Manchester United Ltd.

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. To queue for questions, please press star then 1. If anyone has difficulty hearing the call, please press star 0 for operator assistance at any time. We would like to remind everyone that this conference is being recorded. I will now turn the call over to Corinna Freedman, Head of Investor Relations for Manchester United.

Thank you, Operator. Good morning, everyone, and welcome to Manchester United's first quarter 2020 earnings call. A corresponding press release containing our financial results was issued earlier this morning and can be accessed on our IR website. Today's call is being recorded and webcast, and a replay will also be available on our site for 30 days thereafter. Before we begin, and as a matter of formality, we would like to remind everyone that this conference call will include estimates and forward-looking statements which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such estimates or forward-looking statements should be considered in conjunction with the cautionary note included with our earnings release, as well as various other risk factors in our prior filings with the SEC. With us on the call today are Ed Woodward, our Executive Vice Chairman, Richard Arnold, our Group Managing Director, Cliff Beatty, our Chief Financial Officer, and Hemant Saseo, our Head of Corporate Finance. I will now turn the conference call over to Executive Vice Chairman Ed Woodward for his opening remarks.

Thank you, Corinna. Thank you, everyone, for joining us today. It's only been a short time since our Q4 and year-end update, so prepared remarks today will be relatively brief. Before Cliff and Richard talk about our financial and operational performance for the first quarter, I thought it would be useful to provide a statement regarding our goals, how we aim to achieve them and the progress that we've made to date. Our ultimate goal is to win trophies, playing fast, fluid, attacking football with a team that fuses graduates from our academy along with world-class acquisitions. We know this will not be achieved overnight, however we've made investments across the club that we believe have set us on the right path. To recap on these for a moment, Firstly, over the last few years we've significantly invested in our recruitment infrastructure to augment our already strong and experienced team who are working to a clear philosophy. This is demonstrated by the signing of Maguire, James and Wan-Bissaka who have all settled in well. We will continue with our strategy to promote the best players graduating from our academy together with material investment in the coming summers to strengthen our young squad further and challenge for trophies. As a sign of investment in youth for the future, we've fielded the youngest team in the Premier League this season in our game against Brighton at an average age of under 24 years old. Secondly, we've also made investments in our academy across recruitment, facilities, analytics and these investments are now beginning to bear fruit. Last season we led the Premier League in the most first team match minutes played by our graduates. Across the Premier League our graduates are playing 58% more minutes than those from any other club. Our academy graduates have scored or assisted 31 of the 32 goals we've scored so far this season. and finally we are shortly approaching a milestone 4,000th first team consecutive competitive game featuring an academy player in the matchday squad. We know our academy is a strong competitive advantage and is an area that we will continue to invest in as it is the heart of the club. I want to reiterate that our ability to make investments we need to be successful on the pitch is underpinned by a continued strong financial performance. Those seasons to date we've had a mixed start to our Premier League campaign. In Europe we've qualified for the Europa League knockout stages with two games to spare. We've also progressed to the quarter-finals of the League Cup, while our women's team has also started their first season in the Women's Super League season in competitive form. Shifting to broadcast developments, cumulative live audiences for the Premier League was up 10% from two seasons ago to last season. Moreover, combined live audiences season to date in the UK are up 17%. Our home match on October 20th drew Sky's third biggest Premier League audience of all time. We remain very optimistic for continued increases in global football broadcast rights as demonstrated by recent news that CBS has acquired the UEFA Club competitions in the US through to June 2024. According to Bloomberg, this was an estimated 50% increase from the prior US contract and will feature select games free to air. We're also looking forward to Amazon's live Premier League broadcast, which will commence in the upcoming quarter, and we know that the platform will also produce a highlight show. Turning to some industry news, as many of you will be aware, FIFA recently announced that the first iteration of the revamped Summer Club World Cup tournament will take place in China in June 2021. Currently, the annual tournament comprises only seven teams and is played in December, while the revamped tournament will expand to 24 teams and take place every four years replacing the Confederations Cup. Finally, a brief update on FIFA's Transfer Task Force. After a long consultation period, in October the FIFA Council approved a series of key steps to protect the integrity of the system and prevent abuses. In particular, there will be limits on loans of players which won't have a material impact on us and the introduction of major reform around agents, including requiring all agents to be formally licensed and include educational measures. Restrictions around multiple representation to avoid conflicts of interest and a cap on agents' commissions. I'll now hand you over to our Group Managing Director, Richard Arnold, who will update you on the key business activities. Thank you.

Thank you, Ed. As Ed referenced, our commercial strength underpins our ability to fund our continued growth both on and off the pitch. Turning first to our media and digital, We achieved several milestones across our digital platform, including our highest ever number of daily active users of our free global mobile app during the opening day of our season against Chelsea. We also saw increases in monthly active users and average time spent per user per month versus the same quarter last year, metrics that confirmed to us that our content is compelling and delivering the access that our highly engaged fan base actively seeks. We also saw increasing engagement for our Match Centre app feature during the quarter, which provides live game stats to our fans' second screens through our mobile app. During the quarter, we also released a documentary that followed the Manchester United women's team on their first successful season. which culminated in achieving promotion to the Women's Super League. The women's team's social channels already have over 800,000 social connections. And on Instagram alone, our women's channel already has more followers than eight of the men's Premier League clubs. For the first quarter, the increase in sponsorship revenues continues to reflect the scale of our global fan base. The phenomenal engagement that we are driving is the direct result of our continuous improvement and investment in data analytics as well as superior digital and content capabilities which strive to deliver best-in-class return on investment for our partners. We are pleased to report that during the first quarter we commenced new global partnerships with Konami, Visit Malta, Yabo Sport and Lego. Our Megastore turnover year to date is ahead of our expectations on higher traffic, basket and conversion. Due in part to two additional home matches played in the first quarter relative to last year. In addition, our first home match against Chelsea drove a record single day turnover. e-commerce has also experienced strong year-over-year growth in Q1 with growth coming from all major markets benefiting from the earlier launch of the replica kits during the summer. Lastly, from a venue perspective, our official membership product is on course for another strong year and our match-by-match ticket-related products are selling at a solid pace. This follows on from our seasonal ticketing and hospitality products selling out in record time over the summer with both continuing to have robust waiting list demand. Our capital projects and other upgrades are progressing on track this quarter and visitor response has been positive. Looking forward, we will be rolling out our new accessible facilities over the coming months and focus also now turns to planning our summer 2020 upgrade projects. I will now turn the call over to our CFO Cliff Batey to review our financial results in more detail. Cliff.

Thanks Richard. I'm going to talk through the results of the first three months of fiscal 2020. As a reminder, year-on-year comparisons relative to fiscal 2019 have been impacted by the absence of Champions League broadcasting revenues and the cadence of matches on a quarterly basis. In terms of headline figures, total revenues for the quarter were 135.4 million, up 0.4 million versus the prior year, with adjusted EBITDA of 34.8 million, up 5.4 million over the prior year. Both revenues and EBITDA fiscal 2020 are tracking in line with our annual guidance. Turning to the key items in the results, total commercial revenues were 80.4 million, an increase of 4.5 million versus the prior year, with sponsorship revenues of 53.6 million An increase of 4 million over the prior year reflecting sponsorship growth and additional tour revenues. Merchandising and licensing revenues for the quarter increased to 0.5 million at 26.8 due to strong megastore performance helped by two incremental home games. Broadcasting revenues decreased by 9.9 million during the quarter to 32.9 million due to our participation in the UEFA Europa League compared to the Champions League in the prior year. It is worth highlighting that it is in 2Q where we will experience the biggest year-on-year impact from the reduction in UEFA broadcast revenues due to the timing of matches played. Matchday revenues increased by £5.8 million to £22.1 million given the impact of one additional home Premier League match and one additional home Europe match in the quarter. Moving down the income statement, operating expenses, excluding depreciation and amortisation, were down £5 million versus prior year. This includes wages which were down 6.8 million primarily due to the reduction in player salaries as a result of non-participation in the UEFA Champions League. Other operating expenses for the quarter increased by 1.8 million due primarily to expenses relating to a larger summer tour and the two additional home matches played during the quarter. Amortisation costs were 32.2 million for the fiscal quarter, a decrease of 2.9 million versus the prior fiscal year. Profit on disposal of $12 million in the period is primarily due to the sale of Romelu Lukaku to Inter Milan. Net finance costs for the quarter were $8.5 million, an increase of $3.3 million due to foreign exchange movements on the unhedged portion of our U.S. debt. Our cash interest costs and U.S. dollars remain consistent year on year. Turning to the balance sheet. At the end of September, cash balances were $140.3 million, down $107.2 million versus the prior year, Due primarily to higher player capex. As mentioned on a fourth quarter earnings conference call, the guided net player capex of £173 million for fiscal 2020 reflects accelerated payment and deferred receipts profiles of our summer activity. As a result, contracted capex commitments for fiscal 2021 and beyond are substantially lower. Net debt at the period end was £384.5 million, an increase of £137.3 million Thank you very much. and with that I'll hand the call back to the operator and we are now ready to take your questions. Thank you.

Thank you. We will now begin the question and answer session. To ask a question you may press star then one on your touch tone phone. If you are using a speaker phone please pick up your handset before pressing the keys. To withdraw your question please press star then two. At this time we will pause for a moment to assemble our roster. The first question today will come from Randy Connick of Jefferies. Please go ahead.

Thanks a lot and good morning. I guess a question for Richard. You talked about some of the continued increase in engagement statistics around the digital side of the business as well as you announced some key new sponsorships that looks like two from Europe and two from Asia. Are you thinking about Taking the app and kind of layering in even more digital partnership opportunities for your commercial sponsor partners, I've seen some stuff on the app with links to HCL or SwissQuote, so there's some advertising in there, but it seems as if there's another kind of access to allow for you to add more value to your partners from an advertising and exposure standpoint. So just give us some perspective on what you're thinking about doing from an app perspective. And I guess second, with the new announcements of these Malta, Lego, Konami, et cetera, have you reimagined or rethought what the addressable market would be around the world in the different regions for sponsorship opportunities because it seems like your ability to continue to kind of grow that is much bigger than we would have thought a few years ago. Thanks.

Thanks, Randy. So the two questions in summary were opportunities within the app, increased commercialization, and then secondly, ongoing expectations for the future in terms of sponsorship growth. if I've understood that correctly. So turning to the first question, I think that what you've seen to date is that our focus has been primarily on fan engagement and quality in terms of the design of the app and the user experience. And the results of that have been borne out in terms of both the app rankings in stores as well as the engagement statistics we've seen. The next phase that's planned for the app will be around growing its scale and that is something that in conjunction with the work that we're doing on obviously the existing social media platforms are on, our TV audiences around the world as part of that integrated solution. Obviously that engagement and its scale do provide opportunities for commercialization At this stage, it's not expected that those are commercialized separately, but that those form part of the integrated architecture we've got now for rights that are monetized on a global basis by category. So for example, airline, car, et cetera, as you've seen to date. In terms of the second point, in terms of the ongoing expectations around sponsorship, what we're seeing is that The underlying demand for our rights continues to be strong, pipeline's good, and new categories are constantly being derived as the world evolves, particularly in a digital setting. And we continue to have a number of major categories open for future sponsorship, as well as strong in-category price point growth as a result of the demand for those rights. So in total, you know, we continue to be confident about the sponsorship business. You've seen the results in terms of growth this quarter, and that's borne out by what we're seeing in the marketplace to date. And our view that there continues to be a strong market and growth for the sponsorship business remains constant.

Perfect. Thank you.

Once again, if you would like to ask a question, please press star and then one. Ladies and gentlemen, at this time we will conclude our question and answer session and also conclude the Manchester United Earnings Conference call. We thank you for attending today's presentation and you may now disconnect your lines.