Ed Woodward - Executive Vice Chairman Hemen Tseayo - Head, Corporate Finance Samanta Stewart - Head, Investor Relations

Alexander Mees - JPMorgan Matthew Walker - Nomura

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Manchester United Third Quarter 2015 Earnings Conference Call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] We would like to remind everyone that this conference call is being recorded. Before we begin, we would like to inform everyone that this call will include estimates and forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially, and which should be considered together with the cautionary note in our earnings release regarding forward-looking statements and the risk factors in our filings with the SEC. Manchester United Plc assumes no obligation to update these estimates or forward-looking statements. I will now turn the conference over to Ed Woodward, Executive Vice Chairman of Manchester United. Please go ahead, sir

Thank you, Operator, and thank you everyone for joining us today. With me on the call are Hemen Tseayo, Head of Corporate Finance; and Samanta Stewart, Head of Investor Relations. Hemen will take you through the detailed financial results shortly, but I will start with some comments on recent news and then discuss the quarter. Let me start with on pitch performance. We are delighted with the progress made so far under Louis in his first season as Manager and with only two games remaining, we are well-positioned to achieve a top four finish in the Premier League and therefore, return to European Football next season. Regarding this summer’s transfer activity, we already started implementing our plans and last week announced Memphis Depay. He is one of the most exciting young players in Europe will be joining our first team. We expect to be active again during the window but it is too early to give guidance on transfers or wages at this point. As we mentioned before, the value of content continues to rise and football is the world’s number one sport. As we discussed on our last call in February, Sky and BT have won U.K television rights for seasons 17th through 19th, and that bid reflects an increase more than 70% over current three-year cycle. The Premier League will bring the international rights to market in the second half of calendar 2015. In March, UEFA provided preliminary information on the amounts to be shared with clubs for participation in Champions League and Europa League competitions for the new three-year cycle commencing next season. For the first time, UEFA centralized into one single part and the total club remuneration announced represents an increase of more than 25% on the current deal. The total economics to English Clubs and the impact on our numbers will depend on what proportion the U.K. broadcasting rights represent of the total broadcasting pull for all countries participating in the competition. As a reminder, in November 2013, BT acquired the rights to broadcast the UEFA Champions League and Europa League competitions in the U.K. and the deal worked more than double the current arrangement. Off the pitch, our commercial business continues to grow. Sponsorship was up 22.1% in the third quarter and we announced three new deals. KamaGames is our first official social games partner, Swissquote is our first official global Forex and online financial trading partner and Emtel is our first partner in Mauritius as a triple-play media partner. We recently announced that we will be returning to the U.S. for preseason tour and play four matches against Club America, San Jose Earthquakes, Barcelona and PSG. I’ll turn our focus now to the bottomline. We believe that Financial Fair Play in the Premier League’s financial regulations are starting to show their effectiveness in controlling the industries key cost, player wages and CapEx. According to an article published at the end of April in the Guardian, following the introduction of Financial Fair Play rules in 2013, Premier League Clubs made an overall profit for the first time in 16 years. The collective £198 million in profit followed a loss of £291 million the previous year and player wages were up around 5.5%, much less than the total income which grew 22%. Turning to Retail. Following the conclusion of the agreement of our new tenure partnership with Adidas, we’ve been comparing for the transition of the retail and merchandising business back to the club. The business segments that will be operated by the club from the 1st August are retail, including the Old Trafford megastore, ecommerce, licensing and soccer schools. I can confirm that the Old Trafford megastore will be taken in-house and operated by us from the 1st August and therefore we’ll be retaining the retail margins. Manchester United currently has over 20 stores and twice as many shop and shop concessions operating across India and South East Asia, all managed through franchise agreements established by Nike. We are in the process of evaluating these partners and where appropriate extending our relationship with them. We believe that there are other global characters which could support Manchester United stores and we’re in the process of accessing and prioritizing these markets. On e-commerce, focus remains on establishing mechanics to convert the online traffic into purchases. We’ll be extending relationship with Kitbag and accessing the opportunity as we focus on developing and implementing a full strategy for this business from 2016 and ‘17 onwards. On Licensing, all the current licensing deals will terminate at the end of this July and we’ve taken this opportunity to make sure robust foundations are put in place for future growth. We will selectively extend deals with certain licensees and this transition will allow us to investigate further sponsorship opportunities and take control of the products and retail experience for our fans. Also, I wanted to mention that David Sternberg, Head of Digital Media, will be leaving Manchester United at the end of the current season to turn with his family to the United States. I would like to thank David for his contributions at this time to the club, helping to grow all of our expanding media business. In his two years of Manchester United, David has helped develop the strategic plan and hired a talented team that will continue to work on digital media rollout plan as we in parallel look to hire a new head of media. Our strategy is to redefine the club’s digital media infrastructure and leverage the opportunity to connect with the fans -- 659 million fans and follow us globally. Our primary objective is development of a mobile first approach that will be supported by our social footprint which is now over 100 million social media connections across 10 platforms delivering content in over 27 languages, the most recent being the club’s Chinese launch on the mobile messaging platform, WeChat. We’ve developed an embryonic mobile application that’s been released initially with partners in key strategic regions through 2014. The app is a content rich environment for fans with exclusive content, video and audio along with a roughly developing range of engaging in interactive features. We continue testing the app and making changes to incorporate learnings based on usage patterns. We’ll provide further updates on our digital media progress in the next earnings call. With that, I’ll turn over to Hemen for more detailed look for this year -- into this year’s -- sorry, into this quarter’s financials and guidance.

Thank you, Ed and hello everyone. I’m going to review our results for the third quarter ended 31st March, 2015. As usual unless I mentioned otherwise, all figures are in U.K. Pound Sterling. In terms of the headline figures, our third quarter 2015 revenue was down £20.5 million to £95 million. And adjusted EBITDA was down £14.6 million to £25.4 million. EBITDA is higher than consensus due primarily to lower wages in the quarter and variable costs and expected by the Street. Consistent with previous announcements, we have included both adjusted net income and adjusted diluted earnings per share as we believe that in assessing the true comparative financial performance of the business, it is useful to strip out the distorting effects of debits and credits unrelated to the underlying business and then to apply a normalized tax rate of 35% for both the current and the prior periods. And we provide a reconciliation of this in the earnings release. Adjusted net loss was £7.1 million, compared with £13 million of profit in the third quarter for prior year due primarily to lower broadcasting and Matchday revenues as a result of our absence from European competition this season and higher amortization, which is partially offset by lower wages and decreases to other operating costs. Turning to the key items of note in the financial statements then, Matchday revenues decreased £11.6 million primarily due to playing two fewer Premier League home games, the discount provided to executive season-ticket holders this year due to the absence of European football and the loss of one Champions League home game in the third quarter compared to the same quarter last year. Broadcasting revenues decreased £13.9 million due to again, the two fewer Premier League home games in the quarter and this is because we recognized the domestic rights equal share amounts, together with the international rights revenues equally over the number of Premier League home games in the season. There is also the loss of the one Champions League home game and finally with respect to Broadcasting in this quarter, we had five fewer games selected to be broadcast live compared to the same quarter last year. Now this is merely a phasing issue as the total number of games to be selected live this season in the U.K. is expected to be at least 26 this fiscal year. The final game for the season is yet to be decided whether it would be selected or not that which is difficult for the broadcasters and this compares with 25 games last year. Commercial revenues then increased £5 million, primarily as result of sponsorship revenue increasing, £6.8 million due to the increase in the shirt sponsorship with Chevrolet and other new sponsorship agreements. Merchandizing, Apparel & Licensing revenues declined £0.8 million due to the reduction of the minimum guarantee from Nike, as a result of non-participation in European competitions in the current season and the extended final period of the partnership, which ends on the 31st of July this year, resulting in the profit share element being recognized over 13 months, with 12 of the 13 months recognized in fiscal 2015 and the final month recognized in the first quarter of fiscal 2016. Mobile and content revenue then decreased £1 million, due as previously explained to the expiration of a few of our partnerships and territories that we've decided to keep clean as part of our broader digital media strategy. During the quarter, total operating expenses excluding depreciation, amortization and exceptional items were down 7.8%, with wages down 6% primarily due to the absence of the Champions League participation uplift in football staff wages and other operating expenses decreasing a little over 12%, due primarily to reductions in Matchday variable costs, resulting from playing three fewer games at Old Trafford in this quarter compared to the prior quarter, coupled with savings on fixed costs such as traveling and entertainment and legal and consulting costs. Based on our year-to-date results and the current visibility, we leave revenue guidance unchanged for fiscal 2015 at between £385 million to £395 million and raise EBITDA guidance from the previous range of £90 million to £95 million to a new range of £103 million to £110 million. Now the EBITDA guidance increase is primarily driven by -- on the revenue side the expectation that full year revenues will be towards the top end of our guidance range, notwithstanding the team’s earlier exit from the Capital One Cup and this is due to larger than expected Champions League and overseas wash-up payments which related to fiscal 2014 and strong performance in the match day ticketing sales. This is coupled with on the cost side lower operating cost due to fewer domestic home cup games, resulting in savings in the direct cost of putting on those games and also the gate check cost associated with those, also lower legal and consulting costs that we had anticipated and efficiency drive savings as well. On top of this we have material one-off items such as FX translation gains on cash and receivables and payables and also nonrecurring items such as a business rates rebate which related to claim dating back to 2010 and also lower tour and friendly costs. It is also worth noting that we are in negotiation with the few players regarding contract extensions and any deals concluded could have a wage catch-up effect in the fourth quarter. Finally, we have been working on the appropriate revenue recognition methodology for the Adidas partnership and have agreed with our external auditors PwC that we will recognize the revenue from the £750 million minimum guarantee on the straight line basis. The contract covers a period of a 118 months from the 1st of August 2015 to the 31st of May 2025. So in the first and the last fiscal years of the contract, Adidas will contribute in only 11 of the 12 months in those years. As such, the amounts to be recognized with respect to the Adidas minimum guarantee in FY '16 will be £69.9 million and that the 750 divided by the 118 months times 11 months. With that, I will hand you back to the operator and we are ready to take your questions. Thank you.

Good morning, everyone. Thanks for taking my call. Just a couple of questions. The first one with regard to the very strong Q3 and congratulations to that. It seems that the 6% reduction in staff costs was one of the reasons for it. I wonder if you could just give us a little bit more color as to why staff costs went down 6% the way that they did. And my second question is with regard to the squad for next year, two prongs the question. Firstly, I wonder what proportion of players are up for contract review this year and whether we ought to be concerned about wage inflation next year? And the second prong is, do you believe this quarter is deep enough to challenge the European honors next year, and if not will, will you be looking to strengthen?

Thank you, Alex. I will definitely take the first portion of that. The reason for the 6% wage reduction in staff costs that the bulk of that is driven simply due to the absence of the Champions League uplift on this quarter versus last year when we’re in the Champions League. I did mention and I know that a number of analysts obviously have an expectation of some cost coming in the second half of the year. Some of those coming into Q3. Some of those could still happen in Q4 from the play wage negotiations that are underway. With respect to the portion of the squad, do you want to take that, Ed?

Yes. Sure. There are several players out says if you like out of 30 13 players, maybe around about eight or nine who has a contract at the end of next season. There are only a couple this season here on the periphery. So it’s not going to have a major impact from an inflationary perspective because that’s a fairly normal ratio to be honest. Obviously, a number of those that have one year left will be often new contracts. And I think Hemen alluded to that early when he made his comments about the negotiations that are underway. The second part of your question in terms of is the squad deep enough to challenge? The squads will be absolutely deep enough and ready to challenge on all fronts, all competitions next year and that as ever does involve some ins and outs in the summer which we’re not going to guide on in terms on number.

Okay. Thanks so much.

[Operator Instructions] The next question will come from Matthew Walker of Nomura. Please go ahead.

Thanks so much. Good afternoon and good morning. The first question is the beat on EBITDA and the upgrade that you put through. Does that flow through into EBITDA for next year, and if not, why not? The other question really is on the e-commerce side and retail. Why have you chosen to extend with kit back and where are the other stores going to go? You mentioned 20 stores in Southeast Asia, what markets are promising for the further stores? And will you be doing that by yourself or with somebody else? And the last question is really on player CapEx. You said you couldn’t really give guidance for next year. But for this year I think you were talking about around 90 million of net player CapEx. Does Depay go into that CapEx number? Are you still comfortable with that number? And how much is Depay coming in for please?

Hi, Matthew. And thank you. I’ll take your first and your third question and then I’ll pass on to it for the retail and merchandise. Firstly, on the EBITDA or uplift and whether it would flow through into next year, the vast majority of it does not flow through. So I will just walk through the items that are largely contributing to that we can see that I think relatively clearly. So, first of all, and with respect to the topline on the revenue side, we are at the high-end of guidance, and I guess, on a like-for-like basis we -- the revenue would have come down with respect to the early exit on the Capital One Cup, where we went out on the first round as you might recall, the MK Dons game. And so we lost a portion of revenue, but we’ve made that up in other ways, in particular due to the payments on broadcasting, the washer payments from broadcasting on the Champions League, which were higher than we’d broadcast, sorry, than we forecast, and also for the overseas payments. Those are one offs and although, they happened, I’ll say, one-offs, the amounts are not forecastable and the amount that we received, although, we had a provision in there for what we expected to receive it was significantly higher than what we expected, so that would not repeat and that's kind of together circa about £2 million in terms of the incremental uplist. And there’s also then the strong performance on Matchday ticket sales is something that theoretically could repeat its relatively small around circa £0.5 million and that obviously varies from year-to-year but that's amount is theoretically repeatable. With respect to the cost side and the fewer Domestic Cup games, clearly that had an effect on the revenue side and also on the cost side, but we’ve made it back up on the revenue side. So in terms of the cost side the circa £2.5 million of savings from not putting on the games that we expected to put on in terms of the Domestic Cup side together then with the gate share that we’d forecast to having that. So that's another £2.5 that wouldn’t repeat unnecessarily next year and not one that you’d flow through. On top of that we’ve got the FX translation games, which at the movement sit at circa £2 million and it’s possible that we might have some other reverse of that with the remaining months to come. And so that's a number that could come down again. There’s another bit of a swing but it’s unlikely that that swing will turn into a negative, so that too might under being slightly smaller. On top of that the two other key nonrecurring items, one is the business rates rebate. Again that's over £1 million that we had and I mentioned that that's from a claim with the council dating back before 2010. And then, finally, we were forecasting to have a certain amount of cost relating to the tour together with either mid-season or end of season friendies, which we’ve decided not to have, the only friendies we had at all traffic where the international game that was played between Argentina and Portugal. And as such the cost relating to those and that we had provision for circa £2 million will also not happen and those two will not flow through. And so hopefully that answers the EBITDA beat point and the forecast point, why it doesn’t flow through with respect to the guidance. And with respect to player CapEx, you’re right previously. We were at about £90 million to player CapEx for this year. We expect the number this year post to Depay transaction to be -- and a few other small movements that happen to basically be £101 million for this year contracted and then the contracted figures, which we’ve given you for next year as well which we provided, I think the last time we spoke it was at circle £45 million that number is now £53 million for FY ‘16.

Thank you.

I'll hand you now to Ed for the retail piece.

Yeah. Okay. So by the way, we extend Kitbag, essentially prudent. We’ve done a very short extension while we finish our digital media plans and we didn’t want to lock ourselves into something and then regret it. But we’re going -- basically, we will be making strategic decisions during the next 12 months related to that. So that’s why we’ve done it. It is just to cover that often, we continue to deliver product by e-commerce with the partner that we know. The stores, that is very much a work in progress in terms of where they maybe with. We think there is a big opportunity here globally that hasn’t fully been developed. I think there are several strategic markets I would call them that we believe represent a material opportunity. One as an example would be the U.S. And whether it’s our sales directly or partnering, again, that’s to be determined but obviously recognizing that our retail expertise largely resides within the team of people who run to the Megastore, that group of people -- as staff members are coming back to us obviously. So, we are opined about whether we need to partner from an expertise and understanding perspective in particular as you look to local markets, where local knowledge is extremely important.

Last quick question, which is, it was reported I think that the club has decided not to take up naming rights for the stadium, which could have brought in maybe £20 million, £25 million. Can you comment on that? Is that right?

I think the comment was that we had no intention of doing a process to sell naming rights related to Old Trafford. I had no idea where that £20 million came from. We haven't -- we're not sitting here with an offer. We are ignoring that.

Okay. Thanks so much.

Yes.

And at this time, we show no further questions. We will conclude the question-and-answer session. Ladies and gentlemen, the Manchester United third quarter 2015 earnings conference call has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.