Manchester United PLC (MANU) 2018 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; and Hemen Tseayo, Head of Corporate Finance. And we are also joined today by our great Managing Director, Richard Arnold. I've invited Richard to join the call today, because he's been extremely busy on the operational front and so the investors would benefit from hearing from the person who's directly responsible for those activities.

Before he does that, as it's easy to get caught up in the game by game fluctuation for that season or even the relatively minor pieces of the business and industry news, I would like to take this opportunity to take a step back and look at the bigger picture. We're the biggest sports team in the world as measured by number of fans. We know that our position is one that requires continued effort and investment to maintain. Our board, our investors and everyone at the club are aligned with the fans and what we need to do on the pitch and that is to win trophies. That's one of the reasons why we hired José Mourinho, and we've already won 3 with him. Off the pitch, it's clearly important we continue to drive the business forward, giving us the financial muscle to compete in a highly competitive transfer market. This allows us to continue to blend world-class purchase talent with our continued development of top academy graduates.

Our Academy continues to be a huge source of pride in delivering talent for the first team, and we materially increased investment in recent years. A few comments briefly on why we remained highly confident on growing our revenue.

As the most popular sports team in the world, we have a huge opportunity to ride the way of global media, technology and socioeconomic trends. As a content generator, we are well-placed to benefit from changes in the global media landscape with the OTT revolution that is underway.

Our recent material investment in digital media together with our huge social media footprint means we're well-placed to drive all areas of the business through the closer connections we have to our fans. Clearly, in an OTT environment, where we know who is actually watching our games, the opportunity will be even greater. Also potential changes in the European or worldwide football landscapes are likely to benefit us. For example, UEFA's plan for the evolution of European competition and some are in club competition opportunities. I'll now hand over to our Managing Director, Richard Arnold, who'll take you through the key business activities.

Thank you, Ed. Turning to our businesses, in sponsorship, we have announced 7 sponsorship deals, 5 of which were global partnerships including our first and inaugural sleeve sponsor, Kohler, 1 regional partnership and 1 financial service partnership. We're very proud of our partnership with Kohler. We took longer than most of our peers in seeking and selecting the right partner. We had multiple other offering parties including a number at the same or higher values. But we are happy that the partner we chose is a strong business with the brand we are proud to partner with and brand values consistent with our own. The value achieved also underpinned our ongoing confidence in the competitive advantages the club has relative to our peers, particularly in respect to the scale and passionate engagement of our fan base with a multiple of the next highest club being achieved. The overall mix of those announced deals underpinned our increased focus on larger partnerships with stronger, globally focused brands.

The announcement of replacement brands in spirits and gambling categories also points to the continued strength in our sectoral approach and competition for our exclusive rights. We have seen the highest value, a number of partnerships to date come to the point of renewals reflective of our cumulative historic success in this field over the last decade. Whilst we continue to be proud of the renewal rate, which we believe to be market-leading, the scale of the operation means that significant effort now needs to be expanded to replace the minority that don't renew in addition to those required to grow.

We're pleased with our pipeline and confident in the underlying attractiveness of our rights, we continue to expect a strong contribution from sponsorship.

Turning to the media business. We continue to see an increase in both reach and engagement across our off-network channels, social, as well as our owned and operated products, O&O. We have seen a successful culmination of our recent investment work in our new digital media platforms replacing our production storage and distribution platforms with new state-of-the-art capabilities as well as moving to a next-generation CRM platform. This builds on the prior work in respect to the digitization of our archive, processes and staff capabilities.

We anticipate now being able to generate better targeted content, quicker, cheaper and distributed more rapidly and consistently across the 16 distribution channels we have in 10 languages, both on- and off-net.

In respect of our O&O, we're pleased to announce that over the summer, we successfully launched the club's first 3 global mobile app as well as our new website.

The mobile app reached the #1 sports download ranking in over 70 territories and has monthly active users in over 210 markets. Both products provide fans with a cleaner design, enhancing the way they can interact with the club and our one-stop shop for all things, Manchester United, including exclusive content, real-time match updates, live blogging, fanfolds, trivia statistics and social integration. The learnings we took from the 18 trial markets around the world ahead of the launch meant that we were able to significantly enhance fan engagement across almost all measures through the products.

We also were able to launch without any technical glitches and have seen the apps rated strongly in the app stores with a 4.95 rating in Apple's app store.

Both products also provided increased promotional and sales opportunities for our other businesses and commercial partners.

MUTV direct-to-consumer products continue to grow, and we have -- now have downloads in over 168 markets. We have also expanded our reach of MUTV to target cord cutters and cord nevers by launching on Roku, Apple TV, Xbox and Amazon Fire and allowing fans to interact and engage with the club through their TVs without a cable or satellite subscriptions.

Investment in our content evolution and capabilities continues, and we have sought to improve the user value proposition by introducing a discounted annual pass and launching a free front porch on the MUTV app, so the non-subscriber are able to view video content.

In respect to our off-net social network, we finished the year with around 155 million total followers, a 9% year-on-year growth and expect significant growth -- sorry, experienced significant growth on both Instagram and Twitter.

We continue to have a very popular brand page on Facebook with more followers than the NBA, NFL, NHL and MLB combined. We also continue to be the most engaged Premier League club on Facebook.

Moreover, we're the fastest-growing Premier League club on Instagram. At Man United, the club's official Twitter handle was the most engaged sports club Twitter handle globally. We continue to be the most followed club in China, and we are again named the most influential football club online in China in the 2018 Mailman Group Red Card report.

Lastly, our recently launched YouTube channel, passed 1 million subscribers within 5 months of launch, making it the fastest sports channel to reach this milestone in YouTube's history.

In respect to our retail business, e-commerce had a fourth consecutive year of growth finishing the year with a record turnover. The growth was generated by improved conversions, aided by a broader product collection.

Looking forward to next year and indeed the future, we are anticipating further growth as the new digital platforms start to deliver additional traffic and increased conversion to the store.

The stadium Megastore traded exceptionally well during the year with a number of record trading months. Underlying growth in our non-matchday revenue enabled us to partly offset the reduced number of home games, which was 5 fewer than the previous year.

We've continued to work closely with adidas to innovate and break new ground in the distribution of our dual-branded kit. This is extended to design of our kit, marketing campaigns as well as the digital-first approach to kit launches.

Adidas have also had a strong hand in the design of the most recent kit app of our stadium Megastore. On the venue side, 2017, '18, was a record-breaking season in a number of areas including our match-by-match hospitality product or the Matchday VIP experience, which generated record levels of revenue and EBITDA despite playing 5 fewer home games than the previous season.

And our official membership product, which achieved 224,000 sales, almost 25% higher than the previous record set in 2016, '17.

Our seasonal products for 2018, '19 was sold out in record time around 3 months before the start of the season, as we continue to benefit from the phenomenal support of our fans, which is translated into exceptionally high demand for both season tickets and Executive Club hospitality.

We've made a strong start to 2018, '19 season in terms of match-by-match sales with Premier League matches on track to once again sell out exclusively to official members and Matchday VIP experience sales tracking ahead of the prior years. I'll now hand you over to our CFO, Cliff Baty. Cliff, over to you.

Thank you, Richard. I'm going to talk about our results for the fiscal year ended 30th June 2018. As a reminder, fiscal year 2018 year-on-year comparisons have been driven by 2 main themes: firstly, the impact of qualification to the Champions League; and secondly, the number of matches played. In terms of the headline figures, total revenues for the full year were up 1.5% to GBP 590 million with adjusted EBITDA of GBP 177.1 million giving EBITDA margin of 30%.

Turning to the key items in the financial statements. Commercial revenues were up GBP 0.6 million with an increase in sponsorship revenues offsetting the slight decline in retail, merchandising, apparel and product licensing. Broadcasting revenues were up GBP 10 million, primarily due to the increased Premier League merit payments or in second place finish compared to 6 in the prior year.

Matchday revenues were down 1.6% due to our prior year Europa and Carabao Cup wins resulting in 5 additional home games in '16, '17. During the year, operating expenses excluding depreciation and amortization were GBP 412.9 million compared to GBP 381.4 million in '16, '17. Wages increased by 12.3% to GBP 295.9 million, primarily due to player salary uplifts related to participation in the Champions League.

Other operating expenses decreased by GBP 0.9 million due to the reduction in matchday variable costs associated with playing the fewer home games.

Amortization costs were GBP 138.4 million, an increase of GBP 14 million over the prior year reflecting the investment in the playing squad.

Net finance costs for the year were down GBP 6.3 million to GBP 18 million due to unrealized foreign exchange gains on our unhedged U.S. dollar borrowings. In addition, there is GBP 1.9 million exceptional cost in fiscal 2018, being our share of the pension costs relating to the Football League pension scheme deficit as per diluted valuation report.

As outlined in 2Q, the tax charge for this year was impacted by a noncash accounting charge of GBP 48.8 million due to the change in federal income tax rate from 35% to 21%.

It is important to reiterate that this is a noncash accounting charge only, which has no impact on our financial competitiveness nor on our ability to satisfy Financial Fair Play Regulations. This tax charge has generated a statuary loss. So to better reflect the underlying performance of the business, we've also shared the adjusted profit and adjusted earnings per share, which strips out the resulting impact of this one-off noncash tax charge.

Looking at the balance sheet, cash generated from operating activities in the year was GBP 95.3 million, a decrease from the prior year due to the timing of annual cash receipts and commercial agreements, which received after the year-end cut off. This impacted our year-end cash balance of GBP 242 million, which was GBP 48 million below the prior year.

Consequently, net debt at the year-end increased by GBP 40.6 million to GBP 253.7 million with growth debt remaining unchanged in U.S. dollar terms.

Had the expected annual receipts being received in June, as in the prior year, our cash balance would have been GBP 307 million and our net debt would have been GBP 188 million, a reduction of GBP 25 million on 2017.

Before I outline our current year guidance, I would just like to highlight that accounting standard IFRS 15 is required to be adopted in this fiscal year and will have an impact on the quarterly timing of revenue recognition of EPL Broadcasting income.

There's no change to the overall broadcasting revenue we will recognize over the financial year, but there will be a significant change in the quarterly recognition profile.

We are now required to recognize the merit payments revenue in each quarter based on a forecasted finishing position rather than all in fourth quarter, while in completion of the season. We'd also recognize EPL domestic and international equal share broadcasting revenues pro rata on all EPL matches rather than the 19 home fixtures, which was the case previously.

Prior year comparatives will be restated to reflect these changes and notified in the earnings release illustrates these impacts.

Turning to our expectations for this current fiscal year. It is relevant to highlight that this is the first year of the new 2018, '21 UEFA cycle. As described on the 3Q call, the new cycle hasn't changed the Champions League distribution mechanism with the introduction of a new coefficient element as well as a significant increase in UEFA's gross revenues to GBP 3.2 billion, up 33% from GBP 2.4 billion. This will drive an increase in broadcasting revenues.

With the increased Champions League's prize money, comes a greater range of outcomes depending on the team's progress, which is being reflected in our increased FY '19 guidance range. As such, we expect revenues between GBP 615 million to GBP 630 million and EBITDA between GBP 175 million to GBP 190 million.

Finally, I'd like to add some -- I'd like to provide some color on a few other key items you may find instructive.

We expect amortization to be around GBP 140 million, although, this can change if we buy or sell a player or extend the contract.

Net finance costs of around GBP 22 million, although, this is subject to FX. And the effective tax rate will likely trend towards the U.S. federal rate of 21%.

Regarding net player CapEx, we incurred GBP 106 million in fiscal 2018. And for fiscal 2019, committed net player CapEx currently stands at approximately GBP 124 million.

As we have mentioned in the past, net player CapEx is lumpy by nature depending upon different payment profiles and may continue to vary significantly from period to period.

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

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

Our next question comes from Clay Griffin of Deutsche Bank.

Congrats on the Kohler deal. Just curious, any sense of how this deal might impact pricing on the main shirt sponsor renewal in a couple of years?

So I think -- as I said in the script, what we saw was that the demand for these rights was good. It has competitive interest during the process, we did take our time relative to other clubs. Obviously, you saw all clubs came to ride at the same time, but we are in a sound position and Manchester United is in demand.

Great. And then just as a follow-up to that, other opportunities to monetize, I'm thinking about the training kit or elsewhere on the jersey, how are you thinking about kind of incremental from here?

I mean, the first thing I would say would be that we are somewhat restricted, obviously, by Premier League rules, FA rules in some competitions. And obviously, UEFA with regard to when we play in European competitions. So we can't unilaterally just decide to put another brand on our shirt. But there are wider opportunities that we can look at off the shirt and we continue to do that. The other point worth noting in respect to the query you asked is that the underlying effectiveness of the rights associated both with the shirt, training kit and sleeve continues to grow in power with the viral effect on social media of that kind of imagery, which is a very powerful reason in respect to the demand for our shirtsleeve during the current period.

And just last one for me. Just -- it seems like the dust is somewhat settled on the EPL rights renewal for next year. Can you update us on your expectations for growth in the total pool of broadcast rights coming from the EPL?

Well, I think, this haven't quite finished yet. There's still some internationals deals to be finished. And whilst domestic is down a little bit, single-digit, we expect international to allow the whole -- to go up by an amount that would at least result in an increase in the revenue. But we don't -- we can't really guide on how much that would be, but we are hearing about continued strong interests around the world in our international rights.

(Operator Instructions) As we have no further questions at this time, this concludes our question-and-answer session. I'd like to turn the conference back over to Ed Woodward for any closing remarks.

I'll just say thank you for joining us on the call, and we're looking forward to talking to you after Q1 in November. Thanks, everybody.

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