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Nielsen Holdings NV (NYSE:NLSN)

Morgan Stanley Technology, Media and Telecom Conference Call

February 27, 2012 5:10 pm ET

Executives

Brian J. West – Chief Financial Officer

Analysts

Toni Kaplan – Morgan Stanley

Toni Kaplan – Morgan Stanley

All right, let’s get started. Please note that all important disclosures including personal holding disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at www.morganstanley.com/researchdisclosures.

I’m Toni Kaplan from Morgan Stanley Equity Research and it’s my pleasure to introduce Brian West, Chief Financial Officer of Nielsen Holdings; and Liz Zale, SVP of Investor Relations.

Nielsen was the third largest U.S. IPO last year and is a leading provider of audience and retail measurement for companies in the consumer packaged goods, retail, media and telecom industries among others. Brian has been CFO of Nielsen since 2007 and prior to joining the company he worked at GE for 16 years. Thanks very much for being here today.

First maybe you could provide a brief overview and then I’ll ask a couple of questions and we’ll pick up the Q&A.

Brian J. West

Great, thank you. It’s a great to be here. We had a pretty exciting first year as a public company. As Toni mentioned, I’ve been around since ‘07. And in those five years, the resilience of this business model, the range of opportunities that are in front of us and the ability of our team to execute just keeps expanding and expanding and I have no doubt that will continue.

2011 was big for us in two fronts. The first is around understanding retail measurement coverage and all about what consumers buy and it was big because we expanded that coverage. And for us as long as we are expanding our coverage of retail transactions, it’s good for this business and its good for us and are helping our clients to understand those consumers.

So whether it was accelerating investments in places like rural India, rural China and Africa or an acquisition that gave us a better platform in Eastern Europe with any MRB. Our developing markets business are powerful to big franchise and it’s a better at of the big macro trend that we follow, which is more people moving into the middle class, happen all over the world. Our clients are going after and we’re helping them to do it.

Likewise in developed markets, retail expansion is just hasn’t for in and we’re proud to announce last year a Wal-Mart was going to come back into the fold in the U.S. market and share its retail data which was significant since they represents to big part of coverage in this market. And we’re there with them and we’re excited about the opportunity prevents not just for Wal-Mart but manufacturers and the industry as a whole.

The other part, the second part was to tell you about 2011 was our abilities around the measuring content, no matter where it happens and whether it was the first to credit measurement of online ad campaigns, we call online campaign ratings or work we’ve done around trying to get local markets better measurements or even some of our mobile properties, making these platforms extended and integrated as a big deal and we had a nice progress in 2011.

Finally to cap up 2011, results financial expression was great, we matter be just about every number revenue was up 6%, margin expansion was 57 basis points, head of the range we also had earnings, adjusted net income growth of over 30%. And most importantly, we're able to delever faster than we thought. We got to under four times leverage by paying down debt outside of the IPO proceeds $380 million voluntarily.

So we thought good across the board, as I think about 2012, I just like to make a couple of comments, recently we talked about guidance in the fourth quarter of revenue being up 5% to 7% constant currency and margin expanding 30 to 50 points, many haven’t heard that the impact of Wal-Mart will impact these results.

So we fully expect that first half of the year will be towards the 5% end of the range. And as we ramp in the second half of the year just by the virtue of the fact that the Wal-Mart data gets turned on. We will grow faster than the second half of the year, all expected all there I want to say visibility of that revenue stream.

We also know that as we invest in the first half of the year, we are going to be investing more to implement that Wal-Mart. So margins are not going to be expanding on the first half as much as they will in the second half. Just want to make sure that people understand us the way to 2012 will present itself very confident in the total picture.

Also I would like to comment that our adjusted income product grow on a constant currency basis a range of 13% to 17% very good earnings power, driven by our deleveraging situation as well as the very attractive tax position.

And finally, we talked on a quarterly call recently around the impact of foreign exchange. Like many of my clients were big CPG companies that do business all around the world, (inaudible) in 100 countries matters and the reported results has nothing to do with the economic impact of our business because we don’t take on transaction exposure.

Neil to say back and February we talked about the impact in the top line this should be on the 300 basis points of drag. If I use rates as a last Friday there would be 100 basis points drag, so again we don’t try to call rate today’s rates aren’t quite with they were back in January rates, but focus on a constant currency for us, that is the way we manage the business. And we always will and we will just move through this FX as it happens.

Finally a long-term financial framework you know are over the long-term my business model supports us achieving revenue growth in the mid single-digits, has got us growing EBITDA anywhere from one to two times, revenue and its got adjusted income growing between two and three times EBITDA all in the constant currency basis, and this models have been tested, we’ve seen it, we believe, they remains intact through good and bad markets, but actually got lot about this place, it’s a very resilient business model and we’re just [force] to be around it, anyway that’s my opening comments and I’ll be happy to answer any questions?

Toni Kaplan – Morgan Stanley

First I was hoping you could talk about some of the opportunities of cross-platform nature.

Brian J. West

Sure let me take a step back for us cross-platform started back in the ’06 timeframe, when as we were a newly private company, we’ve realized that over a long-term cross-platform was good on matter meaningfully.

So over the course of ’06 ’07 ’08, we took two very deliberate discreet action, which is to get the second screen as a property that would be wholly owned by Nielsen, it was formally a chemical Nielsen net ratings, which we owned about half of. We also wanted a third screen footprint so we did an acquisition called Telephia, so that whole idea that cross-platform it’s nothing new for us, we’ve been working on it for a while. We had the assets in-house, now we’ve been working on building those out, so that we can have a truly cross-platform measurement.

And right now there is lots of exciting stuff around this, as of for instance, right now, we’re working on, taking and developing it on line cross-platform measurement that’s very powerful, we call it online campaign ratings. And with this product is doing as it will provide for our marketers, the advertisers a much more reliable measurement of their audiences in the online world, which is aware, they can get, reach frequency demographic type information the next day of the audience who actually showed up.

So they’d begin to move towards settling versus just planning on some of these metrics. It’s a big deal, we are proud that today the Unilever was the first client to announce that they are signed up for online campaign ratings, they are going to the client, we think more of a follow, but we think this product that something that right now is doing pride better might thought a year ago and really gives us the next step for building this cross-platform property.

Toni Kaplan – Morgan Stanley

What is the competition like for the OCR product at this point?

Brian J. West

So remember I’ve got two unique things that Nielsen has one is a relationship with Facebook that allows me to we’re able to measure the vast facility internet as them as a data provider, and then also of TV because, I could just not one platform or the other, but is the cross-platform view the clients want so we’ve got TV data, we got a wonderful relationship with Facebook and we’ve been building this product. We think is very unique in the marketplace.

And we are right now at a point in time where we’re having clients are now testing running over 500 campaigns through this property, through this product rather and they’re developing their own used case and we’re going to let them because they’re going to develop them and they are going to figure what it means from them.

And then our expectation is that they’ll sign on and then we’ve had some great experiences so far. The Super Bowl is an example of our recent event that everything was all the ads were tracked in the online campaign rating space and we learned wonderful things about advertising both on the platform that were streamed over, as well as all the ads that went via around the Internet.

And what we’re able to do is report back to advertisers because we measured it, what their audience look like, reach frequency demos the next day. Unprecedented, so we’re optimistic its early days, it always hard to organize an industry, but we’re up to a very good start and in a one momentum it feels great.

Toni Kaplan – Morgan Stanley

Okay. And lastly the new ventures announced that it was shutting down its international interactive TV initiatives. Can you just talk a little bit about the background around the new and implications of what this means for Nielsen?

Brian J. West

Sure, let me start with a premise that you just have to understand and believe about our Nielsen Watch business. We measure consumption, right. We don’t measure anyone distribution pipe, right. We measure them all, over the air, over the top, set-top box, satellite box any of them because our responsibility is to measure everything that you consume, the way you consume it.

They are at times might be a particular product or analytic around a particular stream, in this case set-top boxes. And set-top boxes on their own are not a measurement and they are not a standard. And to new was a joint venture of with some very smart people, with some very big partners all of the cable MSOs who put in from what I read $200 million of money over four years to try to figure out how to use all that set-top box data. They had all the data they needed. And last week as Tony mentioned, they started to scale down their operation. Just as a reminder, right, that you can’t be wrapped around anyone distribution pipe, right

Set-top box data inherently has representation issues more importantly it’s got pathetical issues. You don’t know whether the set-top box might be on all the time but you don’t know the TV is on all the time, all right. You don’t know who is in the room, is it the dog, the spouse, the teenager, also sorts of complications with that and I think it’s a new experience represents as it’s hard with organizing yourself around the one distribution pipe.

What we do is we organize around all distribution pipes because we’re consumption based. And we do actually work with set-top box data, because we’ve been working on it from three, four years, we know how hard it is. We also know how powerful it could be when combined with our TV ratings data. In the combination of which our patent-pending products that you’ll start paying more and more about as of course 2012 gets underway. How hard to help create even a more stable metric particularly in local market. So look at some and something that we think about all day everyday around trying to think about how we make sure we stay ahead technology wise. Its news example that’s its difficult it’s hard and even we had best of the best data in funding its not easy.

Toni Kaplan – Morgan Stanley

Okay. And before really Watch can you talk about your initiatives in mobile.

Brian J. West

Sure, so we have some of the best patent-pending products around mobile panels, where we inform not only handset providers, but telecom providers. And there is a very nice business as we think about monitoring metering that device. But yet to think about that in the bigger context right, as I mentioned crossed platform includes how you consume video or display ad on tablet or on a phone. And we widened up lots of assets noted for us to continue to do that as those devices to pick up more and more ad mediums. And we feel great about that. And we think that gives the ability like no one else to be able to measure across these platforms and its exciting

Toni Kaplan – Morgan Stanley

Right. And then switching to buy developing the market just one of the key growth areas for the company, Dave mentioned on a CNBC interview about Africa and what you’re join there. Can you explain the process of how you build out the product in our developing markets and how far along you are there and also just in general other initiatives and developing?

Brian J. West

Sure, Developing markets for us is a very big deal. It’s about $1.1 billion revenue franchise annually that’s growing very nicely. And for us our clients really lead us to these markets, because they know that their growth comes from these consumers, these new consumers that entered into class. And carry with them tens of billions of dollars of purchasing power.

That’s where their growth comes from, so I help them. I get out ahead of my client sometimes two to three years where I want to measure a market way ahead of it so that by the time they need the data, I am there with that for them.

So Africa is a good example where we’re measuring the continent, we’re starting that process. The good news is, they are enable to use innovated technology that would before would have taken you maybe upwards of the year I can now do faster with satellite imaging that basically can more effectively measure retail activity faster that allows me to create that retail footprint and its feeds that I never would thought possible. And then I am able to collect data and start to give back that infuriation to the marketplace.. So its fun, it’s exciting there is lots of enthusiastic momentum, but developing markets in general for us is a long-term growth play.

We see as far as that I can see, we invest in it, we can dial it up or dial it down depending on the economic environment. Right now it’s almost unprecedented because simultaneously we are investing on three big platforms: Africa, India and China. And we’ve got lot work what we call full investment mode. And over the course of next couple of years probably as we exit 2013, we won’t have all of those big huge markets simultaneously consuming all that investment intensity. So has a potential to go down as you ahead into 2014.

You’re going potentially have a tailwind, obviously we’ll start to invest in other things that we have to but exactly gone forever and the thing that we feel good about is that you’re able to give more retail coverage toward multinational clients to help them advance their commerce and so that they can grow and they can win these developing markets.

Toni Kaplan – Morgan Stanley

Great. Well, we open it up to the audience for questions.

Question-and-Answer Session

Unidentified Analyst

Hi, as you rollout these new platforms, our customer is willing to spend more money for data or you ultimately tied to your CPG revenue growth?

Brian J. West

Yes, I’ve nothing to do at CPG revenue growth. I’d like to highlight contract. I literally get paid by delivering data by delivering more and more coverage. And for places like I’m talking on developing world, a lot of our clients both multinationals and even local emerging clients, they need that data to compete, right.

So its not subject to any volume moves that really is just a matter of when I can lied up a region in the world, the brands and the categories within that marketplace, I’ve got people that want the data both like I said big multinationals that are in there leading away but overtime what will happen is you have a local clients want to go and compete against the competitor, the big multinational. And when they do, they got to by the same data basically the same price point so all of that works in the long-term interest of the model.

Unidentified Analyst

(Inaudible)

Brian J. West

Yep, so on the Watch side, again, I don’t contract or get paid based on ad dollars or program performance, I build measurement systems, I deliver those that data and those ratings that information to my clients and I get paid. It’s why the business is resilient. It just holds up. And I’m embedded in these clients operating systems, I’m inform a lot of their decisions, I’ve got thousands of people literally that use the data everyday and holds it very well regardless of the economic backdrop. It also means I don’t have big, I don’t have big downs, I don’t have big ups, I’m just pretty steady and we like that. Yeah.

Unidentified Analyst

Can you comment on your tax position when do you become a full tax payer and what that full tax rate is?

Brian J. West

So the question is round our tax rate. So I have over the long-term ability, our long-term mean the next seven, eight years to be about a 20% to 25% cash tax rate. And that’s important for me to measure in cash tax rate because my ETR has a lot of voice in it. And driven by the fact that I’ve got deferred tax assets that I will unwind and monetize over the next several years, I mean, these are big billions. So over the long-term 20%, 25% after 8, 10 year period eventually, the rates will converge but that’s pretty far out because I have these deferred tax assets.

Unidentified Analyst

What are your thoughts on P&G cutting the marketing spend be in mind with 2011 and how that affects our business?

Brian J. West

So again for us a lot of our information with big clients has contracted under multiyear contract arrangements. Look for us, we will always look to help our client like Procter & Gamble as they go through difficult times in many cases it’s, I have the opportunity to get more work. Right, where I can, where as they consolidate. I can consolidate on their behalf and do some things other big suppliers can’t do. So for us, we do it as in many ways more opportunity not less and again we have a very strong contractual position and they are a big developing market grower and they still have every evidence that they’re going to continue to invest in these developing markets to help them growth their business. So you’re right there with the client when they do something like this, it tends to be more opportunity not less for us.

Unidentified Analyst

With respect to your insights business, I know that’s not growing as fast as maybe it was growing a couple of years ago...

Brian J. West

Yeah.

Unidentified Analyst

There has been some suspicion that once still people are waiting for the Wal-Mart out to come online and then you get some reacceleration. I’m curious, how do you see that number one. And number two is do you think, how would you characterize a point which you not be disappointed? Does that insights have to kick up to that 10% or 11% growth in terms of after the Wal-Mart sort of pig and the python period comes through. How are you looking at that? How you think about the insights business around the Wal-Mart?

Brian J. West

Let me start with insights generally speaking, it’s a very important part of our buy business. It’s where I actually get to sit with clients and help them look around the corner and really bring some of that information to life and make it really insight performance. So it’s a very important part of our business now. It is not under multiyear contract. Therefore, it can be more subject to discretionary fits and starts of a marketplace of our client. But over the long-term, we expect that to grow very nicely in the double-digit range. Any given year, we have clients that might be more cautious and deliver it. They may choose to only invest in certain markets versus all of them.

But if things are robust, clients typically in every market want to spend more and because they’re answering really important questions, how do they get more innovation? How do they do product refreshes? How do they get pricing through the marketplace and distribution channel so, overall it’s a very important part of our business, and then relative to Wal-Mart, there were some indications that clients may have been hold back on new insights spending because they knew, all the data is going to refresh amount six months, so tough to have a study is going to be based on data that it was going to refreshed.

My view is that the benefit of Wal-Mart over the long-term will be driven by the insights practice because you will have lots of data used by lots of very sophisticated marketers and they are going help answering some of these questions. So I think its good long-term, I think overall insights business is positioned to grow wonderfully. And the other part of the insights business that is going to have another leg to it, it's going to be part of our business where we bring Watch assets, and buy assets together, in order for you to sell advertise a big questions, and we are just getting started on that front, lots are doing that it’s a good long-term prospects for the business would be a great tailwind.

Toni Kaplan – Morgan Stanley

Can you just talk about your cash flow priorities, so first I guess right now, you are focused on paying down the debt, at that point where you reach your target level of leverage, how do you think about buybacks and dividends and also how do you think about what your target level of leverage is?

Brian J. West

Can we have that problem, we could ask all the time, what’s the right leverage level for this business. We’re out there publicly and say we want to be investment grade. It was railing cry. I was an investment grade, and I was nine times levered, whether if you are one of the worst economic environments and held up beautifully, And so for us our financial policies always been to derisk and delever. We’re now at the point whereby leverage ratio is 3.98 and I like saying it three by the way.

And is that gets better and better, we’re going to communicate to the marketplace about what that leverage level should be and at that time when we hit that mark, we will have a meaningful discussion around returning cash to shareholders in obvious ways. The good news is, is that we don’t see a locking way in front of that it’s a cash flow model that has strong conversion cycles we saw it last year, you’ve got some tuck-in M&A that I contemplate there is nothing big transformational in my way.

So I think that is this plays out over the next couple of years, you’re going to see that leverage come down and then you’re going till I get to the point where we’re going to be more thoughtful around when we start but it’s a little premature we like running the place it is.

Toni Kaplan – Morgan Stanley

And you’ve talked about being fully invested, you mentioned it earlier at what point does that start?

Brian J. West

I hope never. I hope never, because when we invest, we’re investing to build businesses and to grow, now right now our focus is developing markets and like I said before you’re not going to have that simultaneous investment intensity at the same time like it is today so there is – it will naturally fall away. And I hope there is other priorities that suck up that capacity for investment, I really do.

The business model can grow margins more than they have because we deliberately reinvest particularly in the buy side. And we like doing it and the good news is that for some reason the world had a tough spot and the global economy really to pull back, I can dial that investment down like that, all right, I don’t have big contractions community clients that require me to keep it up. So it is flexible, its variable and I’m thoughtful about how I do it. But again I’m an investor, and I like to build now practices all day everyday but I know that overtime margins will expand more and those benefits will improve all of us.

Toni Kaplan – Morgan Stanley

Got it. One over there. So the question is how do you value M&A?

Brian J. West

Yeah, so M&A is a big deal for us. We did three very nice ones last year: developing marketplace for retail measurement, a very next generation capability around neuroscience marketing and our marketing analytics property that will be the way that I bring together my watch and by data is called marketing analytics. So I see those opportunities a lot and I’ll do as many as I can nothing prevents me from doing them.

You got to be careful because you got to make sure that they are the right ones that integrate into our platform and they are truly tuck-in in nature because then the integration is very easy and the expansion is very fast. And I’ll keep doing that but at the same time I think I can also keep delivering. If ever I have got to point in time where I had a deal, I really thought I hadn’t to get done. I could do it but there’s nothing transformation trend right now.

Unidentified Analyst

Rentrak has been signing a lot of local TV stations for the set top box data business. Is that a threat that you see because that’s becoming really big in a pretty short period of time?

Brian J. West

So again, set top box data on its own could be very interesting to inform a local market as an analytic tool and it’s not a measurement proposition.

Unidentified Analyst

Okay.

Brian J. West

It’s not a proposition where they’ll be buying and selling, okay. We believe that we’ve got a product that will be offered for local markets that will allow us to have a more stable measurement by combining different data sets including set top box round panel. But the thing that is going to be a measurement isn’t, we don’t see it and I don’t see it being credited by the MRC. MRC is a regulatory body that governs measurement, they decide as this a measurement currency or not.

Our television panel by the way is MRC credit are online probably we just mentioned, Online Campaign Ratings is accredited. Tough to see it happen in set top box because it is by nature limited in its abilities and every knows that, I’m not to say there can’t be a measuring analytic, I’m not losing clients as red track signs them up right, yes they’re willing to use another analytic but sort of lots of companies and lots of media space to look at another measure a market research tool to help them go and compete (inaudible) I think the new experience just as of last week is another reinforcing function that is really hard.

Unidentified Analyst

Can I ask about some of the comments made in the public conference calls by Viacom recently about sort of that, they made a couple of knocks on Nielsen there about the quality of the ratings. And I’m sure when their programs are doing well, their ratings are high because they had really good shows and now the rating is about your fault. But I’m curious how you respond to that?

Brian J. West

Very thoughtfully, I mean it is our client, okay. So anytime you’re in a third party measurement position, you’ve got a responsibility to the marketplace and responsible to your clients and you’ve got a very respectful around that we think that’s behind us, we’re moving forward and then we continue to publish our ratings which again are the currency in this case and fully accredited, so we move on and we’re looking to help clients to help them grow and win.

Toni Kaplan – Morgan Stanley

I think we have time for one more question.

Unidentified Analyst

You talked about the stability of your model generally but could you just describe on when a client does turn off your service, why do they do it?

Brian J. West

Yeah. So the good news is that doesn’t happen that frequently. On the Watch side I mean I’ve got renewal rates that are pretty much close to a triple digits and they are high. On the buy side in a local market, you can have a client decide to go with competitor, I mean in 100 markets right, my next competitor is in 8 markets, so I’ve got the advantage where, if you want to view the world, I have the opportunity to offer that to my multinational clients like anyone else has.

And that’s why my responsibility to keep covering it, right, because I want to keep giving them the best coverage possible around the world, so that they can still come Nielsen. But from time to time, in a local market can someone decide to go the other way, sure, but since I’ve been here it happens infrequently and it is on a buy side, it’s typically in the U.S. market, the good news is it’s not material. And it’s hard because when you change our providers, you go dark for a year because you have a whole new set and it’s there it’s very paid for the clients.

Toni Kaplan – Morgan Stanley

Well thanks very much Brian and thanks everyone for coming.

Brian J. West

Thanks.

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