Manchester United Ltd.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Manchester United Learnings Conference Call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question and answer session. If you have questions, please press star 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 call 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 third quarter 2020 earnings call. A corresponding press release containing our financial results was issued earlier this morning and can be accessed on our IR websites. 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, along with a cautionary note included with our earnings release. as well as additional risk factor discussions in our filing with the SEC. With us on the call today, Ed Woodward, our Executive Vice Chairman, Richard Arnold, our Group Managing Director, Cliff Beatty, our Chief Financial Officer, and Hemant Asayo, our Head of Corporate Finance. I will now turn the conference call over to our Executive Vice Chairman, Ed Woodward, for his opening remarks. Ed?

Thank you, Corinna, and thank you to everyone for joining us today. These are unprecedented times and I would like to take a moment at the very top of this call to say that I hope you and your families are staying healthy and safe. On behalf of everyone at Manchester United, I would also like to send the club's profound sympathies to all of those suffering directly from the COVID-19 virus, to those who may have lost family members to this virus and to those essential and frontline workers who every day bravely risk infection doing their normal jobs. You're all in our thoughts and we're very grateful for your sacrifice and for your service. We've all witnessed the tireless work being carried out in hospitals and other care settings within our local communities and by charities dealing with the economic fallout from the crisis. We take seriously our responsibility to support these efforts. I'm proud of the way everyone at Manchester United has responded. From our staff who packaged up 30,000 items of food and drink from club stocks for local charities, to the staff volunteering to cook 60,000 meals for National Health Service staff in Greater Manchester hospitals. These are just two among many examples of how our people are rallying to help, backing the club and the Manchester United Foundation which continues to expand its charitable response in the UK and overseas. We believe these initiatives are not only the right thing to do but they're also essential to upholding the club's values with which our fans around the world identify. So we will continue to work with our foundation to support vulnerable communities as the social and economic impacts of the pandemic unfold. Clearly, it has caused significant disruption to our operations, including the postponement of all matches since mid-March and the temporary closure of our retail, catering and visitor facilities at Old Trafford. While it is too soon to know with any certainty if or when those measures can be fully relaxed, we are optimistic that it will soon be possible to resume playing football. Our men's first team has begun a phased return to training this week, with rigorous medical protocols in place to manage risk. Subject to government and Premier League shareholder approval, including input from medical staff and players, we anticipate domestic games could restart again in June. Furthermore, all indications from UEFA are that the culmination of the Europa League could be during August. We remain in constant dialogue with the Premier League, the FA and UEFA about the next steps towards returning to play, while continuing to protect the health of our players, staff and the wider public. Thank you very much. The 19-20 season. So there is clear momentum behind efforts to get football going again across Europe's major leagues. All in all, as we sit here today, as many as 32 European countries are expected to restart their domestic leagues by the end of June. As in Germany and elsewhere, it is now inevitable that our matches will initially be played behind closed doors when the season resumes. This is as disappointing for us as it is for our fans. so we hope it will allow the Men's 13 to complete all of its competitions in the current 19-20 season by the end of August and to start next season in time to target completion of next season still in May 2021. While there are many still many uncertainties to resolve we're looking forward to Ollie and the team returning to the pitch soon to defend the strong momentum Cliff will walk you through some of the assumptions that drive our scenario planning. There are still profound challenges ahead for football as a whole and it is safe to say it will not be business as usual for some time. Our club is built on solid foundation. We remain one of the most popular teams in the most followed global sport and have created a strong financial base with diverse revenue streams. However, the repercussions of the pandemic are now being felt widely across the football community, not just by clubs, but also by players, supporters, broadcasters, sponsors and many other stakeholders. We have a shared interest in protecting our sport during this period. So it's crucial that we work together in a spirit of solidarity, to maximise their chances of coming back strongly as the pandemic recedes. We must recognise that this crisis will not disappear overnight and that the world which emerges will be different from how it was before. That will create challenges for football like many other industries but it also brings an opportunity for innovation and creativity as we explore options for resuming football in ways that still protect public health. While nobody is claiming that football is the most important thing at this time, Sport can play a role in helping restore morale and bringing people back together as societies recover. Indeed, the absence of live football and the unifying experiences it creates for billions of people around the world has reminded us all of how much the sport means to us. With that in mind, we remain firmly optimistic about the long-term prospects for the club and for our exciting young team once we have worked our way through what is undoubtedly one of the most extraordinary testing periods in the 142-year history of Manchester United. This club is built on resilience in the face of adversity and those qualities are being proven once again now. With that, I will hand over to our Group Managing Director, Richard Arnold, who will update you on the key business activities. Thank you.

Thank you, Ed. Given the unusual nature of this quarter and these times, I'll keep our usual business commentary rather brief. Whilst it may not be an exact proxy for today's crisis, over the course of our 142-year history, this club has endured two world wars, the global depression, the credit crunch and the previous pandemic. Resilience is a core part of the club's DNA, both on and off the pitch. Having worked at United through the credit crunch in 2007 and 2008, I know that the club will come out of this crisis More determined than ever to achieve both on and off the pitch. Operationally, it goes without saying that COVID-19 and the related containment measures have had a significant impact on our business. Internally, over 700 of our global employees have transitioned to a remote work environment. I'd like to take this moment to thank our colleagues who've worked throughout this crisis, both to carry the club forward as well as delivering the support to our communities and NHS that Ed referred to. A duty to entertain is also a key part of our heritage, spanning that same period. Without games, this responsibility fell to our digital media team. Through the crisis, we were particularly proud to be able to harness this strong global fan engagement in March with meaningful calls to action via several social campaigns aimed at raising awareness of important public health messages, offering support to frontline workers and providing activities for fans staying at home to save lives. The circumstances of isolation meant we had to drive innovation in content capture, generation and publishing that we hope will drive benefit for years to come. With the innovative content, with the innovative content, We were able to stay in touch with our fans. According to industry metrics, as of January 2020, the total time spent in the Manchester United Club app represented over 40% of total time spent on the top 14 football club apps globally. Whilst this engagement does have commercial benefits in terms of e-commerce and partner engagement, I think this time has proven to be galvanising in terms of the connection of the fans to the team and the club just as it has brought other communities together across the world. At this point it is also worth recognising the support that we have received from our partners throughout this time as well as their efforts to ease the crisis. Without their support we would not have been in a position to act as determinedly to support those most in need in the community. No question the economic ramifications from this global pandemic will continue to resonate for years to come, but we remain optimistic about the long-term outlook for the sponsorship business and our ability to remain a leader within the market. We've taken advantage of this temporary pause in normal routine To creatively attack our operational approach with disruptive innovations across all of our business lines, in particular the content capture and production referred to earlier, as well as further enhancing the embedded digital offering to commercial partners, deepening our e-commerce integration, as well as expanding our CRM and in-house data capabilities. Whilst there is still significant uncertainty regarding the duration of this pandemic and ultimately how COVID-19 may impact the economy longer term, what we do know is our fans have a deep emotional connection with the club, whether in Manchester, the UK or the rest of the world. They want to be part of the club and to continue to show their loyal support, whether in the stadium, via broadcast matches or digital and mobile interactions. I know I speak for everyone at Manchester United when I say that we all look forward to the day that we can welcome them back to Old Trafford and football can return to normal. I will now turn the call over to our CFO Cliff Dacey to review our financial results and our outlook in more detail.

Cliff. Thank you Richard. Given the current environment, I will briefly summarise the headline figures for the third quarter, providing commentary on the financial impact of COVID-19. I invite you to refer to our press release filed earlier this morning for more details. Total revenues of the third quarter were $123.7 million, down $28.4 million versus the prior year. This was due to the COVID-19 disruption impact on our broadcast and matchday revenues. We experienced growth in our commercial revenues driven by sponsorships. As a result of the impact on broadcasting and matchday revenues, adjusted EBITDA of $27.9 million was down $13.3 million versus the prior year, with revenue reduction partially offset by lower player wages as a result of non-participation in the Champions League. Next, finance costs for the third quarter were $25.3 million compared to $3.1 million in the prior year. This movement was solely due to foreign exchange movements on our US dollar debt. and reverses the foreign currency gain seen in the third power. Our cash interest costs remain consistent year on year. COVID-19 had a significant operational impact on the final series of the quarter, with three scheduled matches at the end of March cancelled, including the home leg of the Europa League round of 16 versus Rusk. Old Trafford, including our museum and megastore, has been closed since mid-March. Given the delay caused by the playing schedule, We anticipate that the revenues from the Premier League for the completion of the 19-20 season will be reduced, as discussions remain ongoing with broadcasters regarding the rebate. For Manchester United, we have estimated this reduction to be around £20 million for the full season of 38 games. At the third quarter, we have provided for a £15 million reduction to our broadcasting revenues, to reflect the impact for the 29 games played to date. In total for the third quarter, we estimate that COVID-19 had a negative impact of roughly $23 million on our revenues, reflecting the broadcast reduction previously mentioned, together with the match postponements and other closures. In response to the financial impact of COVID-19, we have taken actions to closely control costs and review our planned capital expenditures. Turning now to the balance sheet, and specifically to our liquidity, At the end of March, we had a cash balance of $90.3 million. As previously advised, this is down year-on-year due to higher player capital expenditures. In addition to this cash on hand, we also have access to a $150 million revolving credit facility to provide additional working capital support through the impact of the COVID-19 crisis. Our loan notes and term loan are both long-dated, with settlements not due until 2027 and 2029. Now turning to our outlook. In our press release this morning, we announced the withdrawal of our previous full year revenue and adjusted EBITDA guidance ranges. Prior to the impact of COVID-19, we were well on track to meet our full year targets. We have outlined the COVID-19 impact in our third quarter, and the impact on the fourth quarter will also be significant. Whilst we are not providing any explicit forward guidance today, given the level of uncertainty that remains, we do want to provide you with some assumptions for the fourth quarter. For our commercial business, sponsorship revenues for 19-20 are contracted and their recognition in Q4 will be as normal. Retail revenues will be impacted due to the closure of our megastore. Broadcast revenues will be dependent on the timing of matches played in the fourth quarter and finalisation of the rebate. Maxi revenues will be significantly impacted by the closure of Old Trafford to fans. Looking further ahead, given the revised timing for domestic and European competitions, We will not be participating in our typical summer tour activities this year. And finally, we continue to expect committed player capex for the full year to remain at approximately 190 million with amortization costs of 130 million. We look forward to providing you with more information on outlook for the 2021 season on our fourth quarter earnings conference call later in the year. With that, I'll hand back to the operator and we're now ready to take your questions. Operator?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. First question comes from Randy Connick of Jefferies.

Please go ahead. Yeah, thanks a lot and good morning. Cliff, can you just repeat the impact on the revenues for the third quarter? I think you said $23 million. Can you just kind of just go back over that one more time? And then any broader or greater context that you can give us to kind of help frame out what a potential rebate scenario is and what it might look like with the broadcast partners.

Yeah, so it's 23 million we've estimated the impact based on information to date. So, as I said, 15 million of that is our estimate for the impact of the rebate over the 29 games played to date. so we've had to take all of that 15 million in the third quarter but obviously that actually represents the 29 games so as I said the full year impact of that we expect to be 20 million I'll come back to the rebate otherwise of the 23 we also missed an away game at Tottenham so we missed around 4 million of revenue from Premier League for that and then the rest as I said we missed a home game so we have some UEFA League you won't believe, sorry, revenues against LASC as well as just the shutting of the Megastore, Arturo, New Zealand, etc. So that all adds up to broadly 23 million. In terms of the rebate, I think it's important to say that it's the best estimate at this stage based on discussion between the Premier League and broadcasters and that is what we require to record in the accounts. So That is just our current best view at the moment.

Super helpful. And then I guess, Richard, kind of give us some perspective on how you're kind of managing your commercial partners in this time. Should we just expect, look, the contracts stay in place as is? You just think of creative ways to kind of showcase those brand partners? or any things we should be kind of aware of impacting the commercial segment differently with COVID from before COVID that you were thinking.

Yeah, thank you, Randy. I think three points to make. So firstly, you know, we've got fantastic partners in terms of Their behaviour and the quality of their businesses, so the support we've had from them has been phenomenal and we're very appreciative of that. Secondly, the work that we do digitally has meant that our ability to work with the sponsors to engage fans and continue to drive exposure and engagement for those partners has been very, very strong. and we've seen throughout the period ongoing engagement levels on a digital basis are very, very high. Finally, the majority of sponsor rights and benefit drives from the global exposure that comes from screening games rather than the and the in-stadium activities beyond the football, if that makes sense. So behind closed doors, we really, really want fans to be there as soon as it's safe to do so. From a commercial point of view, it continues to generate exposure. So in the near term, those are the three main aspects to focus on. Longer term, I think that whilst it's likely that and we've seen that there have been cuts in marketing spend globally in all times of flux. The club has been very solid and actually the quality work we do means that we are a safe bet and that translated into the results we saw in 2007 and following after that. So I think those are the main points but obviously it's been a very busy time.

Very helpful. Thanks, guys.

Once again, if you have a question, please press star, then 1. The next question comes from Brian Kraft of Deutsche Bank. Please go ahead.

Hi. I wanted to ask you a question. I think a lot of us are trying to wrap our heads around just how – Leagues and teams are getting back on the field. And I want to see if you could walk us through some of the primary operational procedures that you're employing to keep players and other Man U personnel safe during training and that you'll use once the season resumes. And if you could also maybe talk about some of the greatest challenges in this area, whether it's the availability of resources such as test kits or other issues. Thank you.

Hi Brian, I'll take a stab at answering that question. This is all being done centrally, as you would imagine. It's not a Manchester United set of ideas or rules. This is done centrally through the Premier League, together with a lot of advice through the government and other groups. But in terms of Broadly speaking, where we are today, I can't comment on what it may take to get back to contact training or back to playing games because those steps haven't happened yet. The protocol that we approved in the last Premier League meeting, which allowed our players to go back to training yesterday, is very detailed and includes pre-testing and regular testing. It includes... A lot of restrictions around where players can be, a lot of related cleaning protocols, as you can imagine, and obviously firm restrictions about other members of staff around those areas. It also includes social distancing. So players in small groups training on grass, but not interacting with each other in any close contact type way. So at this stage, we're only really at the first step. so our level of confidence about what they're doing from a protection perspective is pretty high and we won't get to the next step or the next stages until they're approved and that won't be, well certainly not be before next week. And then I think you're off final, the second part of the question I think was resource related, I mean you hit the nail on the head, I think the biggest resource question is around testing and I think we as a country we're at a point now where There are a lot of test kits available and obviously we wanted to make sure as an industry that we weren't redirecting test kits that were needed elsewhere from other people and I think everybody feels confident about that.

Let me ask this question. What do you think the frequency of testing is that I'm not qualified to answer that question in terms of what the right frequency of testing is. I'm sure our club doctor would have an answer, but he isn't on this call, unfortunately.

I don't think that that will be a Thank you very much.

This concludes our question and answer session. I would like to turn the conference back over to Ed Woodward for any closing remarks.

Thank you. I just want to say thank you to everybody for joining us today. I'd like to reinforce what I said earlier that Manchester United is a resilient club and a resilient company. We're well positioned both operationally and financially to navigate this global crisis and we very much look forward to returning to play and building upon the strong on-pitch momentum we experienced through to mid-March when we stopped. On behalf of myself and everybody at Manchester United, we thank you for your continued support and hope that you all stay safe. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.