Q2 2022 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 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 one if anyone has difficulty hearing the call. Please.
Dorothy Ralph for operator assistance at any time, we would like to remind everyone that this conference 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 Kate Hello, everyone and welcome to the Manchester United 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 disclosure is 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 Marta our football director.
All that Roche our C O L Victoria, Tipton, our CEO of alliances and partnerships, Phil Lynch, our CEO of digital products and experiences Cliff Baty, our CFO and having to say Oh, 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.
Hey, 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.
Turning in Ukraine.
What's and prayers go out to all those impacted by events and we echo the desire for peace displayed by our manager in place prior to the game at the weekend.
You'll have noticed.
We have added a few new speak as to our normal lineup.
Early this month, we introduced a new leadership structure.
And shortly youll 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 and delivering the titles and trophies.
You mentioned, you're not you should be competing for.
This mission is central is a central objective as a football club.
And we're focused on building a winning culture to achieve it.
You'll be hearing more from a football director John .
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 sustained success on the pitch.
Sustainable model of it.
This will include strengthening the role of funds 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.
But particular relevance to our audience today, we also expect to continue to deliver sustainable economic model.
Tables are on page success.
Crucial to economic sustainability at our club and for all clubs in the football pyramid.
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 rose in which all sponsorship deals worth more than 1 million pounds will now be vetted by the late to determine if these associated policy 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 record set for both <unk> and the primary Lake.
So the Premier League. We note that revenues received for international rights.
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.
Well, so critical to sustainability of the pyramid is any clubs relationship with its fans.
In advance of the numerous recommendations, resulting from Tracey Crouch independent fan led review of football governance, We established a new fund Advisory Board and.
In addition to the expanded finance foreign quarterly meetings already held.
We also recently announced a new role of head of final engagement and important appointment to drive a new area of fan and club relations.
This club is a Manchester institution with truly global appeal and.
In 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 Tees us.
And we will be further exploring the development of new products services and virtual experiences, including blockchain enabled fan offerings with.
With the objective of hunting engagement for the next generation.
I'll now hand, the call over first to John Murtha Football Director, who will provide an update on our football activity Joe.
Thank you Richard.
I'm pleased to be addressing this audience for the first time to provide you with a brief update.
Given our quarterly focus today.
I'd like to start with a quick summary of results in relevant standings. During the three months of October November December .
And the UEFA Champions League, we wont suit and drew two of our group stage gains in the three month period, finishing some of our group.
We subsequently drew with electrical Madrid, and the round of 16, the first leg of which took place last Wednesday, when we drew one well in Spain to set up an exciting second leg at old Trafford should they held on March 15th.
And the Premier League, we sold a quick return.
To improve results and consistency on the interim manager Ralph Rudnick fallen Garone in October and early November that had seen a departure <unk> manager, we know that continuing that consistency is key as.
As we strive for a top four finish this season.
I want to reiterate however, this is not the ultimate objective of Manchester, United and everyone. At the club is focused on challenging the 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 those back to challenging domestic and European titles.
Our women's team is enjoying a strong campaign in the women's simply under that manager Mark scanner.
<unk> 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 the ultra debut Influencer funds against Everton and marked the 27th.
We are in the process of recruiting ahead of women's football emphasizing 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 Eighteen's reached the semifinals and the SRU last week and Tonight that team will be playing in the round of 16 and the Europa.
Easily.
Reflecting the strength of talent, we continue to see through our <unk> system.
One other point of note is the appointment of a director of data science during the quarter to bring together and drive forward. The clubs use of data to help players and staff deliver success on the pitch.
Overall, while there is potential for further improvements and progress we do feel like we now have the right structures in place across our mens womens 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 collect Roche.
<unk> operating officer, who will provide a brief update on <unk> operations.
Thank you John .
This is Thomas a few highlights from our club operations during the quarter as well as some of the Amo recent development.
Our operations continued on a trajectory towards normality in the second quarter as the Covid measures were reduced.
And total traffic continued with full capacity crowd for the entire quarter.
The megastore experienced more normalized thoughtful and 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 on the comm variant, which resulted in widespread infections across the U K and ultimately the postponement of two of our Premier League matches.
This surge has since passed leading the UK to relax, it's Cobra restrictions since late January and Premier League protocols and also 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 fueled by new signings, we experienced a very brisk sell out as our 2021 'twenty two season tickets this year.
Executive club sweep and boxes sold at high pace and our membership program is also experiencing another record year with our highest ever sign ups recorded in January .
<unk> 250000 global members, which we believe ranks amongst the highest of any sporting organization in the world.
Susan ticket sales for the 2022 23 season, just launched and we are pleased to be able to provide a loyal fans with another season of frozen general admission ticket prices for the 11th consecutive year.
Given the strong membership demand and over 120000 people on our waiting list. The season ticket. 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 utilization of the extensive upgrade and our accessibility facilities.
During the second quarter, we finalized the installation of 550 <unk> see.
Seats in the OE section, adding.
Adding to the 1500 <unk>.
Seats already available to home funds.
This supports our efforts to enhance safety choice and atmosphere.
<unk> attending all traffic.
We also recently signed a partnership agreement Greater Stadium Wi Fi network, which we anticipate will be rolled out early next season, and we will bring significant improvements in connectivity for our fans.
Looking ahead, we are in the final stages of planning for a pre season, Sumitomo and we expect to confirm destinations and opponents soon.
We're also excited to host the waste that we're into Euro 2022 opening match all traffic in July .
I'll now hand, the call over to Victoria Simpson for an overview of partnership.
Thank you Craig.
Hello, everyone. It is wonderful to be joining you today and I'm delighted to present, a brief update on our sponsorship operation.
As you know sponsorships are a key element of driving the revenue that supports our overall objective.
And it's been an exciting and busy six months for sponsorship sales team.
We have launched a number of new categories partnerships within the technology sector, notably the team do yet and remote access and support software and.
And extreme networks in the Wi Fi network solutions sector.
<unk> entered the blockchain vertical with our newly announced training kept partner.
One of the walls, and I said bonds, yet energy efficient blockchain.
This demonstrates our strength in the fast growing sector as a result of our strategic focus on digital innovation.
It also acts as an accelerate that and an enabler for our direct to that offering.
Earlier this year, we also announced sponsorship partners and a new environmental services that Chad.
<unk> and ecolab reflective of our ongoing focus on environmental social and governance initiatives.
Turning to renewals year to date, we have renewed five flavor partnerships this fiscal year, including Marriott and Remington.
As we continue to successfully deliver significant value to our partners.
David Notwithstanding.
As a team that particularly proud to have won the brand activation of the year Award for our capital partnership at the football business Awards.
We have also been hard at work with very strong Activations. This season, namely without trying to push that partner teamed yet.
Having completed our second full quarter with this partnership we continue to set records.
Sales to global media impressions to digital interaction.
Our partnership with team here is firing on all cylinders, having generated over $11 7 billion global impressions at the team here late in the year to date.
In addition, we have already completed 10 integrated use cases across the club.
Illustrates thank you strengthen technological relevancy of the partnership.
Looking forward to the balance of the year and beyond we are optimistic for continued robust sponsorship entrust demonstrating the enduring a pan of lifestyle and the global passion to Manchester United.
I'll now hand, the call language Merrill Lynch.
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 and providing our clubs 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 at 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 that 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 Mega store 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 achieved our biggest three months for interactions in the first half this fiscal year generating over 1 billion digital interactions a 181% increase relative to the prior year period.
Designating Manchester United is the number one club our sports game 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 app.
Les this iteration launched in beta this month feature significant enhancements that enable us to deliver the content and interactivity that our fans want.
Including most notably the integration of <unk> within the App.
This will allow fans to seamlessly experienced the best of our club content, including every United matching 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 pays us and we are exploring a range of blockchain enabled fan offerings, including our loyalty programs and ticketing options among other products.
Our <unk> partnership will ensure our Manchester United States at the forefront of digital innovation driven by web three point out and I look forward to updating you more on this partnership in the coming months.
I'll now hand, the call over to Cliff Baty, 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 with 30 <unk> of December .
The second quarter year on year comparisons have been impacted by the number of games played.
This year, we plan eight home in HLA matches across all competitions relative to 10 home or turn away matches played in <unk> last year.
As Glenn highlighted two matches one home in one way or postponed due to COVID-19 outbreaks in December resulting in associated revenues deferred third quarter.
Results did benefit from the return of funds drove traffic as much as last year with players entirely behind closed doors.
Total revenues for the period of $185 4 million.
This was $12 6 million higher than the prior year.
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 two.
$2 6 million lower than the prior year quarter due to the absence of a training partner in the first half of the year, partially offset by global deals.
Merchandising and license merchandising and licensing revenues were $29 2 million $4 4 million higher.
<unk> strong growth in e-commerce royalties and the reopening of the Mexico.
Broadcasting revenues were $84 6 million a decrease of $22 3 million due to forfeiture matches played relative to the prior year quarter across all competitions.
In particular this quarter, we paid only four champions League games compared to six last year due to the pandemic ultimate timing.
<unk> 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 squad.
Other operating expenses increased by $9 million, reflecting the normalization of Matchday and Mega store operations.
EBITDA was $57 9 million down $12 4 million from the prior year quarter.
Depreciation 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 of $10 million, which includes compensation to Ali consortia and members of his coaching team as well as the revaluation of difficulty pension scheme deficit.
Net finance costs for the quarter was $7 $4 $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've mentioned in previous quarters.
Cash interest costs in U S dollars remained broadly consistent year on year.
Yes.
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-19 impacts over the past year, including loss of Matchday revenues last season, together with the absence of a somewhat too.
To manage this we have drawn $100 million of our available $200 million credit lines.
At $87 4 million of cash on the balance sheet epithet first of December .
Now turning to our outlook for the remainder of the year, whilst the UK government has eased COVID-19 related restrictions in the Premier League is also relaxed some restrictions.
Potential 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 to date.
Looking forward to the next fiscal year as Richard just 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 and international broadcast rights versus revenues earned in the current cycle.
And finally, our current.
Currently committed player Capex net cash outflows for the fiscal year 'twenty two 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.
Richard Hammond 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 one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys is 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 <unk> of Jefferies. Please go ahead.
Hey, Thanks, Hi, Richard really appreciate you, having an additional speakers on the call.
Talk you through the enhanced leadership structure. So so really wanted to just get your perspective on what this change structure enhanced structure. If you will how do you think about it.
Running the business a little bit differently to continue to enhance the business side of the of the company, but also.
To focus on enhancing that fan engagement and dialogue, which is it seems very important to you going forward. So just wondering what your perspective there.
Yes, so thanks Randy.
In terms of that overall.
<unk> shipped team.
I think the key area there as I said in the opening quote is about the <unk>.
The leaders with the relevant skills to really drive the business and the club forward on all fronts.
Yes.
And Darren Fletcher I really driving forward the football activity.
And that's supported by the business activity that we alluded to.
I think the key words in terms of driving forward for the future is digitization.
<unk> heard about digitizing the stadium with the implementation of Wi Fi.
Heard about the work we're doing in implementing new partnerships all of which are centered on the digital environment and particularly the new partnership with us.
You heard about the word Phil and his team are doing.
<unk> engaging with fans.
That's been the stadium, whether thats in the UK or across the globe.
And date 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 and I think.
You've asked the call.
The core strategy for the club.
Alongside the work that it's doing both engaging and communities.
Driving forward and when I say communities I don't just mean.
So the people of Manchester, but yes, good causes across the world and also the broader football pyramid participating strongly that so all in all that's the overall strategy.
Super Helpful. I guess my last question is is we as we think about the commercial segment I just wanted to get some perspective on.
You announced some.
Extreme networks.
<unk> in the quarter.
Got it I just wanted to get a sense from you.
From the team of just how back how far back to normal are we in terms of the sales teams in terms of their activity activation.
Let me get that perspective across the different geographies, whether it's in Europe , United States or China, just trying to get a sense of how big how far away from normal are we.
Current activity around the commercial segment thanks, guys.
Yes, so in terms of the commercial segment I think what you've seen is the need to pivot fairly rapidly in jewelry.
The Covid pandemic. So what you saw was that the.
Sales teams move to continuing to engage.
With new prospects right the way through.
That resulted in the deals that you've seen announced in terms of the new partner.
That was built on our ability to continue activating with partners even when games.
<unk> actually happening with some fairly.
<unk> digital Activations and has been pivotal in keeping the wheel.
Turning.
People always associated Manchester, United The club with resilience and I was incredibly proud of.
The club the staff from the foundation data and keeping things going and I think thats been reflected not just in the past.
And as we brought in who recognize that but also the partners that have renewed.
Great. Thanks, guys very helpful.
The next question is from Xeon Xu of BNP Paribas. Please go ahead.
Hi, guys. Thanks for taking the question.
Maybe one on the broadcasting rights.
As you mentioned international rights are up a lot I think I saw in the U S is something like.
$2 billion deal and I noticed that they already switched the channel.
Is that coming into play immediately and then the <unk>.
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.
Okay.
The second part of that question first because the first question was simply the U S. I'll hand that over to Hammond as quickly.
In terms of where everything is going well, obviously, we're seeing.
In terms of domestic and a sort of 30.
30% jump this time around international and I think significantly as we mentioned.
International is now above domestic.
So.
By definition I think everyone is convinced and this is the international has a greater sort of runway and we'd expect to see those international revenues increase the Premier League is effective.
Coming to World League the relevant share of the Premier League broadcasting revenues connected to it compared to the other five.
Thank you Nathan and Europe is very large.
And it's only getting bigger so we'd expect those international revenues to continue to grow.
And then just kind of build on that collateral actually in the U S. We've stayed with the same provider so instead of NBC.
And they might be in fact, peacock with still having some of those gains.
Behind that in the last cycle and that will continue in the next one.
Rich however should be it should be better with ensuring that we've got the gains on the main cable channel together matches on the spin.
So you can get outages, which is excellent.
Got it.
And as Cliff said actually this being the first time that international gets larger than the domestic is a key.
And pivoting point for us.
Just to remind everyone. The international rights, so split equally across all 2000 teams.
But since the last cycle the revenue distribution of that has changed.
To have a merit element in it.
Teams further.
I have a little bit more of that international broadcast rights revenues.
Okay, Yeah, no I know NBC, but I think it's just switch from sports USA anyway.
And then from the Ukraine, Russia, any kind of other disruptions, we should be aware of I know you dropped a Russian sponsor just trying to see if theres any other.
Yeah anything else, we should be aware of.
Yes, so we issued a release this week that confirmed the position with regards to suspension of rights for one partner.
And beyond that there's no other effects, but at this stage.
<unk>.
We'd 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.
Yes so.
<unk>.
Thanks for the question Colin I think.
In respect of the strategy with regard to digital.
Engagement.
There are a number of aspects to focus on so.
And I think starting with the newest and most exciting so.
Obviously the impact of the blockchain is having in terms of what's possible given.
With the what the technology brings in terms of proofs.
It's opening up incredible exciting new opportunities.
For all rights holders and other in particular and that's something that we've just started.
The partnership that we've entered into but there are <unk>.
<unk> to be huge amounts of opportunity there.
<unk>.
Beyond that I think the sort of advent of micro payments 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.
The 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.
Underlying revenues have been increasing.
Exponentially over the last three years.
Because of the way we report that which is we only show the royalties we receive.
The partner what Youre seeing is that that will now kick in in terms of being a an impact on our earnings but the underlying revenues that is generating a 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 that we're seeing and the growth rates that we're seeing and we think we're extremely well positioned to participate in that.
Great. Thanks, and then just can you give us any sense.
We're mega store foot traffic is compared to that pre pandemic levels.
Yes so.
I think what Youre seeing is the.
The stadium continues to be fully sold out.
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.
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.
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.
Well if the revenues in the Mega store have continued to be strong you're seeing slightly reduced international thoughtful com.
Compensated for by domestic and growing average basket.
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.
Yeah.