Manchester United PLC (MANU) 2018 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 statements 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 thanks to everyone for joining us today. With me on the call, as usual, are Cliff Baty, our CFO; and Hemen Tseayo, Head of Corporate Finance.

So turning straight away to our second quarter results. We already released a strong set of numbers, including record second quarter revenues. And Cliff will go through them in detail shortly. On the pitch, we remain second in the league and have progressed to the fifth round of the FA Cup, where we face Huddersfield. We've also progressed to the knockout stage of the Champions League, and we'll face Seville in the round of 16.

Last month, we further invested in the future of the club by extending José Mourinho's contract and entering into an exchange agreement with Arsenal swapping Mkhitaryan for Sanchez, strengthening José's attacking options. This trade generated some interesting social media stats. It was the biggest United post on Instagram with 2 million likes and comments, the most shared United Facebook post ever, the most retweeted United post ever and #Alexis7 was the #1 trending topic on Twitter worldwide. To put all of that into context, the announcement post generated 75% more interactions than the announcement over the side of the world's most expensive player last summer, when Neymar moved from Barcelona to PSG.

A word on broadcasting. Reports of the death of live sport are greatly exaggerated. I just came from a Premier League meeting, where research shows that the league's global cumulative audience has increased 9% year-on-year with particular strong increases in Asia and North America.

It's been a good quarter for the retail business. The Megastore had a record December, breaking the previous record set last year. And the underlying store performance continues to strengthen with conversion up and margins strengthening due to the increased mix and mono-branded apparel, all achieved despite the global supply chain cost pressures of the weaker pound.

With regards to e-commerce, we've had a record second quarter with trading substantially up on the prior year. This was driven by an integrated club approach to the Black Friday period, which generated a larger global pickup, resulting in a material sales increase over the period. Notwithstanding the strong prior year comparison due to the spike from signings of Pogba and Zlatan, we anticipate beating last year's record performance. Finally, on merchandise, Alexis Sanchez has also set a new January signing record in terms of shirt sales, 3x our previous record.

On the venue side, I mentioned on the November call that we're hoping to achieve 200,000 official members this season. And I'm pleased to confirm that we're currently at over 210,000 official members, which is 16% higher than our previous record, which was over 180,000, which we achieved last season. It's worth reiterating importance of membership. In terms of match tickets, we will sell out all Premier League games exclusively to official members. And as the only way for a nonmember to see a Premier League match is through our match-by-match hospitality product, our Matchday VIP experience is on course, therefore, for another record-breaking year.

Turning to the media business. We continue to see subscriber growth in our MUTV direct-to-consumer products in priority territories like the U.S., China, India and Thailand. And manutd.com continues to be the most visited sports club website globally. Last month, it was announced as part of the Mailman's annual Red Card report that we are the most influential club online in China for the second consecutive year. And we're excited about the ongoing opportunities to innovate and bring our brand in this -- build our brand in this key market.

In terms of the social media, we've been the fastest-growing and most engaged football club on Twitter. And since the start of the season, we've generated 25.5 million interactions with close to the same number of interactions as the next 2 biggest European clubs combined. We collaborated with Jesse Lingard to stage a Jesse Lingard takeover on Instagram on the 19th of January, telling the story of a typical day in his life as a Manchester United footballer. The campaign was our biggest ever non-matchday or non-signing story and generated over 40 million impressions and over 6 million views of Jesse's posts.

I'll now hand you over to our CFO, Cliff Baty. Cliff, over to you.

Thanks, Ed, and hello, everyone. And now to talk to our results for the second quarter of fiscal 2018. As a reminder, for fiscal year 2018, year-on-year comparisons will be affected by 2 main themes: the impact of qualification to the Champions League in 2018 and the cadence of matches on a quarterly basis.

In terms of the headlines figures, total revenues for the period were up 3.8% to GBP 163.9 million with adjusted EBITDA of GBP 67.8 million, giving an EBITDA margin of 41%. Before getting into the operating financials, I will highlight that the tax charge in the quarter has been impacted by the recent U.S. tax reforms, which were passed at the end of December. The federal income tax rate was reduced from 35% to 21%, which should be beneficial to the club in the long term. However, we are still working through the details and potential impact of the more complex aspects of the reform with our advisers.

The reduction in tax rate has resulted in a noncash accounting charge of GBP 48.8 million to be recorded in the quarter. This charge relates to the write-off of a portion of deferred tax assets and is similar in nature to the write-off supported by many other companies in their recent earnings statements. It is important to reiterate this is a noncash accounting charge only, which have no impact on our financial competitiveness nor our ability to meet the Financial Fair Play Regulations.

As with previous announcements, we've included both adjusted profit and adjusted earnings per share within the release as we believe that assessing the 2 comparative financial performance of the business, it is useful to strip out the distorting items -- distorting impact of items that are unrelated to the underlying business, such as this one-off accounting charge, and then to apply a normalized tax rate for both the current and prior year periods. And we provide the reconciliation of this in the earnings release.

So turning to the key items in the financial statements. Commercial revenues were down -- were GBP 65.4 million, down 2.1%, due primarily to a decrease in sponsorship revenues with retail, merchandising, apparel and product licensing being broadly flat. Broadcasting revenues were up GBP 9.1 million or 17.3% due to participation in UEFA Champions League and 2 additional Premier League games broadcast live. Matchday revenues were GBP 36.9 million, down 4.4% on prior year quarter, primarily due to playing fewer domestic cup home games.

During the period, total operating expenses, excluding depreciation and amortization, were up 8.1% to GBP 96.1 million with total wages up 9.4% due to salary uplifts from the Champions League. Other operating expenses increased by GBP 1.2 million primarily due to the impact of a foreign exchange gain in the prior year. Net finance costs for the quarter were down GBP 7.7 million due primarily to the foreign exchange movement on an unhedged U.S. borrowings recorded in the prior year. As previously mentioned to prior quarters, the quantum of our cash interest costs in U.S. dollars remains unaffected by these exchange rate movements.

Looking at the balance sheet. The cash balance of GBP 155.3 million was GBP 32.6 million above prior year with net debt of GBP 328.6 million being GBP 80.7 million below the prior year. Notwithstanding our recent investments in the club's future, we continue to expect full year results for fiscal 2018 to be revenues of between GBP 575 million and GBP 585 million and EBITDA between GBP 175 million to GBP 185 million.

I'd also like to provide an update on a couple of other items you may find instructive in thinking your models. We expect amortization for the year now to be just below GBP 140 million following recent transfer activity and contract extensions and net finance costs to be high-teens millions, although that again is subject to foreign exchange movements. Finally, please note that a semiannual cash dividend of $0.09 per share will be paid on the 5th of June 2018 to shareholders on record on the 27th of April 2018.

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

(Operator Instructions) The first question comes from John Janedis of Jefferies.

Ed, maybe I thought I'd start where you started the meeting. Press reports indicated that bids for broadcast rights to the next cycle will be due by the end of January. Any kind of update you can provide where the EPL stands in the process? And then separately, I think on the last call, you highlighted some of the recent success you've had with the MUTV direct-to-consumer product, both in terms of expanding your global reach and your ability to target younger demos. So can you provide us an update on what you're seeing in terms of either the platform's sub growth and modernization opportunities?

I'll take the first question on broadcast. And I need to be careful around it. It's a very sensitive point in time because the end of January has been accurate. The first round of domestic bids is due in tomorrow. And all I can really say is if you look at our history, we would expect that the entire process of selling the domestic rights will conclude in a relatively short period of time, within a couple of weeks. So watch this space, there could be some news tomorrow but more likely, I think, in the next week or 2.

It's Cliff here. I'll take the MUTV. I think when we launched this, we were keen to sort of play back that what we're getting from this is really good learnings about our fan base, what they like, what they want to watch because we're actually going direct to them as you say. So we've been continuing really in terms of the demographic, the age profile that is on there, the percentage of where in the world. So we've now got 40% of our subscribers for the app are based in the U.S. and the popularity of the club, et cetera, is showing through that. But the real learnings we're getting is on the content side, what people are coming in to watch, what they stay around for, how long they're interacting with us, what sort of content is engaging to that younger demographic. Generally, older demographic will watch through sort of linear channels, but the younger demographic, and what is also popular in different markets and different places around the world. So we would expect within the app, obviously the Tour is a great attracter for people to sort of sign up and spike because that's when we have our sort of live content that we can show through there. And then these sort of interim periods between that, I'd say we get these learnings, we still get people signing up and really we sort of throw that into the mix. And we'll iterate and get better and develop as we go on.

(Operator Instructions) The next question comes from Clay Griffin of Deutsche Bank.

Just curious on the Champions League this year. I guess, what's embedded, I guess, in the guidance now in terms of further progression? And how should we think about kind of incremental EBITDA if you do progress in the tournament? And then just looking to next year's tournament, I just -- obviously, there's a new rights structure coming in place. Just wondering on the broad timing of when UEFA will announce kind of the size of the structure, but also I think there's some slight modifications to the market pool next year.

Yes, I mean, I'll take the second question first, and then hand you over to Cliff for the current year impact round-by-round. They are nearly done now on selling the global rights for the next cycle, which, as you say, starts next year. There's been a lot of indication of an increase, which has been well guided really for the last year. But I would expect some sort of announcement around those numbers coming through hopefully in the next month.

Clay, this is Cliff. In terms of this year, as we mentioned, because we won the Europa and we qualified for Champions League, we've lost that, respectively, on what we normally budget for, around GBP 10 million of revenues. That's because we are not entitled to sort of half the market pool, which goes to those who qualify through the league groups. That reduced our expectations down to somewhere around GBP 40 million or so because we budget around getting to the quarterfinal. So if we do better than the quarterfinal, that would impact our guidance equally. And if we do worse than the quarterfinal, we've still got to get past Seville, as Ed mentioned, in the round of 16. That will impact that as well. So that's really where we're very explicit really on where we were in terms of Champions League for this year. Was there anything else through that, that I didn't answer?

Just how do we think about this kind of incremental EBITDA. I know there's probably cost incentives to the players, et cetera. I know there's some cost with Europa associated with just logistically and things of that sort. So any kind of sense of just kind of margin on incremental revenues, should you get past the quarterfinal.

Should we get past the quarterfinal, then there's not a huge amount of cost. Most of those revenues from getting through will drop down, so the conversion rate is very high. Obviously, there would be varied costs were we to get through right through to the end and be successful in Kyiv when get to the final because that is a different -- you get to a different place. But I don't think we can talk about that now. And if we were lucky, we'll be able to talk about -- not lucky, but if we do that, we'll be able to talk about that maybe before the final. So yes, no, it would be very incrementally beneficial to EBITDA as you get through to the next round broadly, I mean, as published in terms of what the sort of flat fees are as you get through to the semifinal. But you're talking about another -- just getting a double-digit increase.

This concludes today's Manchester United Earnings Conference Call. Thank you for attending. You may now disconnect your line at this time.

Thank you.

Thank you.