Manchester United PLC (MANU) 2015 Q2 法說會逐字稿

Good day, and welcome to the Manchester United Second Quarter 2015 Earnings conference call.

(Operator Instructions).

Please note this event is being recorded. I would now like to turn the conference over to Samanta Stewart, Head of the Investor Relations. Please go ahead.

Hi, before we begin, we would like to inform everyone that this call will include estimates and forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially. This should be considered together with the cautionary note in our earnings release regarding forward-looking statements and the risk factors in our filings with the SEC. Manchester United plc assumes no obligation to update these estimates or forward-looking statements. I will now turn the conference over to Ed Woodward, Executive Vice Chairman. Ed?

Thank you, Sam, thank you, operator, and obviously to everyone for joining us today. With me on the call are Hemen Tseayo, Head of Corporate Finance, and Samanta Stewart, Head of Investor Relations. Hemen will take you through the detailed financial results shortly. But I'll start with some comments on the recent news and then discuss the quarter and developments on and off the pitch.

We've been discussing for the last several quarters the value of live sports programming and how sports content rights continue to appreciate due to the way they are distributed and consumed. Tuesday's news of the completion of the auction for the domestic Premier League rights for the next three year cycle starting in the 2016, 2017 season certainly validates this.

A record number of companies had requested tender document and serious interest emerged from several companies some for the first time. As you'll have heard, Sky and BT have won the auction agreeing to pay a total value of GBP5.136 billion representing an increase of just over 70% over the previous three year cycle. To put this and the last deal's growth in context, this is approximately three times the value of the cycle that completed just over 18 months ago.

Sky was awarded five packages, including Friday evenings, Monday evenings, Saturday lunchtime, and Sunday afternoons. BT will get Saturday evenings and mid-weekends. The rights allow the two bidders to show a total of 168 games per season. That's 14 more games available than under the current deal. At the end of January, the Premier League also concluded the sales process for the U.K. highlights package rights. The BBC has retained those rights for GBP204 million, representing an increase of about 14%. Considering the two auctions, the combined rights were up about 64%.

It's worth highlighting that out of this pot, there will as in previous seasons be funds allocated by the Premier League for good causes, grassroots initiatives, and redistribution to our football partners. This amount won't be determined until probably early 2016. But do note in the present deal, about 15% of TV revenues are distributed beyond the Premier League itself.

It's also worth reminding everybody that the Premier League is continuing to deal with the ongoing Ofcom investigations. We believe there should be some more clarity on how it develops in the next couple of months.

In the U.S., the numbers published by NBC continue to impress. On the November call, we mentioned that the gain between Manchester United and Chelsea in October set a record for the most viewed live Premier League match in the U.S. history. That record has already been beaten by our away win at Arsenal in November. At the season midpoint, NBC's average Premier League viewership is up 15% from last season. NBC fans stream more than 168 million minutes of action, up 36% versus last year.

And finally, four of the top five live match audiences on U.S. television have featured Manchester United. We completed the January transfer window last week. As we had previously indicated, most of the transfer business usually occurs in the summer window. During the window, we signed the experienced goalkeeper Victor Valdes on a free. We sold or leased three players from our First Team squad. We're currently third in the table. We've also advanced the fifth round of the FA Cup, where we'll play Preston on the 16th of February.

Off the pitch, our commercial business continues to grow. Sponsorship was up 23.4% in the second quarter. And we announced two deals: IVC, the club's first official Chinese wellness' partner, and Chi, the Club's official soft drinks partner in Nigeria. Since the end of the quarter, we've also announced two new global partners. KamaGames is our first official global social games partner. Their portfolio of games currently reaches an audience of over 70 million users worldwide. They'll be launching a portfolio of casino games -- sorry, social casino games carrying Manchester United branding, logo, imagery, and themes.

We've also signed our first official global Forex and online financial trading partner with Swissquote, one of the ten largest Forex brokers in the world. Finally, we've also announced a deal with Emtel as our first partner in Mauritius. They will be a Triple Play media partner, which means they can stream Manchester United content across TV, mobile, and Internet. Our Matchday business is robust. We've broken several records this year. We've seen the highest ever Matchday VIP hospitality sales from Premier League matches played to date.

As I mentioned in our last call in November, we're working hard on our retail strategy for development of the full plan for the rights that will revert to us in August, 2015, including retail, e-commerce, mono-branded products, and soccer schools. At the same time, we're making progress on our digital media strategy and look forward to sharing our plans with you soon. With that, I'll turn it over to Hemen for a more detailed look into this quarter's financials and guidance.

Thank you, Ed, and hello everyone. I'm going to review our results for the second quarter ended December 31, 2014. As usual, unless I mention otherwise, all figures are in U.K. pound sterling.

As expected, year-over-year comparisons are and will continue for the rest of this year to be impacted to a significant extent by our absence from European competition this season. This impact is acutely felt in Q2, particularly in broadcasting revenue, as five of the six Champions League group stage games were played in the comparative quarter last year.

In terms of the headline figures, our second quarter 2015 revenue was down 14% to GBP105.7 million and adjusted EBITDA was 16.9% to GBP42.4 million. Now EBITDA is materially higher than consensus due primarily to higher revenues, lower wages, and lower other operating expenses in the quarter than expected by the Street.

Consistent with previous announcements we have included both adjusted net income and adjusted diluted earnings per share as we believe that in assessing true comparative financial performance for the business, it is useful to strip out the distorting effects of 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 was GBP4.4 million compared with GBP19.8 million in the second quarter of the prior year due primarily to lower broadcasting revenues and higher amortization, which were partially offset by lower wages and lower other operating costs.

Turning to the key items of note in the financial statements, Matchday revenues decreased GBP2.8 million primarily due to nonparticipation in European competition this season, and our early exit from the Capital One Cup, which was partially offset by an increase in Premier League ticket and hospitality revenue as a result of one additional Premier League home game in the current quarter versus the prior year.

Broadcasting revenues then decreased GBP18.5 million, as I mentioned earlier, primarily due to not participating in the European competition, which was partially offset by playing that one extra Premier League home game and having two more live games broadcast in their current quarter than in the prior year.

Commercial revenues increased GBP4.1 million primarily as a result of sponsorship revenue increasing GBP6.8 million or, as Ed mentioned, 23.4% due to an increase in the shared sponsorship with Chevrolet coupled with higher revenues from various other sponsorship agreements, including Nissin Foods and Abengoa.

Merchandising apparel and product licensing revenue declined GBP1.2 million due to the reduced Nike guaranteed revenue as a result of nonparticipation in the European competitions in the current season; and the extended final period of the partnership, which ends on the 31st of July 2015, resulting in a profit -- in the profit share element being recognized over a 13 month period with 12 of the 13 months recognized this fiscal year, and the final month being recognized in the first quarter of fiscal 2016.

Mobile and content revenue decreased GBP1.5 million due, as previously explained, to the expiration of a few of our partnerships in territories that we've decided to keep clean leading up to the rollout of the broader digital media offering.

During the quarter, total operating expenses excluding depreciation and amortization, and exceptional items were down 12% with wages down 5.6% primarily due to no step-ups in payments associated with the participation in the Champions League. With other operating expenses down 28.1% due primarily to reductions in Matchday variable costs, and the favorable FX swing from the same period last year.

So based on our year to date results and current visibility, we leave guidance unchanged for fiscal 2015, of revenue between GBP385 to GBP395 million, and adjusted EBITDA of GBP90 to GBP95 million. With that, I'll hand the call back to the operator. We're ready to take your questions. Thank you.

(Operator Instructions) The first question comes from Matthew Walker with Nomura. Please go ahead.

Thanks. Can you hear me OK?

Yes, we can.

Thanks. The first question is just on guidance for the EBITDA guidance. You would have appeared to have done about two-thirds of the EBITDA so far in the first half. Are you just being deliberately conservative or is there something else we should think about for the next couple of quarters? And on sponsorship, can we expect a similar level of growth of around 23% or more for Q3 and Q4?

And finally, obviously there's been a lot of interest in the new Premier League deal in the U.K. One of the things that people are looking at is potential for funding of tickets. Do you think it might have any impact on Matchday revenues? Or, what's your attitude, is it something that has to be determined by each club individually? I'm just interested in your comments on that.

OK. Thank you for that. First of all I'll ask Hemen to respond to the first question.

Matthew, hi. On guidance, yes, typically with Q1 and Q2, it's over half in terms of EBITDA that we'd expect to have for the year by this stage. It's not a 50, 50 split between H1 and H2. I appreciate that there's obviously a significant delta above where we are to where the Street is on the expectation of the EBITDA.

There remain a number of moving parts to that as to why we're not increasing guidance at this stage. One of which is at the wages line. There are number of renegotiations that still need to be done on player contracts which will have an impact on this year. Also, with respect to sponsorship servicing costs, those don't always happen on a smooth basis, or frankly even on an expected basis. It's some of the rights that they have, attendance at games, the players that we're providing or ambassadors that we're providing to run events.

There's a choice as to when that happens. There's a number of things that are being pushed at the back half of the year that were expected to happen earlier. At this stage, we remain comfortable with the guidance. But clearly, we will revisit that again on the call in May.

Your second question I believe was on sponsorship. The sponsorship revenue will be higher. Again, I can't tell you whether it will be exactly the same percentage uplift on Q3 coming as to Q3 the following year. But our trend, as you know, tends to be that with the deals signed, they run through the end of the year.

My expectation will be that sponsorship will be higher Q3 coming versus the Q3 in the prior year. But I can't give you a sense of what that percentage is at this time. And I will hand it over to Ed to answer your third question on impact of ticket prices.

Yes. I mean, to answer your question directly, yes. It is determined by each club, as has always been the case. My expectation is that will continue to be the case. We think about ticket pricing carefully every year on a standalone basis. We'll look at 2016 and 2017 pricing at the appropriate time. We are a club that may be in a unique position on this.

I'm not entirely sure. But we have kept season tickets prices flat for five of the last six years. We believe that our prices are fairly priced compared to the market.

One quick follow-up here. I guess it's another thing that's in the U.K. press a lot, which is the impact on wages. Clearly, there is going to be a formula from the Premier League about how much increase in wages clubs can do based on the broadcast contracts. Do you have any sort of feeling for what that might entail in terms of wage uplift?

First of all that isn't in place at this point. Yes, there are short-term cost controls in place. They relate to this cycle. But I think it's fair to say that whilst there may well be some impact on wages given the amount of money flowing into the Premier League, I think the general mood in the Premier League is what you've just said.

The sort of short-term cost controls came about because clubs are determined to try to not be continually lovemaking. I think that is the motivation. That is the backdrop. I don't know what's going to happen. We'll have to see in the coming Premier League meetings how that develops.

OK. Thanks very much.

Thank you.

The next question comes from Alexander Mees with J.P. Morgan.

Good morning, can you hear me?

Yes, indeed.

Hi. Thanks for taking my question. I'm just interested particularly given what's happened with the broadcasting rights domestically in getting a sense for when we can expect to have visibility on the overseas broadcasting rights for the EPL? And whether it's reasonable to assume that given we had such a significant increase in the size of the domestic deal, whether it's reasonable to assume that a similar rise might be forthcoming in the overseas as well?

The timing, obviously, we do it in series not in parallel. Those rights will not be brought to market until a few months time. I think the Premier League is going to be signing off on its strategy in March or April.

Look, with regard to the future and what it might be, I can't guide in my views around that. I think we've seen a big uplift in domestic. I'm not sure you should be using that as a guide for something that covers 200 countries around the world. I think there's some specific reasons in terms of the U.K. market as to why that has happened.

OK, thank you. And if I might just follow-up with one on player CapEx? I wonder if you have a number -- maybe it's in the release, I haven't seen it yet -- but for CapEx in the January window?

Yes, hi. It's Hemen here, Alex. We note that the net player spend --

Just to be clear, I see. Do you mean what we spent in the January transfer window?

Where we're at, I suppose, after the window. I think you've only had a free haven't you? So there's no change to CapEx guidance?

Yes, there's no change --

Yes.

-- to that guidance.

For the full year, we're still expecting that the GBP90 million because it's, as you know, the activity in January was an acquire for a free. And then we had disposals or releases that weren't materially significant in the January window with Fletcher, Anderson, and Zaha.

In terms of just for the quarter to date, what is in the release is with respect to the cash, so the net player CapEx. We've got a net player CapEx of GBP14 million. But most of that is not in relation to the January window. But it's deferrals in terms of payments for the likes of Rojo, Di Maria, and Falcao.

Great, thank you very much.

With no further questions, this concludes our question and answer session. I would like to thank everybody for attending today's presentation. You may now disconnect.