Edward Woodward - Executive Vice Chairman and Director Hemen Tseayo - Head, Corporate Finance

Omar Sheikh - Credit Suisse Alexander Mees - JPMorgan Matthew Walker – Nomura

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Manchester United Fourth Quarter and Fiscal 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 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 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 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 as usual are Hemen Tseayo, Head of Corporate Finance; and Samanta Stewart, Head of Investor Relations. As you can see for the full-year 2015 earnings results and our record guidance for next year, our business continues to perform well. Our overall financial performance for last year was very solid, particularly since results were impacted by our absence from European competition. We believe this performance demonstrates the underlying strength of our business model and shows that we are robust enough to be able to withstand short-term headwinds from performances on the pitch. Since we last spoke, we’ve had a protective summer. We further strengthened our squad by adding an exciting mix of experience and use as we signed six new players. Italian international fullback, Matteo Darmian; Dutch international forward, Memphis Depay; French international, Anthony Martial; international – sorry, Argentinian international goalkeeper, Sergio Romero; French international midfielder, Morgan Schneiderlin; and Germany’s Captain and World Cup Winner, Bastian Schweinsteiger. We also recently secured new contracts with David De Gea, Phil Jones, Chris Smalling, and Ashley Young. We had a very successful tour in the United States with 200,000 people attending our full matches there, and obviously we’ve secured our participation in the group stage of the UEFA Champions League. We continue to see incredibly strong support from my fans with season tickets selling out earlier than ever before this year, and seasonal hospitality facilities selling out about two months earlier than last year. Since the end of fiscal 2015, we’ve also announced partnerships with Nexon, the club’s first social football gaming partner in Korea; Marathonbet, as our new official global betting partner; and Donaco International, as the club’s first official casino resort partner in several countries in Southeast Asia. We also recently announced partnership with HCL, as our digital transformation partner. This partnership represents key milestone in our digital media strategy. HCL, our leading global IT services provider and by collaborating with them, we have to transform the way in which we interact with our fans around the world, and improve the overall fan experience of those who engage with us, whether they visit Old Trafford, our website, or through our social media channels. In collaboration with HCL, we’ll be working on a new scalable club app, a new website, and other digital solutions to engage with our fans and further boost our digital presence. On August 1, we started our 10-year partnership with Adidas and are already seeing evidence of how their distribution capabilities magnify the reach by merchandise around the world. Here are some interesting statistics from the launch. There were 212 million impressions of kit launch related content across the club’s website and social media channels during the first 10 days of the launch. It was the biggest Manchester United kit launch buzz with 10 times higher online mentions in three years ago. It was the biggest Adidas kit launch of the season so far, as the different hashtag mentions were four to five times greater with Manchester United than when used for other major football kit launches. As Adidas mentioned in their earnings call, the Old Trafford megastore saw record demand for non-matchday, up almost 60% from the previous record. Additionally, our e-commerce site United Direct saw equally high demand, up four times on the previous record kit launch, a great start, but too early to revise expectations based on one day’s trading . The businesses that were previously operated by Nike, including the Old Trafford megastore, ecommerce, licensing, and soccer schools, all smoothly reverted back to us on August 1. As mentioned in our third quarter call, we have extended our partnership with Kitbag to May 2016, and continue to work on a full e-commerce plan to magnify and maximize our online product distribution capabilities. On licensing, we have selectively extended deals with some licensees and started manufacturing a range of Manchester United mono-branded goods, which will also be selling in the Megastore and through our e-commerce platform. We’ve also been working on strategic partnerships and recently signed our first combined licensing and sponsorship deal with Sbenu for leisure footwear in Korea. We remain excited about these opportunities and look forward to giving you an update on our retail business in due course. On the broadcasting side of our business, the Premier League continues to be in the market with international rights, with two deals concluded so far; South Africa and the U.S. where NBC extended with a further six year deal through 2021-2022. In summary, 2014 and 2015 was a very good year for the club with strong performances commercially, financially, and on the pitch. Given the strong platform we’ve built, we are increasingly confident in our financial outlook and have today announced record revenue and EBITDA guidance for the fiscal 2016 year. I’ll now hand it over to Hemen to go through the numbers and would be happy to take any questions you have.

Thank you, Ed, and hello everyone. I’m going to review our results for fiscal 2015 and will focus my remarks on the full-year numbers. As usual, unless I mention otherwise, all figures are in UK pound sterling. As expected, year-over-year comparisons are significantly impacted by our absence from the European competition in the 2014-2015 season. In terms of the headline figures, our full-year 2015 revenue was down 8.8% to £395.2 million and adjusted EBITDA was down 7.8% to £119.9 million. EBITDA was higher than consensus due primarily to lower operating costs in the fourth quarter. 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 impact of items that are unrelated to the underlying business and then to apply normalized tax rate of 35% for both the current and prior periods, and we’ve provided a reconciliation of this in the earnings release. Adjusted profit then was £3.1 million compared to £28.7 million for the prior year, primarily due to lower matchday and broadcasting revenues, and higher amortization which were partially offset by lower operating costs. Turning to the key items of note in the financial statements, matchday revenues decreased £17.5 million primarily as a result of no European football, coupled with playing only two of our six domestic cup games at home this season compared to playing four of the same total number of domestic cup games at home in the prior season. Broadcasting revenues decreased £28.1 million due to the absence of European competition, the effect of which was partially offset by increases in both merit and facility payments due to higher league finish fourth versus seventh and two more Premier League games being selected to be broadcast live. Commercial revenues increased £7.6 million, primarily as a result of sponsorship revenue increasing £19.1 million or 14.1% due to an increase in the shirt sponsorship with General Motors, coupled with higher revenues from other sponsorship agreements. Merchandising, apparel, and product licensing revenue declined £5.9 million due to a reduction in guaranteed revenue from Nike, result of non-participation in European competition, and the extended final period of the partnership which ends on the July 31, 2015, resulting in the guarantee being recognized over a 14-month period and the profit share being recognized over a 13-month period. The final month of the recognition for both the guarantee and the profit share will be July the first quarter of FY 2016. Mobile and content revenue decreased £5.6 million due as previously explained to the expiration of a few of our partnerships and territories that we’ve decided to keep clean leading up to the rollout of our broader digital media strategy. During the quarter, total operating expenses excluding depreciation, amortization and exceptional items were down 9.2% primarily due to low staff costs, largely driven by the absence of the Champions League uplift payments to players, reductions in matchday variable costs due to fewer home matches, the swing in foreign exchange from a loss of circa £4 million in the prior year to a small gain of around £0.4 million in FY 15, and other nonrecurring items such as the £1 million rates rebate and savings in legal and professional fees. In June, we refinanced our borrowings pushing out maturities to 2025 and 2027, and securing very attractive long-term rates which we estimate should result in an interest reduction of approximately $10 million per year. Turning to the outlook for fiscal 2016, we expect total revenues to be in the range of £500 million to £510 million, and adjusted EBITDA to be between £165 million to £175 million. Given the strong outlook, we announced today that we will pay our first dividend to shareholders since our IPO in August 2012. Our expectation is that this will be a regular quarterly dividend with the first dividend of £0.045 per share. This announcement is a reflection of our strong financial position and future prospects which allows us to pay a dividend whilst continuing to invest in growth. Finally, I would like to take the opportunity to provide some more color on a few of the other items that you might find instructive when modeling our business. We expect total staff costs to be up in the high-teens in terms of percentage of the Champions League uplift payments are reinstated, amortization to be in the low 90s-million-pounds. As you know, just to remind you, this can change if we buy or sell a player or extend a player’s contract. Net finance costs should be around £20 million and our effective tax rates to be approximately 35%, but this will vary subject to the relative magnitude of permanent differences. Regarding net player CapEx, we incurred around £97 million in fiscal 2015. And for fiscal 2016, the current year, we are committed on net player CapEx after the summer transfer window at approximately £78 million. As we’ve mentioned in the past, net player CapEx is lumpy by nature and may continue to vary significantly from period to period. With that, I’ll hand us back to the operator and we’re ready to take your questions. Thank you.

And thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Omar Sheikh of Credit Suisse. Please go ahead.

Good morning, everyone. Just three questions from me. First of all, on the stores, as you mentioned, but obviously first of all, you’ve taken over running of the Old Trafford store, I wonder if you could update us in how many new stores you may open during fiscal 2016 and where they might be, that would be helpful. Thank you. On the – second question is on e-commerce. You mentioned the smartphone app, the relationship with HCL. I just wanted to get some timing on that. Again, is that going to come through in this fiscal year? And then, finally, for Hemen perhaps a question on CapEx. You just guided on CapEx coming down in 2016 versus 2015, but I’m just wondering whether you can give a sense of whether 2015 was the peak for CapEx and whether it will come down further beyond 2016, just given what you know about the gaps you filled in this quarter and so on. Thank you.

Hi, Omar. So, first of all, I’m not going to give you too much on the first two unfortunately. The stores, I think I mentioned as I went through to the script earlier, we’re going to update you more in terms of the retail plan as that continues to evolve through the year. I’d rather not put predictions out there as to locations and number of stores. But all I want to update everybody on at this point is obviously how well things have started right from the Megastores perspective and more widely with the wider Adidas relationship from a wholesale perspective. On e-commerce, same in terms of guidance around timing, we only announced this deal with HCL very recently. I would very much hope to guide you on timing as soon as that’s – the work plan is finalized, and we have those sort of days that I can share with you, and I’m sure we’ll do that later in the year. And I think on CapEx, and Hemen can jump in here, but I think your question was 2015 a peak. I think it’s impossible to answer that question. I think we have seen a large number of ins and outs in terms of the squad in the last couple of summer windows. We’ve previously guided a more modest number in and out, is our expected average over a period. So, maybe, we’ll go back to more normalized levels in the coming years, but I can’t really comment on the prediction around that. It’s a number times price calculation. The number can vary, as we just – as I just mentioned and obviously the price can vary quite materially based on who you’re purchasing. So it’s difficult for us to guide on that, it’s not something we’re willing to do.

Okay. Just to clarify, precisely, as Ed said, we don’t guide, and my 78 number is exactly where we are today, is obviously one more transfer window to go in this fiscal year together frankly with business that one could very early in the summer transfer window still in FY 2016, which is why we never guide on that number, but we tell you exactly where we are today, and you can make predictions based on that.

Okay, it makes sense. So just – that’s clear. Thank you for that. Just want to follow up on the stores question, if I may. Could I assume though that – obviously I’m just trying to get a sense of what’s driving or what’s included in the guidance, and kind of what your assumptions are? I’m just wondering perhaps you could give us a sense of where the growth in revenue is going to come from within the various reporting lines…

From a stores perspective…

For stores or anywhere really. It’s going to give – just to give us a sense of what you’re assuming in that in your top line guidance for 2016?

Yes, there’s going to be some growth coming through in terms of all the businesses I mentioned that came back from Nike and the way things are heading in terms of why the merchandising business with Adidas. But we aren’t assuming anything from a stores – opening stores perspective in fiscal 2016 from a revenue perspective.

Perfect. That’s very clear. Thanks, Ed.

Thanks, Omar.

And our next question comes from Alexander Mees of JPMorgan. Please go ahead.

Good morning, everyone. A great quarter, and I have three questions, if I may. First off, you mentioned that a couple of the International Premier League TV watch deals have been completed. Could you give us a sense for the status of the negotiations with the rest of them and when you expect that to be all done and dusted, and if you have any expectations for what sort of content of uplift we might be looking at? Secondly, I wonder, if you can give us some guidance as to what you assume in your guidance for your progress in the Champions League this season? And finally, on the dividend, great to see it being introduced, I wonder do you have a policy in mind, whether it’s progressive or a certain level of payout please.

Okay, I’ll start with the first one. International deals, yes, so the Premier League has been in the market for a few months now. And as I reported earlier, there were a couple of deals that have been done. My expectation is that, there will be – the bulk of the international deals will be done through to the end of calendar 2015, probably with a few stragglers in early 2016. That’s all we’ve heard so far, obviously, we’re listening to whatever the Premier League is telling us on that. In terms of size, we don’t get reported to on a granular basis country by country. But I think the numbers that you may have seen in the press around the deal in the states is probably not far off. But I – we don’t know the actual numbers.

Okay.

In other words, it’s positive, definitely heading in the right direction in terms of where you’d expect it to go.

And, Alex, in terms of the client performance assumptions, particularly on the Champions League, we have not changed our assumptions. And so they were quarterfinals in the Champions League and for your modeling purposes, I’d suggest you keep that the same. With respect to the dividends, the $0.045 per share, we intend to be a regular quarterly dividend. So it’s – we will declare it on a quarterly basis. I think it’s reasonable to assume that it will be that figure unless we say otherwise. But we have obviously the scope to tweak things should we wish and should business positive performance merit it.

That’s very clear. Thank you.

And our next question comes from Matthew Walker of Nomura. Please go ahead.

Thanks, and good afternoon. Just a few questions please. The first is, could you just explain a little bit more about the nature of the HCL deal and some of the financial implications behind it? Is it some kind of sponsorship arrangements, where they get a benefit from being associated with you, and that’s reflected in the financials? Second question is on Financial Fair Play. Is there any updated thoughts around FFP, because we did see some of the clubs in the UK spend in a really big way in this window. And so, I’m just wondering, if there’s any sort of update there? Could you give us a figure based on what you know now? Could you give a rough idea of where you’re seeing net debt will end up at the end of FY 2016, not including any new business, et cetera, in the January window? And lastly, Ed, you’ve been appointed to the board of ECA. How is that going to help MANU going forward? Thanks.

Okay. Thanks, Mathew. First of all, the nature of the HCL deal is indeed a sponsorship deal. So they’re going to benefit from the association, they have that designation, I mentioned earlier, and they obviously will have the ability to use the inventory that you would typically see associated on any sort of normal global deal. And beyond that, we’re also getting obviously a leading IT services provider to assist us with building an App. It’s probably more kin to the sort of Toshiba type deal, where it’s a sponsorship deal, but there are business related interactions between the businesses. The second question on Financial Fair Play, I think, I know that you’re talking about in terms of expenditure in the last summer, I think two things. Number one, I’m – I would expect that they spent within the rules. I think the rules are very clear. Everybody understands them, and as we know, there are some big revenue increases coming down the path. And when you buy a player for X, bear in mind that it obviously is spread over from an amortization perspective, spread over the length of the contract. So, I think, everybody has visibility into significant increases on revenue. And so it doesn’t surprise me that there has been some material investment in players. And the core question around, is it still important. It is absolutely, maybe, I’ll touch on your last point about ECA. Being in the ECA meetings and engaging directly with UEFA, I can tell you that there is still significant discussion about Financial Fair Play being important to all of the clubs across Europe. There is still great belief from UEFA and indeed from the ECA clubs. Me being on that is a – it is positive in terms of my perspective being at the main table of debate around European football and how the clubs position themselves in negotiations with UEFA. So, I think, it’s a positive development. Hemen, do you want to?

Yes, and Mathew, just taking your question on net debt, I mean, it’s not something we guide on, but I think it’s worth just pausing to note a couple of things. Our net debt at June 2015 is down almost £20 million and £255 million, which is just over two times our EBITDA in terms of our ratio of net debt to EBITDA. If our guidance midpoint of EBITDA are of 170 comes for fruition and our net debt doesn’t move at all then we turn into 1.5 times. Clearly, I’m sure your model suggests that with EBITDA that we expect to produce this year, and as you said on the assumptions that we didn’t buy anymore players. You can see that we expect to have more cash at the end of the year than we would have at the start of the year. But as Ed has mentioned previously, there are number of things with respect to cash that we can do, and players obviously remain something that we will continue to invest in accordingly.

Okay. Thank you.

Okay.

We’re seeing no further questions. This concludes today’s Manchester United conference call. We thank you all for attending today’s presentation. You may now disconnect your lines. Thank you.

Thank you very much.