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Edited Transcript of MANU earnings conference call or presentation 16-May-19 12:00pm GMT

Q3 2019 Manchester United PLC Earnings Call

Manchester Aug 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Manchester United PLC earnings conference call or presentation Thursday, May 16, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Edward Woodward

Manchester United plc - Executive Vice Chairman

* John Clifford Baty

Manchester United plc - CFO & Director

* Richard Arnold

Manchester United plc - Group MD & Director

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Conference Call Participants

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* Clayton Keever Griffin

Deutsche Bank AG, Research Division - Research Associate

* Corey Tarlowe

Jefferies LLC, Research Division - Equity Associate

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Presentation

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Operator [1]

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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 would now like to turn the conference over to Ed Woodward, Executive Vice Chairman of Manchester United. Mr. Woodward, please go ahead.

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Edward Woodward, Manchester United plc - Executive Vice Chairman [2]

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Thank you, operator, and thank you, everyone, for joining us today. With me on the call are Richard Arnold, our Group Managing Director; Cliff Baty, our CFO; Hemen Tseayo, our Head of Corporate Finance; and our recently appointed Head of Investor Relations, Corinna Freedman.

Before Richard and Cliff talk in detail about our commercial and financial performance over the last quarter, I'd like to briefly comment on the season that has just ended. It clearly didn't end the way we hoped finishing in sixth place, and with a disruptive managerial change partway through. However, Ole and the squad battled back from mid-December to put us in contention to qualify for the Champions League next season, but ultimately we came up short. While the last few weeks were disappointing, we're delighted to confirm the appointment of Ole as our manager on a 3-year contract, and to recently confirm the key members of the coaching team Mike Phelan, Michael Carrick, Kieran McKenna and Mark Dempsey will all be remaining in the club.

Everyone at the club, the Board, the manager, the squad and all the staff are resolute in our desire to get United back to the top of English football. We continually look to improve staff on and off the pitch to achieve this.

The strength of our business means we have the financial resources to continue to provide the solid foundation for backing the manager and creating success on the pitch. This, as ever, remains our #1 goal.

Turning to industry-related news. You may have seen that quite a number of material plans and proposals that could impact football landscape over the medium term. These include the FIFA-proposed 2014 Summer Club World Cup, which is a pilot, which is going to be launched in June 2021, which we believe would be an improvement on the current club world cup format. Secondly, changes to the UEFA club competitions in the '21 to '24 cycle reducing the Europa League from 48 to 32 teams and introducing a new third tier of 32 teams. And finally, initial proposals regarding the post-2024 format for UEFA club competitions. We're deeply involved in these discussions across various forums, including the Premier League, the ECA and various UEFA committees.

Finally, one important achievement during the quarter I'd like to highlight is the excellent performance of our women's team in their inaugural season. Scoring an average of almost 5 goals a game and winning 18 of their 20 league matches, they've won the second division title and secured promotion to the Women's Super League. I'd like to take this opportunity to congratulate the squad, the manager, Casey Stoney, and everyone involved in the women's team.

I'll now hand you over to our Group Managing Director, Richard Arnold, who will update you on our key business activities.

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Richard Arnold, Manchester United plc - Group MD & Director [3]

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Thank you, Ed. Starting with sponsorship. We announced and launched 2 new global partnerships with Marriott International, our new hotel partner; and leading sunglasses and eyewear brand, Maui Jim.

In our Q2 update, we announced our partnership with Harves to open a series of Manchester United interactive and immersive experience centers in China. These plans are developing well and whilst we're looking to start opening the main centers in late 2020, we plan to open a preview center at the Beijing site in Tiananmen Square later this summer.

Turning to our media operations. The app continued to perform ahead of expectations with growth across all metrics. In the last quarter, we launched a new feature in the app, called Match Centre, which provides our fans with a unique and immersive way to visualize live match statistics in real time. We've also incorporated live streaming functionality within the app enabling live events to now be viewed for free via our app.

In respect of MUTV, 2 points of note. First, our collaboration with U.S. broadcaster NBC on a coproduction of a documentary to celebrate the 20th anniversary of the 1999 Treble-winning team entitled the Impossible Dream. The documentary is available on demand on the MUTV app and will next air on NBCSN on the anniversary of the Treble on May 26 with its final showing on NBC on the 10th of August.

The MUTV app will also be the only place to watch all of our preseason tour games live in the preparation for the '19/'20 season.

In merchandise, the adidas business continues to perform in line with expectations, with strong growth generated out of the Asia-Pacific region, especially China. We expect to see a stronger start to next season, driven by the planned earlier launch of the Home, Away and Third kits providing more times for sell-through and an increased focus on club football by retailers in the absence of a major international tournament.

In terms of venue, notable highlights include a new high for official membership following several years of growth, which is now approximately 255,000 which is 30,000 higher than the previous highs at last season. This membership supports the demand for match tickets, which, for the vast majority of games, are only available to official members.

In respect to 2019/'20, we sold out season tickets on Saturday the 4th of May and seasonal hospitality for our executive club on the 14th of May.

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

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John Clifford Baty, Manchester United plc - CFO & Director [4]

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Thank you, Richard. I'm now going to talk through our results of the third quarter of fiscal 2019. And as a reminder, year-on-year comparisons will continue to be impacted by 2 main themes: firstly, the new Champions League broadcasting deal; and secondly, the quarterly cadence of matches, which has resulted in one additional Premier League match versus the third quarter of 2018.

In terms of the headline figures, total revenues for the period were GBP 152.1 million, up 3.4% versus last year, with an adjusted EBITDA of GBP 41.2 million.

Turning to the key items in the results. Total commercial revenues were flat at GBP 66.6 million as both sponsorship revenues and merchandising and licensing revenues were in line with the prior year at GBP 41.6 million and GBP 25 million, respectively.

Broadcasting revenues increased 8.9%, or GBP 4.4 million, driven by the increased Champions League revenues and one additional Premier League game.

Matchday revenues increased by GBP 0.6 million, or 1.9%, despite one less home match compared to the prior year.

For the third quarter, total operating expenses, excluding depreciation, amortization and exceptional items, were up 9.4% versus the prior year. This includes wages, which were up 12.9%, primarily due to ongoing investments in first-team salaries. This was offset by a 0.8% reduction in other operating expenses. Amortization cost was GBP 30.5 million, a decrease of 5.9% versus the prior quarter. Additionally, during the quarter, we recorded a profit on player sales of GBP 6.3 million, due primarily to the transfer of Marouane Fellaini.

Net finance costs for the quarter were GBP 3.1 million, an increase of GBP 4.1 million due to the unrealized exchange rate movements on our unhedged U.S. dollar debt.

As mentioned in previous quarters, our cash interest costs in U.S. dollar terms remained consistent year-on-year.

Turning to the balance sheet. The cash balance of the period end was GBP 193.9 million, up GBP 32.1 million against prior year.

Net debt at the period end was GBP 301.7 million, a modest increase of GBP 0.4 million compared to the prior year, as the higher cash balances were offset by the impact of unfavorable foreign exchange rate movements.

Now turning to our guidance. For the balance of the year, we continue to expect full year fiscal 2019 revenues between GBP 615 million to GBP 630 million and adjusted EBITDA between GBP 175 million to GBP 190 million.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from Randy Konik with Jefferies.

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Corey Tarlowe, Jefferies LLC, Research Division - Equity Associate [2]

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This is Corey Tarlowe on for Randy Konik. It sounds like you're doing a lot of great things on the app side with expectations -- performance ahead of expectations, growth up across all metrics and new features. And I guess with 1 year under your belt with the launch of MUTV on major devices, you have a lot of these learnings that you've come across. How do you think about your ability to leverage that platform, continue to grow the brand, increase engagement and grow subscribers? And I guess what are these learnings over the last year that you've had, and really how you plan to apply those to inform your decisions going forward?

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Richard Arnold, Manchester United plc - Group MD & Director [3]

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Corey, as you described, we're actually slightly less than a year in terms of having started in August with the app. And while we are very happy with the rate with which we've acquired, not just downloads but also monthly active users and less than a season and the scale of the operation at the moment is still small relative to the -- for example, social media footprint we have. So we have been really pleased but quite cautious about extrapolating the numbers that we're seeing on the early stages over a larger population as you can imagine. That having been said, we continue to be excited by exactly that prospect in terms of growing the scale of the app. In terms of its use -- sorry, in terms of its use, the primary use is as an engagement tool and ensuring that we can communicate directly with fans in a managed and controlled way. And then that will open the door to opportunities in the future with regard to how that contributes to our overall business, but at this stage, the focus is very much on engagement and growing the active user base.

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Operator [4]

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

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Clayton Keever Griffin, Deutsche Bank AG, Research Division - Research Associate [5]

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Just a couple from me. I am just wondering if you could just comment on -- maybe a little bit more on the proposed changes to the Champions League format. I guess what's at the heart of the issue? I guess what's being proposed? What would you like to see and then I guess maybe just general kind of time line or expectations around seeing how those proposed changes evolve or adopted?

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Edward Woodward, Manchester United plc - Executive Vice Chairman [6]

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Few questions in that. First of all, I mean I think this is partly driven by domestic leagues across Europe, not necessarily thriving and there being a desire from the clubs that are towards the top of those leagues to play more European games, which perhaps are more competitive. I think there is a drive from UEFA, which is laudable, which tries to give greater access to more teams. So if you look at the year just finished or the year that hasn't finished, 80 teams competed in the 2 competitions, and the proposal for '24 is 128 teams. So a greater than 50% increase in the number of teams playing in Europe. There are, of course, other factors as well. I think from our perspective, we are viewing these proposals interesting, but I think there's a lot of work to do with stakeholders to assess it. We're doing that ourselves together with my colleagues in the Premier League and, frankly, also the ECA. From a time line perspective, I think we can expect to hear more and more feedback on progress around this through 2019, and so, therefore, maybe clarity in somewhere around sort of 6 to 9 months from now.

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Operator [7]

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This concludes our question-and-answer session and also concludes your conference. Thank you for attending today's presentation. You may now disconnect.

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Edward Woodward, Manchester United plc - Executive Vice Chairman [8]

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Thank you.