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Manchester United Ltd (NYSE:MANU)
Q1 2019 Earnings Conference Call
Nov. 15, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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 a listen-only mode. Following the presentation, we will conduct a question-and-answer session. To queue for questions, please press * then 1. If anyone has difficulty hearing the call, please press * then 0 for operator assistance at any time. We would like to remind everyone that this conference call is being recorded.

Before we begin, we would like to inform everyone that this conference call will include estimates and forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from these statements. Any such statements or estimates or forward-looking statements should be considered in conjunction with the cautionary note in our earnings release regarding forward-looking statements and risk factor discussions in our filings with the SEC. Manchester United Plc assumes no obligation to update any of the estimates or forward-looking statements.

I would now like to turn the conference over to Ed Woodward, Executive Vice Chairman of Manchester United. Please go ahead, sir.

Edward Woodward -- Executive Vice Chairman

Thank you, operator, and thank you, everyone for joining us today. With me on the call are Richard Arnold, our Group Managing Director, and Cliff Baty, our CFO. It's only been a couple of months, obviously, since Q4 and year-end update, so our prepared remarks will be relatively brief.

In the summer, we had a good pre-season tour to the U.S. And while we couldn't have all of the first team squad with us, due to many of our players advancing deep into knock-out stages of the World Cup, it provided a good opportunity for many of our emerging prospects to experience being part of the first team setup. We look forward to a number of them making the successful transition to the first team, like many before them, including Lingard, Rashford, McTominay, Andreas Pereira, and the current squad.

As Cliff mentioned at Q4, our committed net player capex for the year currently stands at ₤124 million, reflecting the recent investment in the first team squad. Moreover, we have agreed new contracts for a number of players, including Fellaini and Shaw. These player investments, along with the investment in the Club's Academy, come as a direct result of our ongoing commercial and financial strength, and underpin our long-term strategic plan to create sustainable growth across all areas of the Club.

On the pitch, we remain well positioned in the Champions League. Although we've had a mixed start to our domestic campaign, the squad and the manager are fully united in their determination to regain our momentum in the Premier League. I'll now hand over to our Group Managing Director, Richard Arnold, who will update you on the key business activities. Thank you.

Richard Arnold -- Group Managing Director

Thank you, Ed. Turning to our businesses, in sponsorship, we announced two global sponsorship deals in the first quarter, our first League partnership with Kohler, and the renewal of our global partnership with Canon Medical Systems. In the quarter, we've also renewed our global partnership with Deezer.

The launch of the Kohler partnership is another great case study of what we deliver as arguably the world's No. 1 marketing platform. In the two months' partnership launch period from mid-July to mid-September, our partnership with Kohler achieved over a billion media impressions. To be clear, this excludes visibility in live games or highlights, and is purely in editorial and social content. The benefits to Kohler to date have been a nearly 5x increase in Kohler's brand awareness and amplified positive brand association in our key markets. As I mentioned a couple of months ago, we remain pleased with our pipeline, and continue to expect a strong contribution from sponsorship.

Turning to the media business, following the launch of our new website and mobile application this summer, we continue to focus on driving deep and more meaningful engagement through our owned and operated products. As I mentioned a couple of months ago, the mobile app reached the No. 1 sports download ranking in over 70 territories and now has monthly active users in over 225 markets.

We continue to see significant increases in fan engagement on our owned and operated products. Through best-of-product capabilities and more engaging content, our fans now spend more time interacting with the Club through our digital products, giving us the ability to cross-promote other Club products and services, including retail, e-commerce, and [inaudible]. MUTV direct-to-consumer products continue to grow, and we now have downloads in over 168 markets.

As previously mentioned, we improved the user value proposition by introducing a discounted annual pack, and launching a free front porch from the MUTV app, so that non-subscribers are able to view video content, and we are currently experiencing the benefit of this strategy, most notably in our lowest levels of consumer churn. In respect of our social network, we are happy with the progress of our three main global channels, Facebook, Instagram, and Twitter. We continue to see year-on-year growth, strong engagement, and we continue to be the most engaged Premier League club.

In respect to retail, the Adidas wholesale business continues to show growth year-on-year, driven by high demand of the pink away kit and continued strength in Asia. During the quarter, we announced a partnership with the iconic American denim brand, True Religion. The partnership with True Religion has seen the launch of a co-branded, premium denim range initially sold exclusively through MU and True Religion channels. This launch was complemented by the launch of the first Manchester United and Paul Smith collection, focused on luxury accessory.

These two partnerships enhance our existing portfolio of brand partnerships such as Adidas, New Era, Tag Heuer, and Columbia, which enables us to offer our fans a broader and exciting selection of merchandise.

From a venue perspective, our official membership product is on course for another record year. Having sold out our seasonal ticket-related products in record time last May, we are now focused on selling our match-by-match ticket-related products. In terms of match tickets, we are again on course to sell out all Premier League matches exclusively to official members. Over the summer, we added major upgrades to two facilities, creating our new most premium seasonal hospitality suite, 1878, named after the year the Club was founded, as well as the Ambassador's Lounge, a suite dedicated for our sponsorship partners and their guests. Both new facilities have been extremely well received and focus now turns to planning ahead for the Summer 2019 work.

I will now hand you over to our CFO, Cliff Baty.

Cliff Baty -- Chief Financial Officer

Thank you, Richard. I'm going to talk through our results of the three months of fiscal 2019. As a reminder, fiscal year 2019 year-on-year comparisons will be impacted by two main themes. The new Champions League broadcasting deal, and secondly, the cadence of matches on a quarterly basis.

In the first quarter 2019, we played just one Champions League match, compared with two games in the first quarter last year. Given that broadcasting revenue is recognized on a games-played basis, this materially impacts the financial comparison. In addition, match-day revenues have been impacted by the reduced Champions League fixtures, as well as playing one less home Premier League match in the quarter. In terms of the headline figures, total revenues for the period were down 6.1% to ₤135 million, with adjusted EBITDA of ₤29.4 million, giving an EBITDA margin of 21.8%.

To note, had we played our second Champions League fixture against Valencia within the first quarter consistent with the prior year, broadcasting revenues alone would have been approximately ₤10 million higher, with consequent increase of EBITDA and EBITDA margin.

Turning to the key items in the reported financial statements, commercial revenues were down ₤4.6 million, ₤75.9 million, largely due to a smaller summer tour as the result of a World Cup year. Broadcasting revenues were up ₤2 million, driven by the increase in Champions League revenues, despite playing the one less game. Match-day revenues were down by ₤6.1 million, due to two fewer home games, one less Premier League game, and one less Champions League game compared to the prior year.

June period total operating expenses excluding depreciation and amortization, were up 1.1%, including wages up 10.2%, primarily due to an increase in first team salary, following the additions made to the first team squad. Other operating expenses decreased 17.1%, largely due to reduced costs from the smaller turf and two fewer home games.

Amortization costs were ₤35.1 million, a decrease of ₤1 million over the prior quarter. Also in this quarter, we recorded a profit on disposal of ₤22.4 million, driven primarily by the sales of Blind and Johnson. Net finance costs for the quarter were ₤5.2 million, an increase of ₤4.4 million, due to exchange rates movement on the unhedged U.S. dollar debt. As we have mentioned, foreign exchange movements can cause volatility of this line, but cash interest costs in U.S. dollars remained consistent year-on-year.

Looking at the balance sheet, cash balances at the period end were ₤247.5 million, up ₤31.3 million against prior year. Net debt at the period end was ₤247.2 million, a decrease of ₤20.2 million, compared to the prior year due to the increased cash balances, partially offset by the impact of foreign exchange movements. Based on the first quarter results, we reiterate our previously stated guidance of fiscal 2019 of revenues between ₤615 to ₤630 million, and EBITDA of between ₤175 to ₤190 million.

Finally, please note that a semi-annual cash dividend of 9 cents per share will be paid on the fourth of January 2019 to shareholders on record on the 29th of November 2018.

With that, I'll hand back to the operator, and we are ready to take your questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. To ask a question, you may press * then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press * then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Clay Griffin with Deutsche Bank. Please go ahead.

Clayton Griffin -- Deutsche Bank Securities -- Analyst

Hey, guys. Good morning. I wanted to follow up on MUTV. I know you launched on the major connected devices there this summer. Just any kind of update on the uptake and engagement on those specific platforms? Then I guess a broader question is are you seeing growth there on those platforms? Do you think that has an impact on subscriber levels across your traditional distribution partners, Sky, etc.?

Edward Woodward -- Executive Vice Chairman

Thank you. Richard, could you answer that question, please?

Richard Arnold -- Group Managing Director

Yes. The move onto the connected TV-related platforms has seen comparatively small numbers of subscriber growth against the background of significant growth in the digital subscribers we've seen through app and website. So a smaller channel in terms of numbers, but the engagement and dwell times are very high in respect to various connected TV offerings. Going forward, it remains to be seen. Obviously, we only had a few weeks as a sample in terms of this summer for the number of subscribers acquired. We probably need another year of data before we can conclude too much around that. Obviously, the live games we showed during the summer drive the majority of acquisitions during the year.

Clayton Griffin -- Deutsche Bank Securities -- Analyst

Okay. Then I noticed [Detail] named Susanna Dinnage to the Chief Executive role starting early next year. I guess with her extensive media background, do you all anticipate any major differences in the way the League looks to monetize broadcasting rights?

Edward Woodward -- Executive Vice Chairman

I'll take that one. Yeah, Susanna starting, as you say, in 2019, comes with a strong C.V. from a media background perspective. And I think more candidly I'd say that she's going to continue the work that's already been done by the Premier League to look at possible other ways to monetize the rights. We spent a lot of time recently looking at Singapore and Canada, for example, to see whether their markets to sell through an ATT-type platform. So I expect her to pick the baton up and run with it, as Richard has done to this date. So we're looking forward to working with her.

Clayton Griffin -- Deutsche Bank Securities -- Analyst

Just as a follow-up, are there any other areas that you'd like to see her prioritize in the near term? Maybe outside of the broadcasting rights?

Edward Woodward -- Executive Vice Chairman

I think there needs to be quite a lot of time focused on engaging with Europe and what's happening around some of the conversations that are happening there. I think it's going to take quite a lot of her time, actually, on planes back and forth.

Clayton Griffin -- Deutsche Bank Securities -- Analyst

Got it. Then just last one for me. U.S. and China obviously two areas of growth for the League and the for the Club. What are you seeing in terms of TV viewership of matches and just overall levels of engagement in those two markets?

Edward Woodward -- Executive Vice Chairman

My understanding is it's gone, the audience actually is going up in the U.S. about 7% per year-on-year, so compared to last year. So we're seeing strong growth. I would categorize it as in the U.S. We don't have figures for China, but anecdotally we're hearing again it's very strong interest in football. I think you'll have noticed the Alipay announcement regarding the rights for the Euros and the Nations League that [UAF] announced recently, which is again reflecting huge interest from China.

Clayton Griffin -- Deutsche Bank Securities -- Analyst

Okay. Thanks for taking the questions.

Edward Woodward -- Executive Vice Chairman

Thank you.

Operator

Since there appears to be no further questions, this will conclude our question-and-answer session and our conference. Thank you for attending today's presentation. You may now disconnect.

Edward Woodward -- Executive Vice Chairman

Thanks everybody.

Duration: 16 minutes

Call participants:

Edward Woodward -- Executive Vice Chairman

Cliff Baty -- Chief Financial Officer

Richard Arnold -- Group Managing Director

Clayton Griffin -- Deutsche Bank Securities -- Analyst

More MANU analysis

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