Manchester United PLC (MANU) 2015 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 FY15 earnings conference call.

(Operator Instructions)

We 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 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, operator, and thank you, everyone, for joining us today. With me on the call as usual are Hemen Tseayo, Head of Corporate Finance; and Samanta Stewart, Head of Investor Relations.

As you can see from the full-year 2015 earnings results and our record guidance for next year, our business continues to perform well. Our overall financial performance for last year was very solid, particularly since results were impacted by our absence from European competition. We believe this performance demonstrates the underlying strength of our business model and shows that we are robust enough to be able to withstand short-term headwinds from performances on the bench.

Since we last spoke we've had a productive summer. We further strengthened our squad by adding an exciting mix of experience and youth as we signed six new players. Italian international full-back, Matteo Darmian; Dutch international forward, Memphis Depay; French international Anthony Martial; Argentine international goalkeeper, Sergio Romero; French international midfielder, Morgan Schneiderlin; and Germany's captain and World Cup winner, Bastian Schweinsteiger. We also recently secured new contracts with David de Gea, Phil James, Chris Smalling and Ashley Young. We had a very successful tour in the United States with 200,000 people attending our four matches there. And obviously we've secured our participation in the group stage of the uef for Champions League.

We continue to see incredibly strong support from our fans with season tickets selling out earlier than ever before this year, and seasonal hospitality facilities selling out about two months earlier than last year. Since the end of FY15 we've also announced partnerships with Nexon, as our club's first social football gaming partner in Korea; Marathonbet, as our new official global betting partner; and Donaco International, as the club's first official casino resort partner in several countries in southeast Asia. We also recently announced a partnership with HCL, as our digital transformation partner. This partnership represents a key milestone in our digital media strategy.

HCL, our leading global IT services provider, and by collaborating with them we have to transform the way in which we interact with our fans around the world, and improve the overall fan experience of those engaged with us whether they visit Old Trafford, our website or through our social media channels. In collaboration with HCL, we will be working an a new scalable club app, a new website and other digital solutions to engage with our fans and further boost our digital presence.

On the first of August we started our 10-year partnership with Adidas, and are already seeing evidence of how their distribution capabilities magnify the reach of our merchandise around the world. Here are some interesting statistics from the launch. There were 212 million impressions of kit launch-related content across the club's website and social media channels during the first 10 days after launch. It was the biggest Manchester United kit launch buzz with 10 times higher online mentions than three years ago. It was the biggest Adidas kit launch of the season so far, as the different hash tag mentions were four to five times greater with Manchester United than when used for other major football kit launches.

As Adidas mentioned in their earnings call, the Old Trafford mega-store saw record demand for non-match day, up almost 50% on the previous record. Additionally our e-commerce site, United Direct, saw equally high demand, up four times on the previous record kit launch. A great start, but too early to revise expectations based on one day's trading. The businesses that were previously operated by Nike, including the Old Trafford mega-store, e-commerce, licensing and soccer schools all smoothly reverted back to us on the first of August. As we mentioned in our third-quarter call, we have extended our partnership with Kitbag to May 2016 and continue to work on a full e-commerce plan to magnify and maximize our online product distribution capabilities.

On licensing, we have selectively extended deals with some licensees and have started manufacturing a range of Manchester United mono-branded goods, which will also be selling in the mega-store and through our e-commerce platform. We've also been working on strategic partnerships and recently signed our first combined licensing and sponsorship deal with Sbenu, for leisure footwear in Korea. We remain excited about these opportunities and look forward to giving you an update on our retail business in due course.

On the broadcasting side of our business, the Premier League continues to be in the market for the international rights, with two deals concluded so far, South Africa and the US, where NBC extended with a service six-year deal through 2021-2022. In summary 2014-2015 was a very good year for the club, with strong performances commercially, financially, and on the pitch. Given the strong platform we have built, we are increasingly confident in our financial outlook and have today announced record revenue and EBITDA guidance for the FY16 year. I'll now hand you over to Hemen to go through the numbers, and we'll be happy to take any questions you have.

Thank you, Ed, and hello, everyone. I'm going to review our results for FY15 and will focus my remarks on the full-year numbers. As usual, unless I mention otherwise, all figures are in UK pounds sterling. As expected, year-over-year comparisons are significantly impacted by our absence from European competition in the 2014-2015 season. In terms of the headline figures, our full-year 2015 revenue was down 8.8% to GBP395.2 million, and adjusted EBITDA was down 7.8% to GBP119.9 million. EBITDA is higher than consensus, due primarily to lower operating costs in the fourth quarter.

Consistent with previous announcements, we have included both adjusted net income and adjusted diluted 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 impact of items that are unrelated to the underlying business, and then to apply a normalized tax rate of 35% to both the current and prior periods. And we provide a reconciliation of this in the earnings release. Adjusted profit then was GBP3.1 million compared to GBP28.7 million for the prior year, primarily due to lower match day and broadcasting revenues and higher amortization, which were partially offset by lower operating costs.

Turning to the key items of note in the financial statements. Match day revenues decreased GBP17.5 million, primarily as a result of no European football, coupled with playing only two of our six domestic cup games at home this season, compared with playing four of the same total number of domestic cup games at home in the prior season. Broadcasting revenues decreased GBP28.1 million, due to the absence of European competition, the effect of which was partially offset by increases in both merit and facility payments due to a higher league finish, fourth versus seventh, and two more Premier League games being selected to be broadcast live.

Commercial revenues increased GBP7.6 million, primarily as a result of sponsorship revenue increasing GBP19.1 million or 14.1%, due to an increase in the shared sponsorship with General Motors, coupled with higher revenues from other sponsorship agreements. Merchandising, apparel and product licensing revenue declined GBP5.9 million due to a reduction in guaranteed revenue from Nike, a result of non-participation in European competition, and the extended final period of the partnership which ends on July 31, 2015, resulting in the guarantee being recognized over a 14-month period and the profit share being recognized over a 13-month period. The final month of the recognition for both the guarantee and the profit share will be July, the first quarter of FY16. Mobile and content revenue decreased GBP5.6 million, due as previously explained to the expiration of a few of our partnerships in territories that we have decided to keep clean leading up to the roll-out of our broader digital media strategy.

During the quarter, total operating expenses, excluding depreciation, amortization and exceptional items, were down 9.2%, primarily due to lower staff costs, largely driven by the absence of the Champions League uplift payments to players, reductions in match day variable costs, due to fewer home matches, the swing in foreign exchange from a loss of circa GBP4 million in the prior year to a small gain of around GBP0.4 million in FY15, and other non-recurring items such as the GBP1 million rates rebate and savings in legal and professional fees. In June, we refinanced our borrowings, pushing out maturities to 2025 and 2027, and securing very attractive long-term rates which we estimate should result in an interest reduction of approximately $10 million per year.

Turning to the outlook for FY16, we expect total revenues to be in the range of GBP500 million to GBP510 million and adjusted EBITDA to be between GBP165 million to GBP175 million. Given this strong outlook, we announced today that we will pay our first dividend to shareholders since our IPO in August 2012. Our expectation is that this will be a regular quarterly dividend with the first dividend of $0.045 per share. This announcement is a reflection of our strong financial position and future prospects which allows us to pay a dividend whilst continuing to invest in growth.

Finally, I would like to take the opportunity to provide some more color on a few of the other items that you might find instructive when modeling our business. We expect total staff costs to be up in the high teens in terms of percentage, as the Champions League uplift payments are reinstated. Amortization to be in the low GBP90 million. As you know, just to remind you, this can change if we buy or sell a player or extend the player's contract. Net finance costs should be around GBP20 million and our effective tax rate to be approximately 35%, but this will vary subject to the relative magnitude of permanent differences. Regarding net player CapEx, we incurred around GBP97 million in FY15. And for FY16, the current year, we are committed on net player CapEx after the summer transfer window at approximately GBP78 million. As we've mentioned in the past, net player CapEx is lumpy by nature and may continue to vary significantly from period to period.

With that, I'll hand this back to the operator, and we're ready to take your questions.

(Operator Instructions)

Our first question comes from Omar Sheikh of Credit Suisse.

Morning, everyone. Just three questions for me. First of all, on the stores as you mentioned, there obviously [those] of us that wish you've taken over running of the Old Trafford store, I wonder if you could update us on how many new stores you might open during FY16 and where they might be. That would be helpful, thank you. The second question is on e-commerce. You mentioned the smartphone [Android] relationship with HCL. I just wondered if you could give us some timing on that. Again, is that going to come through in this fiscal year?

And then finally, for Hemen perhaps, a question on CapEx. You just guided on CapEx coming down in 2016 versus 2015, but I'm wondering whether you can give us a sense of whether 2015 was the peak for CapEx, and whether it will come down further beyond 2016, given what you know about the gaps you filled in the squad and zone. Thank you.

Hi, Omar. First of all, I'm not going to give you too much on the first two, unfortunately. The stores, I think I mentioned as I went through the script earlier, we're going to update you more in terms of the retail plan as that continues to evolve through the year. I'd rather not put predictions out there as to locations and number of stores.

All I want to update everybody on at this point is obviously how well things have started, both from the mega-store's perspective and more widely with the wider Adidas relationship from a wholesale perspective. On e-commerce, same in terms of guidance around timing. We only announced this deal with HCL very recently. I would very much hope to guide you on timing as soon as the work plan is finalized and we have those dates that I can share with you. And I'm sure we'll do that later in the year.

And I think on CapEx, and Hemen can jump in here, but I think your question is, was 2015 a peak? I think it's impossible to answer that question. I think we have seen a large number of ins and outs in terms of the squad in the last couple of summer windows. We've previously guided a more modest number in and out is our expected average over a period. So maybe we'll go back to more normalized levels in the coming years, but I can't really comment on the prediction around that. It's a number times price calculation. The number can vary, as I just mentioned. And obviously the price can vary quite materially based on who you're purchasing. So it's difficult for us to guide on that and it's not something we are willing to do.

Omar, just to clarify, precisely as Ed said, we don't guide, and my GBP78 million number is exactly where we are today. There's obviously one more transfer window to go in this fiscal year, together frankly with business that one could do very early in the summer transfer window still in FY16. Which is why we never guide on that number, but we tell you exactly where we are today and then you can make predictions based on that.

Okay, makes sense, that's clear. Thank you for that. Want to follow-up on the stores question, if I may. Could I assume, though, that -- I'm just trying to get a sense of what's driving or what's included in the guidance and what your assumptions are. I'm wondering perhaps you could give us a sense of where the growth in revenues is going to come from, from within the various reporting lines.

From a stores [perspective] --

For stores or anywhere, really. Just to give us a sense of what you're assuming in your top-line guidance for 2016.

Yes, there's going to be some growth coming through in terms of all the business, as I mentioned, that came back from Nike, and the way things are heading in terms of why the merchandising business with Adidas. But we aren't assuming anything from stores -- an opening stores perspective in FY16 from a revenue perspective.

Perfect, that's very clear. Thanks, Ed.

Thanks, Omar.

Our next question comes from Alexander Mees of JPMorgan.

Good morning, everyone, great quarter. And I have three questions if I may. First off, you mentioned that a couple of the international Premier League TV watch deals have been completed. Could you give us a sense for the status of the negotiations of the rest and when you expect that to be all done and dusted? And then if you have any expectations for what sort of content of uplift we might be looking at. Secondly, I wonder if you can give us is some guidance as to what you assume in your guidance for your progress in the Champions League this season. And finally, on the dividend, great to see it being introduced. I wonder, do you have a policy in mind whether it's progressive or a certain level of pay out, please?

Okay, I'll start with the first one. International deals, yes, so the Premier League has been in the market for a few months now. And as I reported earlier, there are a couple of deals that have been done. My expectation is that there will be -- the bulk of the international deals will be done through to the end of calendar 2015, probably with a few stragglers in early 2016. That's all we've heard so far. Obviously we're listening to whatever the Premier League is telling us on that. In terms of size, we don't get reported to on a granular basis country by country. But I think the numbers that you may have seen in the press around the deal in the States is probably not far off. But we don't know the actual numbers.

Okay.

In other words, it's positive. Definitely heading in the right direction in terms of where you'd expect it to go.

And Alex, in terms of the playing performance assumptions, particularly on the Champions League, we have not changed our assumptions. So they were quarter finals in the Champions League, and for your modeling purposes I'd suggest you keep that the same. With respect to the dividends, the $0.045 per share, we intend to be a regular quarterly dividend. So we will declare it on a quarterly basis. I think it's reasonable to assume that it will be that figure unless we say otherwise, but that we have obviously the scope to tweak things should we wish and should business positive performance merit it.

That's very clear, thank you.

Our next question comes from Matthew Walker of Nomura.

Thanks and good afternoon. Just a few questions, please. The first is, could you just explain a little bit more about the nature of the HCL deal and some of the financial implications behind it? Is it some kind of sponsorship arrangement where they get a benefit from being associated with you and that's reflected in the financials? Second question is on financial fair play. Is there any updated thoughts around FFP? Because we did see some of the clubs in the UK spend in a really big way in this window. So I'm just wondering if there's any update there.

Based on what you know now, could you give a rough idea of where you think net debt will end up at the end of FY16? Not including any new business, et cetera, in the January window. Lastly, Ed, you've been appointed to the Board of ECA. How is that going to help MANU going forward? Thanks.

Okay, thanks, Matthew. First of all, the nature of the HCL deal is indeed a sponsorship deal; they are going to benefit from the association. They have that designation, I mentioned earlier, and they obviously will have the ability to use the inventory that you would typically see associated on any normal global deal. Beyond that, we are also getting, obviously, a leading IT services provider to assist us with building an app. It's probably more akin to the Toshiba-type deal, where it's a sponsorship deal but there are business-related interactions between the businesses.

The second question on financial fair play. I think I know who you're talking about in terms of expenditure in the last summer. I think two things. Number one, I would expect that they spent within the rules. I think the rules are very clear; everybody understands them. And as we know, there are some big revenue increases coming down the path. When you buy a player for X, bear in mind that it obviously is spread over, from an amortization perspective, spread over the length of the contract. I think everybody has visibility into significant increases on revenue, and so it doesn't is surprise me that there's been some material investment in players. And the core question around is it still important, it is absolutely.

Maybe I'll touch on your last point about ECA. Being in the ECA meetings and engaging directly with UEFA, I can tell you that there is still significant discussion about financial fair play being important to all of the clubs across Europe. There is still great belief from UEFA and indeed from the ECA clubs. Me being on that is a -- it is positive in terms of, from our perspective being at the main table of debate around European football and how the clubs position themselves in negotiations with UEFA. So I think that it a positive development. Hemen, do you want to --

Matthew, taking your question on net debt. It's not something we guide on, but I think it's worth pausing to note a couple of things. Our net debt at June 2015 is down almost GBP20 million at GBP255 million, which is just over 2 times our EBITDA in terms of a ratio of net debt to EBITDA. If our guidance midpoint of EBITDA of GBP170 million comes to fruition and our net debt doesn't move at all, then we turn into 1.5 times. Clearly, I'm sure your model suggests that with EBITDA that we expect to produce this year, and as you said, on the assumptions that we didn't buy any more players, you can see that we expect to have more cash at the end of the year than we would have at the start of the year. But as Ed has mentioned previously, there are a number of things with respect to cash that we can do. And players obviously remain something that we will continue to invest in accordingly.

Okay, thank you.

Seeing no further questions, this concludes today's Manchester United conference call. We thank you all for attending today's presentation. You may now disconnect your lines. Thank you.

Thank you very much.