Jean-Bernard Lévy – Chairman of the Management Board and CEO
Amos Genish – GVT, CEO
Philippe Capron – Member of the Management Board and CFO
Pierre Trotot – Senior EVP, Finance and Administration
Ian Whittaker – Liberum Capital
Conor O’Shea – Kepler
Stéphane Schlatter – Santander
Julien Roch – Barclays Capital
Matthew Walker – Nomura Securities
Thomas Singlehurst – Citigroup
Claudio Aspesi – Sanford Bernstein
Filippo Lo Franco – JP Morgan
Charles Bedouelle – Exane
Richard Jones – Goldman Sachs
Patrick Kirby – Deutsche Bank
Polo Tang – UBS
John Karidis – MF Global
Vivendi (OTC:VIVDY) Q4 2010 Earnings Conference Call March 1, 2011 3:00 AM ET
Good morning to all of you, those here in Paris and also those listening on the phone, and thank you for coming. I’m happy to present our 2010 results and to give you some guidance of 2011.
Starting with 2010; the numbers are up as you can see on this page, on page three, all numbers are up. All indicators have done well. We are quite happy with the fact we have adjusted net income growing 4%, this is our major indicator. We also have a very, very strong cash flow generation that we believe shows a very strong dedication to cash all through out the company, major achievement. So the debt is now much lower than it used to be, a pro forma of the transaction regarding Poland, and on the closing of the NBCU sales which happened, both of them in January, the debt would have been at the end of December just below EUR4 billion.
Also, one important point you will find on page three, you know that IFRS does not allow for immediate recognition of gains that has an online component, we have to defer it over a period of time. So while we have sold a number of games, we cannot recognize the revenues and the profit.
The full profit corresponding to these deferred EBITDA as of the end of December last year amounts to more than EUR1 billion of EBITDA, EUR291 million above last year, of which, as you know we directly own more than 60%. So while the numbers are very good, one has to say they would be even better if there was not this pretty peculiar accounting rule, and I wanted to point this out to you.
Based on these good numbers, and as we had indicated earlier, we now can confirm that the dividend share will be paid at the level of EUR1.40 per share. It would be paid in cash on May 10 of 2011. So once again we will return very significant cash value to the shareholders. It is a payout ratio which is slightly above 60%, so it is well above our permanent commitment of a minimum of 50%.
Wanted to show you on page five that we have made very significant progress recently on some of the issues that we had to resolve which come from recent or long ago past. The first one I already mentioned, obviously we have – we are very happy after 10 years of fight, 10 years of a difficult management of these assets and the struggling to make sure that our investments will be recognized, we have ended the disputes regarding our telecom assets in Poland, this is a full final agreement. The money is in our accounts, bank accounts, and we received a little above EUR1.2 billion mid-January 2011, just about six weeks ago.
I prefer to stress that many analysts had followed us and accounted for a full zero in some of the parts, because we didn’t know whether we could have a possible outcome or not. Very pleased that after all these years, we fought to gain back EUR1.2 billion for the shareholders, and I invite everybody to take this money into account when they look at Vivendi.
Second important aspect, we have got good news. Middle of last year, Supreme Court’s decision in the United States regarding class action potential plaintiffs, and just a few days ago the judge in-charge of the Vivendi securities case, the transaction case decided that only people who bought ADR on the New York Stock Exchange could maybe at the end of a very, very, very long process be awarded damages.
As I have said already back at the half-year results, we have significantly reduced – now that this is our concern, we have significantly reduced the potential damages that maybe one day we would have to say, although we still believe we will prevail in appeals court, and that means we are reversing almost all the provision we took last year, the provision that we took last year in the accounts at end of ’09 was EUR550 million, now it’s reduced to EUR100 million. So it’s more than 80% of that provision that we have now reversed.
Third point, quickly, and we had an investigation about the way we gained control of GVT in Brazil and recycle that in December for EUR67 million.
On the operations of Vivendi, I will not make a lot of comment. I will just stress on pages six, seven and eight, a few of the important highlights. As I see the strategy of Vivendi being developed, implemented over the years and being successful first, our market share in France has been doing very well. I’m just highlighting here a few important points. On SFR mobile data revenues about 16%, today smartphones account for almost 30% of SFR customers, 13% of growth year-on-year.
Broadband Internet revenue on the mass market, on the retail markets have grown 20%. This shows how successful the acquisition, integration of the digital has been. We have a very good new box that we have launched. It’s called Neufbox Evolution. And it is very successful, it is available, it works. It is really dedicated to mass market to customers who like simple and efficient box, and we are continuing to have very significant market share. We consider our market share to be above 30% which was our original target for the full year, but as many of you know the numbers have not been reported by asset.
On Canal+, we have seen in 2010, a very good year, especially on Canal+ subscriptions are up close to 3%. ARPU is up also about the same percentage. So it shows after a more difficult year in 2009, 2010 has been a good year for Canal+ especially on its major business which is the subscriptions and the ARPU on the French mainland territory.
Second point I would like to highlight on the operations, we are more present in emerging markets. Obviously GVT in Brazil is now a significant part of Vivendi, but at the same time, also the Group whether it’s Canal+ in Vietnam, UMG in many emerging markets territories and Maroc Telecom itself in Africa, and Activision Blizzard in Asia, we are increasing our presence, our investments, our revenues out of fast-growing economies. And altogether revenues of Vivendi in emerging markets have grown from 14% to 18% in 2010.
Third point is digitization. As many of you know, we are committed to content to digital content to the digital consumer. You can see for instance that the way that gamers access games is more and more digital. Digital revenue are now 32% of total Activision Blizzard revenues. The same for the music business, now close to 30% of our recorded music revenues are distributed through digital networks. And, of course, the same for Canal+ as we have now successfully completed the migration of the old analog network which we operated for 26 years, and now all the customers on the French mainland territory access Canal+ through digital.
As you know, this is part of our strategy. We have a digit model which is based on subscriptions on innovation. And on the government investments in the content, the platforms and the networks. We are focusing a lot of efforts towards innovation, organic growth, and continued investment. This investment totaled EUR5.7 billion in 2010. This is 20% of our revenues which are investments in premium content and networks. But we also generate a lot of cash.
As I said at the beginning, the company has been really focusing on the generation of cash and the return of cash to shareholders. And that reflects now that Vivendi has no debt. We reiterate our general objective, our long-term objective that we hope one day to be able to buyout the minority interest we have in France, but of course this has to be done at a reasonable price. And if the price is not reasonable as you know we walk away from too expensive deals.
We also know that new opportunities in fast-growing businesses or fast-growing areas of the world remain scarce and we are always cautious when we look at new ventures. But when we sign one, we invest like we did in Brazil. We bought the company, we doubled the investment in the CapEx in GVT to make sure we do sign the growth that we are seeking.
I also want to stress that Activision Blizzard is using some of the cash it generates to buyback its own share. This increases year-over-year the percentage of ownership of Vivendi in Activision Blizzard, we are now above 60%. And I also want to reiterate that we are committed to a high cash dividend with a distribution rate of at least 60% of adjusted net income.
A few words on innovation. We have created with Sandrine Dufour a new team at the headquarters that will stimulate innovation. Innovation is at the heart of the strategy of Vivendi. We want to launch new and ambitious growth projects. We want to stimulate the corporation between the Group’s businesses and increase the number of projects that we will gather together our business units.
We want to increase the visibility traction that is created by innovative projects in each of the business units inside, and we also want to increase our exposure to external innovation, we want to build with more a stable and a profitable relationship with the startup community, we also want to create partnerships to build on new partnerships and from time-to-time to initiate new businesses in various areas which are adjacent to our current business.
And I will just give you for a couple of minutes a few examples of some of the innovation that we have launched in the areas of customer-phasing platforms.
This is more than a year-ago and it’s very quickly self played for video viewing on the Internet. MTV is sort of physical web channel that we have launched in France and has been very successful very quickly. I spoke about Neufbox Evolution, is truly successful customer interface. Sold more than 200,000 Neufbox Evolution just in the last three months.
We have another innovation going on at Canal+, I’m just giving you a few of them. iPad, all those at Canal+ very easily these days. Xbox 360 owners too. zaOza is an example of an initiative it’s based on internally of Vivendi to distribute content over all kinds of devices and networks. We already have signed more than 1 million subscribers in France and in Germany. Skylanders is a new franchise that we will launch in the second half of this year. And Activision Blizzard is the platform that really gets it through young consumers that brings together a video game as a digital story.
So this just a few examples of innovation around Vivendi. Some of them managed at inside the businesses most of them and also some of them managed at third quarter.
Just to conclude, we know the environment is challenging, especially in France. But we have full control of our assets. We remain focused on gaining full ownership of the franchises at a reasonable price. We know our organic development will come more from fast growing economies on the one hand and from the focus on the internal innovation on the other hand, and we are totally dedicated to build for growth and continue to increase shareholder return.
Which is the guidance is that based on adjusted net income excluding NBC Universal and we will give you very specific numbers with Philippe in a few minutes about the basis of the 2010 numbers, excluding NBC Universal. So based on the 2010 numbers excluding NBC Universal, we expect in 2011 a slight increase in adjusted net income and we intend to maintain high cash dividend.
With this, I will now leave the floor to Amos Genish. He is the Head of GVT. I will personally thank him for coming over to give you more information, more news about GVT, very successful, really a booming market, fantastic performance. So thank you, Amos, thank you for coming, and I’ll leave you the floor.
Good morning, everyone. I’m very pleased to be here today presenting GVT’s 2010 financial and operational performance, this past year GVT consolidated by Vivendi the full first year. We had delighted to receive a substantial boost both Vivendi acquisitions, operationally, strategically, and I think that 2010 will show very clearly that post Vivendi, GVT is running much faster.
We had a very impressive performance in 2010, the best financial performance we have in the history of the company over the last 10 years. Revenues grew by 43% and EBITDA 53% for the year of 2010, and we reached a better margin of 41.3% for the full-year 2010, substantially better than 2009.
I would also would like to highlight that in Q4, even though we discussed now in 2010, we had higher growth than the average at the year-end, Q4 GVT grew 46% and EBITDA grew 56% and EBITDA margin was 41.7%, so Q4 was better than Q3, Q3 was better than the Q2, and Q2 was better than the Q1. We showed that we have a substantial momentum over the year and Q4 really ended in a strong momentum.
You can see also the numbers in IFRS in Euros. First time, GVT passed the EUR1 billion in revenues, EUR1.29 billion, EBITDA of EUR431 million and a strong EBITDA of EUR277 million. Also on the operational side, you can see that we had a strong growth in the net additions of our lines and service. The way we look on our operational performance, we added in total about 1,460,000 lines of voice and data, though in 2010 a growth of about 55% compared to 2009.
When looking on the growth, the major drivers of the growth to the company has been territorial and coverage expansion, the company is building and entering into a new cities in Brazil. You see has still a relative small presence in the overall Brazilian markets which is substantial large market. But we’re also adding more coverage of our networks.
That’s GVT building its own last miles. We own the network end-to-end, so it takes time build coverage in certain cities. But as we’re expanding in new cities and giving more coverage, we are able to gain much higher market share. We’re also launching all the time new products primarily in the broadband and data IP, where GVT has a strong competitive advantage due to its most modern network in Brazil. And we are very much focused of quality of services and our churn rate is the lowest we have in the history of the company in the last 10 years.
Highlighting some numbers of the broadband side, broadband revenues grew 81% compared to 34% of voice. We passed the 1 million subscriber in broadband in 2010. The average speed of GVT is the highest in Brazil. GVT, most of our customer, 64% of our base has more than 10 mega and up. But from the new sales, about 50% of our sales has 15 mega and up. So really compared to the average Brazilian speed which is about one mega, GVT is in a very totally different ball game helping us to play the substantial broadband gap compared to our competitors.
The company also expanded as I mentioned to new cities. In 2010, we expanded to additional 13 cities. First time, the company staff operating in the most important two states of Brazil, Rio De Janeiro and São Paulo. We are not yet in the City of São Paulo, we hope to do that this year. But generally speaking, the company entered first time with the double of the investment we had post-Vivendi in 2010 to the most important states and there is substantial potential for us.
In order to look on the success of expansion, you can look on the top portion revenues coming outside the regional revenue of GVT that we started South part of Brazil. Region two, we have two region in Brazil. And in the last few years, we were expanding outside of that region. You can see that in the 2010, total revenues coming from the new regions that is 7% of total revenues to 25%, so this shows that our expansion model is working well.
We’ve been able to pass the 1 billion reais in EBITDA in 2010, substantially improvement in gross margins showing that GVT is growing with quality, so we’re not sacrificing margin for growth. The major reason for that improvement in margin is clearly has the best of product mix that we are setting more data and less voice, we have higher margin on data, economy of scale, and concept optimization of course.
I’ll just quickly talk about the two segments where GVT is operating, GVT is currently operating in the fixed telephony market, voice and data, broadband, and so on, and planning to enter in the second half of 2011 for the pay TV segment. So I will just quickly talk about each one of those segments. In the telecom segment, the broadband is expanding and growing very fast. We expect to reach in the vis-à-vis 4 million subscribers in the next five years compared to only 13 million this year, so it’s a substantial growth of CAGR 21% for the next five years.
For the telecom segment, our strategic guidelines is based on continuous total expansion. We expect in the next five years to enter additional 80 cities compared to about 150 GVT it is today. That will mean that will increase our addressable market from about 12.3 million to about 25.3 million, so that’s more than double our addressable market. And we also expect due to continued coverage in gain of market share to double – almost double our market share, we think the addressable market from 10% to 90%. So we have very aggressive plans with respect to, although we want to be in the next five years.
In 2010, GVT market share grew from 8.7% to about 10%. Today we would like to continue maintain the edge on our core offer primarily in the broadband GVT, always push the envelope with respect to speed and price. We did it in the 10 mega, 15 mega and we expect to do the same through the 35 mega in around July, August, we’ll launch 35 mega, at a price close to 99 reais which is about EUR44. This will be substantially competitive price in speed and quality. Many of our competitors are still selling two or four mega at a similar price. So clearly we’ll have a substantial additional competitive advantage for the second half of 2011. We’ll continue to push our quality of service to be the best in Brazil. We’ve been able just channelize by 0.5% per month in 2010. We expect to have additional decrease in churn in 2011.
Talking about the pay TV, I will said, it’s a very promising market. We are very excited to enter that segment in the second half of 2011. That’s actually due to the support of Vivendi we’ve been able to enter fast and the substantial knowledge being received through Canal+ and SFR. We hope to enter – this market is growing fast. To date Brazil has the lowest penetration rate of cable TV in Latin America, only 13% supposed to reach to 29% penetration ex-Brazil. So clearly there is substantial potential in this market.
We think we’re the first company in Brazil to use IPTV technology which is new. And why we can do it because we have the best network, we have our own last mile fiber and short [inaudible] which can reach up to 100 mega for most customers. With this, GVT will be the first one launching features that would be very different to the current Brazilian pay TV market. We’ll be the first one offering a full HD channels to all basic packages compared to just premium to our competitors.
We’ll have clearly a unique interactive services due to the IPTV technology like VoD, catch up TV, and so on. And, of course, other net applications, YouTube, Facebook, Twitter and so on. We’ll have the largest VoD library in the market. We’re planning to start about 3,000 hours of content. We’ll have the most modern and user-friendly HD graphical interface, and of course very competitive pricing strategy compared to what people are offering today in the market. So again a very promising market and we are very excited to enter to that in the second half.
Talking quickly about Brazil in general, the economic and market environment; as all of you know, as Brazil is growing faster than stable macroeconomics environment. And Brazil’s GDP is expected to continue to grow. We expect Brazil to be the fifth largest economy in the next five years. And you can see this per capita GDP reached $10,000 compared to only $6000 in 2006. What’s interesting in the macroeconomics of Brazil is the buildup of the middle-class in Brazil, the ABC social class in Brazil is growing fast, and it is suppose to reach from 82% to 83% of total population, which means additional 8 million households to be adding to the middle-class in Brazil, so that movement is substantial important for GDP.
It’s a very young population; about 70 million are at age of 15 to 20 years old, which means those 70 million young people will be new customers for us and others in the next few years. Business is growing fast. We expect business to grow from 6 million to 7 million in the next five years and clearly that’s affecting also the growth of the fixed Internet broadband and pay TV in the next coming years. So again, Brazil economy is another positive factor that’s helping us as to grow factor.
Ending with some mid-term and short-term guidance for 2011; with respect, again we will from now divide our guidance between the telecom segment and pay TV segment which is a new segment, and would like at least for the beginning, the first year or two to have a separate line.
So with respect to the telecom segment only, we expect as we mentioned in November 2014 revenues to be about 6 billion reais, which is 2.5 times 2010 revenues and EBITDA margin above 40%. We have nice capabilities to maintain our EBITDA margin. Free cash flow based on simple calculation of EBITDA minus CapEx is expected to be breakeven in 2012 and to be positive in 2013. So that’s about the telecom segment.
About the outlook, financial outlook for midterm for the pay TV, we expect pay TV revenues to be relevant to GVT business early from 2012. 2011 we’re just launching in the second half, so they will not be that material of relevance, but we expect it to grow faster than the telecom revenues in the next five years, so that’s a very, again, promising segment GVT we’ll enter.
We’ll not give a specific guidance for the pay TV, until 2011 results would be available, we would like to see how the first two months of launch is going on. With respect to the midterm consolidated financial outlook for GVT, I can just say the EBITDA margin consolidates telecom and pay TV, despite the fact at the beginning pay TV will have the negative EBITDA, we expect it to continue remain around the 40%.
With respect to financial guidance for 2011 for GVT, we expect revenue growths to be mid-to-high 30s in constant currency which is an upgrade compared to what we said in November. November we said mid-30s, with the momentum we had in the Q4, we expect again to be mid-to-high 30s with respect to growth in revenues. EBITDA margin around 40% in spite pay TV business launch. And CapEx would be around 1.8 billion reais, including 200 million reais for the pay TV, again compared to 1.4 billion reais in 2010.
And thank you so much for your intention. And now Philippe will take the floor.
Good morning, ladies and gentlemen. It’s my pleasure to walk you through these figures in a bit more detail that Jean-Bernard already showed you some main ones. As you’ve seen, we’ve had a 6% increase in our operational income. This has been driven in large parts by Activision Blizzard, excellent performance in 2010, but also as you have seen by the phenomenal results and growth generated by GVT in Brazil. In terms of cash, we had as we’ll see later, a record cash production I mean at EUR8.5 billion CFFO is higher than EBITDA which shows that this – our results are not just about accounting, it’s mostly about cash generation and we give a lot of incentives for our managers to focus on this specific issue.
After investment, which has been significant both in GVT, but also in SFR due to spectrum acquisition, we still generated EUR5.2 billion of CFFO after CapEx which is also a very significant performance. This has helped reduce our debt. As you know we expected that to be around EUR6 billion or a bit higher than EUR6 billion at year-end after the NBCU proceeds. And after the NBCU proceeds and the unexpected Polish transaction, we hoped for it for a long time, but it came only this year. We are not at EUR6 billion, but we are below EUR4 billion, so a very good year in terms of cash generation.
We’re also pleased that we achieved all of our guidances for our various, not just for Vivendi as a whole, but for all of our businesses. I mean Activision Blizzard, we expected EBITDA above EUR600 million and we did EUR692 million which is what the latest guidance had been revised up to at the end of the year when we said it would not be EUR600 million, but around EUR700 million.
Same thing for Universal Music, where in spite of a still very difficult environment, we produced a double-digit margin. Same thing for the mobile at FFO where we were able in a very difficult environment to limit the decrease in the EBITDA to 3.3%, whereas fixed and broadband had a very significant increase plus 17%, and taking out some non-recurring profits due to as a termination of some contract with third parties, it’s still a 9% increase in EBITDA for the fixed activity which truly validates the acquisition and integration of Neuf.
Maroc Telecom still showed a very strong performance with a 4% growth in revenues and EBITDA margin which is still above 45%, so this is also according to the guidance we gave. For GVT, as you know, we had to increase the guidance every quarter during the year, and the end result is 43% growth instead of 26% growth for revenues, and 53% for EBITDA instead of 30%. And last but not least, Canal at 5.8% also beat its guidance. So we’re very pleased with the way the various businesses operated in 2010.
Here you have the various contributions to the EBITDA increase at 6.6%. I won’t go through them all. I will only note, of course, the very significant performance of GVT at EUR277 million. Of course the previous year we had only six weeks of the consolidation of GVT and Activision Blizzard in spite of the revenue deferral and margin deferral mechanism described earlier by Jean-Bernard was still at 43% increase of the IFRS EBITDA, a very strong performance as well.
From this operational income, how do we get to the adjusted net income? Well, first we benefited from a significant contribution even it is the last one from our equity affiliates, meaning mostly NBCU. NBCU contributed for EUR200 million to our accounts for the last year. The interest charge was up by EUR34 million due to the GVT acquisition, it was actually not up proportionally because debt has cost less last year than the previous year, so the increase is only moderate.
I won’t comment the taxes and minority movements as most of you will remember, because it’s now the seventh time I have to say this is all due to the Neuf Cegetel-SFR merger and the tax treatment of this operation impacted in the case of Vivendi by the BMC, so that’s why it’s a two lines varies the way they do, so that overall adjusted net income is growing by 4.4% about close to EUR2.7 billion about in line with the increase of the adjusted net income.
A couple of comments to especially help analyst with their guidance. Well, first, when we guide to an increase in the adjusted net income including NBC Universal, meaning excluding both the contribution of NBC Universal, but also the financing cost related to that holding, we guide on the basis of EUR2.5 billion or EUR2.55 billion, EUR2.548 billion exactly, that’s the basis on which we state our constant perimeter calculation.
The second thing I want to add is that interest in 2011 should be slightly below 2010. As you know the cost of money is such that the significant improvement in our balance sheet does not change the fact that we still have bonds pending and we have to pay the – as a coupons on those bond and therefore the interest charge will not be significantly reduced compared to the previous year. And concerning tax, the apparent tax rate or the adjusted tax rate should be similar to the one we had in 2010 at 24%. We should be again somewhere again between 23% and 25% of adjusted tax rate.
This is a slide which is designed for being read rather than commented. Jean-Bernard already told you that at long last, a judge had taken stock of the Morrison decision by the Supreme Court and had decided that the purchases of Vivendi stock on the non-US market were not to be included in the securities transaction in the US, so we have drawn the conclusion that we could review our provision. This has been revised down well very significantly. Just because we had Vivendi stock was listed in France, handled in France much more than in the US, and also joined that period, the number of shares listed in the US has declined very significantly, meaning that people were selling their shares instead of buying them.
And therefore we are not incurring any damage by the alleged inflation of the Vivendi shares, which is why we can reduce this provision so significantly even though we have actually hardened in our calculation, in our model, we have actually hardened some of the hypothesis to take stock of the fact that we are now dealing only with American shareholders or majority of American shareholders who will be probably more prone to go through the very complicated procedure of indemnification if it ever came to that. Meanwhile, our recent decision of the judge has still not entered a verdict. Sometimes we complain about French justice that it’s being slow, but in that case, it’s been now, it’s 13 months after the verdict, the verdict has still not been entered which probably means that judge has some difficulties making sense of it himself.
We are convinced as Jean-Bernard said that at the end of the day, we will not have anything to pay, because even if and when the verdict was entered, we will of course immediately appeal it.
The net income Group share which was EUR830 million has grown very significantly to EUR2.2 billion. Why is that? You remember that last year this indicator was impacted by the class action provision on one hand and by a significant impairment of our music assets on the other hand. This year there has been only very slight impairments of some of our assets, we wrote down the value of Guitar Hero, because we discontinued the production of new games within this franchise. But that is the only notable write-off which we operated this year.
On the other hand, we took back most of the transaction provision as you’ve seen and we had a small game in Euro and a significant currency lose in Dollar on the sale of the first fraction of the NBCU holding. As you see this translates into a EUR230 million loss which impacts the net income Group share.
In terms of cash flow, as I’ve said, all our businesses contributed to a very, very strong and exceptionally strong I should say cash flow generation. Activision Blizzard which already had produced more than its net income in terms of cash last year has done again better this year. They have adopted a very dynamic management of their working capital requirements. And at the same time, the digital models they are increasingly turning to is also by itself having a positive impact on working capital requirements.
UMG at EUR500 million is also showing a very good performance in terms of cash as you can see there was a 50% increase, EUR500 million free cash – or EUR470 million free cash generated after CapEx very significant. SFR is up, if you exclude the spectrum acquisition, and despite the continuous expansion of its 3G network and its investment in fixed line business, because as when we acquire new customers as we’ve been doing very significantly. Last year, we, of course, have to grow CapEx because we provide them with boxes.
GVT’s negative free cash has been less than expected due to the fact that the acceleration of the investments has appeared a bit later in the year. We’ve not paid for all the investments which have been committed yet, but of course next year will be no significant in terms of have a negative free cash before we start rebounding due to the continuous – through the very fast increase of the EBITDA.
NBCU dividends have been slightly down as you can see to EUR233 million. But in January we received an additional $100 million which is the last check – the last dividend check we will get from NBC. For 2011, we anticipate CapEx for the Group to be slightly above 12% of our total revenues. This will be driven, of course, by network expansion GVT, but also by some development at Canal and Maroc Telecom.
As you can see on this chart, the cash generated by operation was absorbed mostly by interest, taxes, and dividend. We had – remember we had a very small BMC check this year, which, of course increased its weight of cash taxes. The only significant investment we did last year has been the continuous program of share buyback at Activision Blizzard. As Jean-Bernard said, we are now close to 61% ownership of Activision Blizzard. And as he also mentioned, the pro forma debt has been reduced below EUR4 billion.
Another very strong year, we said so already, Activision Blizzard was a massive success of the Blizzard franchises, more than 12 million worldwide subscribers now and of Call of Duty, both the Modern Warfare 2 Map Packs at the beginning of the year and a phenomenal success of Black Ops at the end of the year. So non-GAAP EBITDA margin has reached 29% which was expected, which was our guidance, and the IFRS account now reflect a deferral of more than EUR1 billion of EBITDA increased by EUR300 million, that’s EUR1.5 billion of margin. I usually say it’s a quirky accounting system. I think it’s the least we can say.
In 2011, Activision Blizzard has decided in a very difficult environment for games. We don’t have this market in general does not have the growth which was expected a few years ago to realign its portfolio and concentrate on its best-selling franchises, while at the same time investing in new models, you saw Skylanders, and but also in new digital models which will be announced over time. Therefore, there will yet again increase their profitability in terms of margin.
Music, we’ve had yet another difficult year, but at the same time a good Q4 in terms of sales. It’s interesting to note that our sales volume, our top line has actually increased during last year. Thanks in part to the currency, but even taking out the currency impact, the decrease would be limited to 3%, so it’s not been a bad year in terms of top line.
The bottom line has struggled a bit more, because we have taken a few decisions in terms of ENR accounting in particular, and also we had some negative one-offs which have, and some mix impact which explains why the performance is down compared to the previous year. But as we’ve seen cash management has been excellent, because some of the decisions I alluded to are noncash decisions, but cash management has been very strong. In 2011, we will benefit from a reengineering of the business to further reduce cost, especially in North America, and to develop new digital business models. We expect that the run rate of the cost savings by year-end will be EUR100 million per year – on a full-year basis.
SFR, is of course, having to operate in a French telecom environment which has worsened last year clearly, due to heavy regulatory and tax pressures, and due to a very competitive market ahead of the entry of a new player on the mobile side. The good news is that the market itself remains relatively healthy compared to many other European markets and that data growth is driving usage, is driving revenues, is opening new avenues for growth in the future once we stopped suffering from government intervention. So SFR has done very well with most in this difficult environment, with more postpaid customers, and a limited mobile EBITDA decrease as we mentioned a while ago.
On the fixed side, SFR continues to take more than 30% of net ads, that’s been two years and a quarter now that we are at this level which was our target. And EBITDA growth as we said has been strong at 8.6% excluding positive one-offs. And it was mentioned that the networks has been very well received by the customers, because it is very innovative and user-friendly.
Maroc Telecom continues to do well in spite of some economic slowdown in some of the African countries where it operates, and generally speaking with more competitive environment. Revenues are up by 4.5% at constant currency, driven mostly by the new African subsidiary, and EBITDA has further increased by 3% which translates into 45% net margin which makes it one of the most profitable telecom operators in the world.
Canal+ has grown its subscription portfolio by more than 300,000 subscriptions, which has in Metropolitan trends. The migration from analog to digital has been a great success. We could have expected to lose some customers in the process. And, therefore, to not to have an increase in the subscription this year, as we’ve seen it’s been the other way around, so we are very pleased. While at the same time, we’ve been successful in selling more options in selling more services, so that ARPU is significantly up by EUR1.60 which is, of course, a great help. EBITDA has risen by 6% to EUR690 million on the back of this good performance. And in spite of a weaker performance by StudioCanal, but which is mostly without the calendar effects and therefore should be reversed this year.
So to conclude, our outlook for 2011 for the Group as a whole has been already mentioned by Jean-Bernard, slight increase in adjusted net income, excluding NBCU. And, of course, the continuation of the distribution of a very high cash dividend, at least 50% of this adjusted net income. And we said already, a few times, Jean-Bernard and myself, that there was no question to ever reduce this dividend below the present level.
Activision Blizzard should show further improvement in its EBITDA margin. And we hope that overall the 2011 EBITDA will be close to 2013, in spite of probably lower sales due to this concentration on the games that work on the games that produces profit. For Universal, we continue to guide on a double-digit EBITDA margin, despite the restructuring charges which will impact EBITDA, as you know it takes them above the line and therefore it do impact EBITDA in spite of this, we still think we can perform at a double-digit margin level.
For SFR we have no way but to anticipate a decrease in EBITDA in the very tough competitive tax – read my lips, it’s VAT this year and regulatory environment. Broadband and fixed, we anticipate an increase in EBITDA on the recurring basis, meaning excluding the 2010 one-offs of course. Maroc Telecom basically like last year, we anticipate a further growth in revenues and to maintain profitability at the present very high levels. GVT has been described by Amos I won’t get back to that. And, for Canal, we guide on the slight increase in EBITDA.
Thank you for your attention.
Thank you, Philippe. I’m going to ask Arnaud, Julien, Pierre Trotot to come and help us with the Q&A part. And so we are all ready to answer your questions. I see the first hand over there.
Ian Whittaker – Liberum Capital
It’s Ian Whittaker from Liberum Capital. Just three questions, if I may? First one just has to do with your guidance on interest, saying there is a slight decrease, and enough despite the cash that’s coming in from NBCU and PGC. So it sounds as though you’re already just having the cash on the side rather than using it, for example, to pay down debt. Presumably the assumption of that is because you want to use the cash and for any transactions. But given as you said a transaction over SFR buying out the SFR minority stake is not certain, why don’t you just pay down the debt now and then use your facilities later in order to finance transactions? Would be the first question.
And the second question just has to do with music and the potential for cost savings there. If you look to the – or historically at your performance against, for example, Warner Music Group, it would look as though Warner has perhaps been a little bit more efficient in terms of its cost base or managing its cost base than Universal has. So I just wonder if you can talk to the potential there for further cash savings on top of the EUR100 million of annualized savings you’ve talked about by year-end 2011?
And then third of all just in terms of games and the guidance there, you’re saying that EBITDA will be close to 2010. Obviously, sort of, there is a – you’ve talked about the deferred operating margin being up 29% year-on-year, sort of, and obviously that will see through into the P&L. Just wondering if you can talk about the historical link between the deferred operating margin at year-end and the following operating results in the games the following year, because it would seem as though that actually to say, sort of, a large increase to come just from that flow through of revenue?
Okay. So on interest, your point is valid, of course. But unfortunately we are not – we have EUR4 billion of net debt right now, but we have EUR7.5 billion of outstanding bonds. We could, of course, offer the bond holders to reimburse and then we pay a premium which would negate – completely negate especially in IFRS any advantage, we’ll have to pay the growing rate and so it could not – it would not give us a better interest charge this year.
So what we – and the cash we have at hands, of course, we have to invest in a risk-free environment, that’s something which is around 0.5% to 1%. Meaning, it has a neglectable impact on our P&L. So short of reinvestment which, of course, would be an option if we find an investment which does create value. It means having this cash does not give us great advantage and does not significantly reduce our interest charge. Of course, when our bonds lapses after 2012, and so we will not replace them if we are still in the same situation. But I trust we will not stay at this level of net debt which doesn’t make much sense in terms of balance sheet utilization.
In terms of music, I mean I don’t know enough about Warner, but clearly we’ve been for years leading the way in terms of cost reduction. A lot has been done in many, many areas and especially around back office. It doesn’t mean we don’t have more to do and we will do more. And I think that Lucian has a very clear idea of now what he wants to do, what he has done in UMG out of North America, he will now do in North America as well. Hence, the objective we set forward in terms of – in terms of cost reduction.
Last year’s performance was not satisfactory. We would agree there, but there are a number of one-offs which we hope won’t be repeated this year, and of course the continuous adaptation of our cost base.
In terms of Activision Blizzard, I am not sure I fully understood the question about the deferred –
Ian Whittaker – Liberum Capital
Well, I guess is, if you look at your guidance for 2011, you are saying that EBITDA will be close to sort of 2010. If you look at your deferred operating income stream at year-end it’s up 29% year-on-year. So obviously that revenue – that has to be booked to some point presumably it will be booked in 2011 –
Which is a dynamic system. We will – unless we’ve closed completely the whole operation, in which case, we would get a 1 billion of deferred margin, we will continue to operate and have cost and defer revenue again. So it’s – a lot – it’s very difficult for us, for the financial team at Vivendi to make accurate prediction of IFRS results for games, because so much depends on exactly what games sell, meaning online or not online, and at what time in the year they sell them. So it’s really a nightmare making prediction, which is why we are somewhat cautious.
Okay, we’ll go to the next question from the room over here, please.
Conor O’Shea – Kepler
Conor O’Shea from Kepler. I’ve got three questions, please. First question on GVT. You make reference I think in the index to EUR38 million of depreciation charge benefit in 2010. I just wonder from a lengthening of the period if you could just give a little bit more color about that?
Two questions on the Universal Music, specifically the way your – do you think your restructuring charges will be higher in 2011 than 2010? And second question, could you just give a little bit more color as to why the cash flow from operations at Universal Music was so significantly better than the change at the EBITDA level?
Okay. Maybe Philippe will answer all three questions.
On GVT, we changed the duration of amortization of the assets, because we – in the framework of the integration of GVT’s accounts from Brazilian GAAP to IFRS, but we had to do what’s called the emphasis [ph] of purchase accounting and to make sure that there was where analog to ours.
In Brazilian GAAP they were – the speed at which they amortized or depreciated assets was mostly of a tax nature and we had very exhaustive work performed by appraisers and accountants and auditors to see what we should keep as a – and their conclusion was that we should depreciate a bit slower to make it more consistent with our IFRS rules. And, of course, this impacted only Q4, because we did this retroactively because of whole year in Q4. It has a EUR40 million or EUR38 million impact for the full year, which is a positive, but which will be repeated and actually increased as we invest more every year from now on.
Yes, on UMG, we don’t know yet. We suspect there will be a bit more, but not necessarily a lot more, because restructuring has been going on. What we expected is to have more impact in terms of cost reduction clearly.
On the cash flow, from music, I mean the – some of the explanation is in the fact that EBITDA was impacted by one-offs which were of a noncash nature, write-offs of A&Rs for example, and some is linked to the fact that they were very efficient in terms of managing their cash and very, very attentive in terms of their working capital requirement management.
And we’ll have a question – first question from outside the room from Stéphane Schlatter of Santander. Please Stéphane, good morning.
Stéphane Schlatter – Santander
Thank you very much, good morning, gentlemen. I have two questions, please. The first one; assuming the idea of Canal+ France takes place in coming months, what would be the dividend policy of Canal+ France post-IPO, please? And the second question is about SFR. Last Thursday, Mr. Stephane Richard opened the door to Iliad to negotiate 3G roaming agreement. And I wanted to know if the statement could lead SFR to negotiate with Iliad? Thank you.
Okay, thank you. I will take the two questions. The dividend policy on Canal+, I am sure you have read with great care the notes d'operations, the prospectus, the registration document that was provided two weeks ago or week and a half ago. And we have opened the way for what could be the dividend policy, because we have to describe all the options as long as we see them, we have not held a publicly or closed view on this.
Now, as we stand today, I think it is important to remind everybody that the current situation is with a situation where there is cash pooling system that has been put in place with the approval of both shareholders, Vivendi is centralizing the cash every day. And because – and this goes together with the no-dividend policy.
As far as Vivendi as a shareholder is concerned, I would say the – in the best interest of Vivendi and of Vivendi shareholders, the current situation I think is a good one, I think we are satisfied with the current situation of cash pooling and no dividend. But, yes indeed, we have written in the registration document that in the future all options could be open.
With respect to SFR and the 3G roaming agreement, as you have read in Les Echos this morning, I do not believe this would be in our interest to invest more CapEx to help sustain the development of a competitor, I don’t think it makes sense. And so we are not ready to enter into the discussions today.
We have a question from the room over there, please.
I have three questions of SFR, please. First on financials; there is a likely fall of the EBITDA of SFR in 2011 again. France Telecom last week gave an indication and a target of stabilizing this EBITDA of its French assets around 2013, do you have a similar target?
And secondly, on marketing, I was wondering whether you are going to be moving more aggressively on quad play as your competitors have.
And you introduced earlier in the year an option of calls to mobile for broadband clients, I was wondering what was the take up for this offer and if the consumption level is important in terms of minutes? Thank you.
The decrease in EBITDA for 2011, it’s a guidance for mobile EBITDA. Stéphane Roussel has stolen the crystal ball, so I cannot give you a vision for 2013 unfortunately. As far as the – you’re addressing our quadruple play offers, we have much better offers which are multi-pack offer which enable you to have a quadruple play and at better tariff conditions for you. And I recommend you should go to the catalog for SFR for multi-pack. The free calls from the boxes to mobile, I must acknowledge that in January and beginning of February we have been very busy on some elements you can imagine and I don’t have feedback –
It is very early.
Yes, it’s very early. It started very, very well. We are always at early adopters and in the first we launched this where we had a massive call to call centers to buy this option, which is included in our box offer. It’s a good product and it was expected. And now all operators except big include this in their bundles, and I guess we should come to it.
Thank you. We have a question here from the room.
Julien Roch – Barclays Capital
Julien Roch with Barclays Capital.
Julien Roch – Barclays Capital
Good morning. Four rapid question, I hope. The first one is on music. Could you give us the number for restructuring an impairment in 2010 and how much of the 100 million was already in ‘010 that’s the first question.
The second question is whether Philippe could give us some guidance on net debt at constant parameters where the base is being 3.9. Third question is how much of the worldwide tax benefit is remaining at the end of ‘010?
And then the last question for Pierre, you’re talking about the decline in EBITDA, which is a bit more vague than unusual, because it could be between minus 0.1 and 100%. So could you maybe narrow down what decline means? Thanks.
Okay, for UMG restructurings, that figure was about EUR60 million this year, which is about in line with the previous year. As I said earlier, we’re not sure how much will be spent. Next year, it should be – the order of magnitude should be at least the same. But that’s not to be compared with the 100, 100 is a benefit, not a cost of course.
The net debt at constant perimeter should be roughly equal to today’s debt with the important exception that we continued to do significant buyback program at Activision Blizzard, which actually the envelope has been increased from EUR1 billion to EUR1.5 billion, but extended to cover the beginning of 2012. So it really depends on how fast they are spending the cash back. But provided they – they do spend the cash which should be around let’s say EUR5 billion of net debt at the end of the year without any other investments or proceeds of course.
The worldwide tax mechanism we have more – it really depends, it’s a moving target because our tax audits here or there all the time and therefore we are not exactly sure what this asset is worth, but let’s say we still have more than EUR2 billion of tax credit under the worldwide tax mechanism which should cover. And the present, the next check we expect should be another EUR580 million which we will get in – hopefully in June this year.
There was a question about what decline means.
Yes, so I will narrow your gap, it will be between zero and 10. And could be –
It’s a big information.
I can refine it a little bit more.
Later in the year.
You heard my agent. He is the boss.
Okay. We have a question from Matthew Walker from Nomura Securities. Matthew? Matthew are you with us?
Matthew Walker – Nomura Securities
I’m here, sorry about that. Just two quick questions please. First one is on fixed EBITDA telecom guidance. And would it be possible for the EBITDA to be up on a reported basis or do you think it will fall on a reported basis by including EUR58 million one-off? That’s the first question.
The second question is can you remind us of what your fiber-to-the-home spending plans are, over what timeframe, and how many households that will cover?
Okay. Fixed EBITDA; you know that this year we have a EUR776 million EBITDA. But as Philippe mentioned, it includes an one-off favorable non-recurring item of EUR58 million. So the base for the growth that we announced for next year is around EUR720 million. What I want to stress is that, 2011 if we grow the base, and we have no doubt that we shall continue to have favorable commercial results, it should be also affected and impacted by two elements.
VAT for EUR10 million, due to a discrepancy between the tax flow and the consumer flow, we could not pass the VAT increase to the customers before the first of February. So – and nevertheless we have to pay the VAT to the French government as from the 1st January, this accounts for EUR10 million. And also we shall be slightly impacted by the cost of giving free calls from the boxes to the mobile phones. So the increase has to be – of the EBITDA has to be put in this context.
Fiber-to-the-homes, we spent EUR120 million this year, we shall spend EUR170 million in 2011. 2011 will be mostly the year of the vertical thought. And now that we have an agreement with the French regulator and the other parties to deploy jointly within buildings. At the end of 2010, we have 2.4 million homes straight passed that is horizontal, and we have 400,000 home passed that is vertical deployed, and symbolic number of customer yet. But I will be able to tell you more at the end of next year.
Matthew Walker – Nomura Securities
Can you just say what the total spending is going to be on fiber-to-the-home over the next five years and how many homes you’re going to past say in 2015?
Over the next five years, again maybe it’s a little bit early. You will have a more clear view, I would say, first half of this year, because we have applied in January to cover following a tender by the French government. We have applied to deploy on not only SFR, but jointly with others if possible for 300 cities in France in less than three years. So you will – we shall be able to elaborate little bit in the mid of this year, I guess, when we have the results of who will deploy in which cities.
Matthew Walker – Nomura Securities
Okay, thank you.
We have a question from Thomas Singlehurst at Citigroup. Thomas?
Thomas Singlehurst – Citigroup
Tom here from Citigroup. I had a couple of questions on essentially invested capital within SFR. One was on spectrum auctions and how much – whether that will happen this year and how much we should expect to invest given your points about the adverse impact of government intervention wondering whether we should apply lower overall figure to 4G spectrum?
And the second question is sort of linked is actually on working capital within SFR, given business is basically contracting, and does that mean there is a potential for somewhat in capital relief as part of that prices?
Working capital; we expect the working capital remaining stable since activity should, EBITDA should decrease a little bit, but it’s not such a significant impact on our working capital. And since we shall maintain our CapEx at the same level, we expect no change globally.
Allow investments in spectrum, yes, we have the 4G auctions somewhere in June. We don’t know the rule of the game, which will be given by the regulator end of March. So we have to wait until then. And the regulator will give the – will announce the new termination tariffs next week I guess.
We have a question from the room, please.
Claudio Aspesi – Sanford Bernstein
Claudio Aspesi from Sanford Bernstein. Quick question on Activision. What is the minimum free flow did you think you need in order to achieve your objectives in Activision since you’re continuing to raise your stake?
It’s a good question. We started the Activision Blizzard project when we announced it in December of 2007 with the objective to own around 68%. At that time there was going to be our tender offer, which would take out 50% of the former Activision shareholders. That tender offer which we had promised we did launch it, but at point in time, which was the summer of 2008, and the stock price of Activision Blizzard was 10%, 15%, 20% higher than the tender offer price. So there were absolutely no reason for any shareholder to bring their – to tender their shares into our offer. And indeed, we stopped at only slightly above 50%.
In the meantime we have used cash generated – a lot of the cash generated by Activision Blizzard and there has been a lot of it, something like in the vicinity of $3 billion, to use that cash to buyback some stock and so to increase our ownership. We are not yet at the level of the 68% to 70% which we had envisaged when we first created Activision Blizzard. I would say the idea at this stage is to continue regularly to buyback and to see what the stock price is. And this is of course a lucrative decision that we make accretive for Activision Blizzard and subsequently accretive for Vivendi and its shareholders. And so we intend in the future to continue to do this.
We will have a more close review maybe when we reach our original target we will be more precise about this. So we failed in buying something like 3.5 billion shares at $13.75, but we are succeeding in buying them at least close to 200 million at $11. So we’re not too unhappy actually with the outcome.
We have a question from Filippo Lo Franco at JP Morgan. Filippo good morning.
Filippo Lo Franco – JP Morgan
Yes, good morning, everybody. I have three question. The first is on the music and the UMG, and if you can update here on the revenue outlook and particular on the digital and the piracy, if there is anything that that’s been done to fight back the piracy.
The second is on the emerging markets; you’ve gone up an exposure to 18%, are you happy with this or you want to increase further in the future exposure to emerging markets?
And finally, in terms of the dividend, is there any chance that you can increase the absolute level of dividend over EUR1.40? And I’m asking this assuming no change in your assets, i.e. excluding a potential acquisition of minorities in SFR.
Okay, thank you. On the revenue line for Universal Music, this is of course a business which is driven by the industry in general, but also by the release of good songs of good hits of good music. So it’s not always easy to plan. We are very confident we can continue to at least keep our market share and hopefully to grow it. We have been steadily successful in probably all the major countries, the United States, Japan, and the three major European countries with market shares at our highest levels.
And we are confident we can continue to replicate such a good performance, because we have great artist and we also have a very good managers running the company and attracting artist, especially when some of our competitors are in some difficulty and nobody really knows what’s going to happen to them in terms of ownership, in terms of the future, in terms of who is going to manage it. This helps us to attract towards our company the best talent, be it the artist, and be it for music managers. So the outlook is difficult, but we continue to believe very much in the music business, although the predictability on a quarter basis will always have some volatility in it.
In emerging markets, we are trying all we can to increase the weight of emerging markets in Vivendi. Of course, by the simple fact that GVT is growing at very high percentage a year in the mid-to-high 30s this year, just by this fact, there was automatically an increase in the percentage of revenues that Vivendi will make out of emerging markets when compared to OECD markets, which we are also all around Vivendi looking for opportunities to grow stronger.
Let me just give you a few examples out of the music business. Of course, we have for years and year have been focusing on developed countries to sell records. Now with the development of the cell phones and the easier access of the Internet to hundreds of millions of people from emerging markets, we have launched a very significant program to try and not so much sell records to these people in emerging markets, but more to sell the music, to sell the music subscriptions that will be accessed through the cellular networks, all through the Internet network.
And just over the last few months, we have been very active signing deals with major operators such as Singapore Telecom fir Southeast Asia, Reliance Communications for India, a number of Middle East operators with a new company, a new little team that is now running the business out of Dubai and of course in Brazil with GVT. So just to give you the example, this example, I strongly believe that first GVT, but also generally speaking UMG, Canal+, Africa from Maroc Telecom and so on will mean at this level of 18% will continue to grow.
With respect to the dividend, the dividend is at EUR1.40. It’s a little above 60% of pay-out ratio which is slightly higher than we would feel should be the long-term view. We would like it to be slightly above 50% more than slightly above 60%, and we will review the level of the dividend every year based on this dogmatic approach of being above 50%, also dogmatic approach that by no way we will reconsider the dividend to go down.
Now in the future, will it go up or will it remain at EUR1.40? It will depend on the number of considerations. And of course, a major one would be whether we will or not keep the same ownership as we have currently in SFR.
Filippo Lo Franco – JP Morgan
Okay, thank you.
Maybe we can turn to other question from the room. If not, Charles Bedouelle from Exane.
Charles Bedouelle – Exane
Good morning, thank you for taking the question. I had one question on GVT, it’s a bit technical, maybe Amos can help me. But it seems that the D&A was extremely low in the Q4 if I compare to what you reported in nine months. So the EBITDA, I understand but the EBITDA seems very high in the – for the D&A maybe very low, maybe there is something you can explain us and how we should look at this going forward?
And also on music, I know you have no crystal ball since Pierre lost it, but how do you see the evolution the physical market in the next two years?
Yes, we’ll go quickly. We already answered some of this.
Yes, on the first question on GVT, we already gave the technical answer. And if you have missed Charles, you should get with the IR teams, they will give you the details. Okay, we’ll go to Richard Jones from Goldman Sachs. Richard?
Richard Jones – Goldman Sachs
Hi, I’m not sure if you’ve kind of said this, but I just wanted to check what stage any discussions around SFR are at? And then, secondly, to just clarify following on from your comments on the dividends, if you were to buyout SFR, are you suggesting that that would lead you to think of a higher dividend or a higher payout ratio? And then, secondly, just wondering if you could give us any thoughts on the likely tax rate for the year?
Well, I’m not going to make many comments on the potential evolution of the situation regarding SFR stake holding. I believe the interest of Vivendi is not to describe whether there are any discussions, what would be the content of discussions if there are any. I think there is a stated objective by both parties towards the transaction. This is a strategic message that has been sent over time by each party. And I think the best is not to give any tactical information to you guys at this stage.
With respect to the dividend, yes, obviously change in the – a change in the ownership of SFR would certainly lead us to revisit the dividend upwards, not the payout ratio. We consider a 50%, 50% plus payout ratio is a permanent commitment of Vivendi which we would not be inclined to change this threshold of 50% should there be such a significant change in the ownership of SFR.
And regarding the tax situation, I will leave it to Philippe.
Yes, I already mentioned that the tax rate should be somewhere in between 23% and 25% this year, so in line with last year.
We have a question from Patrick Kirby of Deutsche Bank. Patrick?
Patrick Kirby – Deutsche Bank
Good morning. And I had a couple of questions. Firstly on GVT, do you have any updates on them, thoughts about doing an MVNO or possibility of that at some point in the near future?
And then, secondly, on SFR, you gave us a figure for retention costs in the third quarter. I was wondering if you could give us a figure for the quarter just ended.
And as a general question on your approach to the mobile market, would you say that you are prioritizing margin or market share this year? Thanks.
Okay. Let Amos answer the first question on the GVT and the MVNO situation.
Good morning. With respect to MVNO in Brazil, it’s relatively new regulation, only few months old. We’re still started regulation open ended with respect to pricing, capacity, commitments, and so on, so it really depends a lot on negotiation with other parties. Nevertheless we are very much focused on expansion and TV this year. And if we’ll do MVNO and if we’ll receive the right terms from the other operators which will be only in 2012, but it’s not on the agenda for 2011.
Yes, on the retention cost, they increased by 13% this year at EUR700 million. And as I guess it’s in the appendices, but I remind them it’s 8.7% of our revenue versus 6.7% last year. The development policy for 2011, of course we still shoot for profitability. But we don’t want to yield the – on market share. We think it’s crucial especially since the heavy comeback France Telecom since mid 2010, and my guess is that it will continue. So we have to contain them absolutely.
Thank you. We have a question from Polo Tang at UBS. Polo?
Polo Tang – UBS
Yes, hi, it’s Polo Tang from UBS. Just a couple of questions on SFR. The first question is could you talk about what’s been happening with SFR mobile churn over the past few months? Specifically, did you see any spike in churn when you’re attempting to put through that increases in February?
The second question is just about the evolution of SFR mobile EBITDA, because it seems to be continuing to weaken, it was down 6% in Q3, mobile EBITDA seems to be down about 11% in Q4, and you’re talking about maybe it’s down up to 10% for 2011. So can you maybe just talk about the dynamics in terms of what’s causing the EBITDA decline, is it more the top-line declining or is it spike in retention and SAC cost or is it both?
And the final question relating to SFR is can you give us your thoughts on the ARCEP proposals to cover the lens of mobile contracts down to six months? Thanks.
So four questions. About the churns for the year 2000, it has been slightly improving. On 12 months or rolling base it runs at 13.6%. January, February, with VAT story, it has been quite important. But our gross sales has been also quite important. So in fact the washing machine has just been accelerating. Nevertheless, if we compare January, February 2009 – 2010 excuse me and 2011, we were between gross sales and churn and we were breakeven last year and we are at minus 50,000, 60,000 this year. So this has an impact on this year.
The evolution of the EBITDA, I would like to highlight some facts on our Q4 EBITDA, Q4 last year and Q4 this year. If you do the math just as you can see the EBITDA is declining by 10%. In fact last year, I told you that we had EUR18 million of revenue which has drifted from Q2, Q3 to Q4 due to some IT problems. So there were non-recurring revenues in this Q – in the Q4 of 2009. Adversely on Q4 of 2010, we have negative non-recurring event of EUR30 million. So all-in-all, it makes EUR50 million gap between the 2Q quarter. And if you get rid of these non-recurring events, you have a decrease of Q4 by 3.3%, which is more in line with the trends that we observe.
You asked me to outline between top line cost and retentions, it’s a mix of them with the top line effect where you have seen significant decline in tariffs since the comeback of France Telecom and especially since the launch of the Origami offer in October where we had to align very rapidly. Okay that’s it.
The ideas of ARCEP for regulating the period of commitment of customers, yes, there are a lot of ideas.
But this is just a virtual idea at this stage. Quickly we go to Giasone Salati. Good morning.
Good morning, can you hear me?
Perfect. It’s really just the one question on the strategy with maybe two or three appendices. And I’m looking at the different possibilities buying out all minorities in SFR and Canal+ with hardly any impact in terms of accelerating growth and profitability for the Group or maybe investing organically in other ventures namely GVT which is already a reality or thirdly expanding even further through either acquisitions?
And at the beginning of the presentation, you kind of hinted at new ventures and new opportunities. I’d like to understand what is really the ultimate target of management, is it to achieve a 100% on all assets under control or it is through a boost growth with whatever way is available?
I think the answer to your question is that in the short-term we believe it’s in the best interest of the company to own a 100% of its France assets so I am not questioning the listing and the existence of minority shareholders either on or off telecom or on Activision Blizzard. But regarding the France assets, I believe it would be significant improvement for us. We talked about the dividend we can also talk about the holding discount and other considerations relating to our French assets.
If I look more generally speaking, yes indeed and we believe a lot of assets, but it does not mean a lot of cash commitments should be made towards fostering innovation and organic growth, and also what I could call organic emerging market development which is just to be present with our existing businesses and to make sure that these developments we have is not only focused where there was wealth up to now, but also there will be wealth from now on which is in emerging markets. So one is not the opposite of the other.
And by the way, we do not consider that the cash commitments we may have to make for organic growth are comparable to what it would mean for us to own a 100% of our French-based asset. So I would not like to create sort of artificial divide between the two notions are seeing both are equally part of Vivendi’s strategy.
And maybe if I can follow-up on –
Yes, quickly please.
Sure, absolutely. What is holding Vivendi back from buying the minorities of Canal+ at the current evaluation we have seen in the price which seems to be pretty much in line with market value?
I’m not able to many comments. Everybody understands that Lagardere and Vivendi has that been holding discussions and that no agreement has been reached on price. Lagardere –
Okay, it’s evaluation.
To IPO full 20%, so they are now 20% are now going public and Julien and his colleagues at Canal+ have commented on this in more details and I don’t think I have to add anything. So right now 20% of Canal+ should be listed in a few weeks on the Lagardere guidance and decisions.
We have a question from John Karidis at MF Global. John?
John Karidis – MF Global
Thank you very much. Actually my question has been answered. Thank you.
And we have a last question from Paul Gooden at RBS. I want to thank him for being patient. He is the last one. Paul? Paul are you there or are you gone?
Mr. Gooden has disconnected.
Okay, thank you very much. So with this we end this presentation. I’m happy we could answer all of who had questions. And I wish you a very good and sunny day in Paris and I hope it’s the same in London and all other places. And so thank you very much once again, thank you to all my colleagues for sharing this with me, and I’ll see you very soon. Bye-bye.
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