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Executives

Jean-Michel Bonamy - Executive Vice President of Investor Relations

Philippe G. H. Capron - Chief Financial Officer and Member of the Management Board

Philippe G. H. Capron - Chief Financial Officer and Member of Management Board

Pierre Trotot - Senior Executive Vice President of Finance and Administration

Julien Verley - Chief Financial Officer

Analysts

Conor O'Shea - Kepler Capital Markets, Research Division

Filippo Pietro Lo Franco - JP Morgan Chase & Co, Research Division

Ian Whittaker - Liberum Capital Limited, Research Division

Matthew Walker - Nomura Securities Co. Ltd., Research Division

Richard Jones - Goldman Sachs Group Inc., Research Division

Julien Roch - Barclays Capital, Research Division

Omar Sheikh - Crédit Suisse AG, Research Division

Patrick Kirby - Deutsche Bank AG, Research Division

Polo Tang - UBS Investment Bank, Research Division

Charles Bedouelle - Exane BNP Paribas, Research Division

Allan C. Nichols - Morningstar Inc., Research Division

Thomas A. Singlehurst - Citigroup Inc, Research Division

Vivendi (OTC:VIVDY) Q3 2012 Earnings Call November 13, 2012 12:00 PM ET

Operator

Good day, and welcome to the Vivendi's Third Quarter 2012 Revenues and Earnings Presentation Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jean-Michel Bonamy, Head of Investor Relations. Please go ahead, sir.

Jean-Michel Bonamy

Thank you. Hello, ladies and gentlemen. Welcome, and thank you for joining us for Vivendi's third quarter 2012 earnings. Your host for -- to this call is Philippe Capron, member of the Management Board and Chief Financial Officer. This presentation will be in English with a simultaneous translation. This call is webcast on vivendi.com where the presentation slides are available for download.

As I will not go through the old disclaimers, I urge you to read the legal disclaimer at the end of this presentation on Page 36 and 37.

The third quarter 2012 financial report will be available on our website as of today at the end of this conference call. And you will be able to access a replay of this call for 15 days, also on our website as of tomorrow morning.

As usual, we will leave time for a Q&A session at the end of the presentation. And now I have the pleasure to introduce our CFO, Philippe Capron.

Philippe G. H. Capron

Thank you, Jean-Michel. Good evening, ladies and gentlemen. I'm here with Pierre Trotot, CFO of SFR. Jean-Bernard Lévy is also on the line, and Jean-René Fourtou, my deputy is here to help me answer your questions as well.

Turning to the first Slide, which is numbered 2 in the presentation. You will remember that we've announced at the beginning of 2012 that we would be facing 2 difficult years. This still holds true, obviously. But within the general context, we're happy to report that so far, things are going a bit better than planned. Hence, the improvement of our 2012 earnings outlook. We had forecast an adjusted net income above EUR 2.5 billion. We now expect it to be around EUR 2.7 billion, still down, of course, compared to the record earnings of last year, but still a significant improvement vis-à-vis our earlier forecast.

We still expect the net debt to be below EUR 14 billion at year-end 2012. We remain cautious, obviously because of the macro -- the tough economic environment, especially in Europe, tax increases here and there. But as you know, our business model is very resilient. And as with previous recessions, we don't expect the present slowdown to have a dramatic impact on Vivendi.

Meanwhile, the strategic review, which we have announced last spring, is going on at full speed. Unfortunately, I don't have anything to report at this stage. But rest assured that we are equally committed to changes and that our focus remains the same, delivering value to shareholders while keeping our BBB rating.

Moving on to Slide 3. Let's go quickly through the highlights of this quarter. Activision Blizzard has had a very successful series of launches this year, with yet more to come, especially today with the launch of Call of Duty Black Ops 2. We have successfully closed the EMI deal at the end of September, both in Europe and the U.S. Integration is underway. I'll get back to this.

SFR is successfully adapting its model to new market conditions. I'm sure we'll get more details on this from Pierre in a minute. Morocco's voluntary departure plan has been very successful with more than 1,300 employees involved so far, having opted to leave the company. GVT is still going strong, despite impacts of the VAT settlement in Q3. Q3, by the way, will be the last quarter impacted. So starting next quarter, we'll have more favorable comparables and in spite of more price competition from the incumbents. And last but not least, Canal [ph] has had very good news on the regulatory front with the successful closing of the free-to-air TV channels' deal with the Bollore group and the obtention of a regulatory approval for the Polish pay-TV consolidation initiative.

Moving on to Page 4. Here are the key indicators of our financial performance. Revenue is slightly down at 1. -- by 1.3% at EUR 20.75 billion; EBITA, down 11% at EUR 4.3 billion; adjusted income, down 12.9% at close to EUR 2.2 billion; and net debt has reached a high point at EUR 15 billion at September 30. However, and of course, therefore, variations versus prior years continue to be negative, but there is actually an improvement if you compare those figures to the ones we posted in H1. And the overall performance is significantly better than the one we envisaged at the beginning of the year.

On Page 5, you have the breakdown of our EBITA performance or operational performance by business. I'll get into more details when I get to each business scorecard. Just a word on Activision Blizzard, where the figure is of course impacted by the usual revenue earnings deferral, and therefore, the impact of the calendar release. If you look at the non-GAAP figures, which have been published recently by Activision Blizzard, they're actually having a very strong year. And they have increased guidance, both GAAP and non-GAAP, which will lead us to a similar movement.

In the same way, GVT's apparent performance is affected by weaker currency. I mean, it's, as you can see, it's a plus 23% at constant currency versus only plus 14% in euro. And even more importantly, by the last impact of last year's VAT change, the actual figure would be, at constant currency, plus 59% increase if you stripped out both negative impacts.

On Page 6, starting from a lower EBITA base of course, we -- the adjusted net income is impacted by a series of positive and negative movements. One is, of course, lower dividend income. We don't have any dividend from NBCU this year compared to Q1 last year. We have a higher interest charge. Not by much, but still EUR 70 million. This is in spite of lower rates because of the fact that we have more debt than the previous year. And we suffer higher taxes, our effective tax rate is up 4 points due to changes in the tax environment in France and Morocco. For the whole year, we forecast an adjusted tax rate between 26% and 28%. And this is the negative movement, of course, partially offset by lower minority interest, of which EUR 240 million, thanks to full control of SFR.

On Page 7, you see that our debt reaches EUR 15 billion at the end of September. But it should get back under EUR 14 billion by year end as planned, thanks to the cash generated by our businesses. This high point is due, of course, to the recent cash outlay due to the EMI acquisition.

Meanwhile, it's a very good news there is that S&P has confirmed our BBB rating, withdrawing Vivendi from its negative watch list. We are still on a long-term negative outlook, but that gives us a lot of time to remedy the situation. And of course, given the structural changes which are on the way, we have -- we feel no pressure from this situation whereas, of course, being a negative watch, was a bit less comfortable.

Moving on to the various businesses. As I mentioned, Activision Blizzard is having another very good year, commercially. Diablo III, you will remember, has been a great success in Q2. Mists of Pandaria, which has been released in Q3, has enabled us to get the World of Warcraft subscriber base back above 10 million. Skylanders is proving increasingly successful. It is really a third leg, which we have grown through the Activision Blizzard business, which is excellent news, obviously. And last but not least, we have very high expectations for Call of Duty Black Ops 2. The -- it's too early to give any feedback on the launch because it just took place today. But the pre-orders, at least, were comparable if not a bit above those of Modern Warfare 3, which you will remember had broken all records. So we are very, very bullish on that one.

If you look at the figures, EBITA is down, compared to last year at EUR 754 million. But if you add to this deferred EBITA balance, which is higher this year by more than EUR 200 million, we're actually very comparable to the previous year. So that we are confidently raising our guidance, which was around EUR 800 million in IFRS for Activision Blizzard to above EUR 900 million.

For music, we unfortunately have to report a relatively disappointing Q3. You remember that we had a brilliant Q1. We had an average Q2. And now we have a Q3 which is not looking as good. We are used, of course, to those roller coaster effects, which are mostly release calendar driven. The good news is that we expect a very strong Q4 on the back of a more promising release schedule. And already some successes, Taylor Swift to mention one. So we should be able to improve the performance by year end. After 9 months, revenues are slightly down at constant currency, which is why EBITA is down, in spite of the fact that this is hidden to a certain extent by the relative strength of the dollar. Meanwhile of course, management focus is on EMI integration, which is moving ahead at full speed. We are able to confirm the objective to generate GBP 100 million plus of annual synergies, thanks to this acquisition.

And we are, of course, extremely pleased that we have been able to reinforce markedly our positions in the top 3 worldwide music markets, the U.S., Japan and Germany. We had no remedies to envisage in either of those 3 markets, so we are fully confident that we'll exploit this new position in the best possible way.

Incidentally, the disposal of the -- of those remedies, of the EMI businesses which we'll had to divest, is underway and is fully on track. And we expect to be in a position to report good news in the coming months regarding this process.

On Page 10, you have the SFR figures. There, again, I'm sure that Pierre will give us more color and more detail on this. The important thing to note is, for us finance guys, is that the EBITDA is down only 8%. Actually, it's only 7%, excluding some non-recurring items. And that's due, at least, as much to regulatory tariff decreases than to the new market conditions, which we have to face. I would say in a nutshell that commercial results are back in line, in fixed as well as mobile. And that cost reduction is on track with 60 major initiatives underway and starting to yield results.

Page 11. Morocco, which also has already published its figures, so it's not much news there. But you will have seen looking at their releases that the international growth there helps relieve pressure from Moroccan market dynamics. They -- they have an excellent performance with 40% increase in EBITDA after 9 months for their sub-Saharan African businesses. EBITDA margin actually increases slightly at -- after 9 months, thanks to the excellent management of our cost base, which has made the EBITDA decline less than the top line decline, so that we further improve margin. You will notice that EBITA on the other hand does decline. But mostly, it reflects a Q2 restructuring charges, which you have remember we put in the accounts after Q2. That was EUR 72 million.

GVT continues to be extremely strong. And as I mentioned, Q4 should be even better because that will be the end of the VAT change impact on comparables. We opened so far this year 17 new cities. We have put more than 2 million additional lines in service. We are shifting gradually our customer base to higher speeds. So all indicators to be -- continue to be extremely favorable. Actually, competition is getting tougher on prices. That results in us being more expensive than the incumbents in many cities. And guess what, this is fully warranted by the higher quality of our products and services. And therefore, we can get away with it, which is rare for new entrants.

Meanwhile, pay-TV is also on track to reach the planned 400,000 subs by year end. And we're already grabbing a very large share of net new adds in pay-TV on the Brazilian market, which is growing because this is an underpenetrated market for pay-TV. And this is such a -- is especially remarkable in those areas where we are. But overall in Brazil, including the many cities where we are not present or the parts of cities where we are not present, it's already a double-digit share of those net new adds.

Telecom EBITDA margins continue to grow up. We are now close to 44%, where I think, slightly we are at around 40% or even slightly below 40% when we first acquired GVT, while this activity, telecom, should be CapEx minus EBITA breakeven in 2012 as planned.

Canal on Page 13. Canal still enjoys a significant net adds, including in metropolitan France, and this in spite of a rather sluggish consumer spending environment in France. EBITA is slightly down, but that's due to calendar items. And we still expect a slight EBITA growth by year end at constant perimeter. The Direct 8 -- Direct Star deal, D8, D17 has been closed. And the successful relaunch is on the way, with already higher audiences in the evening, which will lead to higher ad revenues next year. So there, again, everything is on track. And the Polish consolidation should close before year end, which also will lead to very significant synergies on that market.

So in conclusion, Page 14. Once again, we guided the market to expect 2 difficult years in 2012 and 2013, while we restabilize our telco operations in France and Morocco. The performance of our businesses actually is stronger than expected and upsetting a sluggish economy and a heavier tax environment, which is why we are adjusting our guidance to reflect this improved outlook, mostly driven by upgrades at SFR and Activision Blizzard. We now expect adjusted net income to be around EUR 2.7 billion. This is above EUR 2.5 billion previously, before impact of transactions. That's mostly EMI and Canal acquisitions and before the restructuring charges at SFR and Maroc Telecom. That's where we are. And we are now -- I'm now with my colleagues, ready to answer any questions you may have.

Question-and-Answer Session

Operator

[Operator Instructions] We'll now take our first question today from Connor O'Shea from Kepler.

Conor O'Shea - Kepler Capital Markets, Research Division

3 questions from my side. Firstly, on SFR, I wonder if we could have an idea of the nature of the 51 million positively exceptional in the third quarter, what it was, please? Second question on Canal+. Can we have a sense of whether there is a risk in terms of 2013 from the recently announced increases in VAT of the intermediate rate from 7% to 10%? Will -- could that have a similar or even bigger effect on EBIT in 2013 that it had in 2012? And also on Canal+, can you maybe comment on the impact from being sports in the third quarter in the sense that your promotional offers are running a little bit higher than they usually are in the pay-TV market?

Philippe G. H. Capron

Okay, Julien, I think you're on the line. You want to take the Canal questions? Julien? Okay. So I'll try to -- no, well, actually, we'll try to -- we'll field the SFR question first to give time to -- for Julien to reconnect.

Pierre Trotot

Okay, as far as SFR is concerned, I'm sorry but we do not comment 51 positive exceptional items that we recorded on Q3. For your memo, it's the same non-recurring positive. It's the items that we recorded last year on the same quarter.

Philippe G. H. Capron

Julien, are you back? If not, I'll take the questions. Well -- you're there, Julien? You heard the questions?

Julien Verley

Yes, I think there was a question on VAT and there was a question on the [indiscernible]?

Philippe G. H. Capron

Go ahead, please.

Julien Verley

So as you know in 2012, the VAT increase from front board settlement [ph] represents 27% impacted our P&L, the EUR 40 million, on a full year basis. For the time being in 2013, there's no plan to change the VAT. Or there is the, I mean, right now, there's talks around changing the VAT levels in 2014. So we will have time to consider what this means. But for the time being in 2013, there would be no further impact than the one we've suffered, I would say, in the 2012 P&L. On the impact of being [ph] sports, I would say, it's probably still a bit early to really be presenting an answer. Definitely, we are having some impact, some impact coming by the way, from more of the confusion from, I would say, rather existing or customers or prospects. Because our, let's say, our football fan customers or potential customers are getting confused in hearing from being -- that they're offering the full offer and the full matches, knowing that some of them are deferred match. So I would say probably, we are suffering from some confusion. Or we suffered from some confusion because we've not just -- some, let's say, advantage from or waiting during the months of August and September. But now that the season has started, by the way, on the 2 main competition, there are only 1, and on the structure [indiscernible], then we think most of the impact had been behind us. And we don't really see further obvious reason that the trends should continue going forward, I think, within this season.

Conor O'Shea - Kepler Capital Markets, Research Division

So do you see that the impact more on the subscriber numbers growth rather than ARPU as a retention measure to...

Julien Verley

Sorry to interrupt you. On the contrary, our ARPU is still increasing our, I mean, we have increased price on both offers, on Canal+ and on CanalSat. So definitely, there is no impact on the ARPU. That's very clear. And the question is on, let's say, on the slowering on the top line portfolio, was the impact related to the overall poor economic environment? And what is the impact of the confusion between the various segmented sports could pull up our offer [ph] and our offering. That's -- and it's difficult to effectively identify exactly the numbers.

Operator

We'll now take our next question from Filippo Lo Franco from JPMorgan.

Filippo Pietro Lo Franco - JP Morgan Chase & Co, Research Division

I have, sorry, 4 questions. I usually ask 3, this time 4. The first one is on SFR and on your cost base. I mean, you say that the total cost base of SFR in 2011 was at 8 billion. And you also say that you want to reduce your operating costs by EUR 500 million before by end at 2014. The question is how much of the 8 billion should we consider as a good approximation of variable cost? So that's the first question. The second question is on Canal+. And you say that you expect to be have a negative impact of 14 mil -- of 40 million this year for the launch of the free-to-air TV channels. Could you please give us an idea about your business plan and what we should expect in terms of breakeven? The third question is on EMI. When you originally announced the deal, I think that you said that you were looking for disposal of assets for roughly EUR 500 million. I wanted to know if this is still the same. And finally, on Canal+, I've seen that recently, there have been some kind of testing, marketing testing for a potential triple play offer driven by Canal+. I would like to know if you have comment on this?

Philippe G. H. Capron

Thank you, Filippo. We start with Pierre.

Pierre Trotot

So our OpEx cost structure of the 8 billion that you mentioned refer to 2011. You can break them into 3 parts. First one, 3 billion relates to interconnection costs. So these costs can be considered as the variable since they are based on the number of customers and on the volumes of traffic, and that's it. As the second block announced 2.5 billion or roughly 3 billion, if you want to make it easy, and these costs are directly related to revenues. That is that they are related to content, to license fees, or the 1% I pay for my license based on my revenues. A lot of taxes are also based on my revenues, and these are for bulk of gross directly related to revenues. And I have in this block, or second block of 3 million -- 3 billion, also cost related to customers. Also whatever the number of customers in my base that are -- that is management cost of the -- of this base, the amount of bad debt of this base. But also on acquisition, the number of the customers I will acquire, the mix of customer I will acquire, that is customers with handset subsidy on us [ph] , customers being acquired through shops where I have to spend commission to dealers or customers coming through the web where I don't pay anything. So all of these blocks are, via all of these second blocks are variable cost. And last, the large block of 2 billion represents my operating cost. That is my network, IT, workforce costs, marketing teams, accounting teams, et cetera, taxes. And these taxes are not variable. They are supposed -- they are more or less fixed, but we makes them variable. And this is where we put the emphasis of our action plan for reducing these costs of EUR 485 million, rounded to EUR 500 million that we mentioned previously.

Filippo Pietro Lo Franco - JP Morgan Chase & Co, Research Division

Yes. Just to come back on this because, I mean, if you have, let's say, roughly 6 billion of variable costs, which are directly related to revenues, I mean, the potential total cost reduction could be massive. Because if you have EUR 5 million -- EUR 500 million in operating costs, then let's say that the revenues decline by 10%, should I reduce the EUR 6 billion cost base by 10%?

Pierre Trotot

No. I agree with you that it's totally variable, but not variable to revenue. Again, the acquisition costs, they depend on the mix of the customer we shall acquire, whether they take a handset or not. So I will subsidize or not. Whether they come through shops or through the web, whether they are low-cost customers where I have less customer care, et cetera, et cetera. So don't deduct that it's strictly variable to revenues. But it's related to revenues, to the number of customers, to the mix of customers in my base. But you are true, that 6 billion are variable.

Unknown Executive

But Filippo, the answer is -- simple answer to your question is, yes. There will be massive reduction of the variable cost as well.

Filippo Pietro Lo Franco - JP Morgan Chase & Co, Research Division

Yes, I got it. Because in my calculation, the one that is related to revenue should be around the 3 billion to 4 billion, I mean. But, I mean, on the 4, yes.

Philippe G. H. Capron

On the 400 million.

Julien Verley

Yes.

Filippo Pietro Lo Franco - JP Morgan Chase & Co, Research Division

Yes, exactly.

Philippe G. H. Capron

Julien, you take the 2 Canal+ questions, please.

Julien Verley

Sure. So first, on the D8, D17 channels, so as Philippe has previously mentioned, we are quite happy with the start of the 2 channels. Obviously, the audience, I mean, we have, that is, since we booked the channels, an increasing audience in particular in the peak time. And that's where economically, I would say, it has some revenue. So we are -- and your question was related to next year profit. And we are actually pretty confident that we should have fusion [ph] and great fun [ph] and potentially even better, even positive. So operating positively leads to the result of both [ph] Canal starting in 2013. The second question was related to effectively the [indiscernible] that you've seen on the potential launch by Canal+, which will be adjusted to a combined, let's say, a triple-play offer. So honestly, there was some misleading on the [indiscernible], and the idea is not to have kind of launching it soon, the complimentary triple-play-offer. The market is already crowded enough. The idea was really to give partnership with the customer and their viewer starting with our friends at SFR to effectively propose in addition of their own product, our own box, which would fill and substitute to the SFR box and which will allow the customers being interested to get access to our offer within our -- completely within our environment and within our experience in order that they get the best to hold the very good content and potentially the services. That's, I think, the idea. But clearly, the idea is not to build up an offer which would aim at competing against the players already in the market. It's really an idea to enter into partnerships and in part [indiscernible].

Philippe G. H. Capron

Thank you, Julien. Regarding the music disposals, I mentioned that we were very happy to have reinforced our position in the major music markets, including Germany. But it's fair to say that the remedies we had to agree to vis-à-vis the EU are a bit above what we originally had anticipated in other European geographies. Therefore, we are presently reviewing what this means in terms of the disposals we had in mind to finance the deal through the sale of music assets. So we have to weigh the new amount of anticipated proceeds from EMI disposals and to see what it means in terms of -- and the choices we have to make in terms of what UMG assets we would like to sell on top of this. We've already done some minor transactions. We're doing some cleanup of our asset base, especially regarding real estate or minor distribution assets. This review is under process. But the new situation will probably lead us to adopt a little bit our UMG asset disposal program.

Operator

We'll now take our next question from Ian Whittaker from Liberum.

Ian Whittaker - Liberum Capital Limited, Research Division

A few questions, please. First of all, apologies if you did mention it on the call. But can you just say with regard to GVT what's exactly happening in the city of Rio de Janeiro and when you'd expect to launch there or whether you have launched? And then the other 2 sort of questions just regard so far on the regulatory environment. The first thing is -- I can understand you don't want to say anything on the press reports suggesting potential consolidation with that so far. But -- and first of all, can you give us sort of your view on whether you think the regulators would allow consolidation within the telco -- telecom space in France, whether that's via cable or indeed SFR iliad [ph] ? And then the second one is a more general point on the regulatory environment so those that are outside France. Can you -- because it starts in regulators being seen as quite hostile towards the incumbent. Do you notice any sort of the lessening of the regulatory pressure or sort of any more sort of a gentle tone coming from the regulators with regard to regulation of yourselves and the other main incumbents.

Philippe G. H. Capron

Okay. On GVT, I have good news which is that we launched in Rio 2 years ago. The deployment is going extremely well. I'm pulling your leg because I guess you're meaning São Paulo.

Ian Whittaker - Liberum Capital Limited, Research Division

Yes, you got me, sorry.

Philippe G. H. Capron

In São Paulo, we have good news as well. We feel that now, the regulatory issue which we had is solved and we can go ahead and roll out our network there. We have chosen not to do so yet because we had to -- when the way was blocked, we had to go to plan B and deploy in other cities with actually a lesser cost per home passed. And therefore, we're deploying in those other cities before we move on to the metropolitan area of São Paulo proper, actually, to the city itself because in the suburbs in other large cities right next to São Paulo, we already have deployed the presence over the last 2 years.

Ian Whittaker - Liberum Capital Limited, Research Division

When do you expect in 2013?

Philippe G. H. Capron

I'm not going to entertain any speculation there. I mean as I told you, things are being reconsidered I guess by all the players, which is normal where there is a change in the market environment. I'm sure that in due time, the government and the regulators will also adapt the thinking. But it's way too early to speculate on any change of mind or change of the lay of the land there.

Ian Whittaker - Liberum Capital Limited, Research Division

Okay. Sorry, just on São Paulo, would you anticipate, therefore, the launch then in 2013?

Philippe G. H. Capron

We've not made our plans yet. I mean this is a relatively recent news and therefore, we have just -- we're in the process of doing the budget. We'll see what our friends have in mind. But it's not clear that it makes sense to launch as early as next year in São Paulo. Remember, we have another 80-or-so Brazilian cities to cover. And therefore, we do not lack any opportunities. Missing São Paulo would have been a shame for the endgame, but it's not necessarily something which it makes sense to do more immediately because it's more costly in terms of CapEx.

Operator

We'll now take our next question from Matthew Walker from Nomura.

Matthew Walker - Nomura Securities Co. Ltd., Research Division

Just 1 or 2 questions, please. Actually, 3. The first thing is on SFR. There's been obviously pleasing development this year especially recently, but very aggressive pricing launched by Bweek [ph], a bit more aggressive from you than in the past as well recently. To the best of your knowledge and as far you can see, of course, it's quite difficult. But for -- regarding the EBITA trajectory for next year, 2013, fixed and mobile consensus or consensus for fixed and mobile together is down about 9% or 10%. Does that still seem reasonable in the light of the recent pricing move? Second question is on Canal+. You mentioned the slight increase in EBIT for this year. I guess last year was around EUR 700 million. Are we to assume that it's basically EUR 700 million less the EUR 40 million which is being invested in the free-to-air relaunch, so EUR 40 million less than the EUR 700 million? And the last question is on EMI, can somebody just please quickly go over the additional revenue and EBIT that you expect from EMI coming in to your model for next year?

Jean-Michel Bonamy

Let's start with Pierre.

Pierre Trotot

Yes. So in '12, '13, I will not give you the guidance for 2013 because we are presently preparing our budget. However, the concerns there -- the consensus today of the market, which is around EUR 2.9 billion for total EBITA at SFR is not unrealistic, and we can assume that it's correct. Of course, as you see, we have fierce competition on the French market today. You mentioned the very aggressive pricing by Bweek [ph] last week. I guess this is only for the Christmas sales and that it should just stop end of January, but difficult to comment further on the games played by different actors.

Philippe G. H. Capron

Julien?

Julien Verley

And Matthew, your point is right, which is the guidance around EUR 700 [ph] million plus is excluding the costs related to integration of the free-to-air businesses.

Philippe G. H. Capron

Which is actually more than integration costs. It's really relaunching so you could think of it as a kind of CapEx.

Matthew Walker - Nomura Securities Co. Ltd., Research Division

It's like from a new context of that as well?

Philippe G. H. Capron

We're the building future there. Regarding EMI, there are still too many moving parts for me to answer your question precisely depending on exactly how we delineate what to sell, which will depend to a certain extent as to whether the people who will buy our remedies will already be in the business or not. And that will change. Well first, the net bill we have to face. Second, the restructuring costs, which will be different according to whether we can offload some of the SG&A and management structures onto the buyers or not. And therefore, this will have a significant impact on next year's figures for EBITDA. The only thing we're very confident of is that when the dust settles down and we are in a way position to make a definitive assessment and when we compare the EBITDA up to synergies which we'll derive from this acquisition to the total costs, meaning what we paid to Citi plus the restructuring costs minus the proceeds from the remedies of EMI assets. I'm very confident that we'll be able to demonstrate to you guys our actual acquisition price has been on a -- at a very attractive multiple.

Operator

We'll now take our next question from Richard Jones from Goldman Sachs.

Jean-Michel Bonamy

[Operator Instructions]

Richard Jones - Goldman Sachs Group Inc., Research Division

It's Richard Jones here. I've just got 2 which you might have covered already. Apologies, if you have. But I just wanted to double check on the net income guidance, now that EUR 2.7 billion for the year. So I think that's excluding the one-off benefit and the seasonal restructuring charge. And I think you said what the restructuring costs are on Maroc telecom. I'm just wondering if you could clarify what the restructuring costs are on SFR, in case I missed them. And then secondly, I know there's not that much you can say about the strategic review. I just wonder if you could give us a bit of color on what you're thinking behind your ambitions for the strategic review rather than the actual process itself?

Philippe G. H. Capron

Richard, thank you because not only do have only 2 questions but they're very quick to answer. On the first one, we've not announced the restructuring costs at SFR yet. This will be done shortly after the year end, of course. But we've not given any figures yet so you've not missed anything. It's not going to be extremely large figures. We've seen some circulate in some studies, which were completely mind-boggling. So it's not going to be huge. But it's going to be significant enough that we want to have a clean guidance not including them. On the strategic process, there was really nothing to report. I mean we have to. We're in the process of assessing, defining or validating our strategic vision within the management group and even more importantly, with the Supervisory Board. When we've done this, we'll communicate and we'll draw the consequences of this strategic review on the perimeter and potential structural deals, which would take place then. The only thing which is unchanged is our commitment to change and to change for the better, having the interest of our shareholders and all bondholders in mind.

Richard Jones - Goldman Sachs Group Inc., Research Division

And just the third restructuring charges, are they likely to fall into 2012 or 2013?

Philippe G. H. Capron

'12. The charges, the accounting charges, would be in '12, cash would probably be in '13 in France; in Morocco, cash has already been disbursed mostly.

Operator

We'll now take our next question from Julien Roch from Barclays.

Julien Roch - Barclays Capital, Research Division

My first question is on the restructuring. I didn't hear the numbers that were marked for the full year. I heard it for the 9 months. But can you give mark for the full year? And the big items to go from the EUR 2.7 billion to the actual headline are SFR, Maroc. But then the impact of EMI, Poland, bits and bobs, so would it be possible to have an assessment of the third item? So if you could give us -- you're not going to give us SFR. But if you could give us Maroc and the third item is my first question. And the second one is on GVT. If you look at the guidance of $4,574 million on GAAP and 27% margin, you get an operating profit in euros of EUR 965 million. But you are guiding to EUR 900 million. So can you explain the difference?

Philippe G. H. Capron

I'm not sure -- well let's start with the first question. Maroc was EUR 72 million in Q2 and it's going to stay at that level. We don't expect any further restructuring charge. SFR, as I said, we don't disclose the figure yet. EMI should be a wash between the extra EBITDA which they will be generating for the last 2 months of the year and the initial restructuring costs which will incur this year. It should be about breakeven. And Canal, the figure has been given by Julien at around EUR 40 million. I'm not sure I understood your last question. It was on GVT or AB?

Julien Roch - Barclays Capital, Research Division

Sorry, Activision, I meant.

Philippe G. H. Capron

Okay. So if it's Activision, that is the mysteries of the translation of non-GAAP into GAAP and then IFRS, which is probably explaining this charade. But I'm sure you'll have all night with Jean-Michel and his team to clear that out. They're available.

Operator

We'll now take our next question from Omar Sheikh from Crédit Suisse.

Omar Sheikh - Crédit Suisse AG, Research Division

Just a couple of questions. The first is on SFR. I think I caught you earlier on saying that the cost-saving plan, the restructuring plans have already started to yield results. And I just wonder maybe you can give us a sense of how much the EUR 500 million fixed costs savings might be booked through the P&L in 2012? And I guess I'm just trying to fundamentally get an understanding of what's changed with SFR because it looks like the revenue trends are probably around the same maybe a little bit worse than you probably expected at the beginning of the year. And so is it that you slightly raised your guidance in SFR because some cost savings are coming through? Maybe some color on that would be useful. And the second question is just give if you can give us an update on the progress of the Liberty situation, the legal action? Are you still confident that you won't have to take a charge in 2012?

Pierre Trotot

I'll start with Liberty because it's also an easy answer. We don't know anything. There is no specific calendar. We have exchanged motions with the other party in front of the judge. But she is not bound to make a decision at any point in time and therefore, we have essentially nothing new to report. We'll keep you posted if and when something did happen. Okay, the cost savings plan of SFR, so far, we have initiated different actions. They have started mid of this year. And what you will see in 2012 P&L will be a couple of dozens of millions that is a EUR 50 millions more, a little bit more. What you must know is that due to the fact that we have elections of the workers' council late October, we shall only present the voluntary departure plan to the workers' council end of November. That is next week. And then we shall start the process of negotiating the amounts to be given to employees willing to leave the company. And that's -- that is the new organization will be implemented in Q1, Q2 2013 to start bearing fruit late of second half of 2013 and then 2014, with the other actions that we have started to implement with the vendors reshaping all the division of organization, et cetera.

Philippe G. H. Capron

You will remember, of course, to complement to what Pierre said that the voluntary departure plan is a relatively minor part of the overall cost-cutting efforts and initiatives which we are taking. And as you mentioned, those regarding our vendors, our outside partners, have already started to bear fruits on a full-year basis mostly next year, but some already have an impact on this year. On the other hand, the restructuring costs will mostly be related to this voluntary departure plan, hence, the fact that we cannot announce it now.

Operator

We'll now take our next question from Patrick Kirby from Deutsche Bank.

Patrick Kirby - Deutsche Bank AG, Research Division

I have 2 questions, please. Firstly, on the SFR guidance. You've upgraded that, but I think the cash flow guidance is unchanged at EUR 1.7 billion for the year or round about that. So can you clarify why you haven't upgraded that number? Is that still unchanged? And then the second question is around dividend. I think normally in the late Q3 statement, you make some sort of comment about the dividends. But that, as far as I can see, you haven't in this statement. So what do we infer from the fact that there's no reference to a dividend? And related to that, have you given any thought as to assuming you do pay dividend of this year, whether you absorbed the dividend tax increase or pass that on?

Pierre Trotot

I'll answer the last question first. We have not mentioned anything because there is no change, not because there is no more commitment. Of course, we still envisage to pay the dividend, which should be between 45% and 55% of adjusted net income, I mean, pending the strategic review which is going on. But I mean as of today, that is still clearly what we envisage. And therefore, we have not mentioned anything because there has been no change. It's true that we maintain -- I'm sorry, I did not answer on the tax. It's true that some companies are mean enough to actually cut their dividend by 3%, or their stump of the dividend by 3% because of the increase. I do not -- I cannot prejudge what the board would decide, but I would think we would be more elegant than this. On the SFR, free cash flow of our guidance, we maintain the guidance because we have decided to accelerate 4G CapEx spendings in 2012. Maybe you are aware that we are opening 4G network in this week or next week to customers.

Operator

We'll now take our next question from Polo Tang from UBS.

Polo Tang - UBS Investment Bank, Research Division

It's Polo Tang from UBS. I just have one question on SFR in terms of the link in terms of what's happening between the top line and your EBITDA. So just do some quick math, mobile service revenues in Q3 were down round about 12% and it looks as if SFR overall EBITA in Q3 was only guiding 12% as well, so that implies quite good cost controls. So can you talk about what is happening with SFR costs in Q3? And can we expect this good cost control to continue into Q4? Or will there be other elements coming into play in Q4 such as handset subsidies and more commercial costs? So can you just give us more color in terms of SFR costs?

Philippe G. H. Capron

So as we mentioned, the cost savings program is not full speed yet. So what you have seen is the fact that we have reduced our sales acquisition and retention costs due to the new competitive environment, a little bit of color for Q4. As you may know, we have launched significant commercial initiatives, end of September, and that will be reflected through acquisition and retention costs on Q4, so a big pressure on Q4 EBITDA due to commercial costs.

Operator

We'll now take our next question from Charles Bedouelle from Exane BNP Paribas.

Charles Bedouelle - Exane BNP Paribas, Research Division

Most questions have been answered so I'll try to be sharp. Regarding GVT, can you explain us a little bit what was behind the good margin in Q3 in the broadband business and if we can extrapolate that a little bit more into Q4? And still also on GVT, can you give us a little bit of color on the shape of, I would say, the profitability of the pay-TV business, which seems to be going very well on the top line and not costing too much some of the bottom line? So can we expect that to turn into profit significantly in shops?

Philippe G. H. Capron

Regarding broadband, I mean we -- as the business expand, as we are becoming larger, as we're opening in new cities, we have some scale effect which is starting to play. Of course, a lot of that scale of effect is given enough of productivity and competitive market. But still, we are able to keep some of it ourselves. And basically, the business model as you know for those of you who are familiar with GVT is extremely virtuous. Regarding the pay-TV part, we do not expect pay-TV to be at the same level of profit margin as telecoms but for good reasons. There will be much less CapEx. The CapEx we deploy for pay-TV is mostly set-top boxes with a very short depreciation period. It's good cholesterol, if you want to think of it that way. And therefore, we will be in the situation where we can target the same return on capital employed with less capital employed but also with less EBITDA and even EBIT margins than on the telecom side. But at the end of our plan, we still anticipate an improvement of our overall return on capital employed of our investments into GVT, thanks to the addition of this new product, which by the way, has other attractions. Many new customers come to us directly attracted by pay TV and switch from the regular traditional operator to us on the telecom side as well. So it's actually bringing customers to us on the telecom side, so increasingly the 2 products are intertwined.

Charles Bedouelle - Exane BNP Paribas, Research Division

Okay. And the very last one, can you tell us how much on SFR of the base has been reprised as of Q3, please?

Pierre Trotot

30%.

Operator

We'll now take our next question from Allan Nichols from Morningstar.

Allan C. Nichols - Morningstar Inc., Research Division

Considering that France Telecom added 320,000 subscribers in the quarter, I was a little surprised that SFR only added 40,000. Could you talk about that and what we should expect going forward, please?

Pierre Trotot

Yes, I saw this. This is a -- they made an impression good performance. I guess this is due to the fact that they have been very aggressive on their quadruple play open offers where they have significant promotions. On the other hand, it's true that we are still losing residential customers on the mobile. Of course, we are progressively reducing this leakage, but apparently less than Orange. Well on the other hand, we have a positive balance on prepaid now, which Orange does not have, and we have still good growth on B2B and machine-to-machine mobile. That's the only comments I can do.

Allan C. Nichols - Morningstar Inc., Research Division

Can you say anything about going forward? Expectations?

Pierre Trotot

I have no crystal ball so no comment.

Operator

We'll now take our next question from Tom Singlehurst from Citi.

Thomas A. Singlehurst - Citigroup Inc, Research Division

Tom here from Citigroup. Just one question, actually, on the broadband performance within SFR. Relatively low number of additions in the third quarter. Can you just talk about what we should expect over the -- over the coming quarters? And then also specifically mention any impact on or anticipated impact on CapEx as a result of investment in fiber. I know you mentioned bringing forward some investment in 4G. Should we expect something similar or in terms of investment in fiber? Are there any specific numbers you can give us for 2013?

Pierre Trotot

On residential broadband, it's true that we are -- our Q3 figures are much lower than Orange and France Telecom. I guess they have announced 56,000 net adds, again, with aggressive quadruple play open offer tariffs as they have reduced tariffs by 24% as compared to last year which is important. On residential broadband, our net adds were only 24,000 this quarter. Nevertheless, for us, it's regaining positive momentum since we experienced a decrease of 25,000 on Q1, stabilization on the Q2 and now we have -- we are expecting a similar growth, at least similar growth on Q4 as compared to Q2, Q3. On CapEx, on the fiber CapEx, no, nothing specific. We shall be over 2012 at 1 in Red and EUR 10 million in fiber CapEx, both vertical and horizontal.

Operator

That will conclude today's Q&A session. I would now like to turn the call back over to Mr. Jean-Michel Bonamy for any additional closing remarks.

Jean-Michel Bonamy

Thank you very much. So thank you, everyone, for attending this call. And as we've said, the Investor Relations team is obviously available to take any follow-up questions you may have. Have a very good evening in Europe, and have a very good day in the U.S. Thank you. Bye-bye.

Operator

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.

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