we released tickets for our match against Real Madrid in Ann Arbor, Michigan, on August 2.

This game is sold out, with the presales of tickets selling within 48 hours and the general public tickets selling out within one hour of becoming available. The stadium holds from 110,000 people and is expected that the match will break the US record for highest attendance for a soccer game ever.

I will now turn the call over to Hemen.

Thank you, Ed. And hello, everyone.

I will review our results for the third-quarter FY14. And for anyone new to our announcements, 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. And as usual, unless I say otherwise, all figures are in UK pounds sterling.

Total revenue was up 26% to a third-quarter record of GBP115.5 million, with adjusted EBITDA up 60%, to GBP40 million. Our EBITDA margin for the quarter was 34.6%, compared to 27.3% in the third quarter of 2013.

Consistent with previous announcements, we've included both adjusted net income and adjusted earnings per share, as we believe that, in assessing the true comparative financial performance of the business, it is useful to strip out the distorting effects of material debits and credits unrelated to the underlying business. And then, to apply a normalized tax rate of 35% for both the current and prior periods. And we provide a reconciliation of this in the earnings release.

Adjusted net income, then, was GBP13 million for the third quarter, compared to GBP4.1 million for the third quarter last year. I won't address every line item here, but will highlight the items that we believe are worth discussing on the call.

In our Commercial business, sponsorship revenue increased by 43.5%, to GBP30.7 million, due to a combination of new deals, coupled with uplifts from renewals of existing relationships. Merchandising, apparel, and product licensing revenue was down modestly for the third quarter, but is up 0.4% for the year to date.

New media and mobile revenue decreased GBP1.7 million, as we continue to develop our broader digital-media strategy. We believe the recent launch of the smartphone app, which Ed referred to earlier, will help strengthen our relationship with our telecom partners, providing them with tangible value from improved content, increased customer engagement, and higher data usage.

Broadcasting revenues were up 64.1%, due to increased revenue from the new Premier League domestic and international rights agreements, as well as two additional home League games and having five more League games broadcast live in the quarter, versus the prior-year period. Matchday revenues were up GBP3.1 million in the quarter, reflecting the additional two home League games and one home Capital One Cup match, which were partially offset by three fewer FA Cup matches.

Operating expenses then, increased 15.8%, due primarily to player acquisitions and renegotiated player contracts. Our net finance costs, at GBP5.9 million, were GBP12.4 million lower in the third quarter of last year, due to interest savings, as a result of our refinancing in June last year, and our hedge accounting strategy, which reduces the FX fluctuations in our income statement.

Looking ahead to the fourth quarter, we expect the full-year FY14 wages will be up in the high teens, percentage-wise, slightly higher than we had previously indicated, largely due to player contract negotiations and increased appearance fees.

Based on our third-quarter results, seventh place finish in the League, and current visibility, we remain confident that we will achieve our previously stated guidance for the FY14 of revenue between GBP420 million to GBP430 million, and adjusted EBITDA of GBP128 million to GBP133 million.

I'll now turn the call back to Ed for closing comments.

Thanks, Hemen.

Anticipating some of the questions that are frequently raised, let me just, briefly, touch on a few of them. First of all, we continue to have very good discussions with a number of parties, regarding our technical partner, global retail apparel, and product licensing business. As advised on several previous calls, we will update you only when we have something to say on that matter.

Secondly, due to the relatively high broadcasting revenues in FY14, we estimate that the isolated impact on FY15's EBITDA from not qualifying for European football will be in the mid-GBP30 millions. This includes a 15% reduction in the price of executive facilities next year, which we recently announced.

Finally, recent news has indicated that UEFA is taking a strong line on clubs that breach FFP rules. We continue to support FFP and believe it will help control player CapEx and wage inflation. We also believe the quality of the Club's Academy will be a key differentiator as FFP begins to take effect.

With that, I will conclude our remarks and invite your questions. Thank you.

(Operator Instructions)

Matthew Walker, Nomura.

First thing is, I was wondering if next year's guidance is going to include -- for 2016 -- is going to include re-qualifying immediately for the Champion's League?

Second question is, can you walk us through how you get to GBPmid-30 million EBITDA impact for no European football? As I thought the impact was probably a bit less than this.

And also, could you address the issue of player wages, notwithstanding FFP, but are there going to be any big payoffs this year, for the manager et cetera? I was anticipating bonuses, maybe, being a bit lower in Q4 than last year. So maybe, if you can walk us through why wage growth is going to be in the high teens, thanks.

Okay. I think I got those questions down, Matthew. First question then, relates to our assumptions on -- I think you meant, when you said next year, you said financial year 2016. So are we assuming to go back into Europe? Clearly we are.

In the next call we have, in September, we will be guiding for financial year 2014/2015. So next year, when we aren't in Europe. So the guidance will relate to next year on the next call. And we won't be guiding the following year beyond that. Did I understand your question correctly?

Yes, basically. I mean, I know that you're going to guide for 2015 when you enter your next year. But just for modeling purposes, it makes a big difference to the 2016 multiples whether people assume that you get back into the Champion's League within one season or not (multiple speakers). I'm just wondering whether that was realistic.

The Club's expectations -- and you'll see this reflected in the transfer market and what we've recently done for a managerial perspective -- our aim, absolutely, is to get back into the Champion's League. So I'll leave you to decide how you input that into your model.

The second question relates to -- I think your question was -- the GBPmid-30 millions reduction into next year. And that is off a high base this year, relating to broadcast money in the Champion's League. Because we won the League in 2012-2013, that triggers a much higher percentage of broadcast money that comes to us through our participation in the Champion's League this year.

So the [delta] isn't a normalized year. It's actually a relatively high number this year, as a one-off.

And then, I think your last question--

And then, the wage -- the wage growth, yes.

Your last question on the wage growth -- I think the first piece of it was Q4-related.

Yes.

Matthew, we mentioned on the call that, due to the appearance fees, together with player wage re-negotiations, we expect the FY14 full-year wage increase to be more like high-teens rather than the mid-teens that we'd said earlier.

In other words, we expect the number to go up in Q4, in terms of the wages.

I understand that. I was asking, really, why that should be the case because I was assuming that bonuses might come down a bit. And is there a payoff for the previous manager within those numbers?

No, there is not. And it's appearance fees. So, appearance fees are not bonuses. You'll be aware that with a number of different players, obviously, the player wage calculation is different. So, for lots of different players, you've got a base wage component.

You do have bonus components for different things -- principally, for the Champion's League. And then, you've got to appearance fees. And clearly, for some of your very young players and some of your very old players, the appearance fees components tend to be higher because, obviously, you go for more of a pay-as-you-go, rather than a flat -- a large salary, if you like.

That is something that -- it's difficult to forecast. And it's something that we don't specifically guide on because, frankly, it's difficult to do so.

There's also renewals of contracts. And now, look. Into next year, I think we'll guide when we guide, which is in September. And you'll be able to look at what we're assuming through your highly-visible revenue model. You'll be able to understand, roughly, where were heading, with regard to player wages.

But it will be an increase, year-on-year. We still expect there to be inflation in player wages. That's partly due to the market. And obviously, we're looking at investing in players a little bit this summer anyway -- mitigated a bit by what we're seeing in financial fair play. But we're not going to guide any percentage increase, year-on-year, at this point.

Okay. All right. Thanks so much.

Bryan Goldberg, Bank of America.

A couple quick ones -- your focus on reinvesting in the squad from a capital allocation perspective. How should we be thinking about the timing of your rollout of your growth initiatives, like new media? Could [your moves] this summer, with respect to the squad, potentially shift timing? Is there any potential for that?

And then, my second question is -- I think you called out the ticket price announcement for the executive seating product next season. But could you update us on your announced ticket pricing plans for the other seating products at Old Trafford next season? And do you expect to see any noticeable changes in season ticket subscription rates, given this season's performance?

First question -- there is no immediate tangible connection between investment in the squad and the impact on the rest of the business, with regard to the gross areas that we have. The opportunity, with regard to coming to the end of the Nike contracts and doing a new deal there, exists separately. The opportunity, with regard to digital media -- we'll continue to update you, quarter-on-quarter.

And both of these -- we expect to be seeing, not in next year, but in the following year. So financial year 2016. So I don't think there is a meaningful direct impact between the two. Clearly, there is a relationship between how much we can go and do certain deals, based on investment in squads. But there is no direct, tangible link.

And with respect to the tickets question, everything else, besides the exec's facility -- the 15% reduction that Ed referred to earlier -- is as normal. So seasonal tickets are held flat on last year. And there is no other change.

I think you asked, (multiple speakers) how are they selling? And they're selling well ahead of last year. And exec sales -- it's just very early at this stage. But it's going well, as well.

That's helpful. Thank you very much.

(Operator Instructions)

Randy Konik, Jefferies.

My first question is regarding the sponsorship revenue line. The increase is about 40%. Can you give us a little flavor, in terms of the contribution from renewals versus new deals? And then, how do we think of the contribution of the renewal rate increases versus new deals to that line item growth rate, going forward? That's my first question.

Okay. I don't have that breakdown for you, right now. But it would be, mostly new deals that are contributing to the increase. Renewals are very important. And we expect them -- as we grow the business, in terms of the number of sponsors we have, the number of categories that are covered -- I expect renewals, as a ratio to new deals, to increase. But at the moment, it's still relatively low.

Okay. As a follow up to that -- is there any kind of yardstick or benchmark growth rate that you're seeing on the renewal rate increases? Is it a single-digit increase, a double-digit increase? Any color there?

No. We don't benchmark it in that way. Because we're so far away from a mature business, it isn't something that -- and because it can be lumpy, with regard to the number of deals that drop in at particular points in time -- at the moment, we have other benchmarking that's relevant.

We're looking at size of country, size of market, and the type of revenue we can generate by category -- carving up categories in a tiered manner so that we can estimate the expected value. And then, benchmark against that. But we aren't looking at particular growth rates on a line-by-line basis like that.

Got it. Okay.

With regards to the questions that have been coming in around player wages -- is there any type of color -- I know you're going to give guidance later in the year, but -- any type of color you can give on -- Should we expect, given your comments that you've been very active in the transfer market, would it be safe to assume that the growth rate of expense on a year-over-year basis in FY15 could be above the growth rate that we were expected to see in the high teens rate in FY14? Or should we not assume that? I'm just trying to get some perspective there.

I can't comment on what growth rate it will be. It's -- you're saying we're active in the transfer market. We will be active in the transfer market. But as the window is upon us, and deals are being done. But not been done, in terms of the past tense.

So there's nothing announced. We haven't committed yet -- funds. So it's, really, something you're just going to have to wait and see, as we go through the window. And we assess how active we'll be, really, from September 1.

Okay. Lastly -- the David Moyes contract, or what have you. Where do we see the impact of his -- whatever he's being paid -- where does that show up in the numbers, and when?

Yes. I'll take that one. That will show up in the numbers for Q4 this year. And we're expecting that to be--

Okay.

--single-digit million pounds.

Given that it was basically a post balance sheet event for Q3, then we expect to probably have a disclosure in our interim accounts, which will be available next week. And clearly, they're an exceptional line item, so they're below the EBITDA line.

Great. Thanks, guys. Really appreciate it.

There are no further questions at this time.

Okay. Thank you very much, everybody, for dialing in. Much appreciated.

Ladies and gentlemen, that does conclude our conference call for today. Thank you all for your participation. You may now disconnect.