Q3 2020 Earnings Call
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Good day, ladies and gentlemen, 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.
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We would like to remind everyone that this conference call is being recorded.
Ill now turn the call over to Green of Friedman head of Investor Relations for Manchester United.
Thank you operator.
Good morning, everyone and welcome to Manchester, United 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 website. Today's call is being recorded and webcast. A replay will also be available on our site for 30 days thereafter before we begin.
And as a matter of formality he 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 are forward looking statements should be considered along with the cautionary note included with our earnings release as well as additional risk factor discussion in our filings with the FCC.
With us on the call today, and what are our executive Vice Chairman, Richard Arnold our grip managing director Cliff Baty, our Chief financial Officer, and having to sale our head of corporate Finance I will now I'll turn the conference call over to our executive Vice Chairman Edwards for his opening remarks at.
Thank you Kareena and thank you everyone joining us today.
These are unprecedented times and I would like to take a move into the very top of the schools to say that affect you in your families of staying healthy and safe.
On behalf of every one of Manchester United I'd also like to send the club's perhaps impetus although buffering directly from the coated 19 bars.
Today's he might have looked family members as far as those essential in frontline workers you every day Brady de risking function during the normal jobs.
Your old enough food I'm very grateful for your sacrifice some feel service.
Well with a supply with what being carried out in hospital another care settings within our local communities on by charities dealing with economic fallout from the crisis.
We take seriously our responsibility to support these efforts on probably the way every one of my cooking likes. It has responded for myself the PUC yourself 30000 like in the food and drink from club Stokes the local Cherokee.
Well for them turning to Cook 60000 meals for National Health service, So great them on just the hospitals.
[noise]. These are just too among many examples of how up people a 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 another need the right thing to do but they also central to upholding the clubs valued in which our fans around the world identify.
We will continue to work with our foundation to support vulnerable community, who has the functional economic impacts of the pandemic unfold.
Clearly is cool significant disruption disruption to our operations, including the postponement of all my two since mid March and the temporary closure of our retail catering and physical presence is an old Trafford.
While it's too soon to another with any certainty if or when those measures can be pretty relaxed. We're optimistic that it will soon be possible to redeem playing football.
Men. So theme has begun to phase returns training this week with rigorous medical protocols in place to manage risk.
Subject to government and Premier League shareholder approval, including input for medical school from plays we anticipate domestic games could restart again in June.
Furthermore, all indications for me right. So although the culmination to be rightfully could be during August.
The remaining constant dialogue with the Premier League Wi Fi and the you and your wife about the next steps towards returning to play while continuing to kind of held by play itself on the why the public.
We were encouraged by the return and book German, but does league, which is the first major European lead to restart last weekend. Good successful completion of nine matches, who play behind closed doors.
Well known in the federal industry enjoy seeing civil without funds in the stadium. The TV audience is attracted to the German matches demonstrates the strong pent up demand for life football Ultra T. mud pumps.
But is also returned to training in Spain, Italy, Portugal, and several other European countries all with the aim of completing the 1920 season. So there's clear momentum behind definitely get football going came across Europe's major league.
Well you know as we said today as many as 32 European countries are expected to restart their domestically by the end of June.
As in Germany, and elsewhere. It is now inevitable that I'm not too will initially be played behind closed doors when the season busy.
This is a disappointing for us as is for our plan.
We will allow the main thing to complete a little bit competition in the car 1920 season by the end of August thought next season in time to target completion of vaccines and fill in May 2021.
While there are many fuel many uncertainties to resolve we're looking for it was only in the team are tending to pitch seem to defend the strong momentum.
Well they achieved within 11 game unbeaten run in the Premier League right, but are you going to head count them, even before the season was suspended in mid March.
Third quarter results published today.
The partial impact to be a pandemic has had on the club.
Well clearly the greater impact will be in the current quarter unlikely beyond.
Cliff will walk you through some of the assumptions that the dry by scenario planning.
It's still profound challenges ahead considerable there's a whole I mean, it's safe to say it will not be business as usual click on time.
I club is built on solid foundation, we remain one of them I spoke to the teams in the most full of global School I don't have created a strong financial bikes, we buy those revenue streams.
However, the repercussions of the pandemic nabbing felt widely across the football community not just like clubs, but also by players supportive gold crosses sponsors and many other stakeholders.
We have a shared interests and protecting ethical during this period. So it's crucial that we work together in the spirit of solidarity to maximize our chances of coming back strongly as a pandemic recede.
We must recognize that with crisis will not disappear overnight and that the world, which images will be different from high 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.
Well nobody is claiming the football is the most important thing at this time.
I spoke can play a role in helping we're still morale and bringing people back together as the thought because recover.
Indeed, the absence of lifecycle of the unify experiences it creates a billions of people around the world has reminded us a little of how much the sporting swap.
With that in mind, we remain optimistic about the long term prospects for the club.
Correct fighting young team once we have worked our way through what is undoubtedly one of the mice extraordinary and testing period and the hundred 42 year history of about 15 minutes of.
This club is built on resilience in the face of adversity, and both quota to something pretty them once again now.
With that I will hand over to a great managing director Richard on Okay. We'll update you on the key business activity. Thank you.
Thank you Ed.
Given the unusual nature of this quarter and these times all people usually business Coventry rather brief.
Worked it may not be an exact proxy for today's crisis.
Over the course of our Underdone 42 year history. This clubs in June two World was global depression, the credit Crunch and the previous pandemic.
Resilience is a cool part of the clubs the and I, both on and off the pitch.
Having worked at United through the credit Crunch in 2007 Tonight.
I know, there's a 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 Kebede 90.
The related containment measures and had a significant impact on our business.
Internally over 700, <unk> global employees of transition to a remote work environment.
I'd like to take this moment thing called colleagues, who worked throughout this crisis. Both the carried a club food as well as delivering the support to our communities in NHS the Ed referred to.
The GT to entertain he's also a key part of our heritage.
Funding that same period without games.
Responsibility fell to a digital media team.
Through the crisis, we were particularly proud to be able to harness the strong global front engagement in marked with meaningful calls to action by several social campaigns aimed at raising awareness of important public health messages.
Offering support to frontline workers and providing activities with friends staying at home to save lives.
The circumstances of isolation, when we have to drive innovation in content captured generation and publishing.
But we hope will drive benefit for years to come.
With the innovative content.
With the interactive content that we produced over this unusual period.
We were able to stay in touch with Dolphins.
According to industry metrics as of January 2020, the total time spent in the months do not to club <unk> represented over 40% of Copel time spent on the top 14.
Football club out globally.
Well its disengagement does up commercial benefits in terms of E commerce and partner engagement.
I think this time has proven to be galvanizing in terms of the connection of the fun to the team and the club.
Just as Brazil other communities together across the world.
At this point it is also worth recognizing the schools that we have received from our partners throughout this time.
As well as their efforts to eat the crisis.
Without that support we would not to be in a position to act as determined Lee to support the most didn't need in the community.
No question the economic ramifications from this global pandemic, we'll continue to resonate for years to come.
We remain optimistic about the long term outlook for the sponsorship business and our ability to remain a leader within the market.
You've taken advantage of this temporary pools in normal routine.
Korea to creatively attack, our operational approach with disruptive innovations across all of all business lines in particular, the content capture in production referred to earlier.
As well as further enhancing the embedded digital offering commercial partners.
Turning our E commerce integration as well as expanding our CRM.
And in house data capabilities.
Well, if there is still significant uncertainty regarding the duration of this pandemic and ultimately how are you with 90 may impact the economy longer term.
Well, we do not resolve finds of a deep emotional connection with the club whether in Manchester The UK all the rest of the World [noise].
They want can be Paul for the club continued to show the loose the poor weather in the stadium.
Well I broadcast matches, well digital and mobile interactions.
I know I speak for everyone at Manchester, United When I say that we all look forward to the day.
We can welcome them back to old Trafford them football can return to normal.
I'll now turn the call over to our CFO Cliff Baty.
To review our financial results on our outlook in more detail cliff.
Thank you Richard.
Given the current environment I'll briefly summarize the headline figures for the third quarter, we'll find some commentary on the financial impact of covers 90.
But you can refer to our press release, probably early this morning for more detail.
Total revenues as they go through 123.7 million down 28.4 million fifth prior yet.
This was due to the Coke at 19 disruption in fact on broadcast Matchday revenues.
We experienced growth in our commercial revenues driven by sponsorship.
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 yet.
Revenue reduction, partially offset by another player wages as a result in north participation in the Champions League.
Net finance costs for the third quarter with 25.3 million compared to 3.1 million in the prior year.
Moving to so lead you to foreign exchange movements on our U.S. dollar debt and the this is the phone couldn't today, even if at all.
Our cash interest costs remained consistent year on year.
No. The 19 has significant operational impact on the final study to the quarter depreciation was not just at the end of March council, including the home that could be locally grown to 16 best of luck.
Okay. That's good enough you didn't make a school has been closed since mid March.
Given the delay cool playing schedule, we anticipate that the revenues from the print you need for the completion at the 1920 seasonably reduced discussions we remain on going to be broadcasters regarding as either.
I'm not just United is estimated this reduction to be around 20 million for the full season at 58 games.
At the third quarter, we've provided for 15 million adoption to up we're cutting revenues through effective in fact for the 29 games played to date.
In total for the third quarter, we estimate the cobot 19 had a negative impact of roughly 23 million on our revenues, reflecting the broadcast reduction previously mentioned together with a much much postponements and other closures.
In response to the financial impact the cousin Nike, we have taken actions to closely controlled costs.
You are planned capital expenditures.
We haven't had to the balance sheet and specifically to our liquidity.
At the end of March and had a cash balance of 90.3 million.
That's a pretty good bye bye.
This is down year on year due to high a player capital expenditures.
In addition to this cash on hand.
We also have access to 150 million revolving credit facility to provide additional working capital support to be impacted the cokers 19 crisis.
I will note some term loan both long dated the second that's not due until 20 to 27 2029.
Now turning to our outlook in a press release. This morning, we announced the drool over previous full year revenue and adjusted EBITDA guidance ranges.
But the impact because of 19, we were well on track to meet our full year targets.
What about line because you mentioned in fact in alphabetical order and then back on the full quarter will also be significant.
Well, it's real not providing any explicit forward guidance today Didnt 11 of them 70 domains. We do want to provide you with some assumptions for the full pool.
Real commercial business sponsorship revenues were 920, a contracted and then recognition and pool will be as normal.
Retail revenues will be impacted due to the closure the bottleneck is still.
Broadcast revenues will be dependent on the timing of not just played in the fourth quarter and finalization of the rebate.
Let's say revenues will be significantly impacted by the closure of old Trafford to time.
Looking further ahead given to revise time into domestic and you have to competitions, we will not be participating in our typical summer two of activities. This year.
And finally, we continue to expect committed player Capex for the full year remains at approximately 119 billion manifestation costs of 113 media.
We look forward to drive me was more information on that list for the 2021 season on a fourth quarter earnings conference call later in the yet.
With that I'll hand that the operator, I mean, when you take your questions operator.
We will now begin the question and answer session.
Who asked the question in the press Star then one on your telephone keypad.
If you were using speakerphone.
Please pick up your handset before pressing the keys if any time. Your question is going to dress and you would like to withdraw your question. Please press star one too.
At this time, we'll pause momentarily to assemble our roster.
First question comes from Randy Konik of Jefferies. Please go ahead.
Yeah. Thanks, a lot and good morning, Cliff can you just repeat the the impact on the revenues for the 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 our or greater contacts that you can give us to kind of help frame out.
What a potential rebate scenario, what might look like yeah with the with the broadcast partners [noise].
[noise] geared around there can be that [noise].
Yeah, So 23 million, we've estimated at the impact or takes them right. There's debate so.
If it 15 million if that is our estimates are for the impact of the rebate coupled with a 29 games played today. So you have to take all about 50 million in the third quarter, because obviously that that actually represent that between end game. So.
As I said before the impact of that we expect or should be 20 million or I've come back to the rebate.
Otherwise of the 23 deals are missing the weight gain that's taught in them. So we messed around 4 million of revenue and maybe for that and then the rest is just that said we Mr. Hood game. So we'd have to be likely you want to leak story or revenues against LASG as well as just the shifting your for that make it to our two or museum et cetera. So battle that's up.
Well they tend to prudently.
In terms of the rebate I think it's very important to say that.
It's the best estimates at this stage based on discussions between the Premier League and broadcasters are on batteries and that is what we do flights to collect including the accounts. So that you know finalist in Pittsburgh is just that without our current best view at the moment.
Oh Super helpful. And then I guess, Richard can kinda give us some perspective on how you're kind of managing.
From our goal on your partners in this time any you know should we just expect look the contract stay in place I did you just think of creative ways to kind of Ah you know showcase those those brand partners or any anything we should be kind of aware of impacting.
The commercial second segment differently, a with Colgate from you know before <unk> that you were thinking.
Yeah. Thank you Randy I think three points to make so he says lead.
We've got fantastic partners in terms of.
Bad behavior Red and the quality of the businesses. So yeah to support we've had from them has been phenomenal with because very appreciative of that.
Secondly, the work we do digitally has meant that our ability to work with the sponsors to engage fans and continue to.
Dry you exposure and engagement for those partners has been very very strong.
And Ah you know we've seen throughout or the <unk>.
The period ongoing engagement levels on the digital basis, a very very Holly.
Finally, the the majority of Splunk to rights and benefit drives from yeah that global exposure that comes from screening games, rather than you know the.
The in stadium activity beyond the football if that makes sense. So.
You behind closed doors.
<unk> yeah, we.
Really really won't find to be bad when it seems you save to do so.
From a commercial point of view continues to generate exposure so in the near to.
Those are the three main aspects to focus on longer term I think that.
I'm, whilst it's likely that.
And we've seen that that have been cuts in marketing spend globally, you know in all times of block a the club because.
Being very solid and actually yeah. The quality, what we do means that we already see that's not true here translated into the results we saw in 2000.
And seven I'm following after that so I think those are the main point, but.
Let's say, it's been a very busy time.
Very helpful. Thanks, guys.
Once again, if you have your question. Please press Star then one.
Next question comes from Bryan Kraft of Deutsche Bank. Please go ahead.
Hi, I wanted to ask your question here I think a lot of us or trying to wrap our heads around just how leagues and teams are getting back on the field and well see if you could walk us through some of the primary operational procedures that your employing key players. Another man you personnel see during training.
And then your years once the season resumes and if you could also maybe talk about some of the greatest challenges in this area you know whether it's the though the availability of resources, such as test kits or you know or other or other issues. Thank you.
[laughter] Hi, Brian I'll.
All that take a stab at auction that question.
This is all being gun essentially as you would imagine it it's not a Manchester United.
Five days, although this is Dan this is done centrally three the Premier League together with a lot of advice.
Ah three to government or another.
Other groups that intensive broadly speaking, where we are today I can't I can't comment on what what it might take the gap.
To get back to contact training for back to playing games, because they stepped haven't happened yet.
The price cold it we preserved and the loss permitting meeting, which allowed I play it's got back to training yesterday.
It is very detailed and includes pre testing and regular testing. It includes no to restrictions around where players can be a lot of related cleaning protocols. As you can imagine I know the see them distractions about other members and stuff around those areas. It also includes.
Sexual different things I play is in small groups training on on gross.
But not interacting with each other in any any place contact quite wide. So at this stage writing he really at the first step.
So I level of confidence about what they doing from a protection perspective is pretty high.
And we wouldn't get the next step over the next stages until until they're approved and that that wed be well certainly not be before next week.
And then I think you'll find all the second part of question. It was resource related I mean, you hit the nail on the head I think the biggest resorts question is around testing.
And I think way as as a country. We're at a point now where you know they're all you know a lot of test kits available and obviously <unk>, we want it to make sure as an industry that we want redirecting tickets that when needed elsewhere from other people and I think everybody feels confident about that.
Do you have you guys. So yes. This question what do you think the frequency of testing is that that you need to get to in order to go back to play in full contact training and is that you know is that one of the obstacles still to getting back on field and yeah.
I I'm not qualified to answer that question in terms of what the right frequency in testing is I'm sure I club built to would have announced somebody as long as cool. Unfortunately.
On I don't think that will be a a anne shih, they're all greed relatively large number of test kits that are available for our claims and stuff to ensure that the probably the called the Matt and I don't think this will be one of that the issues that but it's coming stuff. So it came back I don't expect it.
<unk>.
Alright, Thank you very much.
Okay.
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 suddenly I just when it's I think he everybody for joining us today I'd like to reinforce what I suddenly that mindset nightmares resilient.
I've been a resilient company, we're well positioned phase operationally and financially to navigate this global crisis, and we very much look forward to returning to play and building upon the strong on pinch medicine, we experienced three to to mid March from we stopped.
On behalf of myself and everybody at Manchester United We Thank you for your continued support and hype that you will stay safe. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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