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 at this conference that this conference call is being recorded. I will now turn the call over to Karina Friedman, Head of Investor Relations for Manchester United.

Thank you, Kate. Hello, everyone, and welcome to Manchester United's second quarter fiscal 2022 earnings call. A press release containing our financial results was issued earlier today and can be accessed on our Investor Relations website. This call is being recorded and webcast, and a replay of this call will be available on our website for 30 days. 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 the disclosures included with our earnings release, as well as additional risk factor discussions contained in our filings with the SEC. Members of our executive leadership team Participating on the call today include Richard Arnold, our newly appointed chief executive officer, John Murtaugh, our football director, Colette Roche, our COO, Victoria Timpson, our CEO of Alliances and Partnerships, Phil Lynch, our CEO of Digital Products and Experiences, Cliff Beatty, our CFO, and Hemant Asayo, our chief strategy officer. I will now turn the conference call over to Richard for his opening remarks. Richard?

Thank you, and welcome to everyone joining. It's great to be with you today, and I'm honored to be joining this call in my new role as CEO. Before we begin today, I want to start by acknowledging the events that are happening in Ukraine. Our thoughts and prayers go out to all those impacted by events there, and we echo the desire for peace displayed by our manager and players prior to the game at the weekend. You'll have noticed that we have added a few new speakers to our normal lineup. Earlier this month, we introduced a new leadership structure. And shortly, you'll hear directly from some of the members of our executive leadership team. Alongside myself, this group of expert, empowered leaders is tasked with helping to evolve the club with a shared mission to support our football teams in delivering the titles and trophies that we know Manchester United should be competing for. This mission is our central objective as a football club, and we're focused on building a winning culture to achieve it. You'll be hearing more from our football director, John Murtagh, in a few moments about these efforts. But I want to stress that everyone at the club is aligned on a clear strategy to deliver sustained success on the pitch and a sustainable model of it. This will include strengthening the role of fans at the heart of the club, and I'll share more details on the progress that we've made in that area over the last six months shortly. It will also include fostering a culture to promote a positive impact on the environment and society alongside the greater football industry. For particular relevance to our audience today, we also expect to continue to deliver a sustainable economic model that enables our on-pitch success. Crucial to economic sustainability at our club and for all clubs in the football pyramid is verifiable and independent third-party partner revenue streams that reflect fair market values for commercial transactions. We support the Premier League's recently adopted new associated party transaction rules in which all sponsorship deals worth more than a million pounds will now be vetted by the league to determine if these associated party revenues adequately reflect current market conditions. Sustainability of the football pyramid has also been driven by significant global demand for broadcast matches and live football content. And it's been a banner year for football rights negotiations, with records set for both UEFA and the Premier League. For the Premier League, we note that revenues received for international rights are expected to increase approximately 30% overall versus the prior year. This will be the first cycle in which the international rights revenues will surpass UK domestic rights revenues. Also critical to sustainability of the pyramid is any club's relationship with its fans. In advance of the numerous recommendations resulting from Tracy Crouch's independent fan-led review of football governance, we established a new fans advisory board. in addition to the expanded fans forum quarterly meetings already held. We also recently announced a new role of head of fan engagement, an important appointment to drive a new area of fan and club relations. This club is a Manchester institution with truly global appeal, and digital innovation is key to that. Taking the club into a new era of digital engagement is a fundamental opportunity and a strategic imperative. Earlier this month, we announced a new and exciting partnership with Tezos, and we'll be further exploring the development of new products, services, and virtual experiences, including blockchain-enabled fan offerings, with the objective of enhancing engagement for the next generation. I'll now hand the call over first to John Murtagh, our football director, who will provide an update on our football activities. John.

Thank you, Richard. I'm pleased to be addressing this audience for the first time to provide you all with a brief football update. Given our quarterly focus today, I'd like to start with a quick summary of results and relevant standings during the three months of October, November, December. In the UEFA Champions League, we won two and drew two of our group stage games in the three-month period, finishing top of our group. We subsequently drew with Atletico Madrid in the round of 16, the first leg of which took place last Wednesday when we drew 1-1 in Spain to set up an exciting second leg at Old Trafford to be held on March the 15th. In the Premier League, we saw a quick return to improve results and consistency under interim manager Ralph Radnick. Following a run in October and early November, that had seen a departure on Igoula Solskjaer as manager. We know that continuing that consistency is key, as we strive for a top four finish this season. I want to reiterate, however, that this is not the ultimate objective of Manchester United, and everyone at the club is focused on challenging for top trophies. We are now conducting a thorough process for the appointment of a new permanent manager who will take charge this summer. with the objective to get us back to challenging for those domestic and European titles. Our women's team is enjoying a strong campaign in the Women's Super League under their manager Mark Skinner, consolidating our position amongst the leading forces in the women's game after less than three seasons in the top division. We look forward to a historic moment in March as the team makes their Old Trafford debut in front of fans against Everton on March 27th. We are in the process of recruiting a head of women's football, emphasising our commitment to women's team operations and the women's game as a whole. Our men's academy also remains a key focus for us as we are pleased to see the under-18s reach the semi-finals of the FA Youth Cup last week and tonight that team will be playing in the round of 16 in the Europa Youth League, reflecting the strength of talent we continue to see through our youth system. Another point of note is the appointment of a director of data science during the quarter to bring together and drive forward the club's use of data to help players and staff deliver success on the pitch. Overall, whilst there is potential for further improvement and progress, we do feel that we now have the right structures in place across our men's, women's and academy team to support long-term success and we will continue working relentlessly and investing to achieve that. I will now hand over to Colette Roach, our Chief Operating Officer, who will provide a brief update on club operations. Colette.

Thank you, John. I'd like to set out a few highlights from the club operations during the quarter, as well as some of our more recent developments. Our operations continued on a trajectory towards normality in the second quarter, as the COVID measures were reduced and Old Trafford continued with full capacity crowds for the entire quarter. The megastore experienced more normalised footfall and our VIP and hospitality operations returned to pre-pandemic levels, despite the ongoing challenges of international travel. Though this was an encouraging start to the quarter, December was impacted by the surge in the Omicron variant, which resulted in widespread infections across the UK and ultimately the postponement of two of our Premier League matches that month. This surge has since passed, leading the UK to relax its COVID restrictions since late January, and Premier League protocols are also due to be gradually eased over the remainder of the season. The loyalty of our fans is something we never take for granted. Given significant pent-up demand and strong enthusiasm for the team, fuelled by new signings, we experienced a very brisk sellout of our 2021-22 season tickets this year. Executive club suites and boxes sold at high pace, and our membership program is also experiencing another record year, with our highest ever signups recorded in January, surpassing 250,000 global members, which we believe ranks amongst the highest of any sporting organization in the world. Season ticket sales for the 2022-23 season just launched and we are pleased to be able to provide our loyal fans with another season of frozen general admission ticket prices for the 11th consecutive year. Given the strong membership demand and over 120,000 people on our waiting list for season tickets, we are very optimistic for another year of swift sellout. Building on a number of projects completed in the first quarter, such as the transition to mobile ticketing and full utilisation of the extensive upgrade in our accessibility facilities, during the second quarter we finalised the installation of 550 barrier seats in the away section, adding to the 1,500 barrier seats already available to home fans. This supports our efforts to enhance safety, choice and atmosphere for fans attending Old Trafford. We also recently signed a partnership agreement to upgrade the stadium Wi-Fi network, which we anticipate will be rolled out early next season and will bring significant improvements in connectivity for our fans. Looking ahead, we're in the final stages of planning for our pre-season summer tour and we expect to confirm destinations and opponents soon. We're also excited this summer to host the UEFA Women's Euro 2022 opening match at Old Trafford in July. I'll now hand the call over to Victoria Simpson for an overview of partnerships.

Thank you, Colette. Hello, everyone. It is wonderful to be joining you today, and I'm delighted to present a brief update on our sponsorship operations. As you know, sponsorships are a key element of driving the revenue that supports our overall objective of football success, and it's been an exciting and busy six months for our sponsorship sales team. We have launched a number of new category partnerships within the technology sector, notably with TeamViewer in remote access and support software, and Extreme Networks in the Wi-Fi network solutions sector. We've also entered the blockchain vertical, with our newly announced training kit partner Tezos, one of the world's most advanced yet energy-efficient blockchains. This demonstrates our strength in the fast-growing sector as a result of our strategic focus on digital innovation. It also acts as an accelerator and an enabler for our direct-to-fan offerings. Earlier this year, we also announced sponsorship partners in a new environmental services sector with both REG and Ecolab, reflective of our ongoing focus on environmental social and governance initiatives. Turning to renewals, year to date, we have renewed five global partnerships this fiscal year, including Marriott and Remington. As we continue to successfully deliver significant value to our partners, COVID notwithstanding, As a team, we're particularly proud to have won the Brand Activation of the Year Award for our Cadbury partnership at the Football Business Awards. We've also been hard at work with very strong activations this season, namely with our principal share partner, TeamViewer. Having completed a second full quarter of this partnership, we continue to set records, from kit sales to global media impressions to digital interaction. Our partnership with TeamViewer is firing on all cylinders, having generated over 11.7 billion global impressions of the TeamViewer logo year-to-date. In addition, we have already completed 10 integrated use cases across the club that illustrate both the strength and technological relevancy of this partnership. Looking forward to the balance of the year and beyond, we are optimistic for continued robust sponsorship interest, demonstrating the enduring appeal of LiveSports and the global passion for Manchester United. I'll now hand the call over to Phil Lynch for an overview of our digital media, e-commerce, and retail businesses.

Thanks, Victoria. As Richard highlighted in his opening, being at the forefront of digital technology is pivotal in providing our club's massive and loyal fan base across the globe with direct access to the team they love. From our 200 million plus social media followers to our owned and operated media and content platforms, including our industry-leading club app, our fans enjoy a full 360-degree digital experience fueled by content creation. Enhancing and evolving our digital capabilities and engagement represents a massive opportunity for us and our fans. It also enables us to better provide fans with features, experiences, and products that express their passion for the club. During the quarter, that passion was evident as a combination of exciting player signings, new partnerships, and the return of fans to Old Trafford drove strong foot traffic to the megastore and contributed to record sales of new kits, while compelling digital content drove record engagement and strong e-commerce results. United Direct, our online store, had its biggest ever festive period with website traffic up 72%. E-commerce sales in the first half of the fiscal year surpassed the full year revenue for fiscal 2021 and is double the revenue generated in the first half of last year. This is due to the work our retail, digital marketing, CRM, and content teams are accomplishing and due to the investment in technologies, which we will continue to enhance our e-commerce operations in the future. Through social media, we continue to engage our fans around the world, and we have achieved our biggest three months for interactions in the first half of this fiscal year, generating over 1 billion digital interactions, a 181% increase relative to the prior year period, designating Manchester United as the number one club or sports team on social media worldwide. We will continue to expand our outreach to new platforms to get our fans around the world much closer to the club. On our owned and operating platforms, we continue to evolve our industry-leading mobile apps. The latest iteration, launched in beta this month, features significant enhancements that enable us to deliver the content and interactivity that our fans want, including, most notably, the integration of MUTV within the app. This will allow fans to seamlessly experience the best of our club content, including every United match of the Premier League era with a single destination. During the second quarter, our app experienced a 32% increase in average daily active users used by fans versus the prior fiscal year. Looking at our long-term digital strategy, we continue to make progress towards generating more value from our IP as we pursue fresh and innovative ways to engage with our fans. Earlier, we spoke about our new multi-year partnership with Tezos, and we are exploring a range of blockchain-enabled fan offerings, including loyalty programs and ticketing options, among other products. Arteza's partnership will ensure Manchester United stays at the forefront of digital innovation, driven by Web 3.0, and I look forward to updating you more on this partnership in the coming months. I'll now hand the call over to Cliff Beatty, who will review our financial results in more detail.

Thank you, Phil. I'll now talk you through our financial results for the second quarter ending the 31st of December. For the second quarter, year-on-year comparisons have been impacted by the number of games played. This year, we played eight home and eight away matches across all competitions relative to 10 home and 10 away matches played in 2Q last year. As Colette highlighted, two matches, one home and one away, were postponed due to COVID outbreaks in December, resulting in associated revenues deferred to third quarter. Results did benefit from the return of fans to Old Trafford, with matches last year were played entirely behind closed doors. Total revenues for the period were $185.4 million. This was $12.6 million higher than the prior year, owing to the impact of the return of funds and strong merchandise sales. Turning to the key items in the results, total commercial revenues were $64.4 million, with sponsorship revenues of $35.2 million, $2.6 million lower than the prior year quarter due to the absence of a training kit partner in the first half of the year, partially offset by global deals. Merchandising and licensing revenues were $29.2 million, 4.4 million higher, reflecting strong growth in e-commerce royalties and the reopening of the megastore. Broadcasting revenues were 84.6 million, a decrease of 22.3 million due to four fewer matches played relative to the prior year quarter across all competitions. In particular, this quarter we played only four Champions League games compared to six last year due to the pandemic altered timing. Matchday revenues were 34.6 million for the quarter, an increase of $33.1 million due to all eight games played in front of capacity crowds. Moving down the income statement, operating expenses, excluding depreciation and amortization, increased by $41.1 million. This includes total wages, which were up 19.6%, primarily due to investment in the playing sport. Other operating expenses increased by $9 million, reflecting the normalization of match day and megastore operations. EBITDA was $57.9 million, down $12.4 million from the prior year quarter. Appreciation costs were $3.6 million, consistent with the prior year, whilst amortization costs were $38.6 million, an increase of $6.1 million due to investments in the squad last summer. Exceptional items were $10 million, which includes compensation to Ole Gunnar Solskjaer and members of his coaching team, as well as the revaluation of the Football League pension scheme deficit. Net finance costs for the quarter were $7.5 million, relative to $19.7 million income last year. These changes were driven by foreign exchange movements on the unhedged portion of our U.S. debt. As we have mentioned in previous quarters, our cash interest costs in U.S. dollars remain broadly consistent year on year. Turning now to our balance sheet, at the end of December, net debt was $494.8 million, an increase of $39.3 million. reflecting the COVID impacts over the past year, including loss of match day revenues last season, together with the absence of a summer tour. To manage this, we've drawn 100 million of our available 200 million credit lines and have 87.4 million of cash on the balance sheet at the 31st of December. Now, turning to our outlook for the remainder of the year, whilst the UK government has eased COVID-related restrictions and the Premier League has also relaxed some restrictions, the potential for future COVID-related disruption remains, and as a result, we will not be providing any forward revenue or EBITDA guidance for the balance of the current fiscal year today. Looking forward to the next fiscal year, as Richard has mentioned, the Premier League is nearing completion of negotiations for the upcoming cycle, which we anticipate will result in an approximate 16% overall increase in gross Premier League revenues, driven by a near 30% overall growth in international broadcast rights versus revenues earned in the current cycle. And finally, our current Our currently committed player capex net cash outflows for the fiscal year 22 is expected to be approximately $80 million, with amortization of $150 million. As always, we thank you for your continued interest in Manchester United. And with that, I will turn the call back over to our operator. And Richard, Hemant, and myself are ready to take your questions. Thank you.

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 speaker phone, 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 two. The first question is from Randy Koenig of Jefferies. Please go ahead.

Hey, thanks. Hi, Richard. I really appreciate you having additional speakers on the call and talking through the enhanced leadership structure. So I really want to just get your perspective on you know, with this change structure, enhanced structure, if you will, you know, how do you think about, you know, running the business a little bit differently to continue to enhance the business side of the company, but also, you know, continue to focus on enhancing that fan engagement and dialogue, which seems very important to you going forward. So just want to get your perspectives there.

Yeah, so thanks, Randy. In terms of that overall leadership team, I think the key area there, as I said in the opening quote, is about the empowerment of the leaders with the relevant skills to really drive the business and the club forward on all fronts. And that starts with John Mercer and Darren Fletcher really driving forward the football activities, and that's supported by the business activities that we alluded to. I think the key word in terms of driving forward for the future is digitization. You heard about digitizing the stadium with the implementation of Wi-Fi. You heard about the work that we're doing in implementing new partnerships, all of which are centered on the digital environment, and particularly the new partnership with Tezos. And then you heard about the work that Phil and his team are doing, not only engaging with fans, whether that's in the stadium, whether that's in the UK or across the globe, engaging with them as much as possible, as deeply as possible, but then as importantly, providing new and exciting things to interact with the club on. And I think that's the core strategy for the club, alongside the work that it's doing, both engaging in communities, driving forward. And when I say communities, I don't just mean fans or the people of Manchester, but good causes across the world and also the broader football pyramid participating strongly there. So all in all, that's the overall strategy. Super helpful.

I guess my last question is, as we think about the commercial segment, I just want to get some perspective on, you know, you announced some extreme networks deal, some renewals in the quarter. I just want to get a sense from you or from the team of just how far back to normal are we in terms of the sales teams, in terms of their activity, activation, and maybe get that perspective across the different geographies, whether it's in Europe, the United States, or China, just trying to get a sense of how far away from normal are we in current activity around the commercial segment. Thanks, guys.

Yeah, so in terms of the commercial segment, I think what you've seen is the need to pivot fairly rapidly during the COVID pandemic. So what you saw was that the sales teams moved to continuing to engage with new prospects right the way through, and that's resulted in the deals that you've seen announced in terms of the new partners. That was built on... our ability to continue activating with partners, even when games weren't actually happening with some fairly extensive digital activations. And that's been pivotal in keeping the wheels turning, you know, people always associated Manchester United, the club with resilience. And I was incredibly proud of the work that the club, the staff and the foundation did in keeping things going. And I think that's been reflected, not just in, the partners we've brought in who recognize that, but also the partners that have renewed. Great. Thanks, guys. Very helpful.

The next question is from Zion Zhu of BNP Paribas. Please go ahead.

Hi, guys. It's Zion. Thanks for taking the question. Maybe one on the broadcasting rights. You know, as you mentioned, international rights are up a lot. I think I saw in the U.S. it was something like a $2 billion deal. And I noticed that they already switched the channels. So is that coming into play immediately, and then the domestic maybe for the next season? How do we think about the timing? And then how do you think about the mix of international versus domestic broadcasting rights, and where does that go over time? Thanks.

Pleasure. I'll take the second part of that question first, because the first question was specifically the U.S. We'll hand that over to Hammond. It's Cliff here. In terms of where everything was going, well, obviously we've seen – flat in terms of domestic and a sort of 30% jump this time around international. And I think significantly, as we've mentioned, international is now above domestic. So by definition, and I think everyone's convinced in this, is that international has a greater sort of runway, and we'd expect to see those international revenues increase. The Premier League is de facto becoming the World League, the relevant share of the Premier League broadcasting revenues connected to it compared to the other five big leagues in Europe is very large and is only getting bigger. So we'd expect those international revenues to continue to grow. Edmund?

Yeah, and just to kind of build on that a little, actually in the U.S. we've stayed with the same provider, so it's still NBC. There might be, in fact, Peacock were still having some of those games behind their paywall in the last cycle, and that will continue in the next one. The reach, however, should be better with ensuring that we've got enough of the games on the main cable channel together with matches on the Spanish-speaking channel, which is excellent from the league's perspective. And as Cliff said, actually, this being the first time that international gets larger than, point and pivoting point for us and for years, just to remind everyone, you know, the international rights were split equally across all 20 teams. But, you know, since the last cycle, the revenue distribution of that has changed to have a merit element in it. So teams further up should have a little bit more of that international forecast rights revenue.

Okay, thanks. Yeah, no, I know it's NBC, but I think it's switched from sports to USA. Anyway, And then from Ukraine, Russia, any kind of other disruptions we should be aware of? I know you dropped, I think, a Russian sponsor, just trying to see if there's any other, yeah, anything else we should be aware of on that front.

Yeah, so we issued a release this week that confirmed the position with regard to suspension of rights for one partner. And beyond that, there's no other effects that at this stage exist. that we would want to flag beyond that.

Okay, helpful. Thanks, guys.

Again, if you have a question, please press star then one. The next question is from Conor Murphy of Deutsche Bank. Please go ahead.

Hey, good morning. So, some of the digital side, can you talk about your conversations with advertisers and how you might increase monetization in that channel?

Yeah, so thanks for the question, Connor. I think in respect of the strategy with regard to digital engagement, there are a number of aspects to focus on. And I think starting with the newest and most exciting. So obviously the impact that blockchain is having in terms of what's possible, given what the technology brings in terms of proofs, is opening up incredible, exciting new opportunities for all rights holders and us in particular. That's something that we've just started with the partnership that we've entered into, but there continues to be huge amounts of opportunity there. Beyond that, I think the sort of advent of micropayments and some of the engagement activities that can come off the back of that, whether that's in gaming, gambling, or media and membership activities, again, are areas that we have not yet engaged in significantly. And then finally with regard to e-commerce, and that's been an area of our business that's grown explosively. The underlying revenues have been increasing exponentially over the last three years. And because of the way we report that, which is we only show the royalties we receive from the partner, what you're seeing is that that will now kick in in terms of being an impact on our earnings. But the underlying revenues that that's generating are growing very rapidly. And those items in total represent what we believe is a very big opportunity, and that's being reflected in other businesses in terms of the valuations they're seeing and the growth rates they're seeing. And we think we're extremely well positioned to participate in that.

Great, thanks. And just, you know, can you give us any sense, you know, where Megastore, you know, what traffic is compared to pre-pandemic levels?

Yeah, so I think what you're seeing is the stadium continues to be fully sold out. You know, record waiting lists for each of season tickets and then a record level, not just for the club, but for any sports club worldwide, we believe, in terms of number of paying members. So the attendance at the stadium has been very significant. What we have seen, obviously, whilst the stadium has been open and indeed full, International travel has been extremely difficult as the world worked its way through the tail end of the pandemic. And so what you've seen is a reduction in the number of international visitors. So whilst the revenues in the megastore have continued to be strong, you've seen slightly reduced international footfall compensated for by domestic and growing average basket in terms of the purchases.

Great, thank you.

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