Manchester United PLC (MANU) 2016 Q1 法說會逐字稿

Welcome to the Manchester United first-quarter 2016 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 includes estimates and forward-looking statements, which are subject to various risks and uncertainties that could cause the 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 in the call, as usual, are Hemen Tseayo, Head of Corporate Finance, and Samantha Stewart, Head of Investor Relations. As you can see from the numbers we've released this morning, we're at a very good first quarter with record revenues and EBITDA. Hemen will go through the numbers shortly.

Overall, we've had a good start of the season on and off the pitch. On the pitch, of course, we're well-positioned in the Premier League, at the top of our group and the way for Champions League. Off the pitch, business continues to perform very well.

During the quarter we signed a global deal with Marathon as our new official global betting partner and regional deals with Nexon as our club's first social circle game partner in Korea, and Donaco International as the club's first official casino resort partner in several countries in Southeast Asia.

During the call, we also signed our first licensing deal with Sbenu for leisure footwear in Korea. Since then, we've entered into licensing deals with New Era as our dual branded leisure headwear partner, the company as the industry-leading headwear brand, producing more than 35 million caps a year. The best name for the on-field cap for Major League Baseball, an accolade as held for 81 years. These rights are not exclusive and Adidas will continue to manufacture headwear as well.

Heroes is our formal footwear partner. Heroes is a new and innovative luxury brand being launched this year. They will exclusively produce a collection of high-quality lifestyle Manchester United shoes. We're actually pursuing other licensing deals which we look forward to sharing with you in the future.

Adidas reports earnings last week and Herbert Hainer, the Group's CEO mentioned that teaming up with club has yielded unprecedented success so far. They also said many Adidas global retail partners have reported a 200% increase in day one sales compared to last year's kit launch, experiencing phenomenal demand across the globe and declaring the Adidas Manchester United kit launch as the biggest ever launch of replica products.

They saw the launch campaign break expectations around sign engagement across both Adidas and club channels, and quickly become the most shared video from Adidas in 2015 to more than 200 million users in only a few days. We've seen strong sell-through of Adidas products, including the recently launched Originals Collection, which includes apparel, accessories and headwear.

The key product is a Limited Edition Stratford shoe; the production of only 1,200 units in honor of the 1968 European Cup winning team. The shoe has been extremely well-received and customers lined up through the night to secure that purchase at key retailers in Manchester and obviously, at the Old Trafford megastore.

Kickbag recently released the ranking of top selling shirts in July to September and we thought the results were worth sharing. Memphis Depay is a new entrant in the ranks and with the third highest selling shirt in the world after Messi and Ronaldo. Three out of the top selling shirts of Manchester United players also including Schweinsteiger and Rooney.

Last year, while at Bayern Munich, Schweinsteiger ranked at number 31 and has now moved up to fourth position. As we previously mentioned, we believe the impact on player profiles around the world by joining Manchester United is very powerful and clearly, the shirt selling figures are strong evidence of that.

We continue to be excited about our partnership with HCL as our digital transformation partner. The partnership is still in early stages and we're currently focused on defining the technical back-office infrastructure to deliver the products as well as firming up the scope of the initial products and capabilities that will be built over the next few quarters.

This phase includes both strategic and tactical planning, incorporating input with HCL's staff on-site with our team. Momentum is building well and we'll keep you updated on our future calls. On the broadcasting side, the Premier League continues to make good progress with the sale of international rights.

Approximately two-thirds of deals have now been sold on the international side, including the US, Scandinavia, South Africa, the Middle East, Hong Kong, Singapore and Australia. According to press articles, the rights for Hong Kong market were sold for the new entrants, LeTV for more than double the previous deal with PCCW.

During that press conference, which was extremely well attended with 450 accredited journalists, LeTV said they would use the ownership of the Premier League broadcasting rights in Hong Kong to market a number of their products in which the games can be watched, including smartphones, tablets and other mobile devices. This is an interesting example of a new entrant using the popularity of the Premier League to attract customers to its platform and create brand awareness and deliver fully integrated media proposition. As we've previously mentioned, we expect the international deal to be completed by the spring of next year.

BT recently announced results and reported the best quarter ever, with over 100,000 new subscribers, attracted by its coverage of the UEFA for Champions League Global. This is a record sign-up level in the quarter.

According to recent Wall Street Journal article, in the US, NBC's audience size has risen 150% on average compared with three years ago when the games were on FOX and ESPN. In addition, fans would stream 44% more live minutes this season compared to the same period last year. The facts above supports our belief that the value of content continues to rise and the sports is the most valuable content.

Before I hand it over to Hemen, I just want to mention that in October, we announced that Cliff Baty will be joining the Club as Chief Financial Officer. Cliff is a seasoned financial executive, with international experience that fits with our global-ingrained business. Appointing Cliff to strengthen the finance team and he will work closely with Steve Deaville, who's been in business for 20 years and serves as Director of Group Finance. I'm now going to hand you over Hemen to go through the numbers and we will be happy to take any questions you may have.

Thank you, Ed, and hello, everyone. I'm going to review our results for the first three months of FY16, which includes our total US and the summer transfer window. As usual, unless I mention otherwise, all figures are in UK Pounds Sterling.

Year-over-year comparisons throughout FY16 will be materially impacted by three major themes. Firstly, our return to Champions League competition. Secondly, the commencement of the Adidas partnership and thirdly, the bringing in-house of our retail merchandising apparel and product licensing businesses previously operated by Nike.

The final overarching theme for Q1 is a number of home games and we played an additional four games in this quarter compared with the prior year quarter, two relating to the Champions League, one additional Premier League game and one Capital One Cup match. In terms of the headline figures then, our first-quarter 2016 total revenues were up 39.3% to GBP123.6 million and adjusted EBITDA was up 104.9% to GBP41.6 million, delivering an EBITDA margin of 33.7% in the quarter compared with 22.9% in the prior-year quarter.

As with previous announcements, we've 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% for both the current and prior periods. And we provide a reconciliation of this in the earnings release.

Adjusted profit for the quarter then was GBP2.7 million compared to GBP4.2 million for the prior-year quarter, due primarily to the GBP25.7 million adverse swing in profit and loss on player disposals from a profit of GBP18.3 million in the prior-year quarter, largely made up of their sale of [Daniel Warback] to a loss of GBP7.4 million, which was offset by increases in all three of our business sectors.

Turning to the key items of note in the financial segments then. Matchday revenues were up GBP9.7 million, primarily as a result of participation in the Champions League, the one additional Premier League home game, and the one domestic cup game in the first quarter. Similarly, Broadcasting revenues were also positively impacted by participation in the Champions League, the Premier League home games, coupled with one additional Premier League live broadcast, resulting in a GBP10.8 million increase over the prior-year quarter.

Commercial revenues were up GBP14.4 million, primarily as a result of the increase in merchandising, apparel and product licensing revenues as we commenced our partnership with Adidas, which delivered a step-up in the minimum guaranteed revenues, coupled with the contribution from the businesses that reverted to us, including the Old Trafford megastore, e-commerce and licensing.

It is worth noting that the core underlying sponsorship business grew, compared to the prior-year quarter; however, due to lower tour revenues from playing one less match, overall, the wider sponsorship subsector was flat. During the quarter, total operating expenses, excluding depreciation and amortization, were up 18.3%, with total wages up 19.2% due primarily to renewals of contracts of existing players and the uplifts associated with participating in the Champions League.

Other operating expenses increased 21.6%, due primarily to retail merchandise, apparel and licensing costs now being recognized grossed up on our income statement rather than effectively being bundled in the Nike profit share, as was previously the case, coupled with higher variable cost from playing the four additional home games in the quarter.

Net finance costs for the quarter were down GBP1.8 million, primarily due to the reduction in interest payable on our senior secured notes and secured term loan following the refinancing that we did earlier on -- in June this year. Thus, notwithstanding the adverse swing of GBP25.7 million of disposal of player registrations, profit for the period was GBP5 million.

Based on our first quarter results and current visibility, we remain confident that we will achieve our previously stated guidance of FY16 of a revenue between GBP500 million to GBP510 million and adjusted EBITDA of GBP165 million to GBP175 million.

Finally, we announced our second quarter dividend this year of GBP0.045 per share which will be payable on the 7th of January 2016 to shareholders on record on the 30th of November in 2015.

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

Thank you, sir. We will now begin the question-and-answer session.

(Operator Instructions)

Matthew Walker, Nomura.

Thanks. Thank you very much and hi, everybody. I've got several questions, please. The first one is, what is the threshold for the English teams to retain four slots in the Champions League. That was the first question. What do they have to do in order to make that four slots a reality -- or a continuing reality?

The second thing is, please, can you update us on your guidance for this year for tax and interest, if you could? Then, if you could explain why your ordinary non-player CapEx is falling; what should we assume for the full year? Then, on sponsorship, you mentioned tours as being the reason for flat sponsorship. What would sponsorship growth have been if the tours were like for like, and was there any contribution in sponsorship from any of the four new sponsorship agreements that you mentioned in the release?

And, lastly -- I am sorry there are so many questions, but lastly, on the phasing. Your guidance implies that revenues will be up, something like 30%, and your EBITDA, up about 45%. Right now, in the first quarter, up 39%, and over 100% for EBITDA. Can you explain to us the phasing and through the year? Thank you.

Okay. Thank you, Matthew. I will start with the first question on the UEFA co-efficient position. I think your question was, what would need to happen for us to lose the fourth slot.

Yes.

It is a relative analysis. And the key two are Italy and Germany, as we look at them. And, in simple terms, if all of our teams performed, on an average, badly compared to all of the Italian and the German teams, then there is a risk, obviously, that we would lose our co-efficient position and drop down to fourth place and, therefore, lose the fourth slot.

It's -- because there are -- it's an average. It is very difficult to say team A needs to do this and team B needs to do that. But it's a relative analysis with those two countries being key. In simple terms, if we did as badly last year as -- and Italy and Germany did as well as they did last year, then that fourth position would come under threat for next year. Okay. And the second question related to tax and interest?

I will take that. Thanks, Ed. With respect to the interest, I think we mentioned, in our September call, we expected net finance costs -- not just interest, but the net finance costs, which is the line that we talk about -- to be just under GBP20 million or around the GBP20 million mark. With respect to tax, we tend not to guide, frankly, because that line -- as I'm sure you appreciate, can be potentially volatile subject to what we do in the transfer windows which obviously impacts amortization. So that's -- it's not the line we guide on. However, what we do say is, in terms of modeling, I would continue to assume an effective tax rate of 35%.

Okay.

I think the third question was non-player CapEx; why is it going down?

Yes. I'll take that also. With respect to non-player CapEx, again, from the earlier calls, I think we've mentioned that we've been doing quite a lot of work on the Aon Training Center and a lot of that is timing, frankly, obviously, you see the cash. We've had a -- quite a bit of investment in that over the last couple of years, so it doesn't need to be as high, obviously, as it -- as that -- as has been the case in the past.

There will, obviously, be continued investment. But a lot of that is phasing and we continue to expect that number to be in the low-double digits for this year. And then, you had a question on tour which I didn't fully get. So could you please repeat?

(multiple speakers) You're asking, I think, it was about stripping out tour and what does sponsorship look like if we do that?

Yes.

I think what I would say to you, generically, because if we're not -- the second part of your question was -- what would be the contribution of the four deals that we've done in sponsorship. We're not going to guide on that level and we never have. But if you take tours out and you look at the general business underlying it, we're still happy the sponsorship is continuing to grow. And we still think there's a great opportunity there for us to monetize. And then the fifth question was phasing?

Yes, the phasing with respect to our guidance. So you're absolutely right. Q1 is the one that has the largest dramatic change from last year to this year. And, precisely that, I would expect that we have had an over 100% increase in respect to EBITDA. I expect that would be very different for Q2 versus Q2 the prior year. It's obviously going to be higher but not so dramatically so.

And this is the cadence of the matches and, obviously, the impact of the Champion's League versus zero obviously, last year being overlaid. Q3 down, I expect it to probably be the second highest delta in percentage terms for the prior year. And then, again obviously, Q4, a difference. Clearly, when we get the opportunity to talk with models, if you're materially out, obviously, we can help you there.

Thanks, Matthew.

So basically, a key to lower growth in this quarter, Q3, quite a high growth. And then, Q4, lower growth again.

Yes. But higher than Q2, yes.

Okay. Thank you.

(Operator Instructions)

Lawrence Dann-Fenwick of Credit Suisse.

Hi. It's Omar Sheikh from Credit Suisse. Morning, everyone. Just had a couple of questions. First, I wondered if you could maybe update us on your plans for stores outside of the UK and whether you had developed your thinking since the last call. And then, just also wanted to secondly touch on the licensing deals that you signed. You mentioned three, Ed, in your prepared remarks. I wonder if you could just maybe walk us through how you're thinking about those deals. What sort of economics is associated with them? And how many we should perhaps expect as all the run rate of deals to be signed, say, this year? Thanks.

Okay. Thanks Omar. Hi there. I'm not going to give you too much guidance on these two questions unfortunately. The first question around stores outside the UK. We are not at the point of announcing anything yet. We are continuing to evaluate the landscape around this. We've obviously got our arms fully around the megastore, which is having a fantastic year, and I'd rather report to you when there's something that's done rather than is being discussed. So I will park that one until the next couple of calls.

The second question on licensed deals, yes, we've obviously announced some deals. As you know, all the rights have come back to us from a licensing perspective. We've taken a few of them and sold them already, which is fantastic. These are material deals. I'm not going to guide around economics but I can guide that the first step for us was to create a clean market -- or clear market.

So we've actually shut down a number of the licensing relationships that we had that obviously ran co-terminus to the Nike arrangement. And that's given us control in the marketplace to be able to discuss with people what they want to do and how they want to sell it rather than having goods still in the system. So we're looking at non-apparel and apparel licensing opportunities all around the world.

I think I mentioned to you in the past that we spoke -- as part of the potential renewal of the Nike deal, we spoke to many licensing companies around the world two, three years ago. So, we are well up to speed in terms of category by category, country by country, who we should be talking to. And you would expect, quite clearly, that we would be doing the more attractive deals early. But I'm not going to guide on size. Typically these deals aren't as big as global sponsorship deals, but you'll see attractive numbers as we progress through the quarters.

Okay, that is helpful. Thank you. And just one follow-up, I wondered if I could ask just on net player CapEx for this year. Obviously, I don't want you to -- don't need you to guide on a number but I'm just wondering if we should think about CapEx coming down from this year or whether there's going -- whether last year was the peak. Just update your thoughts on that; that would be helpful.

Omar, we're not going to answer that question. We're not going to guide on the direction of net player CapEx. As you know, it can be lumpy but we're not guiding on that.

Okay. Thank you.

Ladies and gentlemen, seeing as there are no further questions, we are going to conclude today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines.

Thanks for everyone's time.