Manchester United PLC (MANU) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Manchester United 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 are Cliff Baty, our CFO; Hemen Tseayo, our Head of Corporate Finance; and of course, Samanta Stewart, Head of Investor Relations.

Since we last spoke, I'm pleased to say we've made great progress, both on and off the field. Immediately after our earnings call back in May, we won the FA Cup for a record equaling 12th time, and we started this season by winning the Community Shield against last season's Premier League winner, Leicester City.

In May we announced Jose Mourinho as our new manager. He needs no detailed introduction from me, having won 23 trophies in 13 years. His appointment is a reflection of the Club's determination to return to the pinnacle of our sport. Despite the result from Saturday, there's positive momentum behind the team this year, and expect this season will be one of the most exciting in the Premier League's history.

We've also signed several top class players in Bailly, Mkhitaryan, Pogba, and of course, Ibrahimovic. We believe our investment in these players will better position us to challenge for trophies in the coming years.

Over the summer, we've also sent seven players out on loan, which is important to make sure our young players get in the necessary experience, and we gave new contracts to several players including Rashford and Carrick. The new signings don't just help us on the pitch. We have experienced phenomenal interest in the manager, the new players, and the Club in general in recent weeks, all of which help drive engagement with the Club around the world. We're writing the next chapter in our history. We believe this investment should translate into further growth for the Club financially.

Let me give you some examples of the strong impact of some of these signings on players' profiles after joining Manchester United. The announcement of Pogba's Medical generated the highest daily activity ever on our website. It was also the most retweeted Manchester United post of all time on Twitter.

The Pogba announcement also broke industry records. On Facebook, for example, it was the biggest signing day post in football history, bigger than Bale and Neymar signings combined. On Instagram, it was the most liked Manchester United post ever published. And on [Zlatan], his all-time top post on Twitter was the announcement of his move to the Club, and his all-time top four posts on Instagram are all Manchester United related.

We also continue to see very strong support from our fans, with all seasonal products including season tickets and Executive Club selling out in record breaking time, with our Executive Club selling out 17 days earlier than last year. Looking at our 2016 results, we once again broke records by generating higher revenues and EBITDA than ever before, as all of our businesses showed year-on-year growth, in a year when we also initiated our partnership with adidas in August 2015.

Since the end of the FY16, we've also announced partnerships with some great brands, for example TAG Heuer, Virgin Money, and EA Sports. We also announced last week that Apollo Tyres, who's been a regional partner of the Club for the last three years, have renewed their partnership, and will now become a global partner. This is the first conversion of a regional deal to a global.

On the digital media side, the new website and app continue to be built by our team in conjunction with HCL, and these products should enhance the experience of how we engage with our fans around the world. We've been recently doing in-market testing with fans, as well as validation discussions with leading digital organizations such as Google, Apple, Onefootball, and MLB.

In summary, these are very exciting times for Manchester United, and we're optimistic for the season ahead, and for our longer-term future. Our Club remains at the top of the sport, and global interest in football has never been higher. I'll now hand you over to our CFO, Cliff Baty.

Thank you, Ed, and hello, everyone. I'm going to talk to our results for the fiscal year ended June 30, 2016. For FY16, year-on-year comparisons have been driven by the following key themes: firstly, contribution from UEFA competitions; second, the commencement of our adidas partnership; and third, bringing in-house our retail, merchandising, apparel, and product licensing businesses which were previously operated by Nike.

In terms of the headline figures, total revenues for the year were up 30.4% to GBP515.3 million, with adjusted EBITDA up 59.5% to GBP191.9 million, giving an EBITDA margin of 37.2%, compared to 30.4% for the prior year. As in previous years, we have stripped out the distorting impact of items that are unrelated to the underlying financial performance, and applied a normalized tax rate of 35% to these items to give an adjusted profit figure. Adjusted profit for the year was GBP40.8 million, compared to a profit of GBP3.4 million for the prior year.

Turning to the key items in the financial statements, commercial revenues were up GBP71.4 million to GBP268.3 million, driven by the increase in retail, merchandising, apparel product licensing revenues, as we commenced our partnership with adidas on August 1, 2015. This partnership delivers a step-up in minimum guaranteed revenues, together with a contribution from the Old Trafford Megastore, eCommerce, and licensing.

Broadcasting revenues were up GBP32.7 million, primarily due to the participation in UEFA Champions and Europa leagues. As highlighted in the earnings release, domestic live broadcasting rights are up 70% for the next three-year cycle starting this year, with international rights up approximately 40%. Matchday revenues were up GBP16 million, again driven by the Champions League and Europa League matches, as well as our successful FA Cup run.

During the year, total operating expenses excluding depreciation and amortization were up 17.7%, including wages up 14.6%, primarily due to contract renewals of existing players, and uplifts in annual player salaries associated with participation in the Champions League. Other operating expenses increased 26.1% due primarily to the retail and merchandising, apparel and licensing costs now being recognized in our income statement, coupled with higher variable costs from playing an additional eight home matches in the year. Net finance costs for the year were down GBP15.2 million, in part due to the reduction in interest payable on our senior secured notes, and secured term loan following the refinancing in June 2015.

Looking at the balance sheet, cash generated from operating activities in the year was GBP186.1 million, with overall cash balances increasing by GBP73.4 million. Net debt at the year end was GBP260.9 million, an increase of 2.2% over prior year due to the impact of foreign exchange movements on our US-denominated debt offsetting the increase in cash.

Turning to our expectations for this current fiscal year ending June 30, 2017, as Ed has outlined, we have invested in the playing squad through several world-class additions, and this will be reflected through increased staff costs during the year. Overall revenues will benefit from the new Premier League broadcasting deal, however, we will be impacted in both broadcasting and Matchday revenues by the absence of Champions League football. For FY17, we expect revenues between GBP530 million to GBP540 million, EBITDA between GBP170 million to GBP180 million.

Finally, I would also like to provide some color on a few other key items you may find instructive when modeling our Business. We expect total staff costs to be up mid-teens in percentage terms to reflect the acquisition of new players this summer; amortization to be in the mid-GBP130 millions -- as you know, this can change if we buy or sell a player, or extend a player's contract; net finance costs of around GBP20 million; and our effective tax rate to be approximately 35%, but this will vary subject to the relative magnitude of permanent differences in relation to profit before tax.

Regarding net player CapEx, we incurred around GBP100 million for FY16. And for FY17, committed net player CapEx currently stands at approximately GBP133 million reflecting our recent transfer activity. As we have mentioned in the past, net player CapEx is lumpy by nature, and may continue to vary significantly from periods to period. With that, I'll hand it back to the operator, and we are ready to take your questions. Thank you.

(Operator Instructions)

Our first question comes from Omar Sheikh of Credit Suisse.

Good morning, everyone. Just a couple of questions if I could. Maybe for Cliff.

Just on the guidance for revenue in 2017, I wonder if you could just maybe break out the various line items? In particular, if you could just give us a sense, of where you think commercial income might go during 2017? That's the first question. Maybe I'll follow-up once you've answered that, thanks.

Hi, Omar, Cliff here. No, we won't. We've given the overall guidance there, GBP530 million to GBP540 million. So we won't specifically break that out. As we've said, we will see a big increase in our broadcasting revenues from the new EPL deal which comes in at about 50% increase in our domestic revenues. But offsetting that is a fall, due to not being in the Champions League, both again broadcasting and on Matchday.

Okay, that's fine. Thank you for that. I wonder whether if you maybe, just give us a sense then of, if you look at the, within the commercial revenues, is there any sense you can give us on the kind of run rate we're going to see on the sponsorship side? Because I just notice in 2016, the growth in sponsorship during the course of the year slowed versus the previous couple of years. I wonder whether you can give a sense of your pipeline going forward of sponsorship, and how we should think about that in 2017? Thanks.

Let me take that, Omar. I think, very high level without guiding around the actual numbers here, you're sensing a less growth baked into the number in terms of commercial, and that is accurate. There is less baked into our guidance, relating to growth of a line that obviously has experienced big growth over a number of years. And there are a number of factors in that, one of which some people may not realize quite how material, but a lot of the [toll] revenue was a lot lower this time round.

But I think looking forward, we are still expecting some growth there by the way. I'm not suggesting that we're going down at all. But the pipeline is strong, and we expect greater growth coming after this year.

As the pipeline through the year delivers deals, the money doesn't necessarily then kick in for 2016/2017. As you know, if you get deals done later on in the year, sometimes the money doesn't start until the following season. So we are expecting some fantastic growth again, along that wider commercial business, but in particular the sponsorship line. But this year, perhaps not quite so much as we've seen recently for those reasons.

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

Thanks.

(Operator Instructions)

Seeing no further questions, this will conclude today's question and answer session, and it also concludes today's conference call. We thank you all for joining today's presentation. You may now disconnect your lines. Have a terrific day.