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Edited Transcript of WSG earnings conference call or presentation 9-Sep-19 12:30pm GMT

Q2 2019 Wanda Sports Group Co Ltd Earnings Call

Sep 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Wanda Sports Group Co Ltd earnings conference call or presentation Monday, September 9, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Eric Yuan

Wanda Sports Group Company Limited - Head of IR

* Hengming Yang

Wanda Sports Group Company Limited - President & CEO

* Brian Liao

Wanda Sports Group Company Limited - CFO

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Conference Call Participants

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* Bryan Kraft

Deutsche Bank - Analyst

* Rob Sanderson

Loop Capital - Analyst

* Jason Bazinet

Citi - Analyst

* Alan Gould

Loop Capital - Analyst

* Walden Shing

Haitong International - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Thank you for joining Wanda Sports' second-quarter 2019 earnings conference call. (Operator Instructions). Today's conference is being recorded and if you have any objections you may disconnect at this time. I would now like to turn the conference over to your host for today's conference call, Eric Yuan, Head of Investor Relations at Wanda Sports. Please go ahead, sir.

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Eric Yuan, Wanda Sports Group Company Limited - Head of IR [2]

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Hello, everyone. Thanks for joining the second quarter 2019 earnings call. With us today are Hengming Yang, CEO of Wanda Sports, and Brian Liao, CFO of Wanda Sports. A replay of the call will be available on our IR website later today. Hengming Yang will begin with highlights of our performance. Following this, Brian will provide details on our financial results. After our prepared remarks we will take your questions.

Now let me quickly cover the Safe Harbor. Today's discussion will contain forward-looking statements. These forward-looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from current expectations. For detailed discussions of these risks and uncertainties, please refer to S-1 filed with the US SEC.

Any forward-looking statements that we make on this call are based on presumptions as of today, and we do not undertake any obligation to update these statements except as required under applicable law. Please note that certain financial measures that we use on this call such as adjusted EBITDA are expressed on a non-IFRS basis. Our IFRS results and the reconciliation of IFRS to non-IFRS measures can be found in our earnings release.

With that I will now turn the call over to our CEO, Hengming Yang. Hengming, please proceed.

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Hengming Yang, Wanda Sports Group Company Limited - President & CEO [3]

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Thank you, Eric, and thanks to everyone on the line for joining us today for our first earnings call after we went public in July. Before I cover the highlights of this quarter let me first provide a brief overview of our business and our strategies.

Wanda Sports is a leading global sporting event, media and marketing platform. The global sports market has strong growth prospects and we believe we are well positioned to capitalize on those opportunities.

We operate our business in three segments. The first is our Mass Participation business. We own, organize, operate and license Mass Participation sporting events. This includes triathlon, running, mountain biking, road cycling and obstacle course racing. We have built this business around our portfolio of globally recognized brands such as IRONMAN and all other well-known events, including Rock 'n' Roll Marathon Series and Absa Cape Epic mountain biking.

We are the leading global player in the Mass Participation endurance market and according to Frost & Sullivan research, we are the number one player in triathlon, mountain biking and running events business by revenue in 2018.

The second is our Spectator Sports business. We are one of the leading sports marketing companies. We offer services and solutions to sports rights owners across football, winter sports and summer sports. And we do this through long-term contractual strategic relationships with our business partners.

In addition to football, we work with all seven Olympic winter sports federations, as well as premium summer sports federations including BWF, EHF and FIBA. We ranked number one in football and winter sports and number three in summer sports in terms of market share by revenue in 2018.

The third business is our Digital, Production, Sports Solutions, or DPSS business. We have developed a strong digital solution platform to maximize the potential of our sporting events and marketing business across production, innovative content development and advertising.

We offer a wide range of innovative digital solutions and services that enable us to deliver greater value to our clients and strengthen their loyalty to our platform. We are the partner of choice for host broadcasting and media production services as well as events-related service sports solutions for leading sports federations such as FIFA, UEFA, [LEGA], FIS and IIHF.

I also want to use this opportunity to share some updates about our China business. We remain very excited about our opportunities in China. We expect to benefit from a massive population that is more affluent and increasingly interested in a healthier lifestyle.

We are also encouraged by the government's continued support for fitness and sports. Leveraging our global IP and decades of expertise in the sports industry we are able to bring in best-in-class events and operational experience into this country. We expect China will become one of our key growth pillars going forward.

In the past few years, we have extended our presence in China and continue to build our local team to gain more knowledge about the market. We recently named Yimin Gao as the new CEO of our China business. He is a talented executive who brings a deep understanding of China's evolving demographics. We look forward to working with him to continue to capture the many opportunities we have in China.

We have been steadily increasing the number of events we hold year-by-year. We now operate and manage triathlon, running, football, basketball, road biking and other sports events in China. We also partner with leading sports organizations and support their business expansions in this country.

While we may be a new public company, we have deep experience in our business. The key components of our Company such as Infront and IRONMAN Group have all been operating in this industry for decades.

Our strategy to drive growth and value creation for shareholders includes the following: firstly, adding compelling events in desirable markets; secondly, expanding our diversified portfolio of world-class IP rights; thirdly, embracing digital innovation in the sports industry; and fourthly, capturing significant opportunities in the high growth Chinese market.

Lastly, we are making selective acquisitions that have strong synergies with our existing business. And we are confident that continued execution of this strategy will drive growth and create value for our shareholders.

Turning now to the second-quarter results, we are pleased with our performance which reflects the strong business momentum across our three key segments. Excluding the impact of event cyclicality due to the FIFA World Cup in 2018, we delivered steady revenue growth and solid profits on a year-over-year and like-for-like basis.

Total revenue excluding reimbursement revenue was EUR256 million, up 4% year-over-year. Net profit attributable to ordinary shareholders of the Company was EUR23 million, up 39% year-over-year. Adjusted EBITDA was EUR59 million, down 10% year-over-year. Basic and diluted net income per ADS were both EUR0.17.

Now I would also like to walk you through some key highlights for each of the three segments in the second quarter, firstly our Mass Participation business. In the second quarter we continued to take advantage of favorable global conditions in the mass anticipation events industry. During this quarter we operated 104 of the 133 total events we delivered in the first half of the year.

Our events remain popular among athletes and fans in all regions. In the quarter the number of gross paid athletes reached 466,000 compared with 449,000 a year ago. Average revenue per gross paid athlete increased to EUR118 from EUR96. For triathlon we operated five inaugural events in Greece, France, Ireland and the US.

Other key events included the Hamburg Wasser World Triathalon Series, one of the world's biggest short distance triathlons. We also hosted the IRONMAN and IRONMAN 70.3 regional championships in Australia, Denmark, Germany, South Africa and the US.

With the launch of new and proven programs such as BecomeOne and Women for Tri, we continue to grow registration and drive athlete development, particularly as in the growing participation of female athletes.

For running we continued to develop our global brand, Rock 'n' Roll Marathon Series, with our schedule heavily weighted towards the second half of the year. Leveraging our global platform and operational strength we are particularly focused on growing the brand in Latin America and in China. In fact we held two races in China this quarter.

We also strengthened our standing in Oceania through the acquisition of Nine's Events & Entertainment Division. This added four events into our portfolio, highlighted by the Sun Herald's City2Surf presented by Westpac. This is one of the world's largest fun runs.

So looking at quarter three, just over the weekend we hosted a very successful IRONMAN 70.3 world championship in Nice, France. We had a record number of 5,700 athletes from 105 nations registered to compete in the two day event. The youngest athlete was 18 and oldest was 80.

Now turning to our Spectator Sports segment. In the second quarter, we made good progress in further diversifying our portfolio of sports rights with a number of new agreements signed with IP holders. We find a new agreement with the International Olympics Committee that includes the media rights in sub-Saharan Africa for all Olympic properties through 2024. We also created a new partnership with the English Premier League to provide free to air rates across sub-Saharan Africa for the three years commencing with 2019-2020 season.

Our Spectator Sports business will have a busy third-quarter anchored by the FIBA Basketball World Cup. This is one of the sports' largest international tournaments and serves as a qualifier for the 2020 Summer Olympics.

For our DPSS business we provided broad value enhancing services to a number of world championships including the Ice Hockey World Championship and FIFA Women's World Cup 2019. In May the Ice Hockey World Championship was held in Slovakia. We provided a full range of services such as media production, digital solutions, hospitality and other services.

In June, the FIFA Women's World Cup took place across 11 cities in France. As the host broadcaster, our HBS subsidiary was on site with more than 1,000 staff and six production teams per match. A maximum of 29 cameras captured the action on the pitches and delivered spectacular images.

In May, we launched iX.co, an entity aimed at becoming the world's leading digital media and solutions company that connects brands and sports rights holders to global fans audiences. iX.co brings together our entire brand and media competencies. This includes our InFront digital service unit, and Omnigon, a New York-based digital service firm that caters to the sports and entertainment industry. We fully acquired Omnigon earlier this year.

After a fruitful quarter we will have a very busy schedule for the second half of the year. We have the start-up of 2019 and 2020 football seasons in key markets such as Italy, Germany, France, England and Scotland. And the new seasons of Championship Hockey League will also begin in the third quarter.

So lastly, turning to our business in China. We continue to make significant progress in China. We hosted eight large scale events in the first half of 2019 with a couple of recent achievements I would like to share with you.

In May, the Chengdu Marathon of China was recognized as a candidate race for the Abbott World Marathon Majors. This is the first and only candidate race in China for Abbott World Marathon Major series. The Abbott World Marathon Series is the world's largest and most renowned marathon series consisting of six premier marathons including those in London, Boston and New York. The Chengdu Marathon hopes to become an official race in the Abbott World Marathon [signatures] in a few years' time.

On August 31 FIBA, the governing body of Basketball World Wide, and Wanda Group, our parent company, signed a strategic partnership agreement. Wanda Group will continue as a global partner for the next 12 years covering the next three World Cup cycles. We will have global marketing rights to the next three cycles of the FIBA Basketball World Cup and World Cup qualifiers, the Women's Basketball World Cups, the FIBA Continental Cups and also the FIBA [views] World Cups.

With an even stronger lineup of premium events in our pipeline, I'm confident that our China business will continue to deliver robust growth and play a larger role in our overall success. Now let me turn over the call to our CFO, Brian Liao, who will give you some quarterly financial highlights. Brian, please go ahead.

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Brian Liao, Wanda Sports Group Company Limited - CFO [4]

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Thank you, Hengming. Hello, everyone. I will walk you through the key financials for the second quarter of 2019. Before getting into the numbers, I would like to emphasize that our financial results reflect the nature of our business model which is an asset light model with long-term contracts that provide good revenue visibility and generating strong margins on the cash flow. There is some cyclicality in our business based on the timing of major events such as the FIFA World Cup, etc.

Now let's turn to the financials for the quarter. By the way, all the numbers to be described are all in euros unless especially marked, because the euro is our reporting currency.

Our total revenue excluding reimbursement revenue was EUR256 million, up 4% year-over-year mainly due to increased revenue from the Mass Participation segment. The revenue of the Mass Participation segment was EUR91 million, up 21% year-over-year. The growth was mainly driven by increases in the number of gross paid athletes and average revenue per gross paid athlete.

Revenue of the Spectator Sports segment was EUR138 million, down 6% year-over-year mainly because of the cyclicality we just mentioned before. For DPSS, excluding reimbursement revenue DPSS revenue was EUR27 million, up 15% year-over-year mainly driven by the changes of portfolio mix.

Our gross margin was 37% compared with 27% in the same quarter of 2019 -- 2018. Excluding the impact of the reimbursement revenue and the cost, gross margin would have been 41% compared with 44% in the same quarter of 2018. Personnel expenses were EUR37 million, an increase of 2% year-over-year. Selling, office and administrative expenses were 18% -- EUR18 million for the second quarter of 2019, an increase of 50% year-over-year mainly due to the IPO expenses.

Profit was EUR25 million, an increase of 33% from EUR19 million for the second quarter of 2018. Adjusted EBITDA was EUR59 million compared with EUR65 million in the second quarter of 2018. Net profit attributable to ordinary shareholders was EUR23 million compared with EUR17 million for the second quarter of 2018. Basic and diluted net income per ADS were both EUR0.17 compared with basic net income per ADS of EUR0.14 and diluted net income per ADS of EUR0.13 in the second quarter of 2018.

Now let me give you the financial guidance for the third quarter and full-year 2019. For the third quarter we currently expect total revenue will be in the range of EUR239 million to EUR253 million, or up 5% to 11% year-over-year. Excluding reimbursement revenue total revenue to be in the range of EUR236 million to EUR251 million, or up 30% to 38% year-over-year.

As Hengming just mentioned, this strong revenue growth will largely be driven by the FIBA World Cup in the third quarter. Adjusted EBITDA to be in the range of EUR39 million to EUR41 million, or down 1% to up 6% year-over-year. That's for third quarter.

For 2019, we currently expect total revenue to be in the range of EUR1.008 billion to EUR1.070 billion, or down 11% to 5% from 2018. We might want to highlight again we have cyclicality especially comparing with last year as a bigger year. Excluding the reimbursement revenue, total revenue to be in the range of EUR976 million to EUR1.036 billion, or up 7% to 14% from 2018.

Adjusted EBITDA to be in the range of EUR167 million to EUR177, or down 15% to 9% from 2018. Compared with 2018, total revenue and adjusted EBITDA of 2019 are expected to be lower mainly due to the event cyclicality in 2018. Our guidance reflects our expectations for the third quarter and full-year 2019 as of today, September 9, 2019.

Lastly, I would like to reiterate that our asset light business model and strong cash flow from operations give us the financial flexibility to invest in new growth initiatives. In August we use the IPO [process] as well as cash on hand to pay down short-term debt by USD200 million, and to reduce our net leverage ratio to 4.2 times.

We remain focused on instituting our strategy while working to reduce our leverage as we position Wanda Sports to deliver long-term value for our athletes, business partners and shareholders. Let me now turn the call back to Hengming for a few concluding comments before we open the call to the questions.

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Hengming Yang, Wanda Sports Group Company Limited - President & CEO [5]

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Thank you, Brian. To summarize, we had a very solid second quarter and we are focused on carrying that momentum through the third quarter and remainder of 2019. So, as we look ahead we want to capitalize on our strengths and to deliver value for our athletes, fans, partners and shareholders.

We have built a leading global sports event media marketing platform and we have leading franchises across the world to capitalize on strong growth prospects across the global sports industry. So, while we are new as a public company, we have decades of experience in our business and a talented knowledgeable team to carry out our (inaudible) and a comprehensive strategy.

Our business model is asset light with good visibility for future growth, which helps us to generate strong margins and cash flow. We will deploy the cash flow in a disciplined fashion both to reinvest in our business, drive growth and reduce leverage over time. So, this concludes our prepared remarks and, operator, we would like now to open for the call -- to open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions). Bryan Kraft, Deutsche Bank.

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Bryan Kraft, Deutsche Bank - Analyst [2]

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I had a few questions if you don't mind. First, Brian, I was wondering if you could talk about the outlook for deleveraging, where you expect to be on a net debt to adjusted EBITDA basis by the end of the year. And if you have any commentary on the deleveraging you expect in 2020, that would be great, too.

And then I wanted to ask about the Mass Participation segment specifically. Can you talk about your expectations for the number of events in the third quarter and for the full year? I was wondering if there was any timing this year -- any timing shift in timing of events from 2Q to 3Q.

And then lastly, I think your stock price has been negatively impacted by the trade dispute between the US and China, as well as what's been happening in Hong Kong. Have these two factors had any impact on your business today and do you see any potential impact from either of those in the future? Thank you.

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Brian Liao, Wanda Sports Group Company Limited - CFO [3]

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Thank you, Bryan. I may answer the first question quickly and I think for the third question I will have Hengming to address that. For the leverage ratio, as I just described it in the call, we [paying all] for $200 million the bridge loan in August. The pro forma net leverage ratio has been reduced to 4.2 times by end of August.

We are thinking this is a good outcome for [all saying] for leverage ratio for our operation. And by end of this year we will continue to improve but still around 4.1 times to 4.3 times. Looking forward to 2020 we want -- number one, we want to remain a good development great opportunity for us. At the same time we will try our best to improve the leverage ratio. We will try to maintain let's say around 4 or below 4 times.

And for the Mass Participation we had -- we are expecting to have a quite crowded quarter next -- third quarter [with] around 109 events. And for the full year we are expecting to have some kind of increase other than -- comparing with last year it's about 350 [around]. And Hengming may address the third (multiple speakers).

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Hengming Yang, Wanda Sports Group Company Limited - President & CEO [4]

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Yes, maybe I just want to add to the Mass Participation highlight in the third quarter. We actually have quite some significant events in third quarter coming up. In the last weekend we have Nice World Championship 70.3. And also in October we are going to have the IRONMAN World Championship events in Kona. As you [drove through], the iconic events are happening in the third quarter.

So, for your question regarding the US trade/China trade talks and the Hong Kong situation, whether they have impact on our existing business, we actually don't see -- we have actually seen very, very limited impact or in fact any impact at all on our business on the ground.

As you know, our businesses our global businesses; we have a global presence in US, Europe and our InFront and IRONMAN brands are global. And also our business -- none of our events are subject to any tariffs neither by US or by China. So, our business is actually pretty much intact. And our strategy and execution is going as we expected. So, we don't see any -- much impact on our business at all.

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Bryan Kraft, Deutsche Bank - Analyst [5]

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Thank you, Hengming. I appreciate that.

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Brian Liao, Wanda Sports Group Company Limited - CFO [6]

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Let me clarify, we don't have any Mass Participation events in Hong Kong yet.

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Bryan Kraft, Deutsche Bank - Analyst [7]

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Very helpful, thank you.

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Operator [8]

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Rob Sanderson, Loop Capital.

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Rob Sanderson, Loop Capital - Analyst [9]

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Thanks, good evening, good morning, everyone. Can we go back to Mass Participation again? The number of events in the second quarter was quite a bit lower than we were thinking. I would think there's pretty high visibility on a quarter-to-quarter basis here. Can we talk about maybe drivers of variability? Is there some weather considerations, are there other things that may cause movement on a quarter-to-quarter basis? It was just a bit lower than we had thought.

And then second question, in the competitive bid for the IRONMAN World Championship by St. George mentioned in the press release, is this a -- I want to get a sense of is this fairly common across your wide portfolio of Mass Participation events where there's a competitive bidding process or is this maybe more isolated for this high profile event with the World Championship? Can we really talk a little bit about the host city activities and the competitive bids as a regular course of business? That would be helpful.

And then finally one other question. Just on the ongoing FIBA World Cup, does China's national team loss, does that impact or have any impact on your ability to monetize that event? I would think that if China's national team were to go deep in the tournament that would be a great thing for you. But maybe we could just talk about the exposure to host nations in these types of events. That would be great. Thank you, gentlemen.

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Hengming Yang, Wanda Sports Group Company Limited - President & CEO [10]

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I think your question on the event calendar in terms of the quarter, this actually -- the spread of the event in the quarter is pretty much in line with our -- the history and also (technical difficulty). We tend to have lower -- the first quarter is always the lowest season and the second quarter we start picking up and third quarter is the highest and fourth quarter and also starting to lower a little bit.

So, our total year events will increase -- is increasing and, as I said, last year was around 22. This year we are looking at almost around 350 events. So, overall the number of events are increasing. And our first -- second quarter net (inaudible) revenue actually increased by 21%. So, that's actually a combination of increased events versus last year, also increased gross athlete paid fees.

I did not get your second question. Are you talking about our bidding process for the World Champion events having upon the industry?

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Rob Sanderson, Loop Capital - Analyst [11]

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Yes, how common is that? Is that a substantial driver for host city fees to have the competition? Or is that an isolated event just given the very high profile of this World Championship and that brand specifically?

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Hengming Yang, Wanda Sports Group Company Limited - President & CEO [12]

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So, like for the World Championship event we are always in Kona (inaudible) in Hawaii, so we don't change that. But 70.3 we actually rotate around the world. This is actually part of the (inaudible) actually give the visibility and also promote the sports across the world where the city is eligible and also able to host the event.

So there are a couple of combination factors we take into consideration. The maturity of the market, the general -- the athlete population support and also the host city, their willingness and financial ability to support as well. So, there's a bunch of things to take into consideration, but it's really to promote the sport, not just in a fixed place but actually across the world. Like this year we did it in Europe. Last year we did it in the US. So, that's basically the approach we are taking.

Your last question regarding FIBA World Cup. Yes, it's a kind of regret to see the China team did not perform well. But however, FIBA World Cup is a global event and we have -- it's actually we have all the marketing rights for the global across the world and also basketball is one of the most popular sports in China. In some cases people even say it's bigger than football.

So, we actually see a lot of enthusiasm and the occupancy of the stadium is pretty high. I went to the opening ceremony, it was really quite impressive. So, we haven't seen the China team performance impact our financial monetizing ability. Of course we would love to see China doing better if possible.

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Rob Sanderson, Loop Capital - Analyst [13]

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Of course. Thank you, Hengming, and thank you, Brian.

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Operator [14]

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Jason Bazinet, Citi.

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Jason Bazinet, Citi - Analyst [15]

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I just had two quick questions. One, can you guys spend a little bit of time talking about how your business performs in a broader economic slowdown? I don't know if -- maybe the great financial crisis or maybe even one before that.

And then second, one of the questions that came up a lot with investors is just sort of struggling to come up with competitors, because I think the buy side is struggling with how to think about comps. And so, can you spend a little bit of time talking about your competitive set with a particular emphasis on any of those that might be publicly listed, just to give the buy side a read of site into some of your rivals? Thanks.

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Hengming Yang, Wanda Sports Group Company Limited - President & CEO [16]

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Sure, sure. I think one of our business natures is actually somewhat resilient against economic downturn. So, sports has its own attractiveness in terms of the (inaudible) the business cycle. So, we have seen the slowdown economies. Globally they've been talking about it, but we actually have not seen that much in our business impact.

As you can see, our second quarter, first quarter, we all have like-for-like positive growth over last year. And we also see the strategic milestones in the implementation on track and in place. Some people may worry China GDP slows down, but actually we do see our China sports business growing pretty healthy. People spending on sports are increasing. So, that's what we are experiencing on the ground.

In terms of competitors, actually we do not see a global scale -- like us we do as a global leading sports event media marketing company. We do see in certain segments we do have certain competitors.

It might be, for example, IMG Endeavor could be our competitor in the events and marketing rights space, but they are heavily in the US. And then in Europe we see Lagardere more in the football and summer sports, but Lagardere is a more regional play. And some other media production companies, but we are by far the leading media production capability globally.

So, if you look at listing companies, it might be I think the Formula One. But Formula One is more comparable to IRONMAN as participation where we have the IP events and we build our business around the IP events. The other one might be listed -- I think it's WWE and that's (inaudible) Mass Participation in some way. And the other one would be Live Nation, but they are more towards the sports media space.

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Brian Liao, Wanda Sports Group Company Limited - CFO [17]

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And one thing to add to Hengming's point that resilience to [economic going down]. One example we went through the experience is several years ago when Italy business is going down, actually we can see the full [bore] income in Italy actually went up. When the business went down people might spend more money in water sports (inaudible) from the sports (inaudible). So, we do believe our business is quite (inaudible) trend and have good development.

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Operator [18]

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Alan Gould, Loop Capital.

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Alan Gould, Loop Capital - Analyst [19]

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I've got two questions, please. First, can you tell me what operational or strategic changes you expect from the management change in China? And second, can you tell us what impact, if any, FX had on the second-quarter results? I know the dollar was strong versus the euro.

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Hengming Yang, Wanda Sports Group Company Limited - President & CEO [20]

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So, you noticed we have a leadership change in China. So, the leadership change in China to our ex-CEO for China operation, David Yang, Dongwei Yang, he resigned for his personal reasons. Then we appointed Yimin Gao as the new President and CEO for Wanda Sports China. And I would like to tell you that there's no impact on our strategy in online business in China or business in China.

We have built a very successful platform, a leading sports company in China. And we are continuing to bring in the premium IP events or international capabilities into China leveraging together with our local expertise and understanding about the market.

And Yimin Gao is actually a well experienced, seasoned executive. He has a very deep understanding about the demographic -- evolving demographics in China middle class. He has taken up various leadership positions and increasing responsibility. We are actually very confident that together we can work together to capture the growth and also to map out our strategy in China.

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Brian Liao, Wanda Sports Group Company Limited - CFO [21]

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For the CapEx, we spend very limited as we mentioned --.

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Hengming Yang, Wanda Sports Group Company Limited - President & CEO [22]

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ForEx -- I think it is ForEx exchange impact. Your question is on the FX impact on the second-quarter results (multiple speakers).

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Brian Liao, Wanda Sports Group Company Limited - CFO [23]

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We don't have that much FX exchange risk because in general our groups are naturally hedged against each other because much of our currency risk -- when we generate revenue in the same currency, and we pay the cost in the same currency. So, we don't have that much exposure to the FX risk.

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Operator [24]

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Walden Shing, Haitong International.

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Walden Shing, Haitong International - Analyst [25]

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Congratulations on the good results. So, we've got two questions. first of all, your tax, because there is a big improvement in your tax expense. And you said there is a release in the tax provision and things like that. I wonder if this is related to the MP & Silva bad debt last year.

So, now it becomes tax deductible with the Italian tax authorities so you can release that tax provision. Would you mind to explain a little bit more on your tax provision and how we should look at your effective tax rate going forward?

The second thing is regarding the English Premier League, free to air broadcast (inaudible) in sub-Sahara Africa. So, is it something big? So, I understand maybe you can't tell us exactly how much is the contract size, but can you give us an idea how big is that business? Thank you.

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Brian Liao, Wanda Sports Group Company Limited - CFO [26]

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Yes, I will cover the first one and then Hengming will cover your second one. Actually you are right. We had some tax credit in this quarter. When we get the confirmation from Italy tax authority to allow us to deduct the MP Silva loss last year.

And also I want to explain last year we assessed the better expenses and we wanted to be quite prudent, so we made a tax provision for this better write-off. And fortunately this quarter we got the local tax authority's approval to let us get the deduction. So, we put this reversal of this tax provision in this quarter.

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Hengming Yang, Wanda Sports Group Company Limited - President & CEO [27]

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I'm sorry I cannot disclose any size of the deal or the agreement just because of the commercial sensitivity, but we are very happy with this agreement. This actually -- it opens the door of our cooperation with EPL. And also -- and that's clear evidence of our global platform because we have our strong presence in Africa, [also] our office in France.

And this is why like the IOC and also the EPL worked with us and just because of our global reach and global platform. And Africa is an increasingly important market for the football, and we are pretty confident about further expanding our business over there.

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Walden Shing, Haitong International - Analyst [28]

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Can I follow up? What kind of tax rate should we expect in third quarter this year?

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Brian Liao, Wanda Sports Group Company Limited - CFO [29]

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We suppose our average effective tax rate will be around 30% -- 25% or 30%. But I just want to draw your attention that for the third quarter, as disclosed in our [fully] release, we will have our stock-based compensation. So, that will really change the normal effective tax rate in the next quarter.

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Operator [30]

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That will be the last question. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect.