Manchester United plc (MANU) Q1 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Manchester United Earnings Conference Call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [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 factors 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 is Cliff Baty, our CFO. It feels like very little time has passed into discussing our year-end numbers and my comments will be fairly brief. As you can see from the numbers released this morning, we've had a strong Q1 with revenues and EBITDA up significantly on last year and Cliff will go through the numbers in detail shortly. We've had a good start to the season on the pitch, we're second in the league, faced the quarter finals of the Carabao Cup where we face Bristol City next month, and we've won all four of our group stage matches in the Champions League. Our Megastore has traded well through Q1 with revenue and profit broadly in line with a record to prior year. the Adidas wholesale business continues to perform well with strong demands for key products. The current black away kit represents the fastest selling away kit Manchester United has ever released, while limited edition lines to Adidas original trying to generate huge demand in open IQs [ph] of the product. On the venue side, having sold out our seasonal ticketing products in record time last May, we've now beaten last seasons' official membership record with sales currently just over the 190,000 mark. Our match-by-match ticketing products for the 2017-18 season are also selling well. In terms of match tickets, we will sell out all Premier League matches exclusively to official members, as such the only way for non-members to a Premier League match is around match-by-match hospitality product. This coupled with a positive performance for our new premium facility which is call Number 7 at Old Trafford means we anticipate another record breaking year for Matchday VIP. For the season we've also introduced a contact list of card payment solution in all kiosks across the stadium which has increased the efficiency of our kiosk service and as a result, driven a significant increase in spend per head. Turning to our media business; we continue to rollover MUTV direct-to-consumer proposition. As mentioned on the last call, the app and online products have diversified MUTV's audience. We have subscribers now in over 140 territories and a reduction in the average age of subscribers. We've also made several programming changes to improve the content experience looking to expanding our pre-match coverage from 1 to 2 hours and focusing on in-house original productions and documentaries. For example, with the upcoming behind the scenes player documentary series of Mkhitaryan, Rashford and Bailey. Indeed, I'm proud to note that our program, Star Mates, The Jimmy Murphy Story, has been nominated for the Best Sports Program for the 2013 World Television Awards and MUTV has been nominated for the Best Sports Thematic Channel Award for 2017 TV Sports Awards, alongside the Olympic Channel and NBA TV. In terms of our social footprint, we've got close to 300 million interactions across Facebook, Instagram and Twitter during the first four months of the season, representing an 11% year-on-year increase; as a perspective, this is over 80% more interactions than the next biggest Premier League, and more interactions than that generated by the third to sixth largest Premier League clubs combined. Moreover the first four months of the season, at Man United, has also been the fastest growing and most engaged football club on Twitter and has generated 60.5 million likes and retweets which is the same number of Twitter interactions as the next two biggest European clubs combined. I'll now hand you over to our CFO, Cliff Baty.

Thank you, Ed, hello, everyone. I'm going to talk through our results for the first three months of fiscal 2018. As a reminder, the fiscal year 2018 year-on-year comparisons will be impacted by two main themes; our qualification to the Champions League in 2018; and also the cadence of matches on a quarterly basis. In terms of the headline figures, total revenues for the period were up 17.3% to £141 million, with adjusted EBITDA up 17.3% to £36.6 million, giving an EBITDA margin of 26%. Profit for the period was £7.9 million, compared to £1.2 million in the prior year. Turning to the key items in the financial statements; commercial revenues were up £6.2 million to £80.5 million, driven by the increase in revenues from our pre-season term where we've played a great number of games compared to the prior year. I'll just add the highlights that within our earnings release, we have simplified the amount of commercial revenues and to sponsorship and retail. Mobile and content revenues will now be reported within the sponsorship line as they primarily comprise of sponsorship agreements with partners in the telecom sector. Moving on to broadcasting revenues, these are up £9 million, due to participation in the Champions League and the Super Cup, as well as the impact from one additional Premier League home game. Similarly, Matchday revenues were up by £5.6 million, again due to additional Premier League home game together with the revenues from the opening Champions League fixture. During the period, total operating expenses, excluding depreciation and amortization were up 17.3%, including wages up 12.2%, due to increase in first team salaries, through uplifts and connection with the Champions League qualification. Other operating expenses increased 29.2%, due to the great number of games on the pre-season turf and the two additional home games played in the period. Amortization costs were £36.1 million, an increase of £5.3 million over prior year, due to the investment in the playing squad in recent years. Also in this quarter, we recorded a profit on disperse [ph] with £17.3 million due to the sale of Januzaj, together with sell-on fees received. Net finance costs for the quarter were just £0.8 million, a decrease of £5.1 million over the prior year due to the favorable non-cash exchange rate movements on our unhedged U.S. dollar debt. As we have previously mentioned, foreign exchange movements can cause volatility in this line but cash interest costs in U.S. dollars remain consistent year-on-year. Looking at the balance sheet, cash of £216.2 million was up by £51.9 million against the prior year. Net debt through [ph] was £268.1 million, a decrease of £69.6 million compared to the prior year due to the increased cash balances and impact of foreign exchange movements. Based on our first quarter results, we reiterate our previously stated guidance for fiscal 2018 of revenues between £575 million and £585 million, EBITDA between £175 million to £185 million. Finally, please note that a semi-annual cash dividend of £0.09 per share will be paid on January 6, 2018 to shareholders on record on November 30, 2017. With that, I will 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. Please go ahead.

Maybe two quick questions for me; one is, on the last call you mentioned that you'd hire a new Director of Partnerships. So I wanted to ask, can you talk a bit more about the [indiscernible] in terms of potential pipeline? Any changes you're seeing in your overall strategy with rents, particularly on digital and social media platforms? And then separately -- look, I know it's kind of early I guess, but any update on the progress where UEFA is on the Champions League broadcast rights? I think the new cycle kicks-in sometime over the next year.

Just to recap, I'm not sure I heard. Was that two question? The question about the Director of Partnerships and the second question about the UEFA rights?

Correct.

Okay. On the Director of Partnerships, yes, we hired Sean Jefferson earlier this year which we communicated, settled in very well, it's been a great addition. I think a lot of time talking to partners and understanding where they are and their marketing plans and how we are helping them to achieve their goals. You're right in asking question around digital and how that is becoming much more relevant to our partners from a marketing perspective, and we are looking at tweaking what we do and how we deliver our products and inventory to our partners to enhance in a better way. So with that, I'm not going to go into any detail around that because it's commercially sensitive but it's -- we feel like Sean has been a great addition to really hone in on that part of the business. The second question on UEFA rights, as everybody I think is aware; the UEFA routine of being in the market and the number of the deals have been announced and I think they are long, long way through close to conclusion really. Nothing has been announced yet but we are expecting an uplift, and hopefully that will be in the market before the next call in February.

All right, thank you.

Our next question comes from Clay Griffin of Deutsche Bank. Please go ahead.

Good morning. How should we think about the net player CapEx for the year?

Basically, the question was how should we think about net player CapEx?

Yes, just apart from the community CapEx, I mean -- and I apologize if I have missed it in your prepared remarks but just -- for the full year?

Yes, sure. I think we gave -- when we announced our fourth quarter results, so the full year last time due September, that was posted at the end of the transfer window. So we gave a figure there which was £95 million, it would be the net player CapEx as at that point for the year of 2017-18. Not clearly that was the position we were at, we don't guide on that figure because I think it can obviously move, so that's the actual position as we are now for the year before we get into the transfer window in January whether we do any activity or not.

Understood. And then, you know, there was -- understanding there was -- the EPL was reviewing or considering changing the allocation of international broadcast rights, and I'm not asking you to comment on that directly but just -- how should we think about the mechanism by which the league addresses that type of issue?

The mechanism about the international rights; no, no, no; it just continues to receiving the same assumptions going forward as I answer that.

Okay, great.

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