Manchester United PLC (MANU) 2017 Q1 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 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 factors discussions in our filings with the SEC Manchester United Plc assumes no obligation to update any of these 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 with Cliff Baty, our CFO, Hemen Tseayo, Head of Corporate Finance, and Samanta Stewart, Head of Investor Relations. It wasn't long ago we reported our year-end 2016 earnings, so we're keeping our comments fairly brief today.

As you can see from the numbers released this morning, we're on track to achieve our annual guidance, which includes record revenues for 2017. This is impressive, given our first-quarter numbers were negatively impacted by non-participation in Champions League, and the timing of matches for other competitions. Cliff will go through the numbers in detail shortly.

On the pitch, it is still early in the season. We have 27 more Premier League games to play, and advance the quarter finals of the EFL cup. Off the pitch, the business continues to perform very well, which provides further evidence to the resiliency of business model which allows us to overcome the performance volatility that professional sport naturally has, while simultaneously growing our revenues and investing.

During the quarter, we signed global deals with EA Sports and Tag Heuer, and Apollo Tyres who has been a regional partner for the last three years, renewed their partnership and became a global partner. This is the first conversion of regional to a global partnership.

We also renewed our deal with Hong Kong Jockey Club, and entered into financial services deal with Virgin Money. Since the quarter ended, we also announced a renewal of our partnership with Concha y Tora, our wine partner, and a global partnership with Mlily as the club's first-ever mattress and pillow partner. Our retail business, which we brought in-house in August last year had a particularly strong quarter.

Here are a few interesting facts. Our megastore achieved record matchday sales ever, around the gaming [activity] on Saturday, September 10. Columbia outerwear products are also selling extremely well, achieving our yearly forecast in eight weeks. We've also seen huge demands of player printing due to the new signings, and the megastore shirts with player names increased over 20% versus last year's quarter. I'll now hand over to Cliff to look at the numbers in more detail.

Thank you, Ed, and hello, everyone. I'm going to review our results for the first three months of FY17, which include our China tour, and the summer transfer window.

As usual, unless I mention otherwise, all figures are in UK pound sterling. Year-over-year comparisons throughout FY17 will be materially impacted by three themes. One, the impact of non-qualification to the Champions League competition on matchday and broadcasting figures. Secondly, the new domestic and international Premier League deals. And thirdly, the cadence of matches on a quarterly basis.

The overarching theme for Q1 is the number of home games, as we have played three fewer games compared to the prior-year quarter, one in the Premier League, one UEFA competition, and one less domestic cup match. The fluctuation in the number of games impacted the total revenue for the quarter, which was down 2.8% to GBP120.2 million. If we had played the same number of Premier League home games as last year, due to the way contractual broadcasting and [sume] ticket revenue is recognized in the accounts, revenue would've actually been 4% higher.

Adjusted EBITDA for the period was GBP31.2 million, 25% below last year's first quarter, due to lower revenues largely attributable to the number of home games played, higher wage costs, and increased operating expenses due to the timing of foreign exchange movements. 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 impacts of items as unrelated 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 GBP0.7 million, compared to GBP2.7 million, as the EBITDA decline and the increased amortization following the investment in playing staff in the quarter was offset by the swing in profit and loss on player disposals, from a loss of GBP7.4 million in the prior year, to a profit of GBP8.2 million in the first quarter of FY17.

Turning to the key items of note and the financial statements, commercial revenues were up GBP3.1 million. The increase in merchandising, apparel and product license revenues from the extra month of our partnership with adidas, which started on August 3, 2015, was partially offset by the impact of the shorter summer tour. As I'd mentioned, we saw good performance of our megastore in the first quarter, but we believe this shouldn't be annualized, as the first quarter tends to be stronger due to the start of the season, and the new players' signings.

Broadcasting revenues increased GBP1.5 million, primarily due to commencement of the new Premier League domestic and international broadcasting rights agreements. As mentioned, this revenue line was impacted by the reduced number of Premier League matches, as well as two fewer UEFA competition games.

Matchday revenues were down GBP8 million, also due to playing three fewer home games across all competitions.

During the quarter, total operating expenses excluding depreciation and amortization were up 8.5%, with total wages up 5.8%, due primarily to additions to the football staff. Operating expenses increased primarily due to timing of foreign exchange movements on our player CapEx payables. These movements have now substantially reversed.

Net finance costs for the quarter were up GBP1.6 million, due to adverse foreign exchange movements on the unhedged portion of our US dollar debt. Given the recent currency fluctuations and the decline in sterling against the dollar, it is likely the net finances costs for the year will now be in the GBP23 million to GBP25 million range. This movement is primarily due to unrealized foreign exchange losses, which we exclude in our calculation of adjusted profit for the period. The quantum of our cash interest cost in US dollars remains unaffected.

Looking at the balance sheet, cash balances of GBP164.3 million, were up GBP20.8 million over prior year, and the increase in our net debt of GBP51.5 million to GBP337.7 million was entirely driven by the impact of foreign exchange movements on our US-denominated debt. Our long-term debt remained unchanged in US-dollar terms.

Based our first-quarter results, we reiterate our previously stated guidance for FY17 of revenue between GBP530 million to GBP540 million, and adjusted EBITDA of GBP170 million to GBP180 million. As previously announced, we will be replacing the quarterly cash dividend with a semi-cash annual dividend. The $0.09 share semiannual dividend will be paid on January 5, 2017 to shareholders of record on November 30, 2016. The stock will begin to trade ex-dividend on the November 28, 2016. With that, I'll hand back to the operator, and we're ready to take your questions. Thank you.

(Operator Instructions)

John Janedis, Jefferies.

Hi, thank you. I had one quick question for you. You currently sit in third place in your Europa Group League standings, and I wanted to know, in the event that you fail to qualify for the knockout rounds, can you help us think about what the impact would be to broadcast and matchday? And what's embedded in the full-year guidance?

Yes, John, hi, it's Cliff here. John, the impact of that, would be in the sort of single-digit million range, the bulk of it being in broadcasting, with some of that being in matchday. But as we get most of the income for the Europa League upfront through broadcasting, so it's in the -- as I say, the single-digit million. In question of whether that's within our range, well, you know our range is at a span of 10, from GBP170 million to GBP180 million EBITDA. So we could accomplish that within that range, as we say.

Okay. And then, I guess, separately, you guys obviously know there's been pressure on live sports, particularly the NFL in the US, so can you comment on how EPL viewership is trending this season, I guess, both domestically, and in the key international markets?

Yes, sure, I think you saw the news overnight. I think the NFL ratings were back to, if (inaudible) normal last weekend. I think, some of the comments that were made around the Olympics, and perhaps even a bigger impact, the election, I think were probably accurate.

But from a Premier League perspective, the Olympics did have an initial negative impact. And I've heard anecdotally the -- there was a big six game, playing another big six team early on in August, same day as there's a gold rush in the Olympics in the UK, and that had a 20% impact on audience. So you can see how these things can carry through, based on other events.

But we've, we are hearing the trend is good, not bad. So yes, there have been some early impacts, based on different channels, picking up different times, in terms of the number of subscribers they have, different matchups, and then finally different time slots, that actually gives us an unclear picture at this point. But I literally have just come from Premier League meeting, and actually, it looks like a trend back to similar levels in previous years. So it's not something we're concerned about.

Thank you very much.

(Operator Instructions)

Omar Sheikh, Credit Suisse.

Thank you, morning, everyone. I just had three questions, one for Ed, and a couple for Cliff. Ed, can I ask first of all, about sponsorship revenues? I wonder if you could, just give us your sense of whether or not sponsorship revenues were going to grow this year? I know you were sort of down slightly in the first quarter.

And then, just more broadly, whether are we seeing [sponsorship] revenue growth maturing? You've had very strong growth in the last few years, and I'm wondering whether we can get back to the 20%, 25% growth rates that we've seen in the past? That's the first question.

And then, just a couple for Cliff. Maybe on staff costs, first of all, was there only a partial quarter impact to the new players and the manager in the quarter, because the cost growth on employee expenses was relatively modest? I'm wondering whether that might be picking up later in the year?

And then, finally I just want to clarify, Cliff what you said about matchday revenues in your prepared comments. Did you say the underlying matchday revenues were up 4%, if you equalize the number of matches? And I wonder if that's sort of the indication, and we should be extrapolate that into the full-year essentially, as we look at the season as a whole? Thank you.

Okay. So thanks, thanks, Omar. So let me deal with the first question. First, the sponsorship question, in terms of the current year, looking as a question around [grade] from last year, is really clouded a little bit in terms of the tour, and that complicates the picture. But no, we do see ourselves with a good pipeline, deals continue to get done. There may be a bit of a timing issue, in terms of when the first monies come in, but returning to a good level of growth going forward.

I would say 20% to 25% growth that we've had in the past is, probably a challenge given the size of the base. So we probably need to be looking at more measured growth rates, but certainly returning to growth, and certainly, the pull from the market is as strong as ever. Cliff?

Thanks. Omar, just taking your questions, in terms of staff costs, you're right. You sort of answered it there, we don't have the full impact of the investment we made in the playing squad coming through in the first quarter. Overall, I think we mentioned that staff costs will be ahead this year against last year, probably in the mid-teens percentage. So you'll see the relevant, differential sort of increases as we get through the year. I don't know if that answers the question on staff costs.

And coming back to matchday revenues, yes, actually I was, slightly different from the point I was trying to make in the pre-prepared comments there. It was actually saying, really, that if you just look in isolation at one quarter, the timing of matches is quite confusing, in terms of what it shows, because of the way we recognize income. And that is both broadcasting -- it's not just broadcasting income and contracted season ticket and executive club income.

If you think about it, we get paid all that money, and not all of it upfront, but say season ticket money, executive club money upfront for the whole season, and broadcasting comes [periodically] through the year. But we then recognize that to the P&L on the basis of games played. And since we played less games in this period, we just do not recognize that money into the P&L. So hopefully, that wasn't too confusing.

In terms of actually, your other question, which is matchday. No, matchday, really you can base it on last year's sort of assumptions, and then adjust for not being in the Champions League, and we're in the Europa League this year. So we expect matchday to be down on last year, and total for the year.

Great, that's very clear. Thanks for that. So if I could just follow-up on the tour for this year, have you guys decided where you're planning to go, and should we expect it to be a greater number of games than you did in China? Any thoughts there would be helpful?

We haven't announced yet where we're going, so I can't communicate that, but I would assume more games than China, yes.

Okay, great. Thank you very much.

Thank you.

John Janedis, Jefferies.

Yes, maybe sticking with the sponsorship theme, can you talk about the impact from the adidas sponsorship, if you don't qualify for the Champions League next year?

Yes, hi, John, it's Cliff here. I think, this having been mentioned before, yes, there is a clause in the adidas contract, that -- if we're missing from the champions league for two years in a row, there is a 30% reduction of the following year's receipt. So what that really means in terms is we are, we would get, if we did miss out again, that would kick in, and we would see 30% of the future annual payments reduced. So an example of that being, if we received say, GBP70 million, 30% of that would be GBP21 million that we would not receive. That is spread over the remaining terms of the contract.

So in actual accounting terms and recognition terms, if we do miss out this year, we would sort of get a GBP2 million hit over the 10 year contract. But, of course, this is year two of the contract, so we'd have a catch-up this year. So broadly, we'd have a GBP4 million reduction in revenues in this current year. And then, we'd have a GBP2 million reduction in revenues every year going onwards. That make sense?

Yes, thanks, Cliff.

This concludes our question-and-answer session. I would like to turn the call back over to management for any closing remarks.

I'd just say, thank you, everybody, and we look forward to speaking to you in February. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.