Manchester United PLC (MANU) 2019 Q2 法說會逐字稿

Good day, ladies and gentlemen. 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 forwarding 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 as usual are Rich Arnold, our Group Managing Director; Cliff Baty, our CFO; and Hemen Tseayo, our Head of Corporate Finance. It's only been an eventful few months since Q1 update back in November. In December, we parted a company with José Mourinho and appointed Ole Gunnar Solskjaer as caretaker manager through to the end of the season. Ole has been joined by Mike Phelan, who previously spent 14 years with us as a coach, including 5 as Alex Ferguson's assistant manager.

In addition, Michael Carrick, Kieran McKenna and Emilio Alvarez have remained a key members of Ole's first-team coaching staff. And they've had a fantastic start, revising the performances of the team and in the process setting a new Manchester United first-team record of winning their first 8 consecutive matches. I congratulate Ole once again for winning the Premier League's manager of the month for January and Marcus Rashford for being named the Premier League's player of the month. The team has accumulated 25 out of the possible 27 points in the league with some fantastic performances. We've progressed to the last 16 of the FA Cup attracting the largest U.K. audience for our fourth round cup match against Arsenal, which drew 1 million more viewers and the second most popular match thus far this season. In the Champions League, Tuesday night wasn't the result we wanted, but as Ole reflected after the game, we want to be competing at the top level and the team will be giving their all in Paris.

Turning to player contractual activity, and we're delighted to have secured agreements to extend the contract to a number of our players, including Anthony Martial, Scott McTominay, Ashley Young, Phil Jones and Chris Smalling. We've also agreed the transfer of Marouane Fellaini to Shang Dong, our first ever sale to a Chinese Super League team. Off the page, we continued to perform very well, and this quarter has seen the club achieve record quarterly revenues of over GBP 200 million, and a record quarterly EBITDA of over GBP 100 million.

Our continued financial strength underpins our long-term success on the field, which is the focus of everybody at the club. I attended the Premier League shareholders meeting last week, where the U.K. live match audience figures were presented for the season to date, and it was encouraging to note the viewership figures are up significantly on last season, which was a turn-up on the previous season before it.

Finally, it feels like there've been many sad announcements in football recently, but for us, at Manchester United, the passing yesterday of our former youth coach, Eric Harrison, is especially poignant.

Eric was a fantastic coach. He played a key role in bringing through many players who went on to become legends of the club. He was the embodiment of the club's commitment to youth, and his legacy lives on with every player who comes to our academy today. I'll now hand you over to our Group Managing Director, Richard Arnold, who will update you on the key business activities.

Thank you, Ed. Turning to our businesses. In sponsorship, we announced our partnership with leading Chinese property developer Harves, who opened a series of Manchester United entertainment and experience centers throughout China. Each venue will feature interactive and immersive experiences using state-of-the-art technology to bring Manchester United to light for our 100 million plus fans and followers in China.

Visitors will be able to experience the thrill of a Matchday at Old Trafford as well as learn more about the history and heritage of English football's biggest and most storied club. The centers will provide fans with a place to celebrate the club they so passionately support and further deepen the special relationship the club has with China.

First of these centers are scheduled to open in Beijing, Shanghai and Shenyang by the end of 2020, with each venue offering visitors a different experience, and will include restaurants and a club retail store. Popularity of football is growing very quickly in China to an almost 12x increase in broadcasting rights, meaning China will leapfrog a number of other countries to become the Premier League's most valuable international broadcast market and that's testament to that.

Manchester United is the most well-supported team in the country. Alongside our digital reach through our own platforms and presence, on social platforms, like, Sina Weibo, our partnership with Harves will enable us to build on our close relationship with fans in China and provide a further foothold to build a bigger platform in this important region.

As I mentioned on the Q1 call in November, we remain pleased with our pipeline and continue to expect a strong contribution from sponsorship. Last week, we announced a global partnership with Remington as our electrical styling partner encompassing both the men's and women's teams. I anticipate announcing further partnerships very soon. I'll also take the opportunity to provide an insight into an example of how we deliver value to our commercial partners beyond the media exposure we provide. The long-running I Love United series of international fan events has been transformed this season. The match viewing parties, a thousands of fans are now linked to a handful of simultaneous satellite events across the world, enabling supporters clubs from different countries to interact with each other.

In December, we took the show to Chennai in India. Ticket to the 5,000-capacity event, attended by former Man United players to Dwight Yorke and Wes Brown, were over 2x oversubscribed, and the social media campaign delivered 19 million marketing impressions.

In just 3 days, we conducted 80 partner activations with 14 partners. The headline results included considerable increases in awareness of our partner brands, even those in their home markets, like ICICI Bank. An improvement in the opinion of their brands among our fans. As an interesting specific example, DHL designated #DHLUnitedDelivered trended #1 across India. The next, I Love United, event will be hosted in Guangzhou, China, on the 2nd of March.

Turning to the media business, we continue to focus on driving deep and meaningful engagement through our owned and operated products. Over the roughly 6 months, since the launch of our mobile app, according to third-party analytic firms, our app has been the #1 downloaded football club app globally and continues to be the #1 ranked football club app in the main app stores. We are pleased with the app adoption and usage by our fans and are seeing month-on-month growth in all user metrics, downloads, monthly active users, number of visits, visit per user and time spent and user attention. All of these are well above industry benchmarks. The app is providing us with the ability to have a closer relationship with our fans and provide them with a one-stop shop for all things of Manchester United, including breaking news, statistics, highlights and other exclusive content.

In addition, there are material business benefits, including the cross-promotion of other clubs -- of other club products and services, and the growing user base also presents increasingly attractive opportunities for our commercial partners through brand integration initiatives. I'm excited about the roadmap for the app and the enhancements to the user experience, which will be coming soon, and I look forward to talking about them in May.

Folks based outside the U.K. may not be aware that the Premier League is trialing a FIFA eSports tournament this season as competitors are being restricted to U.K. residents. All 20 Premier League clubs are participating in the 3-phase tournament, the purpose of which is primarily to assess the benefits of such eSports tournaments as an engagement medium, particularly in the younger demographics, and to potentially attract new audiences to the Premier League.

It's the first time we have participated in eSports, but the interest from our fans has been strong. We finished as the club with the largest number of registrations for fans to represent their club, accounting for around 20% of total tournament entries. We've engaged with ChuBoi, a popular livestreamer on Twitch, as our ePremier League host and our related video content has generated several million views already.

In merchandising, the Adidas business continues to trade in line with expectations, with growth, predominantly being driven by new leisure-wear products, specifically, tailored for our fans in China, such as a collection to celebrate Chinese New Year with a range of contemporary street-style designs, which feature graphics representing good fortune.

Quarter also saw a number of Adidas limited-edition product sellouts in record time. For instance, the innovative digital kit, which was designed for and featured in the EA Sports game, FIFA '19, and then also retailed as a physical product, which sold out online within hours, whilst the Adidas original Newton Heath shoe sold out within minutes. Our other dual-branded partnerships continued to trade well, with the introduction of debut MU collections for Paul Smith, True Religion ahead -- sorry, Paul Smith and True Religion ahead of Christmas trading, which proved very successful.

Megastore trading in the quarter was slightly down due primarily to the home game scheduling being less favorable than the prior year, which reduced the footfall to the store.

On the venue side, we are on course to sell out all remaining matches exclusively to official members. The focus now turns to the launch of the 2019-20 renewals campaigns to season tickets and executive club hospitality, for which we are experiencing high demand as usual. We have a significant and strong pipeline of fans on the waiting list for both products.

Finally, we've announced 2 fixtures on our summer 2019 tour, which will start in Western Australia, where we will play Perth Glory and then Leeds United at the new Optus Stadium in Perth on the 13th and 17th of July.

After the matches in Perth, we will take part in the International Champions Cup 2019, organized by relevant sports. And we will soon be announcing details of the 3 matches that we will play as part of this year's tournament.

Further details of additional preseason fixtures will be announced soon. I will now hand you over to our CFO, Cliff Baty.

Thank you, Richard. I'm going to talk through our results of the second quarter fiscal 2019.

As a reminder, for fiscal year 2019, year-on-year comparisons will be impacted by 2 main themes: firstly, the new Champions League broadcasting deal; and secondly, the cadence of matches on a quarterly basis.

In terms of the headline figures, total revenues for the period were a record GBP 206.8 million, up 17.6%, with a record adjusted EBITDA of GBP 104.3 million, giving an EBITDA margin of 50%. This strong margin is due to the recognition in the quarter of a large part of the new Champions League group stage broadcasting revenues, as we have played 5 of the 6 group stage fixtures in the quarter.

Turning to the key items in the reported financial statements. Total commercial revenues were up GBP 0.6 million to GBP 65.9 million. Sponsorship revenues were up GBP 1 million, which was partially offset by a GBP 0.4 million drop in retail merchandising apparel and product licensing revenues. Broadcasting revenues were up GBP 28.5 million, driven by the increased Champions League revenues and were partially offset by playing one fewer Premier League game.

Matchday revenues were up by GBP 2.1 million, again, due to the additional Champions League game compared to the prior year period. During the period, total operating expenses, excluding depreciation, amortization and exceptional items, were up 8.4%. This includes wages, which were up 11.8%, primarily due to an increase in first-team salaries following additions made to the squad as well as the impact of renewed contracts.

Other operating expenses decreased 0.4%, despite playing one additional home league game. Amortization costs were GBP 33.4 million, a decrease of 10.5% over prior quarter. Also in this quarter, we recorded an exceptional cost of GBP 19.6 million in relation to the change of first-team's management team in December. Net finance cost for the quarter were GBP 6.3 million, an increase of GBP 1.9 million due to unrealized exchange rate movements in the unhedged US dollar debt. As mentioned in previous quarters, our cash interest costs in US dollars remained consistent year-on-year.

To review the balance sheet. The cash balance at the period end was GBP 190.4 million, up GBP 35.1 million against prior year. Net debt at the period end was GBP 317.7 million, down GBP 10.9 million compared to the prior year due to the increased cash balances partially offset by the impact of foreign exchange movements.

We continued to expect full year results of fiscal 2019 to be revenues between GBP 615 million to GBP 630 million and EBITDA between GBP 175 million to GBP 190 million.

We've previously guided the amortization for fiscal 2019 would be GBP 140 million, however, as a result of recent contract extensions, we now expect amortization to be below GBP 130 million.

Finally, please note that the semiannual cash dividend of GBP 0.09 per share will be paid on the 5th of June, 2019 to shareholders on record on the 26th of April 2019.

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

(Operator Instructions) And the first question will be from Randy Konik of Jefferies.

I guess a question for Richard. You had this interesting kind of dialogue around the entertainment venues in China, and you talked about the pipeline of commercial opportunities ahead. How are you thinking about -- with this, the China announcement with entertainment venues, how you're thinking about just other unique ways of monetizing the power of the brand from a commercialization sponsorship perspective going forward or other unique ways? Because I think this China opportunity is pretty interesting and different and just shows the market the power of the brand is, is global, obviously, but all also there's many more things and traditional types sponsorships that can be done here and partnerships. So I just wanted to -- curious on your thoughts?

So thanks for the question. I think that you've alluded to a couple of things that underpin all of the partnerships we do, which is that we've got a fantastic family of fans around the world and a huge opportunity to engage with those fans in new and exciting ways and we've referred to the entertainment centers as well as eSports today. I think that over a number of years the -- one of the points that we have made is that we're only just taking baby steps in terms of what's possible for Manchester United in terms of the opportunity that working with our fans around the world represents. And without getting into a detailed discussion on this call about some of the avenues that have opened up, being one of the most engaged digital properties in the world means that the world really is our oyster and has had a myriad of opportunities, and we continued to be very, very excited about those for the future. The other point worth making is that phenomenal engagement and the phenomenal digital reach also means that the value of our what some would refer to as traditional inventory also remains very, very sought-after, because it's such a powerful connecting tool with our fans and that represents an increasingly valuable commodity in an increasing valuable -- in an increasingly fragmented media landscape. So I think we've got many, many opportunities in that area, and what you're seeing here are just a couple of examples of the innovation, coupled with execution that allows us to take those opportunities forward.

Great. And I am one of those app users, and I am on the app probably twice a day. Just curious on how you are thinking about -- what -- some of those metrics you kind of alluded to with the app and the digital engagements, what is that telling you about other opportunities? Or are there any other deeper metrics you can give us just to kind of further flush out how powerful that app has become and that digital engagement that you're talking to, which is a huge new vehicle opportunity long-term for you guys, it feels like?

So at this stage, I don't think we're publishing the actual metrics themselves. And as I said on the last call, the reason for that is, we need a period of time to really understand the detailed trends and what will continue. When you look back at the call we had in November when the app was brand-new, the kind of record-breaking engagement statistics we were seeing in terms of dwell time, video time, frequency of visits, we felt were reflective that the first so many million fans to come on to the app would be the most fervent. And even your uppermost expectations, the continuation of that trend, as we've added more and more fans, has surprised us. And consequently underlying the need for us to, a, analyze deeply, and b, be patient in determining at what point we're settling to what the kind of long-term trend will be in terms of those underlying metrics, because it's easy in the first few weeks to be in danger of getting carried away. But what we're finding is that it has been sustained. You asked the second question in terms of what that means for the future. What I would describe there is a lot of time and attention went into both measurement and analysis and testing of what works with apps, and we did that, as a number of you will be aware, around the world with different kinds of apps and different kinds of environments. So the product wasn't -- certainly wasn't the first in the world, but we aim to make it the best. And that's been borne out, and we believe that, that's very important in the sustainability of the engagement level we're seeing with fans. Correspondingly, as we look to the future with what we will introduce into that environment, I think you will continue to see that trend of quality and excellence being really important, ensuring that you never negatively affect the user experience, and I think that would be at the heart of how we look to drive the trend of this phenomenal engagement with fans we're seeing through the app.

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

Looks like you had several significant player contract renewals this year. Wondering if you could help us just quantify, without getting into specifics, what percent of the first-team or what percent of the wage bill, I guess, is yet to be renewed this year or maybe next?

Clay, it's Ed here. We don't provide that kind of data or information. That's starting to give people more information with regard to player-by-player, because it's pretty accurately well known, the end dates of the players contracts. So we're way -- a long ways through the ones that we had planned to do in this season, but obviously want to finish off the final few as rapidly as we possibly can. But possibly by the time we get to the summer, we'll be in a much stronger position with regard to the average tenure of each contract with our key players.

I see. Okay. Then I guess, maybe just at a higher level, wondering if you could maybe speak to some of the organizational changes that you are either implementing or considering around things like Director of Football and also just kind of the process by which you and the board are considering the appointment of full-time manager?

So first question with regards to Director of Football, I mean, look, lots, obviously, has been written about this. I would say that this -- looking at our structures and looking at how we should strengthen all areas of the club is something that we're doing on a continual basis, and clearly, we've done a lot of changes within the football side in the last 4 or 5 years, in particular around the Academy, where we've materially increased investment, and we're seeing the pull through of that quality now coming out. We've invested very materially around the recruitment side, the player care side, continued investment with regards to facilities, medical and sports science. So the evolution of the football side is continuing. It's not necessarily that visible to the outside. And in some respects, it's a -- you get a multiyear return later rather than an immediate impact. But with regard to the overall structure, we are looking at that and looking at ways that we can make it stronger, and that is something we do on a continual basis. The second question with regards to the process on the manager, I'm not going to get into. There clearly, we've communicated around December time about what we were doing, putting Ole in place as a caretaker, and the next communication with regard to this will be when we have something to announce regarding the manager. We're not going to give updates partway through.

Understood. And then maybe just one for Richard. I think, Richard, you had mentioned on the last call about a couple of projects that you had in plan for this summer, I guess, at Old Trafford. Just wondering if we could just elaborate on that, just circle back on that and help us think about what's going on at stadium.

Yes. So the last time we spoke, we've talking -- spoken about a couple of aspects that have been developing quite rapidly. So one was updating the contact list activities we did in kiosks and indeed implementing technology to make the fan service flow much quicker, particularly at peak moments, so the last 15 minutes before kickoff, 15 minutes of halftime and 15 minutes afterwards. Those have made a massive difference in terms of the trading through those kiosks, which is great if you're a fan. Obviously, that's the not the largest income stream for us, but it's generated good results. The other area that we're looking at in quite some detail is around the refit of lounges and we saw last summer some fairly heavy-duty activity on the commercial front in both relocating, refurbing and expending a number of the lounges. And that's underpinned what's already a fantastic product. But we've seen that, that continues to have phenomenal demand, very low churn rates and is one that we're very happy with.

And, ladies and gentlemen, this will conclude our question-and-answer session, and will also conclude our conference call for today. We thank you for attending today's presentation. And at this time, you may disconnect your lines.