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Executives

Jean-Michel Bonamy – EVP, IR

Philippe Capron – CFO

Pierre Trotot – Senior EVP

Julien Verley – EVP, Finance and Strategy

Analysts

Julien Roch – Barclays Capital

Polo Tang – UBS

Filippo Lo Franco – JP Morgan

Patrick Kirby – Deutsche Bank

Omar Sheikh – Credit Suisse

Richard Jones – Goldman Sachs

Jean Michel Bonamy

Nicolas Cote-Colisson – HSBC

Conor O’Shea – Kepler

Ian Whittaker – Liberum

Charles Bedouelle – Exane BNP Paribas

Guy Peddy – Macquarie

Matthew Walker – Nomura

Vivendi SA (OTC:VIVDY) Q3 2011 Earnings Call November 16, 2011 2:30 AM ET

Jean-Michel Bonamy

Good morning ladies and gentlemen, welcome and thank you for joining us for Vivendi’s Third Quarter 2011 Earnings. Your host for today’s call is Philippe Capron, Member of the Management Board and Chief Financial Officer. As usual, this presentation will be in English with a simultaneous translation and will be followed by a Q&A session.

The call is webcast on Vivendi.com where presentation slides are available for downloading. I would like to remind you to read the legal disclaimer at the end of the presentation on page 39.

Third quarter 2011 financial report will be available on our website later in the morning and you will be able to access a replay of this call for 15 days also on our website as of today in the afternoon.

And now, I have the pleasure to introduce our CFO, Philippe Capron.

Philippe Capron

Thank you Jean-Michel. Good morning ladies and gentlemen, I’m here with the help of Sandrine, Pierre and Julien to present you the Q3 earnings of the, earnings at the end of Q3. And it is my pleasure to report Vivendi has had a very strong performance, I should say an excellent performance in Q3. So, that at the end of nine months we are actually trekking ahead of the trends and ahead of our own expectations.

We’ve had solid earnings benefiting from cost management discipline, and no impact of the economic slowdown yet. So, that will to a significantly increase our adjusted net guidance, adapted, of course, and we’ll get back to that, that’s a very important element, to reflect the new unfavorable tax environment in France.

If you turn on to slide three, you can see the headlight figures. Revenues are slightly up at 0.8%, EUR21 billion. EBITA is up a bit more by 4.2%, which means a further increase in margins. Adjusted net income jumps at 13.8%, in spite of the tax environment. We’ll get back to that. And net debt has started to trend down compared to three months ago at EUR13.3 billion at the end of September.

Turning on to page four, it’s worth mentioning that the strong Q3 performance, with an EBITA up 6.9%, has been driven, I would say, by the usual suspects, GVT and Activision Blizzard, but also by UMG. We had a very good quarter for our music business. We’ll get back to that as well. Adjusted net income has been hit, on the other hand, by the tax law changes, but has started to reflect the very accretive effect of owning 100% of SFR instead of 20% of NBCU.

Moving on to page five, we give some detail on the new tax environment. We’ve had a kind of perfect storm tax wise because we’ve been hit by three subsequent announcements or laws, because the first two have already been passed as law by the Parliament. The first is, of course, the change in the consolidated global profit tax systems, or BMC, which Vivendi was one of the few companies to enjoy in France. The second change is the deduction for tax losses carried forward, which is now capped at 60% of taxable income. And the third is a very recent announcement of the 5% hike in the rate from 33.3% to 35%.

Now of course, except for the last one, which is relatively minor, those changes do not impact, I would say, the net worth of the company. We will keep our NOLs. We will keep our past losses. The impact is just one-off timing. We will, in a way, benefit from these losses for a longer period, but at a lesser pace, of course.

If we want to sum it up, the Q3 impact is very significant. It’s EUR267 million, which offsets in particular the EUR140 million positive we have taken as a consequence of the integration of SFR in the BMC starting at year-end. In a way, you could say that we, because of those changes in law, we are back to square one. We used to offset 56% of the tax bill of SFR because that’s how much we owned of SFR. Now, we hoped we were going to offset 100% and we’re back to 60% as change would have it, it’s a close-enough number because of the Fion measures. And of course on the Canal side, we used to get 80% of the taxes paid by Canal back. Now, we’re getting nothing back, hence, there’s a negative.

Over the full year, compared to what we had in mind when we revised our guidance following the SFR acquisition, the impact is EUR350 million. We can only estimate it at this time, because there are still some moving parts, but it’s EUR350 million or a bit more, which means that the effective adjusted net income tax rate this year should be around 27%.

Moving on to page six, the operational performance of the businesses. Activision Blizzard, of course, have already reported their earnings in GAAP and non-GAAP, but in IFRS, as you can see, the performance is very, very strong with a 46% increase at constant currency. So that’s, of course, a very strong performance. Universal Music is flat for the first nine months, but it’s up 36% in Q3 2011, and this is in spite of higher restructuring charges.

SFR is down at minus 5%. Actually, it’s minus 6% if you exclude some – if you’re on a comparable basis, excluding some non-recurring positive items both in 2010 and 2011. But it’s interesting to note that on the mobile side, for example, we used to – at the end of H1, we were at minus 9%, for Q3, we were at minus 6%. So things are not only under control, but actually getting a bit better.

Maroc Telecom remains strongly impacted by regulatory and competitive pressures. You’ve already seen there their figures, but we also see signs of stabilization and there is no further degradation there. GVT’s performance remains impressive, with a 53% increase on comparable terms and a 71% reported increase, taking into account some amortization duration changes which were operated in Q4 last year, so that overall, we have a very strong set of numbers, a bit ahead of what we had in mind.

I won’t go through the details of slide seven, but it’s important to say that even if we do not feel any impact from the announced slowdown in any of our businesses and you’ll remember that last – in the last slowdown, our figures were hardly dented because of the very resilient nature, especially of our subscription-based businesses.

We are still very cautious and therefore we have stepped up in every business our efforts to right-size the businesses, to make sure we control operational expenses and that any additional resources we have is exclusively focused towards gross initiatives.

On page eight, I won’t go into the details, because I already mentioned the forces at work there, an increase in the taxes offset by the positive impact of swapping NBCU against an additional stake into SFR. That is what drives the 14% increase in our adjusted net income.

Page nine; you can see the way debt has evolved. CFFO after CapEx is down versus last year, but we’ll see a significant improvement in Q4. We have launched programs in all businesses to achieve that end. And all our businesses have committed to significantly better cash-generating performance in Q4. New investments have been very limited, mostly to the Activision Blizzard buybacks. But, of course, the figures you see there do not yet reflect the very significant operations launched by Canal+, with the Bolloré channels and in Poland and also by UMG and EMI, the recent announcement which will take effect at a much later date in 2012. By year end, we aim to reduce debt below EUR13 billion, hopefully well below, if we are successful with all the programs which I just mentioned.

Moving on to page 10 on the various businesses, I mean, for Activision Blizzard, as I said, EBITA is up by EUR265 million. And even if you strip out the fact that the deferred EBITA inventory has gone down a little bit due to the release calendar, due to the timing of the various launches, we are still ahead by EUR210 million. So a very strong performance and these figures do not yet reflect the very strong launch of Skylanders, which looks like it could become a strong new franchise and, of course, the stellar launch of Modern Warfare 3 for the Call of Duty line, which has broken new records. Also, very strong beginnings for the new elite subscription service. I should add also that while World of Warcraft will launch in Brazil next month, in a Brazilian version, in strong partnership and support with GVT.

On page 11, you can see the earnings for Universal, with only a slight increase in revenues, but still an increase in Q3. And overall, a very good performance especially for EBITA in Q3, which is reassuring. We see that the market recovery in the U.S. continues to be confirmed. We see VEVO continuing to grow. It’s been now successfully launched in the U.K. as well. And meanwhile, cost savings are on track, the plan is on track and we are starting to witness the positive impact on the P&L.

Moving on to page 12, SFR, the mobile services are up 1.2%, stripping out the VAT and the MTR impact. Data revenues and smartphone usage continue to grow very fast. Mobile EBITDA at the end of nine months is down now 8%, and that’s excluding non-recurring positive items. Internet and Fixed revenues are up 2.7% and EBITDA up 8%, which is also a good performance.

Overall EBITA is down by 6%, but we hope that our new offers and our new commercial partnerships with Fnac, our larger share of the growing MVNO segment, will enable us to improve that performance in the coming quarters. In particular, it’s worth mentioning that the La Poste partnership is very doing very well. The initial number of subscribers following the launch is extremely encouraging. I should add also that on spectrum, on the 4G spectrum, we’ve done very well in the first leg of the auction with the lowest price paid per megahertz among the various contenders.

On page 13, I will go quickly through the Maroc Telecom figures, because they have already been released. We see stable trends in Morocco, with minus 2% revenues despite the growing customer base. And EBITA is down 10%, but the margin stabilizes at 40%, so we should be where we guided the market three months ago.

GVT on page 14 continues on a very spectacular growth path, with revenues up 42% at constant currency, especially a very good pick-up of the new central offer at 15 mega. The first indications for TV launch are extremely promising. We think that the product itself is well-calibrated. We’re still fixing some technical issues before launching full scale ahead, but we are very encouraged by the initial customer reception. Telecom EBITDA is up 46% at constant currency and EBITDA, as I mentioned earlier, 53% on a comparable basis.

Canal revenue on page 15 is up by 3%, thanks to net adds, thanks to ARPU increase and both of those affect us in Metropolitan France. EBITDA is up by 1.8%, excluding the impact of the EUR30 million fine from the antitrust authorities and the League 1 timing, which is a great classic for Canal. Every year, there is a change in the calendar of the games and that has an accounting impact from us.

Two very important partnerships have been signed, as I mentioned earlier, the Bolloré deal, which will enable Canal to jump-start its development into free-to-air, with very significant cost and revenue synergies expected with the core Pay TV activity. And the deal in Poland which is under – which is still under exclusive negotiation with ITI and TVN, with as a first step, the consolidation of the Pay TV market, where Canal already is a major participant.

On page 16, you’ll find our guidance. I won’t go through all of them. Actually, we are on track to meeting them all. In the case of Activision Blizzard, we actually expect a further improvement. So, it is the second increase in the guidance for our Games division this year. With where we forecast that now under IFRS, EBITDA will be above EUR850 million instead of just above EUR800 million.

On page 17, you will find a graph which we’ve tried to make as simple as possible to guide you through the various guidances. We started out the year, if you remember, giving a guidance at constant perimeter stripping out the NBCU impact that was before the SFR acquisition and then at that time, we said that we would be, before the SFR deal, above EUR2.55 million. That’s last year’s adjusted net income excluding the impact of NBCU.

At mid-year, after closing the SFR acquisition, we changed the guidance in May actually, announcing that we would realize an unadjusted net income above EUR3 billion. Since that time, we’ve been impacted, as I mentioned earlier, with a EUR350 million hit on the tax line of our accounts. And therefore, a normal adjustment would have led us to revise our guidance mechanically, with everything else being equal, to EUR2.65 billion.

Given the very strong performance we’ve had this year especially in Q3, we now guide the market on EUR2.85 billion of adjusted net income, actually above EUR2.85 billion, which means a EUR200 million better performance, again, everything being equal.

So that’s where we stand and now with my colleagues, I would be happy to take any questions you may have. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Julien Roch of Barclays Capital. Your line is open. Please go ahead.

Julien Roch – Barclays Capital

Yes, good morning. My first question is on SFR. Could you tell us what the positive one-off of EUR73 million in Q3 was? That’s the first question. The second question is on Activision and your sale of about 3% yesterday. I understand it’s small in the context of Vivendi and tactical, but it could be seen as either you need cash or you don’t see the prospect of Activision to be very positive in the very short term. So if you could specify a bit more the rationale for that tactical disposal? And then the last question, as you’ve given your guidance on the adjusted net income and on the net debt, would it be possible to have an idea of what free cash you expect at the holding level this year? Thank you.

Philippe Capron

The first answer is no. We’re not going to give any color on this positive one-off. The second answer is concerning the tactical disposal we made yesterday, it is in no sign, of course, an indication of any distrust vis-à-vis Activision Blizzard. I mean, following this very minor disposal, we still own 60% of the company. We are, I mean, you’ve seen the earnings, you’ve seen the guidance increase, and so, of course, we remain very positive about the company.

At the same time, our share has steadily increased because of the buybacks. The stock is – I mean, we’ve done buybacks at $11 and we sold some stock yesterday at $12. And one way to think of it is that basically, we’re getting back our fair share of the cash generated by the company. If you add our movement yesterday and the dividend we got, we’re basically getting – it’s a little bit, as the payout was actually 100% instead of being much more modest. So that’s all there is to it. It’s again, it’s a tactical disposal and it was actually something we have planned to do regardless of the outcome of the EMI discussions. On the shared element, I don’t think we are used to getting any guidance on the free cash, so we won’t change that custom.

Julien Roch – Barclays Capital

Thank you, Philippe.

Operator

Our next question comes from Polo Tang of UBS. Your line is now open.

Polo Tang – UBS

Yeah, hi. Thanks for taking my question. Just have a couple of different questions. The first question is really about the transfer of SFR into Vivendi Telecom International. I was just wondering why you made this change in terms of the corporate structure and specifically, I’m just wondering if there are any tax benefits behind that?

And really, the second question is just about SFR mobile in terms of the EBITDA performance because if I make the adjustment, the underlying EBITDA performance in Q3 looks pretty good or better than expected, I should say, in terms of, I think it was about minus 6%. So how should we think about SFR mobile EBITDA in terms of the full year? Where there any particular factors impacting SFR mobile EBITDA in Q3 such as lower commercial costs or less – lower competition? If you could just clarify what you’re expecting for the full year on mobile EBITDA and what happened in Q3, that will be great? Thanks.

Philippe Capron

I’ll take the first question and Pierre will answer the second. The reorganization you mentioned is just, I’d say, a classical reorganization as you find in many groups following the SFR deal, to take the full control of SFR. We thought it adequate to create – to start creating a so-called telecom holding and bringing VT under SFR is a way to achieve this.

Pierre Trotot

Pierre Trotot speaking. On the good performance of the Q3 mobile EBITA, it is mainly due to reduced acquisition and retention cost, which is partly due to our new policy to develop SIM-only offers. However, this good performance is too new to be spread over Q4 and this is why we don’t change the guidance at this stage.

Polo Tang – UBS

Can I just clarify in terms of the guidance? Can you remind us, is it still minus 8% to minus 9% for mobile EBITA decline? Thank you.

Pierre Trotot

Absolutely.

Polo Tang – UBS

Thanks.

Operator

Our next question comes from Filippo Lo Franco of JP Morgan. Your line is open. Please go ahead.

Filippo Lo Franco – JP Morgan

Yeah, good morning, everybody, and I have three questions. The first is about your agreement on fiber optic with France Telecom. I want to know if these changes at the CapEx deployment for the fiber optic or maybe if it accelerated?

The second one is on GVT. There’s been some comments from some politician and some ministers in Brazil about the wish for GVT to participate in the auction for the Mumbai license and I wanted to know what was your view on this? And the final one is on UMG and I wanted to know where we are now with the cost-cutting in the U.S.A and if Lucian has still further cost-cutting in general to do on UMG? Thank you.

Philippe Capron

Okay, first, so your first question on CapEx relating to the agreement that we announced yesterday, the cooperation with Maroc Telecom on deploying fiber in what we call ZMD, Zone (inaudible), that is not a very dense area, not the poorest part of France. But just in the middle and this program should total net CapEx. Net is gross CapEx minus what we would sell to Orange and to the other operators who would like to be on these areas.

So, the net CapEx would be EUR1.3 billion over 10 years. That is roughly EUR130 million per year. And these would add to the CapEx that we would deploy. We would still deploy in the very dense area. We have finished to deploy in these areas, which would amount to, on average, EUR70 million, EUR100 million per year. So you can count for the total of these two areas on an average of EUR200 million net CapEx per year.

On GVT, Filippo, there is – as regards 4G, there is no change in our present plans. On UMG, as I mentioned, cost cutting is on track. We’re still headed towards EUR100 million of cost savings on a full year basis, I mean, run rate by year end. But Lucian is going to present this at an Analyst Meeting tomorrow, so I’m sure he will add a lot more color than I could as to the various initiatives which are taken during – in the framework of that cost cutting exercise.

Filippo Lo Franco – JP Morgan

Okay. I’ll see him tomorrow in Paris. Thanks.

Philippe Capron

Yes.

Operator

Our next question today comes from Patrick Kirby of Deutsche Bank. Your line is open. Please go ahead.

Patrick Kirby – Deutsche Bank

Hi, good morning. Good morning, a couple of questions, please. Firstly on GVT, is there any guidance you can give us about Pay TV investment costs in Q4 this year or else, what you’re planning to spend on that in 2012? And then secondly, on Canal+, could you just clarify what the regulatory process and timescale involved is for the acquisition of the Bolloré TV channels, and whether that is impacted or not by the TPS situation and the fine that you’ve paid? And just further to that, I see on the wire some headlines about Bolloré not having or not being offered a seat on the board as a result of this transaction. I just want to clarify, has he asked for one or why was that comment made? Thanks.

Philippe Capron

On GVT, we are announced earlier this year that the CapEx for Pay TV would be R$200 million in 2011. In 2012 we’ve not released any figures. We are in the process of discussing budget with our colleagues at GVT. But most of the CapEx, because we’ve done the infrastructure underground installation, so most of the CapEx next year will be set-top boxes. So it’s what I call good cholesterol. I mean, if the more CapEx we have, the more subscriptions we will have sold and therefore I would actually welcome having more CapEx than what we could plan next year, because that would mean that we have sold more boxes and of course, those have a very – this CapEx has a very short payback associated to it.

I will let Julien answer, of course, on the regulatory process for Canal. Just one word on the board seat, we have not refused a board seat to Vincent Bolloré. He has not asked. And it’s never been envisaged, but I mean, there is – nothing is ruled out for the future. There is no specific comment we wish to make on this. But please do not get away from this conference with the idea that we refused a board seat.

Julien Verley

Hello, Julien Verley speaking. On the process itself, I mean, right now, we are finalizing, I would say, the pre-signing diligence and finalizations of informations to the employee bodies, so this hopefully will be finalized in the coming weeks. And then their offer, we should effectively notify to the regulatory antitrust French authority. And then we anticipate not a too long process, because as you probably know, I mean, we have not real activity in the free-to-air business right now, so this should take probably a few months, so difficult to foresee. And then the potential interference with the TPS process in the future, that should have no interference, because they’re totally non-related, one with the other.

Patrick Kirby – Deutsche Bank

Thanks very much.

Operator

Our next question comes from Omar Sheikh of Credit Suisse. Your line is open. Please go ahead.

Omar Sheikh – Credit Suisse

Good morning, everyone. Just three questions. Firstly, first of all on the guidance upgrade, the EUR200 million upgrade to adjusted net income, I wonder if you could just break out where – just so we’re clear, where that is coming from? And it looks like it’s mostly Activision and maybe the one-off in SFR. But if you could maybe break that out for us, that’d be very helpful?

Secondly, I wonder if you could just give us the restructuring charge at UMG in Q3 and tell us where you are on the total amount of cost savings that you’ve achieved year-to-date. And thirdly on Activision, I just wonder if you could just clarify, are you a buyer or a seller of that asset during the course of 2012? Thanks.

Philippe Capron

Okay. On the guidance upgrade, I think you mentioned the two drivers. There is a significant one-off at SFR. At the same time, there is a negative one-off at Canal, which is the EUR30 million fine. So, I mean, you can – and there are some other negative one-offs in the guise of, for example, more restructuring costs at UMG. So mostly, it’s driven by the operational performance and again, the favorable impact of the new group structure.

On UMG, as I mentioned earlier, I’m not sure we have an exact figure today, or at least I don’t have it, of the savings at the end of nine months. But I’m sure that Lucian and Boyd Muir will be able to give more color to that tomorrow. On Activision Blizzard, we are a 60% owner of that company. And we always said that – I mean, we supported the buybacks in the past. We always said at the same time that we wish the company to remain listed. Enough said.

Omar Sheikh – Credit Suisse

Can I follow up, Philippe? In terms of Activision, would you support a buyback next year?

Philippe Capron

We’ll cross that bridge when we get there.

Omar Sheikh – Credit Suisse

Thank you.

Operator

Our next question today comes from Richard Jones of Goldman Sachs. Your line is open. Please go ahead.

Richard Jones – Goldman Sachs

Hi, I’ve got three quick one. The first is you’ve done quite a few deals now over the last few months, including SFR, EMI, TVN and the Bolloré channel. So just your thoughts on the likelihood of future similar-sized deals going forward? Secondly, I wonder if you could give us any kind of idea of the proportion of Activision revenues and profits that are coming from World of Warcraft. And then finally just to follow-up on the Activision stake sale, why didn’t you sell that stake back to Activision for them to buy back those shares and cancel them, rather than just place them on the market? Thanks.

Philippe Capron

Well, the likelihood of new deals is of course, significantly lessened by the existence of past deals. It’s fair to say that we have today very little headroom, very, very little headroom on the balance sheet. This being said, the three rating agencies, following the EMI deal, have affirmed our rating with a stable outlook. So, we are not threatened or pressured in any way. But it’s fair to say that it’s very unlikely that we would do similar deals.

On Activision Blizzard, I don’t think the – Jean-Michel will answer because he has – he’s the man with the figures.

Jean Michel Bonamy

Yeah, Richard. We don’t disclose World of Warcraft specifically, but what we can say is that Blizzard overall represents around a third of year-to-date revenues on IFRS basis.

Philippe Capron

And what was the last question on Activision?

Richard Jones – Goldman Sachs

Why didn’t you sell the shares back to Activision?

Philippe Capron

Well, because it’s a legal can of worms. I mean, we being a majority owner, having any direct dealing with the company would create all sorts of legal problems and I guess the legal paperwork will take us until Christmas next year.

Richard Jones – Goldman Sachs

Great, thanks.

Operator

Our next question today comes from Nicolas Cote-Colisson of HSBC. Your line is now open.

Nicolas Cote-Colisson – HSBC

Well, thank you. One question on SFR. You mentioned that commercial costs were down 5% on the nine months. I was just wondering is it only due to the SIM-only offers or is there anything regarding the seasonality of the iPhone or maybe some reduction in the acquisition cost per se?

Philippe Capron

Reduction in both subsidies and the acquisition cost.

Nicolas Cote-Colisson – HSBC

If I can just follow-up because yesterday, Bouygues mentioned that they’ve been cutting some payments to attract new customers or reduction on their future contracts. Is that something you have done as well during the quarter?

Philippe Capron

No, okay. I’m not aware of what Bouygues announced specifically. Can you elaborate?

Nicolas Cote-Colisson – HSBC

Okay. Actually, yeah, they were talking about repayments for new clients joining their operation. And they clearly indicated that they were cutting subsidies, so is it – I just wanted to know if the move is...

Philippe Capron

I think they refer to what we call offer the….

Nicolas Cote-Colisson – HSBC

Exactly.

Philippe Capron

We give you a credit memo for your first two months of bills, et cetera. No, zero, but this is among, within all the possibilities to attract the customers. We have this one, but not more than before, no.

Nicolas Cote-Colisson – HSBC

Okay. Thank you.

Philippe Capron

I don’t understand why they have pointed out this.

Operator

Our next question today comes from Conor O’Shea of Kepler. Your line is now open.

Conor O’Shea – Kepler

Yes, thank you. Just three quick questions. Just the first question on Activision, just a follow-up from the information you gave. Is it possible to have the proportion of operating profit coming from World of Warcraft year to date? That’s the first question. And related to that, I think you said at the start of the year that the drop in subscriber numbers for Warcraft at that stage was not a worry. Obviously since then, things have declined further. What’s your comment on the number of subscribers now and how do you see that profiling in the future?

Then two quick questions on SFR. Just if we could just have a clarification on the CapEx going forward after the EUR200 million potentially additional that you mentioned relating to fiber, how much exactly are you looking for in 2012, 2013? And also on SFR, in terms of fourth quarter revenues, how do you expect that to profile relative to the third quarter? If we’re look at minus 3.6% for the third quarter, would you expect a more significant decline year-on-year in the fourth quarter?

Philippe Capron

On Activision Blizzard, as mentioned by Jean-Michel, we do not release the share of profit specifically driven by World of Warcraft. On the number of subscribers for that game, it’s fair to say that it is trending down. But, I mean, it’s trending down, especially if you look at the peaks, meaning immediately following the release of Cataclysm.

We are, of course, working on the various issues, especially we feel that the next batch, which will be released at year end, the coupling of the game with Diablo III, which will launch at the beginning of next year. Some of the other measures we’ve taken to sustain interest in the game and to attract newcomers. And, of course, the next expansion, which will be launched next year, will fix some of the issues. The launch in Brazil is also going to contribute a little bit. This will be in December. So, of course, we are working on it. I mean, the game is still huge by any standard. It’s fair to say that the customer base is not growing anymore. But we definitely are not giving up on it and we still think it has a bright future.

Conor O’Shea – Kepler

Okay.

Philippe Capron

Your question on CapEx relating to fiber. Let’s clarify. The figure of EUR200 million will not be additional CapEx.

Conor O’Shea – Kepler

Okay.

Philippe Capron

To make things clear, in 2011, we shall have spent EUR120 million on the total of the year 2011 deploying fiber in the very dense areas. Progressively, this figure should decrease to EUR70 million, EUR100 million on average. In parallel, we shall start deploying in the areas where we shall cooperate with France Telecom. And again, on average in these new areas, we shall spend EUR130 million. This is why the total would be around EUR200 million, okay?

Conor O’Shea – Kepler

Okay.

Philippe Capron

Then the second part of the question about what we should expect as a revenue trend for Q4. We expect today a slight acceleration of the – a very slight acceleration of the decrease of the revenue. We experienced minus 3.6% or 3.8%. Year-to-date, we should be slightly over minus 4%.

Conor O’Shea – Kepler

Okay. Thank you very much.

Operator

Our next question today comes from Ian Whittaker of Liberum. Your line is open. Please go ahead.

Ian Whittaker – Liberum

Thanks very much. A few questions. First of all, just on Activision, can you just tell us with Skylanders, is that revenue – will that revenue and profit be deferred over a number of months or does it get booked immediately within the quarter?

The second thing just has to do with SFR. I think you made a mention about MVNOs will help improve performance the next couple of quarters. Can you just give us a bit more color on what you mean by that? Do you mean sort of more in terms of the top line, potential sort of synergies on costs or whatever?

And then the third thing just has to do with GVT. Obviously a very strong performance there, but can you give us a bit of an update on what exactly your competitors are doing, because from all signs, you’re really eating into their lunch here? And just wondering whether you’re seeing getting signs of a fight-back coming from those competitors?

Philippe Capron

Okay. On Skylanders, my understanding is there is – there will be no deferral, because it’s not an online game, even though with the characters, you can access the game online and without actually buying the video game itself. But that’s not the more common practice. So my understanding is there will be no deferral. What’s interesting to note on Skylanders is that the characters themselves sell very well, even apart from the game.

Ian Whittaker – Liberum

Okay. And do you get the revenue from that?

Philippe Capron

Oh, yes, of course, we do. Of course, we do. We share with Toys “R” Us or whomever distributes it, but as we would do on any specific – on any customer item. On SFR, Pierre will give more colors. What – my only mention was that we used to have something like only a 20% share on the MVNOs. But with the new deals which we’ve signed with CM-CIC, Virgin, et cetera, and of course, with the La Poste partnership, we expect our share of the MVNO market which itself has grown very significantly since the beginning of the year to be probably much closer to 50%, hence driving more equipment utilization in our network and more profit.

Pierre Trotot

Yes, if you want some figures, we saw on Q3 the very start of the windbag that we made on MVNO on H1 and for instance, we got 315,000 new MVNO customers on our network on Q3 out of a total of 575,000 new customers year-to-date end of September. So, you can see the acceleration in the take-up of new MVNO customers. And this was reflected in an increase by EUR15 million of our revenues on Q3.

Ian Whittaker – Liberum

Okay.

Philippe Capron

On GVT competition, what we observed is that the competitors are fighting back verbally. They’re making announcements. They will say they will fight back. But so far, we are not seeing it, except perhaps on prices. But they are not deploying CapEx in order to extend their network in the case of Netche or in order to revamp it and bring it to the 20th century or to 21st century in the case of Oi and Telesp.

Ian Whittaker – Liberum

And just going back on the MVNO, sort of the potential impact of that EUR15 million uplift in Q3. Would you expect a similar sort of performance in the next couple of quarters, that sort of uplift coming through from the MVNOs?

Pierre Trotot

Excuse me. I didn’t listen to your question. Sorry.

Ian Whittaker – Liberum

Just on the impact from MVNOs, you mentioned the EUR15 million contribution in Q3. Would you expect the similar sort of contribution from the MVNOs next couple of quarters or do you think it decelerate or will it accelerate?

Pierre Trotot

It should progressively accelerate with the increase, in parallel to the increase of the customer base.

Ian Whittaker – Liberum

Okay. Thank you.

Operator

Our next question today comes from Charles Bedouelle of Exane BNP Paribas. Your line is now open.

Charles Bedouelle – Exane BNP Paribas

Good morning, gentlemen. I have three questions. The first one is on broadband net adds in SFR. Can you give us a bit of color as to whether the performance is not as good as for the mobile, especially compared maybe to some other in the market?

I had a question, a follow-up question on UMG. You obviously had a much better market performance in the cost cutting. The Q4 is really the key quarter. So can you give us some color on how do you see the Q4 going on at the moment? And the final question is on GVT. Unless you’ve given it in the report, I didn’t find the CapEx for GVT. So if you could give us that at the nine months, that would be very helpful. Thank you.

Philippe Capron

First question about the disappointing commercial performance in residential ADSL. We had an unacceptable market share. However, there is and it can be easily explained by our willingness to maintain tariffs and margin, which apparently, was not the case with our competitors. Not to mention for us, the Bouygues Ideo offer, nor the specific vantage of which took place on Q2. The new tariffs of Orange, which are EUR3 – now only EUR3 to EUR5 higher than our tariffs instead of EUR13 a couple of months ago. We also saw an limited edition on Open, their quadruple play offer, in September.

So the market has been very active, I wouldn’t say destroying tariffs, but reducing margins. However, this market share is not acceptable, as I mentioned, and we could decide to be more aggressive starting beginning of next year. That said, this is for the residential DSL part, was disappointing. I must outline that as far as the fixed and the wholesale and enterprise activity, we had a good performance in a quite competitive environment as well for enterprise segments, but satisfactory.

On UMG, well, as you mentioned, the market is starting to – is getting to be better. I mean there is actual growth in the U.S. So Japanese market, which as you know, is a close second worldwide, even though, of course, we have less share there than we do on the Western market, is doing very well in spite of the Fukushima and the tsunami, this market is also very strong this year, so that it’s too early of course to – I mean, the jury is still out on Q4 and of course, we shouldn’t overemphasize one quarter vis-à-vis another. But given our release schedule, we’re fairly optimistic concerning the full year outlook for the music industry, which of course is not irrelevant at a time when we are allocating more capital to the music segment, of course, with very significant synergies which will be derived from EMI regardless of the EMI deal, regardless of the market environment.

On GVT, we don’t release quarterly figures, but the overall CapEx which will be spent this year is in line with the R$1.8 billion guidance we had given, R$1.6 billion on telecoms and R$200 million on Pay TV. We should be around there by year-end.

Operator

We take our next question from Guy Peddy of Macquarie. Your line is now open.

Guy Peddy – Macquarie

Good morning, everyone. Just a quick follow-up question on the SIM-only offers you’re now got in SFR in France. Can you talk about how successful they have been? I mean, the signs of – and is the pace of take up of those accelerating? Are they something that’s appealing to the current market, given perhaps some more macro headwinds that are going in the French consumer space? Thank you.

Pierre Trotot

So, we launched the software progressively since the beginning of the year. And what we observed is that on Q3 those SIM-only offers represented 17% of our contract growth add, and this level is for the time being, is quite stabilized. So, we think that there is still and we think and we observe that there is still a demand for offers, including mobile phone.

Guy Peddy – Macquarie

Thank you very much.

Philippe Capron

And of course, that’s part of not leaving any segments open for new entrants.

Operator

We take our next question from Matthew Walker of Nomura. Your line is open, please go ahead.

Matthew Walker – Nomura

Thanks and good morning. Just a couple of questions, please. One, could you just tell us what you think your service revenue trend could be in Q4? The other thing is on TVN, maybe it’s not yet closed, but is that going to be an associate and could you tell us how much income roughly over the next couple of years there might be from that? And lastly, just again on Activision, what is the message that you’re sending with that sale? Is it just that you’re profit-taking or – because you’re saying, I guess, that you’re not in need of the cash for either TVN or EMI. So what sort of – what are we supposed to draw from that sale?

Pierre Trotot

Okay, so first question, what we mentioned about the possible trend of our service revenues on Q4 would be a decrease slightly over 4%. There was a second part to your question that we did not catch.

Matthew Walker – Nomura

Yeah, on the question is on…

Pierre Trotot

What’s going to be contribution in the future, I think you have to be a little bit more patient, because we’re finalizing right now our negotiation. And therefore, I think we’ll be in a better position to analyze this type of questions a little bit later on.

Matthew Walker – Nomura

But it’s going – is it correct, it’s going to be an associate contribution?

Pierre Trotot

As you probably understood, I mean there’s two deals into one. One at the controlling holding of TVN, which definitely will contribute as a shared earning. And another one at the Pay TV level, where we will consolidate the combined business, so that will be direct contribution.

Matthew Walker – Nomura

Okay.

Philippe Capron

And on Activision Blizzard, so we wish to send no particular message. I mean we are a happy owner of 60% of that company, as we were at the beginning of the year. In between, we will have gotten – we will have sold some shares at $12 and having done buybacks at $11. That’s all I have to say.

Matthew Walker – Nomura

But it’s not something that you said to the rating agencies, okay, we’re going to sell this to satisfy the contribution for TVN or anything like that?

Philippe Capron

As I mentioned, this is a move we had planned ahead of being sure we would close EMI.

Matthew Walker – Nomura

Okay, all right. Thank you very much.

Philippe Capron

Thank you.

Jean-Michel Bonamy

Okay, this is Jean-Michel again. So as we have no anymore questions, I mean, quite pleased we managed to wrap up this call in an hour. I hope we managed to answer all your questions. Vivendi IR team is obviously available for any follow-up questions you may have and in the meantime, we wish you a very good day. Bye-bye.

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Source: Vivendi Management Discusses Q3 2011 Results - Earnings Call Transcript
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