Q4 2021 Manchester United PLC Earnings Call
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Good day, ladies and gentlemen, and thank you for standing by welcome to the Manchester United Fourth quarter 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 one.
If anyone has difficulty hearing the call.
Please press star zero 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 Corrina Freedman head of Investor Relations for Manchester United.
Thank you Alison Hello, everyone and welcome to Manchester United's fourth quarter fiscal 2021 earnings call a press release containing our financial results was issued earlier this morning and can be accessed on our Investor Relations website.
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 disclosure included with our earnings release as well as additional risk factor discussions contained in our filings with the SEC.
With us today on our call. This morning, or this afternoon, if you're in the U K is Ed Woodward, our executive Vice Chairman, Richard Arnold Our group managing director Cliff Baty, our Chief Financial Officer, and having to say Oh, our director of corporate development I will now turn the conference call over to our executive Vice Chairman for opening remarks Ed.
Thank you Karina and welcome everyone and thank you for joining us today.
As we review our financial results for the 2021 fiscal year, there's little doubt that.
12 months are among the most challenging in the history of Manchester United.
Financial impact from the pandemic as visible I continued underlying strength is also great to see and everyone associated with the club can be proud of the resilience that we've shine through these most testing of times.
Sent during the depths of the pandemic the club would emerge in a stronger relative position.
And I believe that we are now seeing that borne out as we build towards recovery from a very solid foundation.
The most important part of this recovery is of course, the return of funds to old Trafford, and it's been a fantastic to see and hear the stadium. So for the first time in almost 18 months the amazing atmosphere Genotyping I'm games of the season. It demonstrates the trends are the lifeblood of the game and we spoke glad to have them back.
Most of it likes to say that we expect to see continue to see full capacity crowds at old Trafford, Vice Premier League in Champions League games. This season.
On the pitch. The team has made a strong start in the league and everyone. At the club is feeling excited about the rest of the campaign.
We significantly strengthened the squad over the summer. The addition of her nowadays around San Antonio and Houston.
Signings of demonstrated our continued ability to attract some of the world's best football is called traffic and our firm commitment to helping Ali deliver success on the pitch. Furthermore, we recently sold Dan James to lease for 25 million pounds plus add ons.
We've been clear on our strategy to build a squad with a blend of top class recruit and homegrown talent comprising the balance abused and experience.
The aim of winning trophies, playing Texas simple the Manchester United way.
As part of this we've continued to strengthen our recruitment and scouting processes and we've also increased our investment in the Academy.
To ensure that this success is sustainable.
Squirt building is a constant process, we're more confident than ever that we're on the right track.
Same is true of our women's team.
She made close to start the season under our new head coach MX scanner, and we're firmly committed to continuing to build our presence in the women's game.
Our optimism about unfilled prospects goes hand in hand, with the confidence in our robust operational business model to enable continued investment in our football teams and facilities. It's not an accident that we had been able to invest the summer at a time when many clubs have been retrenching.
This reflects a strong commercial model, we built over many many years ensuring that our spending is always underpinned by revenue used to be generates ourselves.
However, while we are confident in our relative strength it remains clear our football as a whole faces major financial challenges caused by years of material inflation in wages and transfer fees exacerbated by the impact of the pandemic we.
We are committed to working with the Premier League.
CA and UEFA to promote greater financial sustainability at all levels of the game.
Global demand for life simple is as strong as ever as evidenced by the robust levels of recent domestic and international broadcasting rights deals and record engagement with our own club content.
We remain optimistic regarding the remaining upcoming international rights renewals nicely in North America. This autumn.
Given increased interest in live sports rights, you cheap providers, coupled with the growing appeal of the school.
There is significant potential for further growth as the world Digitizes Manchester.
We will continue to be.
About expansion.
But no club can succeed on its own we want to be part of a healthy vibrant domestic and European football pyramid, working together without governing bodies and most importantly, the fans to preserve and enhance the magic about guidance.
Club, we are committed to those objectives, and we look forward to pursuing them in the months and years ahead.
I'll now hand, you over to Richard for an update on our commercial activities.
Yes.
Thank you Ed and thank you to everyone for joining us this morning.
The fourth quarter marked the beginning of the return to normality in club operations.
<unk>, you took an incremental steps towards reopening and began to tentatively emerge from the global pandemic.
As Ed highlighted it's a tradition of the club's ability to adapt and overcome extraordinary circumstances.
This is a result of the sustainability of our operating model combined with the enduring appeal of Manchester United.
Our club stood for resilience and excellence for nearly a century and all.
So a full reopening of the U K with ultimately delayed a few weeks into July.
Store operations regime with the April 12th opening of Nondefense, who shops across the country and old Trafford welcomed back 10000 supporters for our lifetime match of the season or may the 18th against Fulham.
Our Cafe Museum it also resumed operations during the quarter.
Following increased crowd for preseason fixtures and a full old Trafford for our opening two home guidance.
Our current assumption that we will continue to welcome full capacity crowds for the balance of the garden season.
However, we note that this remains subject to public health circumstances and associated regulation in the U K.
As the pandemic evolves.
Nevertheless, we're encouraged by the success of multiple largest scale sporting events held this summer in the U K, including the opening four rounds of Premier League matches. This season.
Did that end beginning seven months of June and anticipation of a full return of funds. We commenced the sale of season tickets for the 'twenty one 'twenty two season.
We experienced a very brisk sell out once again this year.
Executive club suites in boxes have also sold out and our membership program generally a good leading indicator of ticket demand both in the U K and internationally is experiencing another year of record sign ups.
It's also important to note that the strong demand was in place before the start of the season.
Okay for all staff has been a priority for us through the pandemic.
As has been documented we made the decision not to furlough staff and to pay goodwill payments to casual Matchday staff.
He would have been impacted by games being played without fans.
As much day operations normalize. We believe this has helped to ensure that we have maintained how much they staffing levels.
We've also recently committed to paying all club employees, including our casual stuff above the U K real living wage with the change effective beginning this season.
The health and.
Safety of our staff and support will remain Paramount for us.
And while our protocols have altered in coordination with government guidelines, we will remain diligent.
We expect to continue to refine all my state approach calls for more contactless fan experience building on our recently launched mobile ticketing capabilities in car Park automation amongst other initiatives.
Behind the scenes, we will continue to maintain appropriate COVID-19 protocols to ensure that all players in support staff remain protected.
As our Matchday operations normalize post pandemic sponsorship activity also continues to ramp up contributing directly to our ability to invest on the pitch.
During the quarter, we announced our new principal show that partner team in mid March and we officially launched the partnership on July 1st.
And just the first six weeks about partnership we've surpassed all recent partner launch impressions globally.
And whilst I will touch on a few highlights from our new kit launch in a few moments I'd like to take this opportunity to thank our sponsorship team.
Completing this sponsorship partnership during the pandemic.
No small feat given the macro challenges and headwinds.
And it is a significant testament to the strength and power, but with a global support global sport and the global appeal of Manchester United.
For the full fiscal year, we renewed three global partnerships as we continued to deliver significant value to our partners. Despite the absence of physical events.
In the fourth quarter, we took steps towards the resumption of typical partner Activations hosting our first physical partner events since the onset of the pandemic. This was a hybrid I love United event in China, with both physical and virtual Activations for partners and friends.
We expect to continue to offer hybrid events, including digital components to our partners post pandemic given that success and appeal.
This particular event was coordinated with the official public Grand opening of our theatres of dreams at Detainment Center in Beijing in May to.
To date feedback from the opening has been very positive.
<unk> partnership is expected to deepen our engagement with fans in China by offering out supported in China, and Interactive Museum restaurant retail and other entertainment.
We expect additional locations to open in China in Shenyang, and Changsha, followed by Shanghai later in fiscal 'twenty two.
Turning now to our digital media operations given the absence of Matchday supported three may we continue to prioritize online initiatives to drive engagement as part of our ongoing club wide digital transformation.
The rate of acceleration is increased and we've continued to invest.
And our platforms and technology, where we both have further strengthened our team and digital marketing.
And added additional resources to our CRM and data analytics.
Through social media, we continue to broaden our ability to interact and communicate with our fans around the world.
At clubs presence in several new and growing social media platforms. This quarter, we ended with 175 million social connections.
158, global digital interactions up 38% on the prior year.
On our own platforms, we continue to attrite mobile app.
With enhancements and new feature is driving a 31% year on year increase in daily active use.
We also recently launched a new functionality to screen of club podcast.
Within Iraq.
This broadcast has become the number one official football club podcast on Apple.
Once again this quarter, we know that our improved engagement trends drove strong fan traffic to our e-commerce channels.
Commerce sales for the full year surpassed the prior season with increases in both unique visitors and average order value.
In fiscal year 2021.
2021 kit launches set multiple E Commerce records.
With all three of our previous year's kit setting those sales records.
With the Rollouts about new 'twenty, one 'twenty two home kit featuring the new share partner team view. This season, we surpassed the prior record levels once again.
Overall, we are confident that the learnings and enhanced capability that we developed this year to better provide all supported with content and access throughout the pandemic will continue to help fans around the world to continue to feel more connected than ever to that club.
If I may I'd like to take a few moments to highlight some of the extraordinary work undertaken by our foundation this fiscal year.
Whilst we are proud of our global identity, we remain firmly rooted in our local community.
We've spoken in the past about local national and international efforts.
Helping to address these issues the issues exacerbated by the pandemic.
We'll continue to use our platforms to make real life impacts.
We will also use our platform to campaign globally, an important causes and issues such as racism.
During the quarter the club in coordination with oil primarily clubs participated in a week long worldwide social media boycott to highlight the discrimination that continues to persist in global football.
As part of our Ole Red or equal initiative, we also launched the C Red campaign.
Which calls on <unk> to celebrate the ethnic diversity of our players and their contribution to our rich history.
And importantly, providing fans with a mechanism to more easily easily report discriminate three behavior online.
As a club we remain steadfast in our dedication to help eradicate this toxicity from our sport.
With that I'll now turn the call over to our CFO Cliff Baty to review details of our fourth quarter results and to discuss our financial outlook for the upcoming fiscal year Cliff.
Thank you Richard.
I'll now talk you through our fiscal results, which remain impacted by the COVID-19, pandemic and I'll speak to our current expectations for the upcoming fiscal year.
As Richard indicated, though we are hopeful given current guidelines in the U K, we cannot be certain that our revenues will not be impacted by further COVID-19 related disruption and as a result.
Providing any forward revenue or EBITDA guidance for the upcoming fiscal year.
Turning now to the full year results I would like to remind you that year on year comparisons have been impacted both by the absence of funds as well as the completion of the 1920 season in this fiscal year.
Total revenue for the period of $495.0 million. This was $23.0 million lower than the prior year, owing to the impact of the pandemic, including a full season played behind closed doors.
Adjusted EBITDA was $96.0 million down $37 million and higher <unk>.
<unk> reduced revenues and increased wages from champions League related uplifts.
Turning to the key items in the results total commercial revenues with $234.0 million.
Ship revenues of $142.0 million.
$47.0 million lower than the prior year due to the impact of no summer tour and Covid related contract variations.
Merchandising and licensing revenues with 92 million down $7.0 million, reflecting the closure of the megastore for the majority of the year.
Partially offset by strong growth strong growth in e-commerce.
Broadcasting revenues for the year was $262.0 million, an increase of $120.0 million due to participation in the UEFA Champions League and subsequent progression to the Europa League final.
With the carryover of tenancies in 19, 2000 fixtures into July and August of 2020.
Matchday revenues of $8.0 million.
10 of $89.0 million.
All matches prior to the final hold much of the 2021 season being played behind closed doors.
The massive revenue is recognized this year relate mostly to membership fees.
Hillary property income.
Moving down the income statement operating expenses, excluding depreciation and amortization increased by $23.0 million.
This includes total wages, which were up 13, 6% primarily due to higher contracted player wages for participation in the Champions League.
The Europa League the prior year.
The waitress pickup also includes COVID-19 related goodwill payments made to staff throughout the year.
Other operating expenses reduced by $65 million, primarily reflecting the reduction in costs from playing behind closed doors.
With a disciplined approach to any discretionary costs.
Depreciation and amortization costs were $143.0 million for fiscal 2021, a reduction of $14.0 million.
Net finance income for the year was $21.0 million credit a favorable movement to $47.0 million due to foreign exchange benefits on the unhedged portion of our U S dollar debt.
I would like to highlight our tax charge for the year of 60 to 60.
$70.0 million, which reflects the noncash write off of deferred tax assets and has created an unusually large loss of $94.0 million for the year.
Noncash accounting write off is caused by the U K corporate tax rate increasing to 25% from April 23, which is above the prevailing U S Corporation tax rate of 21%.
This means for accounting purposes, we will now need to write off our U S deferred tax assets as they will not have any economic value given that the U K rate is higher than the U S right.
Please note that any future increase in the U S tax rate to above the U K tax rate could see a full or partial reversal of this accounting noncash write off.
Turning now to the balance sheet at the end of June cash balances were 100.
$17.0 million up $61.0 million compared to the prior year.
This increase in cash reflects the drawdown of $60 million of our revolving credit facility and <unk> of this year.
Our yearend cash balance does not reflect around 50% of seasonal ticket revenues for FY 'twenty two that were collected in July.
Player Capex for FY, 'twenty, one was $94.0 million for the period.
Net debt was $424.0 million a decrease of $60.0 million compared to the prior year due to the higher cash balances combined with the impact of the favorable foreign exchange movements on our U S dollar denominated debt.
In terms of cash liquidity, we have access to $140 million of Undrawn committed facilities.
Now turning to our outlook for fiscal year 'twenty, two we're not providing any revenue or adjusted EBITDA guidance, given the uncertainties of COVID-19.
However, we are hopeful based on the success of the initial two home matches. This season with full crowds that matchday revenues will be significantly increased following the return of funds.
Commercial revenues.
Dan did not have a significant summer two for FY 'twenty two.
However, we are confident in the future outlook for our commercial operations.
In broadcasting where at the start of a new UEFA cycle, which has seen a small growth in prize money allocation to the clubs.
In terms of costs, we'd expect wages to increase by around 20%, which reflects the increased investment in the squad following the summer transfer window.
Other expenses are expected to increase we're also expected to increase over the prior year with the return of full Matchday operations.
Finally, our current committed net player capex of fiscal year 'twenty, two is approximately $80 million with amortization costs of $150 million.
With that I'll turn the call back over to Karina.
Thank you Cliff before we open up the call to your questions. We would like to alert you to a change in our reporting.
Already with fiscal 2022, you will hold earnings conference call to review, the second quarter and fourth quarters with the first and third quarters, we will issue a press release.
For the current quarter and for every future quarter. However, we will remain available for your questions, which you can submit via our Investor Relations E Mail address at <unk>.
IR at MAA in UTD Dot Dot UK.
Really thank you for your continued interest in Manchester, United and with that I will turn the call back over to our operator for your question Allison.
Thank you.
We will now begin the question and answer session.
I ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
Is it any time your question has been addressed and you would like to withdraw your question.
Please press Star then two.
This time, we will pause momentarily to assemble roster.
And our first question today will come from Zion too of Exane BNP Paribas.
Please go ahead with your question.
Hi, Thanks for taking my question.
So congrats on signing Cristiano Ronaldo as well can you just talk about his impact on the commercial revenue then.
Yes.
Maybe shirt sales boost or marketing awareness.
And I know youre not guiding to commercial revenues, but if you think about it versus I guess pre COVID-19 levels.
It seems like the momentum is there should we expect that to even be maybe above 2019 levels or how do we think about directionally.
Hi, John its cliff here I'll take that.
Initial finance.
The finance question, you asked and then I'll hand over to Richard for the wider impact.
Of Christiana.
I think in terms of the commercialized sort of indicated the best way to look at it as you've referenced would be our last.
Pre COVID-19 season.
Season.
Which would be sort of 18.19.
What you've got to do is also allow for the fact, we had no summer to really no effective somewhat too for this coming year. So if you take off the effect of that which is.
So low double digit revenues, we'd be expect to be in a sort of a similar place.
As we were pre Covid.
And then just on the point around.
The impact.
Christiane on some signings.
Yes, just to make clear the results that we're presenting today and the description of them do not include any effect related to Christiane, obviously, it's very early.
In terms of his arrival.
And.
His impact on the pitch is immediate and visible we will be providing guidance as to where we are providing an update as to where we are in terms of pitch activity on any effects there too in the next results we do we're not providing.
Information at this stage in terms of where we're up to in the current quarter.
Okay, and just one more on thanks, that's helpful. On China, you know there's been some recent choppiness theres been marked down just in some demand issues over there in other sectors.
You touched on it seems like things are going well there for you maybe just.
Help us understand was there any impact from you know maybe markdowns at all and how youre seeing engagement with Chinese fans and how that could evolve.
Yeah, So I mean, obviously.
In the year that we're looking at Hey, there has been.
<unk> of Lockdown.
In terms of the outcomes received I think that.
There are people who are much better informed of me to give you guidance on exactly how that's rolled out in the last 12 months in terms of where we sit on that.
Yeah, there are a number of things to allude to it's a very large part of our family obviously as we've alluded to previously in terms of the number of fans.
Alison.
In China and Europe.
That's reflected.
In a number of items.
<unk>.
The relationship we have with Youku and T. Mo in terms of the integrated partnership and how that flows through.
Particularly not just in engaging fans from a digital point of view, but also.
How that then followed up by Adidas in terms of satisfying any.
Need that fans have merchandise and that's been very successful for us.
Yes, the halves partnership and the way that that spirit and received and indeed its location.
Immediately adjoining gentlemen square.
No.
It's an incredibly important part of the world for us.
We're really pleased to say that it's bouncing.
Bouncing back end in terms of the economic situation and.
Great strides have been made there in terms of building on and enhancing the engagement we have with funds.
Great. Thanks, guys.
Again, if you have a question. Please press star and then one our next question today will come from Randy <unk> of Jefferies. Please go ahead.
Yeah, Thanks, a lot hi, guys.
I'm back on Cristiana I know that his arrival and signing is.
Post the quarter end.
So I understand there's not going to want to quantify things, but can you potentially give us some qualitative.
Aspects of what his impact has been on a on the team perhaps I know you gave with the quarter results.
Gave some color on engagement statistics around your raw apt or what have you anything you can kind of give us if not quantity quantify but like just qualify or talk to.
What what his impact has been around different areas of the metrics you look at.
Whether it's website kit sales et cetera, just anything that you can kind of share with us would be very helpful.
Yes, I mean, just to reiterate what I said before all of the updates we provided date to the quarter and preseason starts so none of the statistics include.
Any if they pay.
Post.
Commencement of the season activity specifically around Cristiana.
I think the.
The focus in terms of activity around Cristiano.
Been incredibly positive not least on the pitch at much better place to describe that.
Turning to commercial activity and of course, it's been positive.
And do you see a similar positive effect.
All the signings we've seen over the summer and again as I said in terms of the more quantitative updates will be providing that in the next set of results in the next analysis we provided.
Gotcha, and then I mean as you think about.
His ability to drive the commercial segment are you able to disproportionately utilize him and his likeness or whatever you want.
If your commercial partners.
Our perspective commercial partners want to use use him in.
Trying to sign up with your your company a brand like how do you think about.
This type of generational star being utilized disproportionately or not relative to other players on the spot.
Thank you.
In that final line, if perhaps you've you've touched on how we view this which is.
Again.
Ed.
All of the players the assigned assigned.
Exclusively for their ability to deliver on the pitch.
My job in running the commercial operations of the club is to generate as.
As much income as possible to sustain the virtuous cycle.
And that relates to the club us as a team and every single one of our players.
<unk>.
Yes, both.
Individually and collectively in terms of the work, we do with them. So.
Whilst every signing we make.
Some are better known than others.
Have a positive effect on final engagement of a positive effect on.
The activity, we do that's very much.
Putting field into a well run engine and where.
Renowned in the sports industry for doing a good job of maximizing.
The commercial opportunity that comes to us, but our focus is on finding places to make sure that they deliver on the pitch and then maximizing the opportunity afterwards.
And to single out any one player in terms of their impact, particularly this early after signing it would be wrong.
Okay.
And then lastly, I guess Cliff you said.
It is definitively that there.
There's no summer tour for summer 2022 is that finalized that will not happen.
And as we think about just post 2022 I know it's early when do you have to make a decision.
How early do you make a decision you can do with summer tour or not.
Planning stages happen I'm, just curious just to think about when we try to get back to normal how long with ebay.
Thanks, Ron just to clarify actually because the.
Well I was talking about FY 'twenty two so for us that runs from the first of July just gone to the end of June. So we've already had this summer and whilst we did play a couple of matches in the U K et cetera.
Very very different we would classes.
Typical summit, so when I'm looking at the commercial revenues now for you guys I'm, giving you indications.
The previous conversation looking at the left.
Pre COVID-19 sort of commercial.
Area the numbers that we posted back then and then pre Covid times, you have to take off sort of that amount for summer to because we didn't really have one to get to a sort of underlying view of where commercial my end up in terms of planning for next season, which is what which would actually be somewhat which mature in FY 'twenty three for us I'll just hand over to Richard and he can talk a bit more.
About that yeah.
Randy the primary objective of preseason tours.
Is to prepare the team for the forthcoming season.
So that's something that is planned.
Typically on a multiyear basis, but certainly evolves as we go through the year.
As we look ahead to next year in the.
Obviously, even activity we are at the point, where we're evaluating alternatives, but again, we will monitor the situation quite carefully in respect to how the pandemic develops and how countries open up in terms of what's bad for preparing us for the succeeding season in terms of travel versus.
Staying at home to prepare.
And there's pluses and minuses on that in terms of the preseason preparation, but we will.
We'll be factoring in what's going on with the pandemic.
<unk> now.
I think it certainly false and set in terms of whether traveling abroad is impossible.
Yes.
Okay got it thank you guys.
Ladies and gentlemen, this will conclude the question and answer session and it will also conclude the Manchester United Fourth fourth quarter earnings Conference call. We do thank you for attending today's presentation today and you may now disk.
Connect your lines.
Okay.
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That's what the fine Fernandez Fernandez.
But exactly how does it go.
And he's been doing it his whole life.
It's been.
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Great.
From such a big player.
The non daily tasks.
Ah.
It's just a nice doing it really is.
Hey, good morning.
Pretty good three waterfall.
Mason Greenwood Greenwood.
Greenwood.
Oh really.
Goodbye.
Right.