Manchester United plc
Q2 2021 Earnings Call Transcript

Published: 4 Mar 2021

[Operator:]

Good afternoon, 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. We would like to remind everyone that this conference call is being recorded. I will now turn the call over to Corinna Freedman, Head of Investor Relations for Manchester United.

[Corinna Freedman:]

Thank you, Grant. Hello, everyone and welcome to Manchester United's second quarter 2021 earnings call. Our call is being recorded and webcast and a replay of this call will be available on our site for 30 days.

[Ed Woodward:]

Thank you, Corinna and thank you everyone for joining us. While our focus today is on the second fiscal quarter is also an opportunity to reflect on what's been an extraordinarily challenging year for Manchester United for football and of course the society as a whole. It's almost 12 months since the pandemic began to tighten its grip on the UK and we were required to close old traffic for supporters. As I've said before, their absence has only highlighted the importance of fans to the fabric of football. We can't wait to welcome them back. However, while Matchdays have not been the same, we are proud to play that part in keeping football going to maintain a precious source of entertainment and community for fans around the world. I want to pay tribute in particular to our coaching, medical and support staff who enabled this hectic schedule of matches to continue in very difficult circumstances. The past year has tested our clubs resilience and values and I'm pleased with how we performed in both respects. Since the start of the pandemic, the club and our foundation have together provided over £5 million of charitable support to good causes in our local community and beyond. This reflects our commitment to being a positive force in society and a source of pride for our fans. It also reflects the dedication of all of our employees and robustness of our finances fueled by our commercial business and responding to this once-a-century-level crisis. In Europe, we continue to play an active role through the ECA in discussions on the future of UEFA's European club competition after the current competition cycle ends in 2024. While many details are yet to be resolved, we look forward to seeing the full final proposal from UEFA that we anticipate will include a greater involvement of clubs in the governance and control of the competition. And of course, a new format with greater appeal for fans and which crucially will continue to go hand-in-hand with thriving domestic leagues.

[Richard Arnold:]

Thank you, Ed, and thank you to everyone for joining us today. As we reflect on the past year, few understood that the outset of the pandemic, the full ramifications of the exponential spread of this virus or the huge social and economic impact the global lockdown measures would impose. To echo Ed's sentiment, this past year has tested all of our resilience. And we are eager for the continued widespread vaccination rollout, which will help save lives and steadily but surely, but is all back on a path toward normality. At the same time, we recognize that not everything will revert to the way things were before and that the pandemic has created an opportunity for us to rebuild better.

[Cliff Baty:]

Thank you, Richard. I'll first talk to our fiscal year results, which continue to be impacted by the COVID-19 pandemic and related lockdown. Given this uncertainty, we will not be providing any forward revenue or adjusted EBITDA guidance today. As a reminder, year-on-year comparisons relative to fiscal 2020 have been impacted by our return to the Champions League and the number of games played in the year. Total revenues for the quarter were £172.8 million up £4.4 million versus the prior year, due to the impact of the Champions League revenues relative to the Europa League.

[Question-and:]

[Operator:]

We will now being the question-and-answer session. Our first question today will come from Laurent Vasilescu with Exane BNP Paribas. Please go ahead.

[Xian Siew:]

Hey guys, this is Xian on for Laurent. A couple for me. First, on the retail side, down only 3% as you mentioned. I thought that was pretty impressive considering the retail Megastore was closed. You mentioned e-commerce was strong. Can you help dimensionalize a bit, how big e-commerce is for you guys? And how big was the decline in the Megastore?

[Ed Woodward:]

Rich, do you want to take that?

[Richard Arnold:]

Yeah. So I think the first thing to understand is that there's a difference in the gross versus net reporting between the -- what goes through the Megastore where we report the gross retail passing through to consumers, whereas, for the e-commerce we report the licensed share of net profit as revenue, so a difference in mechanism. In terms of the drop that's been offset by both the explosion and the scale of the license profit as well as wholesale that's the sale by us to our e-commerce license partner, a product that's offset the reduction. So whilst the gross numbers are broadly the same year-on-year that translates -- in total that translates to a smaller reduction than you would expect purely from the closing of the Megastore.

[Xian Siew:]

Okay, got it. Thanks. And then second on broadcasting rights. As you think about it longer term, I think there was an article recently about the NFL potentially getting double the fees. I was wondering, how you're thinking about the growth profile for the broadcasting revenue? And maybe if you can break it out between maybe domestic broadcasting rights versus international? What -- how are you thinking about potential growth rates over time?

[Ed Woodward:]

Let me start with that and then maybe Cliff if you jump in. I mean, yeah. The NFL is the best example I think to point to in terms of premium sports league. And I think the way we think about the growth that we expect to come, I think it's likely to be less -- a lower rate of growth than we've experienced the last two cycles in the U.K. right sales, but set off that reduction of growth is covered by still big growth that we're seeing on the international side. So the cycle 2021-2024, that the premier league has been selling during COVID as well as a couple of deals just at the start has seen some good growth rates. So I can't really -- I don't really want to put a number on year-on-year growth. There is positivity that we're hearing with regard to the deals as they come through even during COVID. And I think that's the same as the NFL at least in terms of positivity despite the environment that obviously they're selling the right to. Cliff, I don't know if there's anything to add on that?

[Cliff Baty:]

No. I think you mentioned, I mean, we had the net deal you mentioned that, which happened just before COVID, which again shows the appeal of the premier league across international. But otherwise nothing.

[Xian Siew:]

Okay, very helpful. Thank you guys.

[Operator:]

Our next question will come from Randy Konik with Jefferies. Please go ahead.

[Randy Konik:]

Yeah. Thanks a lot. You touched on China a little bit in the remarks. Can you just give us some perspective -- added perspective on how you're thinking about monetizing the region in a deeper way? Obviously you talk to -- give us those great statistics on the engagement of your team, club versus everyone else. So I was just curious on -- update on the different -- the partnership you have over there what's going on? What's the latest there? And just any other areas of monetization you're thinking about to really capitalize on the strength you have for the brand and the team in China?

[Richard Arnold:]

Yeah -- everyone. Yeah, so three main monetization routes that we are actively both pursuing and participating in. The first, obviously, with such an important part of our family of fans in China is the benefit that comes and the attractiveness of our rights to sponsors. So that engagement translates into an ability to engage with those fans and higher sponsorship revenues. Secondly, the integrated partnership we have with the Alibaba group, with the content distributed on YouTube, as well as the work that we're doing to pass that traffic into Tmall on an integrated ecosystem basis drives e-commerce revenues. And then finally the in-market experiential work that we're doing particularly with Harves obviously will drive – and that's – we're opening the first of those this spring with a further four sites identified and 14 sites contracted. So a big expansion of that in terms of its reach across the country and very excited about what that can bring for us in terms of fan engagement and sponsor driving.

[Randy Konik:]

That was super helpful. The one thing that, we're seeing at least in the US market, I'm sure it's around the world is the traditional media companies or FOX, or what have you. They're trying to do more – I guess, selling more like Netflix-like content, which means less commercial or what have you. So are you seeing disproportionately more interesting – your different kind of sponsor side different brands out there that want to get more exposure to your brand and the live exposure you get across the world. Just give us some more thoughts there? And any type of, how do the ordinary demand that you're seeing from – within the sponsorship commercial segment?

[Richard Arnold:]

Yeah. That's a good question. So I mean, I think, there are a couple of items that set us apart, in what I would say is a unique way globally. The first is the scale of the fan base and the passion of the engagement and that translates into partners looking to activate with it particularly in a digital setting a very deep engagement level with our fans and that translates to get deep engagement to sponsors and successful commercial engagement. And that is a huge multiple of the typical advertising you see in a digital setting. So that itself is very powerful. And then further to your previous question, we're able to offer that engagement and commercial success not only in a western digital ecosystem but in – as strongly equally strongly, if not more so in the Chinese digital ecosystem and that – there's obviously a distinct subset. So that is unique in terms of being able to offer that strength on a genuinely global basis. And that attracts partners that are seeking to be successful in that way, and in that market and that tends to be the large and powerful fast-growing global company.

[Randy Konik:]

Super helpful. Thanks, guys.

[Richard Arnold:]

Thanks, Randy.

[Corinna Freedman:]

Grant?

[Operator:]

There being no further questions, this will conclude our question-and-answer session. And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.