Vivendi Société Anonyme Management Discusses Q4 2013 Results - Earnings Call Transcript

| About: VIVENDI SA (VIVDY)

Vivendi Société Anonyme (OTC:VIVDY) 2013 Earnings Call February 25, 2014 3:00 AM ET

Executives

Jean-François Dubos - Chairman of the Management Board and Chief Executive Officer

Jean-Yves Charlier - Member of Management Board, Chairman of SFR and Chief Executive Officer of SFR

Arnaud de Puyfontaine

Hervé Philippe - Chief Financial Officer

Sandrine Dufour - Chief Financial Officer

Grégoire Castaing - Chief Financial Officer

Boyd Muir - Chief Financial Officer and Executive Vice President

Analysts

Nicolas Cote-Colisson - HSBC, Research Division

Bruno Hareng - Oddo Securities, Research Division

Claudio Aspesi - Sanford C. Bernstein & Co., LLC., Research Division

Thomas A. Singlehurst - Citigroup Inc, Research Division

Francois Godard - Enders Analysis Ltd

Omar Sheikh - Crédit Suisse AG, Research Division

Charles Bedouelle - Exane BNP Paribas, Research Division

Patrick Kirby - Deutsche Bank AG, Research Division

William H. Smith - Goldman Sachs Group Inc., Research Division

Patrick Wellington - Morgan Stanley, Research Division

Julien Roch - Barclays Capital, 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

Stephane Beyazian - Raymond James Euro Equities

Jérôme Bodin - Natixis S.A., Research Division

Unknown Executive

Good morning, ladies and gentlemen. Thank you for joining us today for Vivendi's Full Year 2013 Earnings Presentation. With me today are Jean-François Dubos, Chairman of the Management Board and CEO; and Hervé Philippe, CFO.

This presentation will be in English with a simultaneous translation. This call is webcast on vivendi.com, where the slides are available for download. We invite you to read the important legal disclaimer at the end of this presentation on Page 45. The full year 2013 financial report and consolidated financial statements will be available on our website as of this evening. You will be able to access a replay of this call for 15 days also on our website. As usual, this presentation will be followed by a Q&A session.

And now, I'll leave the floor to our CEO, Jean-François Dubos.

Jean-François Dubos

Good morning, ladies and gentlemen. Welcome to the Vivendi 2013 Annual Results. I'm delighted to share the presentation today with our new Senior Executive Vice President, Finance, Hervé Philippe. Firstly, let me say that there will be no new announcement today on Vivendi strategy. The board will announce decisions in due course into the relevant -- when the relevant studies have been completed. We will cover only 2013 results.

Let me start my presentation with a couple of words on our 2013 achievements. First, we generated cash flow. Second, we reduced net debt in a tough market. All our operations delivered earnings in line with guidance despite SFR profits continuing to be impacted by the squeeze in pricing.

The other major achievement in 2013 was the implementation of Vivendi's strategic repositioning around media and content. We completed the sale of 85% of Activision Blizzard in October 2013, and we acquired the remaining 20% of Canal+ France in November 2013. The separation plan between Vivendi media and SFR is on track for mid-2014. Meanwhile, SFR has undergone a great change. With a renewed management team, it is restoring commercial momentum. It has also reduced cost drastically, EUR 1 billion since 2011. The very innovative network-sharing agreement with Bouygues is perhaps just the start of French telecom's consolidation.

The next slide shows the resulting increase in value for shareholders since March 2012. The graph is self-explanatory. The critical number is that it represents a EUR 9.3 per share gain over the last 2 years. The Vivendi share price is, today, as you know, at around EUR 20, a little bit more. We are currently reviewing what form of distribution will be proposed to our shareholders and the most appropriate considering several elements. We will make the announcement prior to the Annual Shareholders Meeting, which, this year, is scheduled later than usual, namely June 24.

Our main target in 2014 is to create 2 nimble groups concentrating, on the one end, on media and content globally, and on the other end, telecoms in France.

This final slide indicates a provisional roadmap for the future Vivendi and for SFR. In the coming weeks, Maroc Telecom should be completed. We will announce also -- we will also announce the next steps for the separation. And in the meantime, Vivendi will continue to examine and pursue any new opportunities. We are convinced that SFR will be a key player in the reshaping of the French telecom sector given its current strong position.

Thank you for listening. I will now hand over to my 2 new colleagues on the Vivendi Management Board, Jean-Yves Charlier, Chairman and CEO of SFR; and Arnaud de Puyfontaine, Senior Executive Vice President of all our media activities. Welcome to you both. And over to you, Jean-Yves.

Jean-Yves Charlier

Thank you, Jean-François, and good morning, ladies and gentlemen.

Nine months ago, we initiated a strategy to reposition and transform SFR in the challenging new conditions of the French telecommunication marketplace by implementing 3 key initiatives: first, by repositioning the brand, the products, the services in both the retail and business segments and by restoring commercial momentum, particularly in the commercial segment in 2013; second, by profoundly transforming the business model, the processes, the IT systems to adapt the company to the changing market conditions but also significantly reducing our cost base; and third, by optimizing our network infrastructure through innovative and large-scale network-sharing arrangements.

In 2013, we restored commercial momentum in the retail segment through a differentiated and innovative strategy. We launched innovative products with our new 4G offerings, with exclusive content such as Canalplay video on demand, Napster and iCoyote. And we launched the new Google Play box for our broadband customers, and this has been very significant in the marketplace. We delivered record postpaid adds in Q4 and achieved over 1 million new 4G customers. We accelerated our quad-play strategy by achieving a convergent customer base of over 45%. At the same time, we defended our positions in the low-cost segment by achieving 1.7 million RED customers. In what we believe is a bipolarizing retail market, SFR is demonstrating on a strategy to focus on the premium end of the marketplace while defending our positions in the low-cost segments.

At the same time, in 2013, we launched a comprehensive transformation plan to adapt SFR to these new changing market conditions, to deliver significant cost reductions, while positioning SFR to seize new market opportunities. Our transformation plan focuses on 4 key change initiatives: the first, to improve our customer experience by leveraging the web; second, to deliver a differentiated network quality to our customers; third, to optimize the commercial performance of the company; and fourth and perhaps more importantly, to impose strict, stringent cost discipline across the business and in every one of our 40 key initiatives. Since 2007 -- sorry, 2011, we have delivered over EUR 1 billion in cost savings, first, by decreasing our commercial cost in terms of subsidies, distribution and customer service; second, by cutting our people cost through a reduction of close to 900 positions in the company; and third, by obviously optimizing our network cost.

At the same time, we implemented a strategy to optimize our network infrastructure through an innovative, long-reach network sharing arrangement with Bouygues, our objectives, on one hand, to improve our mobile outdoor and indoor coverage while, obviously, significantly reducing the cost of this network above and beyond 42% of the population. This is a RAN-sharing arrangement covering both 2G, 3G and 4G services. And we've created a joint venture to manage the shared base station assets with a target of reducing these base stations between both company by roughly 40%.

At the same time, as I indicated in my introduction, we are accelerating also our momentum in the business segment, where we believe there are significant opportunities in new services, such as the cloud and value-added services. And we announced recently our decision to acquire Telindus in France, a key player in the network integration space. Telindus is a company that achieved, in 2013, roughly EUR 240 million in revenue, is growing and is profitable. And it has significant momentum in such new services as unified communication, collaborative services, data center, and is focused very much on the top end of the corporate marketplace. We believe that with SFR's strong position in the business segment, combined with the premier position that Telindus has, this makes a combination that is absolutely unique and gives us opportunity in growing new value-added services.

As you can tell, our initiatives to reposition and transform SFR in the French marketplace are well underway. On this note, I will hand over to my colleague, Arnaud de Puyfontaine. Thank you.

Arnaud de Puyfontaine

Thank you, Jean-Yves, and good morning to you all. It is a great privilege and a pleasure to be here today after 5 weeks in my new job and have the opportunity, too, this morning to introduce myself.

I've been in the media and content activities for 25 years in many different executive position at group like Emap PLC, Mondadori and, more recently, the U.S. Hearst Corporation. The business environment has always been a balance between traditional and digital world. Working for French, British and American groups has ingrained in me a culture of performance, of innovation, of boldness and a culture of strong financial discipline. I am already extremely enthusiastic about Vivendi's media operation, which have so many things in common: content, brands, international spread, and a close relationship with the world's leading distribution platforms. I want to focus on growth by leveraging Vivendi's existing strength in media, by exploiting the opportunities in the digital world and by accelerating the underlying performance of the businesses.

To cut a long story short, I want to introduce, under the leadership of the board and with strong collaboration with all my colleagues, a significant change, as the future of Vivendi has to be an industrial media group in order to achieve our growth ambition. I am thrilled by the opportunity that I've been given, and I very much look forward to talking to you soon and to share, as soon as the strategic review is completed, the roadmap that we will implement.

Thank you for your attention. And I am now going to hand over to my colleague, Hervé Philippe.

Hervé Philippe

So thank you very much, Arnaud, and good morning, ladies and gentlemen. It's really a great pleasure to be here and to present the Vivendi results. We're also happy to see in the room many familiar faces in the audience, probably others listening to the webcast. But as you can imagine for me, presenting the 2013 figures, Vivendi, when I arrived only at beginning of January is a very interesting task, but I am quite relaxed because I am assisted by some experts of the Vivendi financial team and also the financial directors of our big activities with Sandrine Dufour for SFR; Grégoire Castaing of Canal+; and Boyd Muir, who came from L.A., for UMG.

So let me start with Slide #15, which is regarding revenues during 2013. First, let me remind you that we are under the IFRS rules. So that means for the P&L, we have to restate the previous year, and so the figures which are here are not directly comparable to the figures which have been -- really last year for the revenues of the group. And clearly, we have considered the Activision Blizzard, which has been sold, and Maroc Telecom, which is considered for sale, as out of the group. So we can look at the last line on this slide, and you see that the total revenues for Vivendi 2013 amount to EUR 22,135,000,000, which is minus 2%, and this decline is due mainly to SFR with minus 9.6%. This is obviously linked to the repricing policy and the speed of price adjustment in 2013, but we can also consider that SFR, during 2013, has shown very good resistance, especially in the number of subscribers. At the same time, you can see that the media and content activities grew by 5.7%, which is a good figure. This is a growth that we have in real terms despite the very unfavorable impact of ForEx, especially in Brazil, as you can see for GVT, which is at minus 0.4% in euros but plus 13.1% in reals. This is also the case for the dollar and for UMG because you can see that UMG is at 7.5% in euros, but the real growth at constant currency is more close to 12.8%. But we have also an interesting growth for the media and content activity on a true organic basis. If we consider the perimeter effect and the ForEx effect, we have still growth at 1.7% for the media and content activity.

I will now come to the Slide #16 with regard to EBITDA and EBITA. You have, on the left side of the slide, the EBITDA, and the right one, the EBITA. The line -- the bottom line, you see the figure for the EBITDA, which is declining by around 10% at EUR 4.9 billion, due mainly to SFR, which had a decrease of 16.2% at EUR 2.8 billion. For media and content, the decrease is 4%, mainly due to cost of program for Canal+ and -- but ForEx effect on GVT in Brazil. At constant currencies, EBITDA of media/content grew by 2%. On the right side of the slide, you can see the EBITA. And we have clearly an unfavorable impact of depreciations in SFR, which are completely and logically stable and incompressible for around EUR 1.6 billion. And we have also the impact of the integration cost from media and content at Canal+ for Poland and UMG following the integration of EMI.

Slide 17 is about the adjusted P&L. And as you have seen, underlying EBITA, we have a decrease at the EBITA level, which is EUR 730 million, but the impact at the adjusted net income is much more lower. It's limited to EUR 165 million, so the main differences between EBITA and adjusted net income, we have, more or less, comparison to last year, the same level of interest at EUR 528 million. This is linked to the fact that we have, more or less, the same level of average net debt in 2012 and 2013, around EUR 16.5 billion. But you can see also that we have very good news at provision for income tax level because we have only EUR 282 million, which shows an improvement at EUR 484 million in comparison to last year. This is due partly to the decrease in profit before tax but also to the improvement linked to the integration of Canal+ France in the French tax group.

So next slide is Slide 18. So this is a slide on the consolidated P&L under the pure IFRS rules. And you can see that the net income group share, which is the last line, is more important than the adjusted net income, and it's close to EUR 2 billion at EUR 1,967,000,000. In fact, we have 2 main differences between the adjusted net income you have seen in the previous slide and the consolidated net income: One is negative impact, which is the amortization on impairment losses of EUR 2.9 billion, and this amount comprises the impairment of SFR we have taken for EUR 2.4 billion, an impairment which has been calculated on a pure and prudent discounted cash flow value on a constant basis regarding the previous year for Vivendi; but at the same time, we have a largely positive impact in the P&L, which is the earnings from discontinued operation for EUR 4,635,000,000, which is due to the capital gains we've done on Activision Blizzard last year but also the earnings from the assets sold, like Activision Blizzard from January 1 to the date of deconsolidation and from Maroc Telecom.

I would like to comment the consolidated balance sheet in -- on Slide 19. So this is strange, but under the IFRS rule, in the P&L, you have to restate the previous year. But this is not the case for the balance sheet. So the figures you have there for the balance sheet are the figures released in 2012. And this explains the main differences because we have not the same perimeter on the balance sheet at the end of 2012 and 2013. But let me give some comments on 2013. We have consolidated equity, which is above EUR 19 billion. And we have net financial debt, which is at EUR 11.1 billion, which was an improvement of EUR 2.3 billion at December 31. And the -- if we consider the sale of Maroc Telecom, the debt would be EUR 6.9 billion at December 31 after the sale of Maroc Telecom. On the assets side of the slide, you can see that the goodwill represents EUR 17 billion. On the last line on the asset side, net assets held for sale, EUR 5.2 billion, is linked to Maroc Telecom, which is considered for sale under the IFRS.

So let me come to the Slide #20 and the cash flow from operation. On the left side of the slide, you have the cash flow from operation before CapEx. And on the right side of the slide, you have the cash flow from operation after CapEx. So logically, we have a decrease in the CFFO before CapEx of roughly 20%, which is due to the decrease in the CFFO before CapEx at the SFR level, but we have an increase at the level of the media and content activity at EUR 1.8 billion. And on the right side of the slide, after CapEx, it's interesting to see that we have an improvement of our CFFO after CapEx of nearly 20% at EUR 1,453,000,000. This is linked to 2 factors: One is the fact that at SFR, we had less CapEx in 2013 than in 2012 linked to the fact that in 2012, SFR had to pay for the 4G license fees, a big amount of money, but this is also due to a good control of CapEx in the media and content activity in 2013.

This slide shows the strong reduction of net debt, coming from EUR 13.4 billion in December 31, 2012, to EUR 11.1 billion at December 31, 2013. You can see, on this bridge, the main explanation of this variation, the most important one being probably the disposal of Activision Blizzard, which has -- gave close to EUR 3 billion of cash -- of net cash for the group. On the extreme right of the slide, you can see the effect of the Maroc Telecom disposal, the net debt adjusted at -- from the sale of Maroc Telecom at the end of 2013 is EUR 6.9 billion, more or less the half, at the beginning of 2013.

Let me come to some comments on the different activities, first one being Canal+, and you have the figures of Canal+ on the left side and some highlights on the right side. We can say that we have very good impact in 2013 of the integration, which have been decided in 2012, especially for the free TV in France with the D8 and D17, which have compensated the slight decline in pay-TV, and this, in the circumstances where we had a very bad ad market in France in 2013. We have also a good development of the international pay-TV, especially in Poland and in other countries. We can also say that those news activity are now breakeven, which is a good performance. And we have also some in transition cost for EUR 50 million, which explains a slight decline in the EBITA. Those transition costs are largely due to the Poland integration. But globally speaking, we have a cash flow from operation, which is stable at EUR 478 million, very close to EUR 500 million.

For UMG. This slide from -- for UMG shows the effective and positive impact of the integration of EMI in our music activity, but this is partially hidden by the improvement of the euro versus the dollar, which came from $1.28 in 2012 to $1.33 in 2013, which explains the differences between the figure that constant currency on real term. And also, the revenues have been impacted by difficulties in the Japanese market. The Japanese market is something strange. It's a very domestic market, and it has declined by EUR 80 million, I think, for UMG this year. This is negative, the same case for the other labels. So we are not different from the others. This is a very atypical market. I can also highlight that the digital music in the recorded music is above 50%, at 51%, now. We have very good growth in new activities like merchandising. And from the cost side, we have restructuring costs, which were higher than expected mainly due to the Japanese situation. And the last line, the CFFO, is interesting because we are at almost EUR 600 million, which is a very good level, which includes some dividends from Beats and some money coming from property disposal at EMI.

For Brazil and GVT, we have, as you can see, very good growth in reals despite the slowdown in the Brazilian economy in 2013 as the telecom activities grew by 14% in numbers of light [ph], but at the same time, we had some pressure on ARPU. For the pay-TV, we have a good development of the pay-TV, which has more than doubled in comparison to 2012. We have also a good growth in both -- in corporate and wholesale. And at the EBITDA level, we have to say and to stress that the EBITDA minus CapEx, which is more or less the signification of the CFFO for GVT, it was tonis [ph] minus EUR 62 million, but it was positive in the second part of 2013, and it is expected to turn positive in 2014.

For SFR, we have an EBITDA which is close to EUR 2.8 billion. Jean-Yves gave some comments, but we can say that in a very tough, competitive environment, SFR did well and continued to gain clients, especially in the mobile activity with more than -- with almost 300,000 new subscribers. This is thanks to the 4G with over 1 million of new subscriber. But at the same time, the ARPU declined due to the competition in this market. For the broadband, we have also successes at SFR, with 170,000 new subscriber due to fiber and Multi-Packs. In the B2B activity, this has been a challenging year purely due to the economic situation in France. At the EBITDA, we can see that we are at minus 16%, which is EUR 500 million less than in the previous year but in comparison to the decrease in revenue, which were by EUR 900 million, we can say that the adaptation plan of SFR is a success and is -- this plan is continuing, the EBITDA decrease completely in line with the decrease at the EBITDA level with amortization, which have been stable.

So thank you very much. That bring me to the end of my first, but I hope not the last one, presentation of Vivendi's result. And along with Jean-François, Arnaud, Jean-Yves, and all the financial team and financial activity, I'm ready to answer your questions. Thank you very much.

Question-and-Answer Session

Nicolas Cote-Colisson - HSBC, Research Division

Nicolas Cote-Colisson from HSBC. I've got 3 questions on SFR. First question is, what is the book value now you have written down some of the goodwill for SFR? Second question is, you mentioned EUR 1 billion of savings since 2011. Could we have a feel of the split between variable cost and fixed cost? And the third and last question is, where do you think the SFR EBITDA margin could go given the restructuring plan is ongoing?

Hervé Philippe

Maybe I can answer the first one, and Jean-Yves, the other one. So -- well, we have an impairment of EUR 2.4 billion, as I have said in my presentation, which has been calculated only on a pure DCF basis, which integrates the business plan and some assumptions on the future. It doesn't -- absolutely not any premium or anything, only in regards to the value of comparables of the recent transaction. So this is EUR 2.4 billion. We do not disclose the book value. So this is something which is not disclosed. I can also add that in the statutory accounts, we have an effect also on the -- which is not an impairment, but it's a depreciation on the -- in the value, the book value of SFR, which is, in fact, more important in the statutory accounts than in the consolidated ones. That's why we have said in our press release that the net result in the statutory account will be minus EUR 4.9 billion in comparison to minus EUR 6 billion last year. And this will be allocated to the distributable rate there for EUR 2.9 billion and to the premium for EUR 2 billion in the statutory accounts. So this is my answer. Jean-Yves, do you want to -- Sandrine?

Sandrine Dufour

So on your first question regarding the cost decrease, if I just focus on 2013, we decreased our cost by roughly EUR 540 million, and I would split this in 3 buckets: the fixed cost was roughly 1/4 of the decrease; commercial, variable cost, et cetera, was 60%; the rest in interconnection costs. And on your second question regarding EBITDA margin, you should have in mind that in 2014, we still bear the impact of the repricing of our customer base in 2013, which has an impact over this year; as well as the increase of the no free segment, which weighed on ARPU as well; and the quad-play growth, which comes with discount on our bundles. So this is putting some price erosion plus the price movements you've seen at the end of 2013, beginning of this year. So despite the fact that we continue to decrease our costs in 2014, this should not affect the total impact of price erosion.

Bruno Hareng - Oddo Securities, Research Division

Bruno Hareng from Oddo. I'm just a bit surprised that you are not providing any kind of guidance for 2014? So is it a change in policy? Or do you want to share your views with us?

Jean-François Dubos

It is not -- sorry, it's not a change of policy. It's just that we have to adapt our criterias, and the board will do that in the coming weeks -- just a question of date, not a question of change.

Claudio Aspesi - Sanford C. Bernstein & Co., LLC., Research Division

Claudio Aspesi from Bernstein. Two questions. Can you give us a flavor for the investments required at SFR in the next year in terms of CapEx and the impact of the Bouygues agreement on your forecast for that? And the second one is that your predecessors, both in your respective chairs, committed in the past to keeping the current debt ratings stable. Are you ready to commit to the same ratings or you're not ready yet to commit?

Hervé Philippe

So I will let maybe Sandrine answer for the 2 first question, and I'll answer for the other one.

Sandrine Dufour

Okay. So on CapEx expectation for this year, we plan roughly EUR 1.6 billion, so fairly similar to 2013. As part of the expected benefits of the network-sharing agreements, as you know, we will start by implementing this network-sharing agreement, which requires some additional CapEx, a small portion in 2014 and more in 2015. And the benefit of this network-sharing agreement should be felt as of 2017 and beyond. And roughly, we expect a 20% decrease in our mobile CapEx network cost by that time.

Hervé Philippe

For the ratings of Vivendi, I would say we are in the process of discussion with the rating agencies on the basis of the separation between SFR and Vivendi and media and content activities. So this is too early to give any position on the ratings. It will depend on the discussion with the rating agencies.

Thomas A. Singlehurst - Citigroup Inc, Research Division

Tom Singlehurst from Citigroup. I had 2 questions actually. The first is just on the dividend, maybe I've missed it, but can you talk about what we should expect for dividend in 2014? Second question is on GVT, which you include as media and content. Obviously, it's one of the main props in terms of the organic growth rate. And indeed, the cash flow generation, yet, it's slowing and slowing quite dramatically in the fourth quarter. Can you just talk about the payoff between CapEx and growth there? Because, yes, it's great you're going to get better cash flow out of it, but if it ends up growing sort of sub-inflation, that may be a concern.

Jean-François Dubos

On the dividend, I'll repeat what I said before. We are currently reviewing what form of distribution will be proposed to our shareholders.

Hervé Philippe

And on GVT, clearly, we are penalized by the effect of the depreciation of the real, which has -- which is the main reason for the fears we have in euro. But in real terms, the growth of GVT has continued to be good and the momentum continues to be interesting for activities in GVT. So we'll see in the coming weeks and months what will be GVT, but clearly, there is a focus which is put at GVT to be -- to have a very good control of CapEx in the coming year. And this is the main reason for GVT to be able to turn positive in cash. And we have seen that in the second part of 2012. This is the main point for GVT in 2014. I'm sure with Amos Genish to have somebody who is in -- completely involved in the control of CapEx at GVT.

Francois Godard - Enders Analysis Ltd

Francois Godard from Enders Analysis. I wanted to ask a couple of questions about Canal+. Churn is up, and you are losing subscribers in France. And I wondered if you could give us a little bit more color on the situation in France, why it looks so difficult. Second, about Canal+, too, maybe you could tell us how many subscribers you have to CanalPlay? You used to disclose this figure, and you haven't this time. The last figure -- the last question would be about SFR. Would you tell us a little bit more about your FTTH subscribers? Is the churn lower than for other subscribers? Is the ARPU higher? Is it -- any hope of upside there?

Hervé Philippe

Thank you for your question. Maybe Gregoire can answer the first one and Jean-Yves the second one.

Grégoire Castaing

Yes. Regarding the churn, as you mentioned, it's -- our churn has increased in '13. But you can also notice that our churn decreased since Q3, as we explained it at the previous conference with analysts. This churn increase is mainly linked to the macroeconomic environment in Mainland France and also to the competition of our -- of the key players in France, the ISP, the free DTT and also BM [ph] . And this churn is also linked to a price increase, mainly on Canal+ during '13. But again, we explained that the churn will decrease in Q4, and the churn is clearly decreasing trend. We are below 50% at the end of '13, and we are confident in, again, a decrease in '14. Regarding the subscribers at CanalPlay, we reached 330,000 subscription at the end of '13.

Hervé Philippe

Thank you, Gregoire. Maybe Sandrine or Jean-Yves for the FTTH?

Jean-Yves Charlier

Maybe first, just maybe reposition our overall strategy and then give you a few numbers on where we are from a fiber perspective. On strategy that we are deploying today, it's to position SFR in the French marketplace as both a provider of high-speed fiber and high-speed, obviously, mobile services to our customers, and that, as we presented in a convergent type of offering. On the back of the announcement of our network-sharing arrangement with Bouygues, as you know, we also have a network-sharing agreement on fiber with Orange, particularly in the medium-dense zones of France. And we believe that this is also key to our strategy in terms of network infrastructure optimization. Today, we have roughly about 1.6 million home passed. We have a subscriber base of roughly 200,000 customers, and we've seen that growing throughout the course of 2013, i.e. the mix of our -- is improving, of fiber customers to broadband customers. And that, within the volume momentum that we delivered in 2013, and the ARPU levels are slightly better for our fiber customers than for our broadband customers. The churn is slightly lower, in fact, for our fiber customers because -- given that we deliver an end-to-end service, obviously we have service levels that are improved versus broadband infrastructures, obviously.

Jean-François Dubos

Okay. Now we take Omar Sheikh, Credit Suisse. Omar?

Omar Sheikh - Crédit Suisse AG, Research Division

Great, okay. So I've got 3 questions, if I may. The first is on the dividend payment. You've said in the past that the distribution to shareholders in respect to 2013 will comprise a fixed dividend and potentially a share buyback. Can you confirm that that's still your thinking? And perhaps, if you could say a few words about how ample you think the fixed dividend payment within that is? And the second question is on GVT. You've obviously seen the commercial development this year and your guidance for indications at '14. I wondered if you could just say a few words about whether you think the GVT remains a core part of the group going forward. And then finally, on music, could you clarify the Japan impact on '13 recorded music revenue growth? I think -- where you mentioned a figure of EUR 80 million headwind in '13. Could you tell us whether or not you anticipate that, that headwind will be eliminated in 2014 and, therefore, whether you think recorded music revenues can grow in '14 versus '13?

Jean-François Dubos

On the dividend, I'll repeat what I said before, and I have nothing else to say more. So I am sorry. I will stay on my statement. Second, on...

Hervé Philippe

GVT.

Jean-François Dubos

On GVT, do you want to...

Hervé Philippe

Your question, is GVT a core part of the group? I would say, yes, mostly because GVT is in a very interesting part of the world, a growing part. And for this reason, it's interesting to have GVT in our group. And for the -- for international reason, you have also asked a question regarding music and Japan. I'm happy to pass the question to Boyd, who is with us this morning. So Boyd, could you answer this question on the situation in Japan? Maybe you will know on GVT, we are very confident that GVT stays at the media group because GVT is a very good network, the broadband, the high speed and very high quality in Brazil. And we are confident that it can deliver the high-quality TV and also content. And so it is not stupid to add it in a -- it is more than less stupid to add it in our media -- on media Vivendi. We are confident with that. Do you want to add something more?

Arnaud de Puyfontaine

I would just add to that. I'll have to say one of the -- sorry, I'm just going to shout, but the mic would be [indiscernible]. Well, I would just - as I told, we are in this strategic review about what the media and content division is going to look like. I mean, currently, GVT is in kind of a path to be able to reinforce its offering in added value to the customers, leveraging and building in the kind of a good network that has been built. And clearly, the focus of the team led by Amos Genish is to be able to see the opportunity and to grow our subscription base as regard to pay-TV. So for the time being, really, strategic approach to the business, GVT is part of the story. We try to reinforce our ARPU per client with pay-TV and added content. And this is the kind of a roadmap that has been given to the -- to Amos Genish and the team.

Boyd Muir

So music and Japan, revenue in Japan down EUR 80 million in 2013 versus 2012. That's approximately 15% down. The market is down 15%. But if I could just try and explain a couple of idiosyncrasies of the Japanese market, it's still 70 plus percent is a physical market, a CD market. It is a market that does not embrace change comfortably. And as a result, digital services, which have developed in many other countries around the world, are not as sufficiently advanced in Japan, which is why we have this headwind, which is a physical decline. To give you an example, Japan is the second largest music market in the world. But for Apple, it's the 14th largest music market for Apple iTunes. So there is a lot of development that needs to happen in the market. With regard to whether UMG's revenues can increase in 2014, I think you said it right. We do have probably 2 major headwinds. We have what will happen with the physical format. There are still many countries like Japan, I mentioned, where physical is the predominant format. And then secondly, we have the maturing of the download market, particularly in the U.S. Recent months have seen a decline in iTunes sales in the U.S. So that will bring us some challenge. And clearly, the good news that we have going against that is that we have very significant increase in subscription and streaming revenues, which, in 2013, were up 75% compared to 2012.

Hervé Philippe

Okay. Thank you very much. Maybe a question coming from Charles Bedouelle, Exane, on the phone? Charles Bedouelle?

Charles Bedouelle - Exane BNP Paribas, Research Division

On music, when you look at the performance of UMG this year, you said that you were broadly flat, excluding currency and the contribution of EMI. Would you think that there is any benefit of stronger than usual release? I mean, anything specific that would justify the fact that you are flat and -- because then, if you were flat this year despite Japan next year with everything that is happening on the streaming side, why would, let's say, '14 be worse than '13? Let's put it this way. Why would '14 be worse than '13? Is there anything in '13 that is exceptionally good? Well, that's the first question around music. The second question, I think, is on Canal. I mean, I think everybody welcomes greatly the new disclosures. So that's really good. Can you give us any idea in terms of profitability maybe of the different contribution or trends of the key parts of Canal so that we can maybe better assess the outlook for the division? And finally, on GVT, there is clearly a big pressure on prices. How do you see this trending into '14? Have we seen the worst? Is it continuing? Or could it be even worse than what we've had in '13?

Hervé Philippe

Well, Boyd, maybe?

Jean-François Dubos

Boyd, I guess?

Boyd Muir

Okay. So the opportunity to talk about our performance in 2013. We had a very strong creative performance, particularly towards the end of 2013. Our aspiration is always to have such strong creative performance. So I'm not sure you would actually say that we envisage anything less successful in this coming year. I think your point about 2014 versus 2013, I just have to repeat that there are headwinds, be it the physical evolution of the physical market and evolutions of the download market that we just need to be very aware of until such point in time that we have got much higher penetration of subscription services around the world.

Hervé Philippe

Thank you, Boyd. Maybe, Gregoire, without giving too specific figures on the profitability by activity, which are not disclosed, and maybe you can give some flavor on that.

Grégoire Castaing

Yes. I can't give you exact figure of profitability by business, but I can give you the key trends for '14. As you know, '14 will remain a transition year for Groupe Canal+ with a tough market in Mainland France and with the impact of the VAT increase in Mainland France, which represents around EUR 80 million in terms of EBITDA. And with also reinvestment in our key content and mainly sport content with the renegotiation of the English Premier League started mid-'13 and the catel [ph] started -- starting mid-'14. We also will benefit from our international growth driver in mainly Africa, where we are witnessing a very significant growth. We crossed 1 million of subscribers at the end of '13. And we also will benefit from the synergies in Poland, as Hervé already mentioned it. Regarding the free-to-air activity, we also foresee to increase our audience share in TV and digi set [ph] in certainly a difficult advertising market, which should be stable or slightly decreasing. And we will also have some transition costs less than in 2013. Regarding midyear sale, our acquisition in the French Antilles and regarding RED, which is the last acquisition of StudioCanal. All in all, I think that we could -- it's conservative to take into account an increase of our EBITA, including the impact of the VAT in Mainland France, and the slight decrease of EBITA, including the VAT impact.

Jean-François Dubos

Arnaud, do you want to answer the part of the question on GVT?

Arnaud de Puyfontaine

I'm going to be the specialist on GVT this morning. Now GVT, the question is really a good one. GVT has been faced with a tough competition with the kind of a pressure on prices in certain cities like São Paulo, for instance. Clearly, the agenda of the team now is not to try to get into a price war. What we wanted to focus is where we've got a strong market share in specific cities. Where we want to focus is on clients, with the possibility to really buy into our strategy to increase the offering. So what we want to be is to be efficient, to be agile and to be able to provide added value to the customer in cities where we've got strong penetration, very high level of services, which is creating the good base to be able to develop this ARPU increase by providing added value to the end customer, so no price war. I get -- gets the kind of a deep knowledge about the competitive market there being able to add value to the offering that we have, focusing on profitable customers.

Jean-François Dubos

Patrick Kirby, Deutsche Bank?

Patrick Kirby - Deutsche Bank AG, Research Division

I had a couple of questions on timing and then one about growth, please. Just on the strategic review on media, which you've referred to, can you give us any indication on when you expect to complete that and talk about your -- the likely conclusions of that? Then just back on the dividend again, I'm afraid, could you just clarify the timing of any potential announcement of the dividend? When you say you are announcing that prior to the shareholder meeting in June, does that mean possibly the end of this quarter, which I understood was your original intention? Or has that been pushed back into -- some time in Q2? And then my final question about growth, on the media organic growth, you gave a figure of 1.7%. Could you say what you would see as a satisfactory trend rate of organic growth for this business in the medium to long term?

Jean-François Dubos

I will -- behalf my colleagues, first to answer your 2 other question, but I want to just repeat what I said on dividend. I think I have nothing else to add.

Arnaud de Puyfontaine

Okay. Patrick, it's been a long time, but good to hear your voice. Next time, [indiscernible], I hope. As regard to the first question, as regard to timing, there is a process that we are working on. There is the AGM that has been convened and planned to be on the 24th of June. So clearly, the objective is to be in a position to get clarity about our strategy and the roadmap, building on the conclusion of my quick speech in spring. So I'm sure that I'll be able to get the pleasure to see you and -- probably, in due course, end of April, early May. As regard to some numbers to be able to assess the mid- to long-term growth of the media operation, yes, we are going to focus with the different team from UMG, GVT and Canal+ on the capacity really to overcome the strategic challenge we are faced with but also to see how the group -- we can make the content and media division stronger than the sum of the part. And this is part of all the work that we are currently working on, the initiative that we are currently building. And here, again, the number, type of objective, we'll be in a position to share that as soon as we've got the equity story ready to be shared with you.

Jean-François Dubos

Thank you. Will Smith, Goldman Sachs, can you ask only one question, please?

William H. Smith - Goldman Sachs Group Inc., Research Division

I guess on Maroc Telecom, the original expectation for this deal was to close at the end of 2013. So can you give a little color on what's been holding up the process? And what makes you confident it will be completed in the next few weeks?

Hervé Philippe

As for the date for Maroc Telecom. So as we have already announced in the recent past, it's expected to be closed in the coming weeks. So it will be done -- it will...

Jean-François Dubos

We say coming weeks every time. It's just because there are 9 regulatory agencies which are in charge of giving a green light on this deal. So it takes time, unfortunately, but there is no big issue. Patrick Wellington, Morgan Stanley.

Operator

We will now take our next question from Patrick Wellington from Morgan Stanley.

Patrick Wellington - Morgan Stanley, Research Division

I've also got a couple of questions for Arnaud. They're related. The first one is whether you feel the need for any meaningful acquisitions. Does the media group, as it's presently constituted -- formed, present a meaningful group? Or do you see any acquisitions coming into that? And linked to that, you have started this OTT venture in Germany, WATCHEVER, where does that fit in? And how do you see the financial progress of that business in 2014?

Jean-François Dubos

Arnaud?

Hervé Philippe

WATCHEVER?

Arnaud de Puyfontaine

Good question. So I will start by the second one. WATCHEVER has been an initiative to be able to test the market, the German one, with WATCHEVER. And this is an investment from Vivendi. I mean, it's not going to be a surprise that, clearly, other OTT, in the context of SVOD, is kind of a big interesting subject for us that we are currently working on. And we've got the initiatives from Groupe Canal+ under the leadership of Bertrand and Rodolphe Belmer -- Bertrand Meheut and Rodolphe Belmer. And you may have seen that there has been an announcement a couple of weeks ago of the creation of an OTT division within Groupe Canal+ led by Manuel Alduy. Then we've got the situation, as you mentioned, on WATCHEVER, and we are currently -- a, see how we can create some competitive advantage in leveraging on the know-how from WATCHEVER, in accelerating the development of our OTT strategy within Groupe Canal+, but also to see, based in this kind of a worldwide environment, what could be the way forward as regard to WATCHEVER. We're currently working with the team. What is sure is that there's going to be some move that we will do in the foreseeable future, when I say that, in the short term, to be able to position WATCHEVER on the long term. As regard to your first question and potential acquisition, well, the focus is going to be really to see how we can accelerate the underlying growth, how we can make the different part of the company stronger together. But clearly, if and when there could be opportunities, the objective is to create a content and media group. And if there are some opportunities that, a, we can afford and create an opportunity to accelerate the kind of a strategic plan that I will share with you, we'll take them. But with discipline and criteria and taking into account the kind of resources that will be available, all those questions, again, will be clarified in due time. I hope that I have answered your 2 questions.

Jean-François Dubos

Julien Roch, Barclays.

Operator

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

Julien Roch - Barclays Capital, Research Division

Three questions. The first one is on Canal+ cash flow. The EBITDA was EUR 905 million; the CFFO pre-CapEx, EUR 689 million. There's EUR 50 million of restructuring. So Canal+ generated EUR 166 million less cash flow than the EBITDA. Could you give us some indications on why that is? That's the first question. The second question is on Universal Music. Conversely, the cash flow is actually better when you compare the EBITDA to the year before. So is there any one-off or positive working capital or some explanation on that? And then the last question is, could we get a split of the EUR 1.6 billion of SFR CapEx between fixed, mobile, fiber, recurring, nonrecurring?

Hervé Philippe

Do you want to add something on Canal+ because I think we have already answered the question? So...

Jean-François Dubos

No. Yes, they've been answered.

Hervé Philippe

Also, for UMG, I think, we will just say -- we have said that there is some exceptionals in the -- in this year, for which we are [ph] regarding to the dividend for -- getting from Beats and some disposal of real estate assets. So those are mainly the answers.

Jean-François Dubos

Yes.

Hervé Philippe

Filippo Lo Franco, JPMorgan?

Operator

We will take our next question from Filippo Lo Franco from JPMorgan.

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

I have 3 questions, please, and I also have clarification. The first 2 question are on Canal+. You said that you expect churn to come down in 2014. I would like to know how you base this assumption given that the competition from BM [ph] TV is still there and the macro is not improving at the moment. The second question is on proof [ph] profitability again of Canal+ in France, how we should look at this going forward given that the market is mature and there is no growth in subscribers, and you also have the competition on the content side. And the third question is on the UMG and, in particular, the recorded music market? As you said, the download -- digital is coming down in the States. Streaming subscription is going up. Overall, what's your view about the digital market if the balance of the 2 is growing or not? And the clarification was about the previous question of my colleague from Oddo in terms of guidance. In the past, you used to provide guidance by division, and I don't understand if you answer that you are going to provide the guidance before the general meeting or if you no longer have guidance?

Hervé Philippe

On the guidance, we'll see later on that subject. But maybe to answer the question on Canal+ and the churn and the profitability in France, Gregoire, could you give some indications?

Grégoire Castaing

Yes. Regarding churn, I already mentioned the churn increase in 2013 was mainly due to the price increase that occurred last month. The churn trend have started to decline, and again, we are confident to expect that this decrease could continue in '14. Regarding our profitability going forward, of course we foresee an increase of our profitability. We secured our key rights during the last month and mainly the top quarter [ph] at the beginning of '14. I think that we could outline the impact of international activities and the impact of these activities in our growth. This will certainly definitely be the growth driver for the coming years. Just to give you key figures, at the end of '14, we foresee that the international activities will represent around 40% of our EBITA, and this is definitely the key driver for the growth going forward.

Hervé Philippe

Thank you, Gregoire. Regarding UMG, we slowdown in downloads and increase in streaming globally. Some market of digital will continue to increase. And what do you think, Boyd? Is that true -- that there is a new market?

Boyd Muir

Well, I'm -- I think the future is looking positive. Again, I would just urge caution that we're still going through very significant format evolutions, as I've mentioned before. So you've got physical. Still, many markets are heavily skewed to physical. And you have, perhaps, the situation where the download is a format that's going to face in itself some evolution over the coming months and years. So really, I just think it's -- I think the future looks optimistic, but there are certain challenges to manage along that road.

Hervé Philippe

Okay. Arnaud, do you want to add something?

Arnaud de Puyfontaine

Very quickly, what I would say is that -- to reinforce Boyd's point, it's pretty impressive to see the job that has been done by the UMG team led by Lucian Grainge. And I think that, yes, it is a fast-moving environment; yes, the kind of #1 position in terms of recorded music. So we've got a strong connection with all the kind of digital platform. There has been a kind of a communism as regard to who we are working on, and what has very impressed -- and I'm sharing with you my early impression, is really the capacity from the team to cope with the changes. So urge kind of a cautiousness. Yes, it is moving, changing fast. What we've got is strong position, amazing team both in creative side but also in terms of being able to take the position, which is enabling us to really cope with these fast changes that we see in the industry.

Hervé Philippe

Thank you, Arnaud. We'll take a question from Ian Whittaker of Liberum, please.

Operator

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

Ian Whittaker - Liberum Capital Limited, Research Division

Just a few questions. One, just on Canal+, can you just perhaps talk about the potential growth opportunity in Africa? I think you said you passed the million subscriber mark? Second of all is just really to do with following up from Patrick's question. You mentioned about potential acquisition opportunities. Can you give us an idea of what areas of media and content you actually do find attractive? And I guess both from a French perspective and also -- as well from an international perspective that are currently outside the ring of your group?

Hervé Philippe

Well, the second question, we can say there are many, many opportunities in the future. So we will see. And probably, it is not a good thing to be too precise on that for obvious surprise reasons. On Africa, could you give some flavor on the development of Canal+ in Africa, Gregoire, please?

Grégoire Castaing

Yes. As you know, as we are in Africa since a long time and since around 20 years in Senegal and Ivory Coast, we are now in around 20 countries directly or indirectly. We are witnessing a very significant growth in these territories. We are mainly on the sub-Saharan, French-speaking territories. To give you key figures, our turnaround at the end of '13 is above EUR 200 million, and we are witnessing growth around, let's say, 20%, 25% a year. And we still have a significant ARPU. Even if this ARPU is decreasing within the increase of the subscriber base, our ARPU is still around EUR 20.

Hervé Philippe

Thank you very much, Gregoire. Matthew Walker from Nomura, ask a question.

Operator

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

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

Just 2 from me. The first is, what is the size -- in terms of absolute euros, millions, what is the size of the streaming and subscription revenue in music that you generated in 2013? And the second one is on international pay-TV, strong growth there. What was the impact of acquisitions in terms of millions of euros of revenue in 2013, please?

Jean-François Dubos

Boyd?

Hervé Philippe

Boyd, on streaming revenues?

Boyd Muir

So in 2013, our revenues from subscription and streaming were about EUR 450 million.

Hervé Philippe

Thank you very much. And the part of -- with our growth in international TV, I think it's quite complicated to answer this question due to the date of consolidation we have, which are not exactly the same for -- it's not a full year effect on -- in 2012 for Poland. So it's quite difficult to answer precisely this question.

Jean-François Dubos

And the last question from Stephane Beyazian.

Operator

We will now take our last question from Stephane Beyazian from Raymond James.

Stephane Beyazian - Raymond James Euro Equities

A quick question, one of your competitor of SFR, Iliad, launched some new offers with subsidies at the end of last year. Have you experienced any change in market dynamics or any, let's say, renewed pressure on the top end of the segment following that launch?

Jean-François Dubos

Jean-Yves?

Jean-Yves Charlier

Look, as I indicated in our presentation, our Q4 commercial momentum was the best that we had seen in SFR since 2011. We've seen little impact of the various offers that were launched pre-Christmas in the marketplace as we enter into 2014.

Jean-François Dubos

Yes?

Jérôme Bodin - Natixis S.A., Research Division

Jérôme Bodin, Natixis. Just a very quick one. I just want to come back on the media server acquisition by Canal+. Do you see further opportunities in the DSL broadband market, of course, outside France? Is it something you can look at for the coming years?

Hervé Philippe

Well, it was -- I think it was an opportunity. We'll see if there are some others, but we have no specific targets or specific market targeted for that today. So it was really, really much more an opportunity.

Jean-François Dubos

Okay. Ladies and gentlemen, thank you for your attention. See you maybe one day soon.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!