Manchester United PLC (MANU) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Manchester United Second Quarter 2016 Earnings Conference Call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. (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 are Hemen Tseayo, Head of Corporate Finance and Samanta Stewart, Head of Investor Relations.

As you can see from the numbers released this morning, our financial performance during the second quarter was very strong with record revenues and EBITDA. Hemen will go through the numbers in detail shortly.

On broadcasting, the Premier League indicated last week that almost all the international deals have now being completed and the international rights growth for the next three-year cycle commencing next season will be just over 40%.

On the commercial front, during the quarter, we renewed our partnership with Thomas Cook and announced the deal with Cable & Wireless Communications in the Caribbean. We also announced licensing deals with New Era and Heroes. Since the end of the quarter, we've announced partnerships with several leading global brands. In January, we announced a partnership with Sina Sports, the number one digital media platform for sports fans in China.

As part of the deal, Sina has secured exclusive rights to broadcast the Club's 24-hour MUTV channel. With 8.6 million followers, we also are the biggest football club on Sina Weibo, which is Sino Corps platform similar to Twitter.

In addition, we recently announced deal with YOU.C1000 as the Club's isotonic drinks partner is Indonesia. This week, in conjunction with the launch of the movie Deadpool, we announced that we entered into a partnership with 20th Century Fox as our official Manchester United feature film partner, the first partnership of this kind for a Premier League Club.

We also announced a licensing deal with Columbia Sportswear as Manchester United's first official outdoor apparel partner. As a part of the agreement, the well-known American outdoor brand will design and create dual branded outerwear. Last week, [Lee Bird] joined the club to head our retail operation. Lee has over 30 years of experience in the fashion and retail industry and has worked with [Label] brands.

Worked for the Money Exchange, from the time he joined to the time he left, the business grew from 17 stores in the US to 280 in 35 countries with $800 million in revenues and over 3,000 employees. We look forward to having Lee drive the expansion of our retail business and bring our products closer to our fans.

As you recall, we're working with HCL as our digital transformation partner to change the way we engage with our fans around the world. The partnership is progressing well and we recently moved into product design and technical proof of concept stage for our new digital offerings.

In summary, we're pleased with our strong financial performance and importantly, it's this continuous trend that will enable us to compete at the highest level.

I'll now hand you over to Hemen to go through the numbers and then we're happy to take questions you have at the end.

Thank you, Ed and hello everyone. I'm going to review our results for the second quarter ended 31 December 2015. As usual, unless I mention otherwise, all figures are in UK pound sterling.

As I previously stated on an earlier call, year-over-year comparisons throughout fiscal 2016 will be driven by these three key themes: contribution for Champions League Football; the commencement of the Adidas partnership; and bringing in-house our retail merchandising, apparel and product licensing businesses, which were previously operated by Nike.

In terms of the headline figures, our second quarter 2016 total revenue was up 26.6% to GBP133.8 million and adjusted EBITDA was up 32.3% to GBP56.1 million, delivering an EBITDA margin of 41.9% in the quarter compared to 40.1% for 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 was GBP17.7 million compared to GBP4.4 million for the prior year quarter, due primarily to higher commercial and broadcasting revenues.

Turning to the key items of note in the financial statements, commercial revenues were up GBP19.7 million, primarily as a result of the increase in retail merchandising, apparels and product licensing revenues as we commenced our partnership with Adidas, which delivered a step up in minimum guaranteed revenues coupled with the contribution from the Old Trafford megastore, e-commerce, licensing and soccer schools.

Broadcasting revenues were positively impacted by the participation in the Champions League, partially offset by two fewer Premier League home games and two fewer Premier League live broadcast in the current quarter resulting in an GBP8.9 million increase over the prior year quarter.

Matchday revenues were down slightly as result of playing the two fewer Premier League home games and hosting a friendly international game in the prior year quarter, which was largely offset by the two Champions League home games and one domestic cup home game in the current quarter.

During the quarter, total operating expenses, excluding depreciation and amortization, were up 22.7% with total wages up 14.4% due primarily to contract renewals of existing players and uplifts associates with participation in the Champions League.

Other operating expenses increased 50.7% due primarily to retail merchandise, apparel and licensing costs now being recognized in our income statement, coupled with higher variable costs from playing the two Champions League games in the quarter.

Net finance costs for the quarter were down GBP1.6 million, primarily due to the reduction in interest payable on our senior secured notes and senior term loan, following the refinancing in June 2015.

So based on our first half results and activity during the transfer January window, we are reiterating revenue guidance between GBP500 million to GBP510 million, and raising adjusted EBITDA to GBP178 million to GBP188 million from the GBP165 million to GBP175 million. The guidance adjustment is primarily as a result of four things.

Firstly, the English clubs received a higher than expected distribution from the Champions League market pool due to England representing a greater proportion of the total broadcasting pool represented by the 32 clubs than expected; lower player costs that anticipated due primarily to no acquisitions in the January trans window together with lower-than-expected appearance fees for the season.

And finally, we also have further savings from the timing of hiring various staff across the business. We also believe that amortization will be approximately GBP87 million for the fiscal year.

Finally, we announced our third quarterly dividend for this fiscal year of $0.045 per share, which will be payable on 10 March 2016 to shareholders on record on 25 February 2016.

And with that, I'll pass you back to the operator and we're ready to take your questions. Thank you.

(operator instructions) John Janedis, Jefferies.

Just one question, I know there has been some talk about the pressure European clubs are facing in the transfer market from the Chinese Super League which has been bidding more aggressively on players. So, do you expect that could have any kind of noticeable impact on the summer transfer window?

Of course it can, I mean so far, I think this is the biggest window, if you like, in preparation for the next season, which is really after the real movement and interest following the Premier's comments on it. So, I do think there'll be more activity coming in the summer, but it is very, very difficult to predict what kind of impact that will have. I mean, if nothing else, it's another useful market if we looking to sell any players.

Alex Mees, JPMorgan.

Hi everyone, and thanks for taking the call and it's a very good quarter. So that's great, congratulations. Couple of questions if I may, just on staff cost to start with, that seems to be one of the key reasons for increasing the guidance. Appreciate that there were no acquisitions in the January transfer window. But, I just wonder if, given that part of it is the timing of hires as you mentioned, whether we should expect quarterly staff costs to increase as we go through the year?

And my second question is just with regard to the recent deals with Colombia and New Era. I wonder if you see any other opportunities for apparel, over and above these and also Adidas in the future?

Alex, thank you very much for your comments on the quarter. I'll take that first one on staff cost. Yes, in terms of the trends for the second half, you're right, I would see Q3 and Q4 being a little high than where we are now. Firstly, there are still player renegotiation contracts that can take place in the season which will add to that going up. But also we've already announced two hires. Our CFO will be joining us from the end of March and obviously his remuneration will start to come in from that point and also the Head of our Retail operations will also, again, be joining together with lots of other staff across the business that, they're obviously smaller and individual basis, but collectively will start right up. So yes, I would see that amount ticking up.

And then your second question on Colombia and New Era; yes, there are other opportunities in the future from a non-Adidas apparel perspective. But I'm not going to be guiding on that. I think as you'd expect, we'd probably go off to the bigger ones early, which is what we've done.

Matthew Walker, Nomura.

Good afternoon, everyone. I've got a few questions if that's all right. The first is, what do you think of the ticket issues? And what impact could that have on our Matchday revenues going forward? So I've got in my model, probably for the 3% to 4% Matchday growth, sort of add-in for Knighton. I understand you're going to freeze ticket costs again. I was just wondering what you think of what's happened to Liverpool and what you think might happen to pricing [overweigh] tickets and Matchday revenue in general, not including, obviously fluctuations on Champions League.

The second thing is on player costs and the philosophy around player costs. As BBC Match of the Day hopefully showed us, the Leicester squad has been assembled for about cost of GBP22 million. When you head into the transfer window in the summer, can you explain why is it the case that the bigger clubs can't find cheap players like (inaudible).

And the last question is really on the academy. Can you just explain what you've been doing with the academy through the last six months and how effective you feel that's been? And what you expect coming out of the academy in the future? Thank you.

Thanks, Matthew. First question on ticket issues, as you described them. I'm not going to comment on what other clubs have done from a policy perspective, but I guess what I can say is, I think you'd have heard the Premier League is looking at options to help away fans. We had the Away Fan initiative last year, and obviously, there are discussions happening, but in fact in the last week's premier league meeting and indeed behind closed doors now and then into the next one in March, which will deliver something more, I expect, to away fans.

But I think from our perspective, that's only part of it for us. I think, we are working with our supporter's trust closely to assess what we can do for our fans. I mean you'll have seen we've had our general admission season-ticket prices frozen for last five or so years. And I don't see as you say, we've kept them frozen into next year as well. [That's just] guided anything in terms of where we are on general admission. Hospitality and exec areas are a different matter, which I think is subject to more year-on-year changes.

But I think overall the yield analysis on this stage and that you've got isn't too far off. But it's generally going to be around execs not necessarily around season tickets and general admission.

Second question, philosophy on player costs, Leicester is a fantastic reference point for everybody this year. I think the philosophy that we have is to target quality of players based on huge amount of scouting that we do and analysis within the training grounds. And then we do our best to do the best deal we can. If some players are brought by other clubs with an eye to then developing into something special in a few years' time where there's a bit more pressure perhaps on some of the bigger clubs to bring in players that are going to be hitting the ground running and top players verging on world-class almost immediately. So, there is a slightly different market perhaps in which people are buying.

Third question then was around the academy. What we did in the last six months. It's good question given some of the news flow around it. I'd say, I mean the academy continues to be at the heart of the Club, giving youth the chance is part of our philosophy, part of our DNA. We took the departure of Brian McClair last summer as an opportunity to do a root and branch review of the academy.

That's now complete and changes are underway and announcements will follow in the coming days. I think in terms of the future, our key competitive advantages are still very strong. And the two ones I would call out are an unmatched track record of player development compared to any other team, in particular, in England. And secondly, the runway we deliver, of first team opportunities to those players coming through, again very different to some of our competitors.

Omar Sheikh, Credit Suisse.

Good morning, everyone. Three from me, if I could. First of all for Hemen perhaps, I just want to get a sense of how the employee benefit expenses might change next season if you don't qualify for the Champions League. I know it's a long way to go yet but be interesting to hear your thoughts. Maybe you could just let us know what proportion of those expenses are variable, that might be a helpful starting point.

Second question is mainly for Ed. You just hired a Head of Retail, I just wondered whether you could update us in that context about your thinking on the store expansion or the store rollout, maybe talk about which geographies I think [you might] first and pacing?

And then finally, could you perhaps update us on the performance of the Old Trafford store? Last quarter, you gave us some data points on or some commentary about the start after you taken over the running of it. I wonder if you could just, perhaps give us some color on how that's doing this quarter? Thanks.

With respect to the employee benefit expenses and the proportion that's variable. I mean first of all, that's not something we guide on. So I'm not going to be able to be transparent with you beside letting you know that there is a component of our players salary that is linked to the Club participating in the group stages of the Champions League and to the extent that we're not in the group stages of the Champions League, and that component will come off and its sufficiently meaningful.

With respect to, I'll take you third question and then pass over to Ed to give a wider feel around retail. In terms of the performance of the Old Trafford megastore, in terms of year-on-year, it continues to perform strongly and we're pleased with the way it's doing so, so outstripping its performance last year.

Obviously, with respect to Q1 there often is a dip, obviously, from the start of the season where there is a lot of interest and the new kits are released. But in terms of the performance you're seeing in this quarter and to the rest of this fiscal year, it will be in line with what we expect this quarter into Q3 and then Q4, and we're pleased that's it's up year-on-year.

Ed, do you want to--

Yes, sure. So your second question was now we brought in this Head of Retail, what is the plan? So high level, I can say there is obviously a review process first. There is a lot of work to be done around looking into locations, format size, what kind of product range might go in. And it's really too early to be guiding you around what that may result in. So hopefully I'll be able to tell you a bit more on the next quarter call.

Okay, Ed just, could you clarify when Head of Retail starts then?

Last week.

And this concludes our question-answer session. I'd like to turn the conference back over to Mr. Woodward for any final remarks.

Thanks to your time everybody, and we'll speak to you again in a few months. Thank you.

And thank you, sir. Today's conference has now concluded and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.