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Manchester United plc (NYSE:MANU)
Q1 2020 Earnings Call
Nov 18, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Manchester United Earnings Conference Call. [Operator Instructions]

I will now turn the call over to Corinna Freedman, Head of Investor Relations for Manchester United.

Corinna Freedman -- Head of Investor Relations

Thank you, operator. Good morning everyone and welcome to Manchester United's first 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 and a replay will also be available on our site for 30 days thereafter.

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 in conjunction with the cautionary note included with our earnings release as well as various other risk factors, discussions in our prior filings with the SEC.

With us on the call today are Ed Woodward; our Executive Vice Chairman; Richard Arnold; our Group Managing Director; Cliff Baty, our Chief Financial Officer; and Hemen Tseayo, our Head of Corporate Finance.

I will now turn the conference call over to Executive Vice Chairman, Ed Woodward for his opening remarks.

Edward Woodward -- Executive Vice Chairman and Director

Thank you, Corinna and thank you everyone for joining us today. It has been a short time since our Q4 and year-end update, so prepared remarks today will be relatively brief. Before Cliff and Richard talk about our financial and operational performance for the first quarter, I thought it would be useful to provide a statement regarding our goals, how we aim to achieve them, and the progress that we've made to-date. Our ultimate goal is to win trophies playing fast, fluid attacking football, with a team that fuses graduates from our Academy along with world-class acquisitions. We know this will not be achieved overnight, however, we've made investments across the club that we believe will set us on the right path.

Three capital needs from mainland. Firstly, over the last few years, we've significantly invested in our recruitment infrastructure to augment our already strong and experienced team who are working to a clear philosophy. This is demonstrated by the signing of Maguire, James and Wan-Bissaka who have all settled in well. We will continue to have strategy to promote the best players graduating from our Academy together with material investment in the coming summer to strengthen our young squad further and challenge for trophies. As a sign of investment in use for the future, we feel that the youngest team in the Premier League this season and our game against Brighton at an average age of under 24 years old.

Secondly, we've also made investments in our Academy across recruitment facilities, analytics and these investments are now beginning to bear fruit. Last season, we led the Premier League in the most, first team match minutes played by graduates. Across the Premier League, our graduates are playing 58% more minutes, than those from any other club. Our Academy graduates scored or assisted 31 of the first two goals who scored so far this season. And finally we are shortly approaching a milestone 4,000 first-team consecutive competitive game featuring an Academy player in the Matchday squad.

We know our Academy is a strong competitive advantage, as an area that we'll continue to invest in as is the heart of the club. I want to reiterate that our ability to make investments we need to be successful on the pitch is underpinned by continued strong financial performance. Though season today, we've had a mixed starts of our Premier League campaign, in Europe, we've qualified for the Europa League knockout stages with two games to spare. We've also progressed to the quarter-finals of the League Cup, well our women's team has also started their first season in the Women's Super League season in competitive form.

Shifting to Broadcast developments. Cumulative live audiences for the Premier League was up 10% from pre two seasons ago to last season. Moreover combined live audience season to-date in the UK are up 17%. A home match on October 20th, through Sky's third biggest Premier League audience of all time. We remain very optimistic for continued increases in global football broadcast rights as demonstrated by recent news, the CBS has acquired the UEFA Club competitions in the US through to June 2024. According to Bloomberg, this was an estimated 50% increase from the prior US contract and will feature select games free-to-air. We're also looking forward to Amazon's Live Premier League broadcast which will commence in the upcoming quarter, and we know that the platform will also produce a highlight show.

Turning to some industry news. As many of you will be aware, FIFA recently announced that the -- of the intention -- sorry, the first iteration of the revamped Summer Club World Cup tournament will take place in China in June 2021. Currently the annual tournament comprises only seven teams and is played in December, while the revamp tournament will expand to 24 teams and take place every four years replacing the Confederations Cup.

Finally, a brief update on FIFA's transfer task force. After a long consultation period, in October, the FIFA Council approved a series of key steps to protect the integrity of the system and prevent abuses. In particular there'll be limit from lines of players trying to have a material impact on us and the introduction of major reform around agents, including requiring all agents to be formally licensed and include educational measures. Restrictions around multiple representation to avoid conflicts of interest and a cap on agents commissions.

I'll now hand you over to our Group Managing Director, Richard Arnold, who will update you on the key business activities. Thank you.

Richard Arnold -- Group Managing Director and Director

Thank you Ed. As Ed referenced, our commercial strength underpins our ability to fund our continued growth, both on and off the pitch. Turning first to our media and digital. We achieved several milestones across our digital platform, including our highest ever number of daily active users of our free global mobile app during the opening day of our season against Chelsea. We also saw increases in monthly active users and average time spent per user per month versus the same quarter last year. Metrics that confirm to us that are contents compelling and delivering the access that are highly engaged fan base actively seeks. We also saw increasing engagement for our Match Centre app feature during the quarter, which provide live game stats to our fans, second screens through our mobile app.

During the quarter, we also released a documentary to follow the Manchester United women's team on their first successful season which culminated in achieving promotion to the Women's Super League. The women's team social channels already have over 800,000 social connections and on Instagram alone, our women's channel already has more followers than eight of the men's Premier League Clubs.

For the first quarter, the increase in sponsorship revenues continues to reflect the scale of our global fan base. The phenomenal engagement that we are driving is the direct result of our continuous improvement and investment in data analytics as well as superior digital and content capabilities, we strive to deliver best-in-class return on investment for our partners.

We are pleased to report that during the first quarter, we commenced new global partnership with Konami, Visit Malta, Yabo Sport and Lego. Our Megastore turnover year-to-date is ahead of our expectations on higher traffic, basket and conversion, due in part, two additional home matches played in the first quarter relative to last year. In addition, our first home match against Chelsea drove a record single day turnover.

E-commerce is also experienced strong year-over-year growth in Q1 with growth coming from all major markets benefiting from the earlier launch of the replica kits during the summer. Lastly, from a venue perspective, our official membership product is on course for another strong year and our match by match ticket related products are selling at a solid pace. This follows on from our seasonal ticketing and hospitality products selling out in record time over the summer with both continuing to have robust waiting list demand. Our capital projects and other upgrades are progressing on track this quarter and visitor response has been positive.

Looking forward, we will be rolling out our new accessible facilities over the coming months and focus also now turns to planning our Summer 2020 upgrade projects.

I will now turn the call over to our CFO, Cliff Baty, to review our financial details in more -- financial results in more detail. Cliff?

Cliff Baty -- Chief Financial Officer

Thanks Richard. And good to talk through our results for the first three months of fiscal 2020. As a reminder, year-on-year comparisons relative to fiscal 2019 have been impacted by the absence of Champions League broadcasting revenues and the cadence of matches on a quarterly basis.

In terms of headline figures. Total revenues for the quarter were GBP135.4 million, up GBP0.4 million versus the prior year with adjusted EBITDA of GBP34.8 million, up GBP5.4 million over the prior year. Both revenues and EBITDA for fiscal 2020 are tracking in line with our annual guidance.

Turning to the key items in the results. Total commercial revenues were GBP80.4 million, an increase of GBP4.5 million versus the prior year with sponsorship revenues of GBP53.6 million, an increase of GBP4 million over the prior year reflecting sponsorship growth and additional to our revenues.

Merchandising and license revenues for the quarter increased GBP0.5 million at GBP26.8 million to the strong Megastore performance helped by two incremental home games. Broadcasting revenues decreased by GBP9.9 million during the quarter to GBP32.9 million due to our participation in the UEFA Europa League compared to the Champions League in the prior year. It's worth highlighting that in 2Q, where we will experience the biggest year-on-year impact from the reduction in UEFA broadcast revenues due to the timing of matches played.

Matchday revenues increased by GBP5.8 million to GBP22.1 million, given the impact of one additional home Premier League match and one additional home Europe match in the quarter.

Moving down the income statement. Operating expenses, excluding depreciation and amortization were down GBP5 million versus prior year. This includes wages, which were down GBP6.8 million, primarily due to the reduction in player salaries as a result of non-participation in the UEFA Champions League.

Other operating expenses for the quarter increased by GBP1.8 million, due primarily to expenses related to a largest summer tour and the two additional home matches played during the quarter. Amortization cost was GBP32.2 million for the fiscal quarter, a decrease of GBP2.9 million versus the prior fiscal year. Profit on disposal of the GBP12 million in the period is primarily due to the sale of Romelu Lukaku to Inter Milan.

Net finance cost for the quarter were GBP8.5 million, an increase of GBP3.3 million due to foreign exchange movements on the unhedged portion of our US debt. Our cash interest cost in US dollars remain consistent year-on-year.

Turning to the balance sheet. At the end of September, cash balances were GBP140.3 million, down GBP107.2 million versus the prior year, due primarily to higher player capex. As mentioned on our fourth quarter earnings conference call, the guided net player capex of GBP173 million in fiscal 2020 reflects accelerated payment and deferred receipt profiles of our summer activity. As a result, contracted capex commitments for fiscal 2021 and beyond are substantially lower.

Net debt at the period end was GBP384.5 million, an increase of GBP137.3 million compared to the prior year due to the lower cash balances and also the impact of unfavorable foreign exchange movements on our US dollar denominated debt. Please note that the gross US denominated debt principal remains unchanged.

Turning to the full year, we continue to expect full year fiscal 2020 revenues between GBP560 million to GBP580 million and our adjusted EBITDA between GBP155 million to GBP165 million.

And with that, I'll hand the call back to the operator and we are now ready to take your questions. Thank you.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today will come from Randy Konik of Jefferies. Please go ahead.

Randy Konik -- Jefferies -- Analyst

Thanks a lot, and good morning. I guess a question for Richard. You talked about some of the continued increase in engagement statistics around the digital side of the business as well as you announced some key new sponsorships. So it looks like two from Europe and two from Asia. Are you thinking about taking the app and kind of layering in even more digital partnership opportunities for your commercial sponsor partners. I've seen some stuff on the app with links to HCL or Swiss quotes, there is some advertising in there, but it seems as if there is another kind of access to allow for you to add more value to your partners from a -- an advertising and exposure standpoint. So just give us some perspective on what you're thinking about doing from an app perspective.

And I guess, second, with the new announcements of these Malta, Lego, Konami, etc, are you -- have you reimagined or rethought what the addressable market would be around the world in the different regions for sponsorship opportunities, because it seems like your ability to continue to kind of grow that is much bigger than we would have thought a few years ago. Thanks.

Richard Arnold -- Group Managing Director and Director

Thanks, Randy. So the two questions in summary, were opportunities within the apps increased commercialization. And then secondly ongoing expectations for the future in terms of sponsorship growth, if I've understood that correctly?

Randy Konik -- Jefferies -- Analyst

Yes.

Richard Arnold -- Group Managing Director and Director

So, turning to the first question. I think that what you've seen to date is our focus is being primarily on fan engagement and quality in terms of the design of the app and the user experience, and the results of that have been borne out in terms of both the app rankings in stores as well as the engagement statistics, we've seen. The next phase, that's planned for the app will be around growing at scale, and that is something that in conjunction with the work that we're doing on the -- obviously the existing social media platforms or on our TV audiences around the world as part of that integrated solution, obviously that engagement and its scale do provide opportunities for commercialization.

At this stage it is not expected that those are commercialized separately, but those form part of the integrated architecture we've got now for rights, their monetized on a global basis, by category. So for example, air line car, etc, as you've seen to date.

In terms of the second point in terms of the ongoing expectations around sponsorship. What we're seeing is that the underlying demand and for our rights continues to be strong, pipeline is good, and new categories are constantly being derived as the world evolves, particularly in a digital setting and we continued to have a number of major categories open for future sponsorship as well as strong in-category price point growth as a result of demand for those rights. So in total, we continue to be confident about the sponsorship business and you've seen the results in terms of growth this quarter, and that's borne out by what we are seeing in the marketplace to date, and our view that there continues to be a strong market and growth for the sponsorship business remains constant.

Randy Konik -- Jefferies -- Analyst

Perfect, thank you.

Operator

[Operator Instructions]. Ladies and gentlemen, at this time we will conclude our question-and-answer session, and also conclude the Manchester United Earnings Conference Call. [Operator Closing Remarks]

Duration: 19 minutes

Call participants:

Corinna Freedman -- Head of Investor Relations

Edward Woodward -- Executive Vice Chairman and Director

Richard Arnold -- Group Managing Director and Director

Cliff Baty -- Chief Financial Officer

Randy Konik -- Jefferies -- Analyst

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