Manchester United PLC (MANU) 2017 Q2 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, and Hemen Tseayo, Head of Corporate Finance.

As you can see from the strong numbers that we released this morning, we remain on track to achieve our annual guidance, which includes record revenues for 2017. These revenue numbers are particularly pleasing, given the negative impact of non-participation in the Champion's League. Cliff will go through the numbers in detail shortly.

On the pitch, we remain involved in all competitions, and have qualified to the EFL Cup Final, where we face South Hampton on the 26th of February at Wembley, our third visit in 12 months. We're also progressed to the fifth round of the FA Cup, where we face Blackburn in the round 32 of the Europa League, where we face Saint Etienne. Finally, we have 14 more league games left in the Premier League, or to [say we're] a third of the season left to play. We're approaching the business end of the season, and look forward to a strong finish.

I'd like to take this opportunity to congratulate Wayne Rooney on becoming Manchester United's all-time record goal scorer, achieving the remarkable feat of scoring 250 goals over the last 13 seasons, surpassing Sir Bobby Charlton's record, which has stood for 44 years.

Our Q2 EBITDA of GBP69 million is a record quarter profit for the Club, and a testament to the resilience of our business model, which allows us to overcome the performance volatility inherent in sport while simultaneously investing in our business for growth. During the quarter, we signed global sponsorship deals with Mlily, the Club's first official mattress and pillow partner, and Deezer, our first partnership in digital music streaming. We also renewed our partnership with Concha Y Toro, our wine partner.

Since the quarter-end, we've also announced a global partnership with Uber, the first partnership of its kind, which will involve global campaigns, creating exclusive experiences for Uber riders and drivers around the world, and the creation of a dedicated Uber zone in Old Trafford.

Turning to digital media, we're planning to launch an MUTV app globally in territories where the competition and partner rights allow us to do so. The app will be a premium paid content product, with pricing ranging from about GBP1.49 to GBP4.99 per month. It'll be available by the Apple and Google App stores, and will include access to a continuous live-stream with Manchester United's 24-hour television channel, access to a continually updated on-demand library of top picks, documentary box sets, studio shows, recent matches, highlights, and classic matches, and also allow Chromecast programs to be shown on a TV with a Google Chrome device.

As we progress on our digital transformation journey, this product will enable us to do a number of things - build a global user base of customers, tracking use behavior within the app, test and optimize acquisition marketing, and of course, build a deep insight at scale on the consumption of our premium content and the D2C distribution market. We will track this closely, and it's something we expect to grow steadily over time.

The January transfer window was relatively quiet for us, aside from the sale of two first-team players, Schneiderlin to Everton, and Memphis Depay to Lyon. It was also a generally quiet window for our Premier League peers. In fact, it was the first window where Premier League clubs reportedly recorded an aggregate transfer window profit. The window is notable for one development, which was Twitter's deal with Sky to live-stream deadline date, the final day for clubs in the UK to acquire new players, which was Twitter's first live-streaming deal in Europe. The series of broadcasts follow similar [tie-ups] to stream NFL and PGA Golf tours in the US, and again reflects increasing competition in live video for such platforms.

A quick comment on TV audience. In our away game at Liverpool, Sky recorded the largest UK audience for three years, and [the return] (inaudible) at Old Trafford last month, with the most-watched game of the season in the US, and one of NBC's top three most-watched games since they started broadcasting the Premier League several years ago.

Finally, the international popularity of the Premier League was again recently demonstrated by the Chinese broadcast rights deal for the next cycle. We saw an approximate 12 times increase for the next cycle.

And with that, I'll hand over the call to Cliff.

Thank you, Ed, and hello, everyone. I'm going to review our results for the second quarter of fiscal 2017. As usual, unless I mention otherwise, all figures are in UK pound-sterling.

As mentioned last quarter, year-over-year comparisons throughout fiscal 2017 will be materially impacted by three things - firstly, the impact of non-qualification to the Champion's League competition on broadcasting figures; second, the new domestic and international Premier League deals; and thirdly, the cadence of matches on a quarterly basis.

During the quarter, we played three additional home games compared to the prior year, two Premier League and one domestic cup. This, together with the new broadcasting deals, contributed to the 18% growth in total revenues for the periods to GBP157.9 million. Adjusted EBITDA for the period was GBP69 million, 23% above last year's second quarter, driven by the increased revenues, partially offset by higher wage costs and increased operating expenses. As with previous announcements, we've included both adjusted profit and adjusted 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 that are unrelated to underlying business, and then 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 GBP17.4 million compared to GBP17.7 million, as the EBITDA growth was offset by increased player amortization following the investment in playing staff over the summer.

Turning to the key items of note in the financial statements, commercial revenues were up GBP0.7 million, with growth in both sponsorship and retail merchandising apparel and product licensing revenues being partially offset by a decline in mobile and content revenues. As Ed mentioned, we have signed a number of new global sponsorship deals and remain confident in the long-term performance of the commercial business.

Broadcasting revenues increased [GBP50.2 million] primarily due to the new Premier League domestic and international broadcasting rights agreements, together with two additional Premier League home games and one additional live broadcast compared to the prior year. Match day revenues are up GBP8.2 million due to playing three more home games across all competitions.

During the quarter, total operating expenses, excluding depreciation and amortization, were up 14.4%, with total wages up 14.2% due primarily to new player acquisitions. Other operating expenses increased due primarily to playing the three more home matches.

Net finance costs for the quarter were up GBP7.3 million due to adverse exchange rate movements on the unhedged portion of our US dollar debt following the significant decline in sterling against the dollar. These foreign exchange losses are noncash, and we exclude them in our calculation of adjusted profit for the period. The quantum of our cash interest cost in US dollars remains unaffected. However, due to these exchange rate movements, it is likely that the reported net financial costs for the year will now be in the GBP27 million to GBP29 million range.

Looking at the balance sheet, the cash balance of GBP122.7 million was GBP1.1 million up over the prior year, and that increase in our net debt of GBP87.2 million to GBP409.3 million was entirely driven by the impact of foreign exchange rate movements on our US-denominated debt. Our long-term debt remains unchanged in US dollar terms.

Turning to the full year outlook, following the closure of the transfer window and the sale of two first-team players, we would expect full-year results to be at the upper end of our previously stated guidance for fiscal 2017 of revenue between GBP530 million and GBP540 million, and adjusted EBITDA of GBP170 million to GBP180 million. This guidance reflects the range of the likely possible on-pitch performance outcomes for the year.

In addition, we now forecast amortization costs for the full year to be GBP126 million, with net player CapEx of GBP133 million. Finally, on the dividend, a semi-annual cash dividend of $0.09 per share was paid on the 5th of January 2017. A further semi-annual cash dividend of $0.09 per share will be paid on the 8th of June 2017 to shareholders of record on the 28th of April 2017. And the stock will begin to trade ex-dividend on the 26th of April 2017.

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

(Operator instructions.) John Janedis, Jefferies.

Can you provide more detail on the thinking behind the ticket price freeze for next year? How should we think about match day revenue growth for the year, assuming you're back in the Champion's League? And should it be comparable to fiscal 2016, or closer to fiscal 2017 levels?

Hi, John. On the first point, the ticket price freeze that we've announced, that's the sixth year in a row that we've done that, and that is our policy with regard to the core fans [and] the stadium. I think the number one most important thing is a full stadium. The second most important thing is a noisy stadium, and we're committed to keeping that.

So, that's on the ticket freeze. And we wouldn't be guiding anything beyond that in terms of expectation for future, as well. But, in terms of the match day growth, Cliff, do you want to make [a comment]?

Yes. Thanks, Ed. Yes, I think, John, to answer your question, I think 2016 is the better comparator. Champion's League games do attract greater revenues, bigger attendances, and we do also give discounts for the Europa League. So, if you're looking on a like-to-like basis, I would use 2016, when we were last in the Champion's League, as a guide.

And maybe on sponsorship, over the past several quarters, the sponsorship revenue (inaudible) is slowing from what we saw in years prior, and you obviously made some comments around some recent deals. But, how do you think about the long-term rate of that business now that it's reached somewhat of a more mature state?

Yes, it's a good question. The double-digit growth rates are harder as the law of size impacts the analysis. And so, as the business has got bigger, I wouldn't say it's a mature business. I still view it as a great business, but it's harder to drive those big double-digit annual increases that we've seen in the past. So, that's a fair question. I mean, I think we still feel that the long-term prospects of the sponsorship part of the business are extremely good. We feel that there is a very good pipeline, and that's evidenced by the recent announcements of Deezer and Uber, plus the big buzz around the team and the popularity of football, which continues to show big pull from corporates around the world.

Bryan Kraft, Deutsche Bank.

Wanted to ask you two things. One, just on the roster, are you guys happy with the roster at this point? And just how are you thinking at this point about player spend as the next transfer window opens up? And on the new streaming service, how broad will that be made available geographically? And should we expect mobile and content to start becoming a growth driver again as a result of that product launch? Thanks.

Okay, so the first question, are we happy with the roster at this point, yes. I think there's a happiness from the manager at this point, as you can tell in all his recent interviews, in terms of where we are as a squad. I think there is always going to be continual improvement. I think even if you win everything, you still want to improve the squad. That's the nature of the dynamic industry that we're in.

But, I think we aren't necessarily in a position where we have to churn a large number of players. I think I've guided before, we want to get to a more steady state and be buying and potentially selling a lower number of players each year. And I think we're in that kind of environment now compared to where we were two, three years ago when perhaps there was a little bit more churn required from the playing squad perspective.

And in terms of guidance around that, obviously we don't guide around player spend. It's a number that you can track almost on a deal-by-deal basis because [things are] very widely published when they happen, but it isn't something that we will guide on.

Your second question was around the apps that we're streaming. It is MUTV, so this is the MUTV channel, the linear channel which we are putting live available on an app, and indeed with on-demand content alongside that. I think your main question was geographically how wide this can go. It cannot go into the UK because of the deeded license restrictions with the Premier League, so it's not in the UK. And it is not in many countries worldwide where we have sponsorship deals in existence with partners who can utilize exclusive content within those territories. But, it is still going to 160-plus countries around the world.

So, I think the way to look at this is of course we believe that the mobile and the content side of this business will grow over the years to come. The main app, the main platform will be launched at some point later in 2017. And we're measured about expectations around this, and we won't be giving guidance, but I think this is a case of let's report in the coming quarters. And over the years, rather than the next quarter, if you like, you'll see growth in this area.

Omar Sheikh, Credit Suisse.

Just following on from your comments just now, Ed, on the MUTV app, I didn't know whether there's anything in addition to that that you're planning on the digital side. I know you talked before about improving the e-commerce experience (inaudible) fulfill demand for merchandise and so on more widely. I wonder whether you can maybe update us on whether there's been any progress on that front.

And then, second question, just on the tour for this year, I'm not sure you've confirmed where the tour's going to be in 2017, but obviously there's been some press reports that you're going to come to the US in the summer. I wonder whether you could just give us a bit of insight into that, and whether it will be the same sort of size, or the number of matches, that we saw in 2015. Thanks.

Yes, hi, Omar. Your first question, in terms of in addition to the MUTV app, as I said at the end of the last question, that is just the MUTV live experience. So, if you have BT Sport on your phone, or Sky on your phone, it's just the equivalent of that plus on-demand content. The broader product, which we've obviously been working on for some time, is with much greater functionality, is still being worked on. And as I just guided earlier, 2017 would be our expectation of when that comes to market. So, that is the broader platform, and that is the one that obviously we will be telling you all about once we get to the point of launch.

The second question on tour, we haven't announced where we're going yet, so I can't confirm or deny whether it's the US, but I can say it will be a larger tour than last year. I mean, obviously last year was a smaller tour in planning, and B, smaller in terms of the games because of obviously what happened in Beijing. So, it will be a broader tour in terms of the number of games than we experienced last summer.

Alex Mees, JPMorgan.

Firstly, just on the shirt sales, I believe you sold more of these shirts last year than any other club. I wonder if you could just give a sense for how you see that progressing into the future, particularly as you've got some very high profile names on a global basis now on the squad. Does that help? And given that shirt sales have historically been focused in the UK, whether there's an opportunity, you think, to increase that retail more widely across the world?

And then, secondly, I just wanted to confirm why the mobile and content revenue fell by a third in the quarter. Is it just in the run-up to the release of the app, or is there something else?

So, the replica shirts being number one in the world, so how do we see that progressing? We see that continuing. Of course, stars help, but the reality is we did a lot of analysis when [Chris Yarno] left the club in 2009, and it doesn't have a material impact when a star leaves because people go and buy a Manchester United shirt, and then when they're in the shop or they're online deciding which name to put on the back, that's when they make that decision. But, the decision of making the purchase is a different one to the name on the back.

So, we see that continuing. I think the second part to your question was how do we see the opportunity from an ex-UK global basis. We see that that is definitely an area of growth, because as our partner, [Adi], develops the footprint from a wholesale perspective, or the retail perspective through their lens, then obviously there is a greater opportunity for our fans to go and buy those products. And all I can really say at this point is it's heading in a very good direction.

One thing on the [mobile online] content, it's a big percentage, but it is also sort of a [lot of] small numbers through there. So, we are down year-on-year, and that is purely due to the loss of two deals in two particular countries, one of them is related specifically just to payments, restrictions and issues in that country. So, nothing really under the underlying strength of our business. It's just two particular contracts that are not in this year that were in last year.

This concludes our question and answer session. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect the lines.

Thank you.