Jean-Louis Erneux – Vice President Press Relations and New Media
Jean-Bernard Lévy – Chairman of the Management Board and Chief Executive Officer
Bertrand Meheut – Member, Vivendi Management Board and Chairman, Canal+ Group Management Board
Philippe Capron – Member of the Management Board and Chief Financial Officer
Vivendi SA (OTC:VIVDY) Q4 2011 Earnings Call March 1, 2012 5:30 AM ET
Good morning to all. I’m Jean-Louis Erneux, Director of Vivendi Press Relations. Thank you for coming in such large number and please do be seated. I’d like to thank the photographers if they could try to refrain now from taking further photos.
I also wanted to ask you to please be seated. Slowly we’d surely have quick response. I’d like to give the floor without further to ado to Jean-Bernard Lévy.
Good morning to you one and all. Thank you for attending this morning. This is our information meeting on Vivendi’s results strategy and outlook. I’m going to be saying a few words to you, then Bertrand Meheut will speak. He’ll be talking to you about Canala+’s strategy and objectives. Particularly after the two strategic decisions that were taken and announced at the end of last year firstly, to reinforce our position in free-to-air TV in France, and secondly to invest further in Pay TV and free-to-air TV in Poland. And after hearing from Bertrand Meheut, we’ll hear from Phillipe Capron, our CFO who will give you all the necessary clarifications regarding the Vivendi’s financial performance and our financial statements.
I’d also like to greet others who are here in this room today. The CEO of SFR, Frank Esser; Amos Genish, CEO, GVT who came from Brazil; Abdeslam Ahizoune, CEO of Morac Telecom who has come from Rabat (inaudible) who is in charge of Universal Music for France, Latin countries as well as South America. I’d like to thank all of them for attending. And later on, they will be available to answer any questions you may have.
I’d also like to really thank them for their work and pay tribute to them. I’d like also thank all of the Vivendi’s team members around 55,000 employees. 55,000 employees are currently at Vivendi in approximately 60 countries. They’ve been an outstanding contribution. They’ve shown great motivation and that’s what its all about, that’s what our performance inches on.
Especially in 2011, the Vivendi achieved the best results in its history, an excellent year, which I think just proves the effectiveness of our business model demonstrates the soundness of our group, which has been little affected by the crisis. This has proved that our ongoing continued investments the term investments in network platforms and high quality content have been bearing fruit.
Our model is based on subscription. This is working well. We have tens of millions of subscribers worldwide for our various products and services. This also proves that our efforts have been successful in uniting the different Vivendi businesses around several common themes.
We’ve made progress. We’ve helped our experts co-operate, all within the IT innovation, innovation to serve the customer, to meet the ever growing demand. The demand has never quenched for the digital consumers, especially young people who began – who were born sorry into the digital era. There are many young people at high growth countries so we have to make further efforts to go to these countries where the economies are growing faster than elsewhere.
And of course, alongside all of this, clearly we are going to continue optimizing the way we manage our costs, so that we can share best practices across the group. That’s the strategy that we are currently implanting. Later on, I’ll review what we’ve already achieved to improve our growth in an area by fostering innovation and investing in emerging countries.
Now today, the Vivendi group is agile, it’s proactive, responsive. But clearly in recent months, our group has been attacked on several fronts. Firstly, we saw a toughening in tax laws, especially in France that very much penalized us. We’ve been able to overcome the effectiveness. Last years results are very good, the (inaudible) overcame, but the tax pressure is a problem for a country that’s very much part of French industrial—industrial fabric.
In some of our major areas, we’re seeing the arrival of new competitors. For instance pay TV in France, mobile, telephone in France and mobile, telephone in Morocco. We’re under greater pressure, 2012 and then for 2013 probably as well will be more difficult years. This fact is leading us to really double our attention on very tightly managing our cost base across all of our activities as Philippe Capron will demonstrate later. This is also leading us to be more cautious on our outlook and future results.
But I would like to share with you the firm belief that I have is Vivendi’s strategy and its efficiency and effectiveness.
I’m not just looking back into the past; looking (inaudible) we’ve already managed to achieve build and rebuild our set. but more importantly, I’m looking forward and as when I look forward that I feel very confident indeed.
My belief, confidence is based first and foremost on our customers and there are basically never ending needs. I’m talking about digital customers who are constantly looking for more content and more sharing. this is at the heart of the biggest strategy, so we can call the digital customer.
if we look at smartphone penetration, we’d see the success of new ways of watching TV. we’d see the fact that broadband speed is ever increasing. We’d see that people are very demanding, when it comes to quality, they want ever-greater quality. We see there are more and more viewers for attractive, exclusive content that is often very global content. Think of activities where we’re global leaders, video games and music, and we’re generally speaking, we know the people have social needs, look at social networks and they’re great increase. So here, the various growth drivers that are really extraordinary growth engines for us at Vivendi. This really promises a great success for us.
At (inaudible) we’ve seen a real explosion in varying populations in emerging markets. that drives opportunities for us and helps us for new growth drivers. To underpin this growth, we have substantial capacity to invest. We can meet these customers’ needs, because our operating margin on average at Vivendi is 20% of our turnover, so I’m convinced. We will not see a negative trend in our revenues, which you start to see among other operators when their throughput increases substantially.
there’s an unfair fight between the overtaxed, and over regulated European players as opposed to the non-European operators, they can start a shop where they want to and basically, don’t have to pay any taxes in Europe. I hope that side; we’ll finally see some change. I would like to wish that governments elected officials as well as independent authorities, I hope that they will open their eyes that they will – really can’t understand that we’re missing out on potentially some substantial economic growth, they need to open their eyes to understand the (inaudible) of countries that believe in digital and believe in the digital era.
unfortunately, we’re suffering from some short-term politics, this taxing and reducing our ability to grow and compete. I’m convinced we’ve got the strategy; we’ve got the technological resources, the human resources to (inaudible) with all we need to continue along this path of success.
Now, I’d like to go through the presentation starting at page three, that highlights in 2011. 2011 will be a record year for us, it’s also a year when we implemented the final simplification of Vivendi by exiting from NBCU entirely, and a few weeks after that acquiring the assets of 44% and taking SFR that to a Vodafone held until that. we’ve shown the strength, the power of our growth drivers, especially GVT and Activision Blizzard.
If you look at page four, you see that we exceeded our guidance, targets within our sights on, in spite of €600 million in additional tax expenses that income call, we’ll come back to this point in a few minutes. We also were looking to demonstrate, contribution to our profits and cash flow estimate by the acquisition of 44% stake in SFR.
Now changes in our operating income on page five. We look at EBITDA, we see a remarkable growth. Thanks to Activision Blizzard and GVT. And this growth more than offsets the effects of competition, which has heightened also offsets vantage pressure from the regulatory authorities both in France and in Morocco, you can see this reflected in the figures growth in our EBITDA.
You can see here various contributors onto page six and we’re looking at three-year period. And you can see well 2006 was a record year in terms of profit and operating margin. As I said earlier, our operating margin reached rate of 20% of our revenues.
Now some highlights, some of our strategy and our various businesses. Activation Blizzard’s contribution is up from 2010 to 2011 by 46%. This is thanks to the ongoing success of the Call of Duty franchise also this is thanks to the successful launch of a new game, which is the game and toy at the same time, it’s called Skylanders. GVT, GVT extraordinary performance this year, yet again growth in the revenues and in operating margin above 40%. Universal Music, breathing the benefits of a reversal trend, some of the negative trends are improving in the global music markets. Plus the cost cutting plan which usually send Pascal and their teams implemented in last 18 months. Thanks to all of this. We can say that once again we see growth in UMGs operating margins and their margin raised there up.
Generally speaking, we know, we can say that the comparative landscape is a difficult one, but the other businesses have also carefully managed their costs. So all-in-all, we’ve seen stable contribution to cash flow from operations.
On the next slide, we can see how cash circulates with in the Vivendi? We can see the transactions in 2011 enabled us to significantly improve on cash circulation, cash available within the Vivendi group. This brings me to 2012 to talk about the outlook. Things have gotten off to a good start. Pay-TV in Brazil was launched at the very at the 2011 and we’ve already after two months time already have 80,000 subscribers. This will be a growth driver for us, which will be added to existing businesses for us in the Internet in Brazil. As that’s said in the U.S., the music market is on the up tick. We’ve seen good sales of music at the end of the year. We’ve got the figures also good figures for Canal+ France and SFR, strong Christmas sales there. Regarding Canal+ France we see an increased ARPU and they’ve secured supporting rights, the major supporting rights.
SFR smartphone penetration has become a major phenomenon, 41% of our customer base at the end of the year now has a smartphone.
Morocco a major growth driver, we’ve seen remarkable success in Mali, since the deal where we wanted a bit for the prioritization of the income in [Telecom Mali], since then we’ve doubled our market share there. We’ve seen success in video games. I just alluded to that as a moment ago. But in spite of this, we’re highly aware of the fact that our environment is tougher than it was and will continue to be tougher, the first thing perhaps economic and financial environment continue to be soft.
Next, second point, we’ve already add to a substantial tax hikes in 2011, and we’re afraid there will be further tax increases in 2012, especially in some from the austerity plans that will be implemented after elections. In France, we also saw the arrival of the fourth mobile operator which is exerting strong pressure on prices.
I have to say this, with the clear support from the regulatory [alternative], roaming agreement using 3G technology and the incumbent Telco getting very aggressively and they receive the support from the government. And regarding our previous expectations EBITDA prospects for SFR into (inaudible) EBITDA structure will be significantly below previous expectations, this is where we’ve had to enact an action plan in new French Telecom market which is a tougher when than it was previously.
Firstly, we’re adjusting rates we’re developing our customer base in a market, which is changed. We’ve got a more segmented approach now. Secondly, we’re strengthening towards specific plus point assets. Our value for money positioning very important, we’re making best use of our stores, brick and mortar stores providing the systems advise to your customers. We’re leveraging all of that.
And we’re going to be reengineering as that far to take accounted market changes, in the new market conditions. This market is in towards the change and we’re going to be focusing on services. And the customer prescription of this services as they can buy them. As opposed EBITDA should go down by 12% to 15% in 2012, cash flow from operations in SFR in 2012 should be close to €1.7 billion.
Now overall for Vivendi with this new environment. We have to adjust our policy of distribution to shareholders without changing our strategy of profitable growth. Our 2012 distribution, there will be one euro dividend paid in cash to each shareholder one euro per share. In addition to this, we will payout one bonus of share per 30 shares held.
In the future, our dividend policy in cash will represent a payout rate of 45% to 55% of adjusted net income from 2012 onwards, but I repeat we’re concentrating on our three strategic goals related to focus on organic growth initiative with the special emphasis on Brazil in GVT. Secondly, maintain our high group operating margin exist about 20% in 2011, remain near 20% of future years, because we have to finance our growth initiatives, we also continues satisfying our highly demanding digital customers that you maintain these margins in all of our businesses. We are going to have to really, really tighten things up even more and ex-cost reduction plans across all businesses.
We have a strong balance sheet, and we are highly attached to maintaining our BBB rating. Building this future and giving some examples of actions that we have been launching that are already provision and are reflected in our financial statements. We continue investing in Brazil. Does the acquisition of EMI its not yet close, but we hope in the second half this will be green lighted by the regulatory authorities. So we can then expect to significant contribution from EMI by 2014.
Now new products that we have launched at Activision Blizzard, they have earnings per share targets regular growth in these we also see growth driver’s kind of all this. Bertrand will be talking to this about this in just a few moments.
Within Vivendi, we are also putting together shared projects, projects of synergy to develop corporation, within the group. So that we can design and market nearly innovative products, you can get simplified overview here of a well range of things that we’ve been working on and we are implementing and launching, so that we can feel growth via innovations.
The second part of our growth, we’re going to seek and find growth where economies are growing strongly, where the underlying economy is more buoyant than maybe the case in some more mature economies. as you can see, almost 20% of our revenues in 2011 come from countries whose economies are growing very strongly, over 50% more than was the case in 2008.
On the following pages, you can see our presence in various countries worldwide and initiatives, which we are beginning, GVT, growth rate will remain in the level around 35% in 2012, in future years that we’re benefiting for the launch of Pay TV in Brazil. this was just launched very recently in Brazil by us.
Maroc Telecom is making best use of its investments in Sub-Saharan Africa to find significant growth drivers there whereas the Moroccan market is under pressure, it’s reaching maturity. Canal+ Vietnam will also be coming back to this point, Canal+ is always present outside of Mainland France, it’s been investing more in Poland and launched its offers in Vietnam just the very recent act now.
Universal Music is also redeploying traditionally the music market was one for so called rich countries, more though now, we say that music is in a market whose economies and demographics are growing strongly, especially Asia, and then Activision Blizzard to similar point, video games for a long time, where something it mainly found in the richer economies.
Activision Blizzard is present in China, it’s the only western video games maker that are successfully launched a product in China, which is World of Warcraft. World of Warcraft as of today is now available in Portuguese mainly for Brazil and Russian, in Chinese Mandarin and in Korea, which again goes to show that in addition to western languages we have this global reach and we use them other languages in the world especially in Asia, so but we have conclusion like to say this.
We have target based on organic growth maintaining our margin, high cash flow and maintaining a very strong balance sheet. We are adapting to, adapting our structures, adapting to an environment, which at 2012 and 2013 will be more challenging. We expect an up tick in our results by 2014. Actual forecast 2012, adjusted net income above €2.5 billion, as of 2012 guidance dividend. As I just outlined we represented in 2013 AGM based on results of 2012, the dividend we approximately 45% to 55% of adjusted net income, which we will have achieved in this year 2011. Thank you very much, (inaudible) who will be speaking now as I mentioned.
[Foreign Language] Hello thank you, it’s a pleasure to me (inaudible) in our outlook to begin by talking to you about 2011 results. So, as you can see our revenue is up by over 3% Pay TV performed well both in portfolio and ARPU term as we’ll see let me add that our advertising revenues are 6% and all activities contributed to this growth for example StudioCanal with successful film launches in the U.K., Germany and France.
EBITDA is up 1.6% after taking into account a fine from the antitrust authorities of €30 million without that it would have been 6%, all activities were profitable with the exception of Vietnam that will breakeven during the course of 2014, all activities profitable and I tell you for the first time in its history posted a positive results.
Some figures regarding our Pay TV business, we have about 13 million subscribers across our territories with growth of close on 240,000 subscribers in 2011. Canal+ France growth stands at some 60,000 subscribers and that growth supplies across the territories covering the scope including Mainland France where we’ve increased by about 40,000, so in the other countries that is Vietnam and Poland there again we are posting strong growth for the first time Vietnam seems to be taking off, because we are ending the year with 30,000 subscribers.
You can see the churn is slightly up that remains at a very control level this increase churns in particular from the discontinuation of certain discounts on some of us. The ARPU is up every year for a number of years, ARPU is up €1.2 per month per subscriber, which demonstrates very good trend.
So let me add that it’s the ninth consecutive year that Canal+ is posting operating income that is up. We plan to continue down that road. So one of the highlights of our business in 2011; I summarize these achievements in three sections. To begin with, we’ve strengthened as we’ll see in a moment our core business that is Pay TV in France. We have diversified our activities notably through the announcement of into free-to-air television with the acquisition of the Bollore channels and then a major acquisition outside France in Poland, but also we’ve continued to strong expansion in Africa.
So I’ll start with the first topic that concerns strengthening Pay TV offerings focusing here on sports contracts and then on drama and series. For sports, we have secured major sporting contracts that are valid through 2016, League 1, the new contract we have with the Premier League means that we can screen two top live games everyday, whereas we only had one scenes in the past matches, the key fixtures we have also secured exclusivity for all the rights for the Premier League, for the Champion League, we’ve decided to focus on the best fixture even if it means losing in volume, but we accept that that’s why the new season we will through to the final.
We will have the top live game of the competition. On Rugby, no change in terms of the offering that is that we have exclusive rights for all Championship Rugby games. Let me add that these investments resulted in cost cutting in our operating statement for the top league it will cost us 440,000 instead of 465,000 today.
Series and drama a key factor in subscribing to our offers by subscribers, we’ve announced the acquisition of Tandem company based in Munich, Germany. It’s a major studio in producing world class series such as Pillars of the Earth and many others, if I tell you example of Pillars of the Earth, it’s been sold in to 70 TV companies worldwide and we see major impacts around this acquisition. The first for us an opportunity and for our channels Canal+ channel to secure access to premium content that’s been our policy for a number of years now as you know it’s also the possibility for the StudioCanal to extend its portfolio of rights into the sales and marketing at world level, and that’s an important area for StudioCanal tubes.
2011 with most of the attractiveness of our contents be it on Canal+ but also on CanalSat, there is we embarked on a major initiative which was the acquisition of Direct 8, Direct Star from Bollore Group indeed we wish to take part in the advertising market on TV above €3 billion and grown including for the digital terrestrial channels, the case for Direct 8, Direct Star.
So, down the road once this acquisition is achieved we’ll have a very complete offering on these two channels and also six hours of free-to-air shows on Canal+, but also i>TELE with strong growth on our targets that the higher income brackets, and also the opportunity for us to complete the finding of content by providing a Free window, free-to-air window after the pay-TV shows, at a time when many free-to-air channels are finding less and less major content in terms of film or fiction.
Answer was shown on an earlier side we find down the road in 2015, EBITDA which will be significant in terms of what we’re achieving for the group. But let me that pay-TV remains our priority and for a very long time will remain the core business and constitute the bulk of our earnings.
So as part of the same strategy, we’ve decided to launch SVOD offer, Subscriber Video On Demand through the canal play, infinity to extend our brands and be able to use our content on all windows, pay TV, pay-per-view on a subscriber basis, video on demand, this offering was launched in November, the SFR subscriber base and then gradually be up at on all boxes of all telcos, but also on all devices that are connected to the games, consoles or online TV so as to complete our offering, but also to generate additional revenues and to be very popular at the time when new players will enter the market, which is the case very soon. Because of connected TVs that will now these new players do offer either video on demand or Lumia TV on the viewers TVs, you’ve spoken of net do you heard of Netflix.
we have a very compelling offering with over 10,000 titles available and growing and we’ve signed an agreement announced last week with Disney two (inaudible) of still further. In 2011, we embarked on a major initiative by acquiring a controlling state in TVN, but this state means that we have a controlling stake in the pay TV segment. Pay TV the group has about a million subscribers for the end brand. We’re going to merge that business with the Cyfra+, a Pay TV company that has 1.5 million subscribers with major synergies assessed over $60 million per year. And then, we have an agreement that allows us to acquire a core controlling stake in the whole groups and also to be an operator in free-to-air TV. TVN is the leading free-to-air channel in Poland with the large share of the advertising revenue on [par] with one TF1 achieves in France.
Now this is of course a major development for us, because we have a pay TV platform that will count $3 million subscribers will be able to tab leading TV channel in the country and that is a key part of our strategy to both our activities internationally.
So what are all the 2012 priorities in our particular order, but starting with regulation as you know the competition authority as challenged the authorization that we received in 2006 to merge with TPS, it’s on heard of and that’s why we are challenging that decision before the council of state of course prior to that, we once again notified the merger on the basis of 2012 market conditions in a market that has expanded considerably in terms of many subscribers with internet providers (inaudible) zeros now involved in the right landscape situations developed considerably since 2006, we plan that of course at the time excluding our, but it was one of the key aspects of the decision that led to that merger.
We hope to have a decision on this matter in July 2012 about the same time as Direct 8 and Direct Star. We may divide all these operations and the competition authority has informed us that the applications were complete, bid for the Bollore channels of the TPS merger. Mentioning Poland in particular because here again we must notify this transaction initially to Bruxelles, but this week the application has been repatriated to also we’re hoping for a decision in the second half of 2012.
Integration is a key aspect and we do that well that kind of (inaudible) hard to merge activities to pay the way for their integration on how to leverage the synergies, we’ve done that on numerous occasions dealt with StudioCanal or with Canal with TPS, it’s a key aspect and so we’re preparing those operations.
On the operational front, we’ve planned of course to continue to grow our subscriber base not only in France, in ARPU and also secure future earnings growth, our team, the management team plans to continue the growth in 2012 in spite of external conditions that are sometime rather adverse VAT has moved from 5.5% to 7%, back office over €40 million per year that’s why we’ve launched a plan to streamline our organization in September 2011 on which we’ll deliver its results in 2012, to the tune of €100 million per year.
A few words about Al Jazeera as I said earlier, we consider our offering to be very robust, and this of sports we have over 30 sports, film, drama, U.S. French film, documentaries is very well received by our subscribers, and in the sports segment I can take a no sportsmen who would not wish to access the best quality competitions I mentioned earlier.
In terms of growth development, our priority in 2012 not forgetting Poland that will have at the end of year, the expansion is focusing on Vietnam and Africa, five to seven subsidiaries planned in Africa, strong growth and the portfolio of 1 million subscribers very soon.
In conclusion, what I’d like to say to you today is that 2011 was a key year because we sown the seeds for strong growth of Canal+, Jean-Bernard Lévy said earlier next to GVT to Activision Blizzard of the coming years whilst securing our immediate operational growth. And 2012 will focus on implementing all the deals and the plans that have been announced, and that will be key for all the Canal teams in 2012 and as this strategy as I’ve indicated will boost the growth of our company to turn it into a growth company in particular as of 2013. Thank you. Yes, Philippe Capron?
Thank you Bertrand. Philippe Capron speaking. Thank you Bertrand, thank you Jean-Bernard. Good afternoon to you all. I think to go back to some of the figures Jean-Bernard gives us earlier, first of all to say that €28.8 billion our revenues are basically stable, slightly up in constant euros compared to the previous year. There are some questions as a result of pressure that’s (inaudible) Maroc Telecom and SFR which offset some up tick in revenues and other businesses.
EBITDA operating income is up by 3% almost €5.9 billion as Jean-Bernard said. This is renewed increase in operating margin above 20% now. Adjusted net income that’s after-tax’s group share is €2,952 million. This is the best ANI ever posted by Vivendi or even back to when it was Vivendi Universal or Générale des Eaux.
Cash flow from operations, FFO after amortizations is down by 10% we will see why later. But it stays at €4.7 billion, which is an enviable level. This is one of the reasons why net debt ends the year €12 billion, which is significantly below what we had let markets to think.
Now there were two main drivers for our income in 2011. First of all, operating performance of the various businesses and second driver was the accretion through the SFR deal having a complete stake in SFR in the current situation is something that has enabled us to substantially increase our results for (inaudible) as you can see here $480 million in spite of increased tax, we’ll come back to the taxes point later.
Let’s just remember this point that is we had a year where taxes haven’t changed, results would have been $2,952 million, but $3.3 billion. As I said a solid increase in EBITDA but things differed from one business to another, games performance really spectacular, up 46% plus €300 million in EBITDA, this is due to the excellent performance of our games business, it’s been also due to some calendar, and we are currently deferring results due to accounting rules. And so these deferrals are particularly beneficial for us this year.
Let’s talk about music, now we can see 2011, further confirmation of an ongoing rebound for music markets. Sales by volume in the United States, in the U.S. market were up throughout the year. It’s not yet the case for the whole of the western music revenues were down slightly, but results are up, we expect to better mix and also the first benefits restructuring that Jean-Bernard alluded to earlier.
Onto SFR now EBITDA would be down 9.5%, we’ll do better than that thanks to some non-recurring profits that we referred to separate our term. So we don’t SKU any ones idea that we are in line with forecasts.
Let me remind you that this resulted slightly down is both due to VAT changes beginning in last year, we had to take a big increase in VAT, which was mandated from of our last six furthermore, we had to realign and simplify prices throughout 2011. As a runoff to the arrival of a new mobile operator
Maroc Telecom also had to see from market to rebalance the shift, our minute prices went down and there were big traffic increases, plus competitors in Maroc were very much helped out by a symmetrical policy, professional policy decided by the local rig inventory authority. Firstly Maroc Telecom’s margins continued to be very high 40% net margin was probably makes it one of the most successful Teleco’s worldwide.
This subsidiary that Maroc Telecom offsets some of the negative pressure that Maroc Telecom build in Maroc. GVT once again had an exceptional year 41% growth in EBITDA and there are no accounting deferrals here. Marginal GVT continues to be at a very high level over 40% EBITDA margin in spite of costs related to the launch of new Pay-TV product Canal+ I won’t (Inaudible) they see growth in their earnings in spite of the sign by the competition authority, the antitrust authority.
Net income, I think we can skip over this fairly quickly. We can run through adjustments fairly quickly here. Negative impact of course due to the deconsolidation of NBCU we no longer receive consolidation of NBCU earnings. And we stopped this beginning of last year, the very beginning of the year in exchange for this we see a strong reduction in the minority area. this was the accretion effected earlier, and now we have a 100% stake in SFR. Now, interest expenses are in basically stable, because average debt remained identical and rates haven’t changed much either compared to the previous year.
On the other hand, taxes have changed a lot. there has been a complete change in the tax environment, [when] our country, you can have three major tax changes in a few months times, major corporate tax changes that impacted Vivendi, strong impact for Vivendi in the year firstly, with the elimination of the consolidated global profit tax system to be and see although the government had been saying that it would run for further years.
Furthermore, (inaudible) the possibility of carrying forward past tax losses for current year process, tax is 60% whereas previously you can deduct a 100% of your tax losses plus overall income tax rate went up. this hasn’t reduced the visibility to use these taxes in the future, but it did have an impact on the current fiscal year to the €250 million both a substantial amount. €250 million in addition to all of this in 2011 VAT was increased for telcos and now for pay-TV that’s being increased on a cost of €40 million at Canal this year. So we can see as a substantial tax bill over all the amount is €600 million which Simon and Lévy talked about earlier. And not even mentioning with the so-called TVA sociale, which of course would also have an impact on Vivendi because in several highly comparative areas where when we know that we will it be able to pass on this hike in the TVA sociale. And we’re not, we don’t have a great deal of employees relative labor SFR for instance – big employer. So we’re not reach significant benefits from this TVA sociale and the component to have these reduction in payroll taxes.
Now, reconciliation of adjusted net income to net income group share, this is a fairly technical project I will just make a couple of comments, firstly we of course if you look at our accounting results were benefited from the check we got at end of the year for the unwinding litigation that we had in Poland with Deutsche Telecom. But that was a one-off profit through that settlement. And its not something that we retain in adjusted net income further more another thing we need to mention is balancing we didn’t do any real statements of our class action provisions since nothing happened in the class actions for the year. So the provision remains set $100 million were it have been readjusted at the end of 2010.
All Vivendi businesses generated cash all of them contributed to strengthening our balance sheet last year. And now in spite of it all our cash generation before CapEx was low than last year by 6% but this is mostly due to some Activision Blizzard deferrals [litigiously] generated results that were much higher, or generated cash much higher than their booked results. You can’t improve your working capital requirements indefinitely, so back to normal situation generating cash in excess that mean yours which continues to be very favorable. Furthermore, we didn’t receive, last year we didn’t receive as of 2011 we have didn’t receive the dividend from NBCU, that also has an effect on our cash and reduces the cash received.
Investments, we continue making substantial investments in our networks, to CapEx that’s the strength of ours and I’m sure in future will continue, CapEx more than €3 billion, €3.3 billion in CapEx investing in our networks. Then the results underscore the following. This will be mostly for GVT that’s how we are going to be increasing by more than (inaudible) our CapEx, and Internet and SFR and in Morocco we’re investing a little bit less than in previous years.
Overall, that of course has increased. In the last fiscal years especially to the acquisition of 44% that’s the first stake that Vodafone use to hold. But debt ends at a level of €12 billion, which is much better than we told markets, we told the markets to expect €13.5 billion, this is because all businesses made special efforts, careful efforts to generate cash towards the end of the year.
This level of debt is very much compatible with our maintaining our BBB rating after the acquisition of SFR stake from Vodafone, of course we had a highly active year for financing. We raised €4 billion in bonds. We renewed €6 billion in credit facilities and excellent conditions for all of us. So we’re continuing to be very well received by markets as well as banks that made it possible for us to further improve the duration of our debts without paying significantly more for it.
The current economic situation, we keep the careful eye on things, but we’re very much in control of our costs. I will go through every single one of the initiatives here. We just mentioned the success of the cost cutting begun now almost two years ago by Lucian Grainge and his team at UMG, which is one of the reasons that their business is on the upswing in music. [Franç] actually talk to us about this later. We’d also mentioned that on the new competitive landscape in France, they were having reexamine SFR’s cost and make sure that we – that these costs are in line with the added extra quality expected by our customers..
Now 2012 guidance per business is resolved Activision Blizzard we’re expecting EBITDA growth €450 million because this year we are not going use up the deferred earnings, and we are going to see increase of the deferred earnings. So does that affect, it is one of the reason that. Under our accounting standards results will be less good, even though, using Activision Blizzards accounting standards will be better.
Universal Music Group will continue to see a double-digit EBITDA margin like-for-like basis this before taking to account the substantial benefit for (inaudible) integration I hope before the end of the year. SFR should see a decrease by 12% to 15% in its EBITDA and how we maintain its cash flow after CapEx in the neighborhood of €1.7 billon, so that performance continues to be remarkable. Maroc Telecom’s EBITDA margin should reach 38%, this is also a good performance and CFFO should remain stable versus 2011.
Lastly GVT will continues to see very profitable growth. We’re expecting growth in revenue on the order of around 35% EBITDA margin approximately 40% in spite of the cost related to launching Pay TV business, which will continue throughout the year. We’re intending to expand about €1 billion in CapEx at GVT to continue the full speed ahead development because the window of opportunity is still open there.
Lastly (inaudible) chance as we’re expecting another slight increase in EBITDA on a like-for-like basis, which means before the profits from new benefits from new acquisitions. So this means that we can account on the outlook that Jean-Bernard alluded to earlier. The financial policy continues to be cautious. We’ll continue focusing on generating cash maintaining our rating. We hope next year we will have an adjusted net income above €2.5 billion financial debt will grow slightly because of spectrum purchase as of the beginning of the year and because of acquisitions in music and this kind of proves which you mentioned earlier. Debt should be around under €14 billion by the end of the year. Dividends, we expect around 45% to 55% of adjusted net income payable in cash in 2013. Thank you very much.
Unidentified Company Representative
Thank you, Philippe, I’ll now invite Pascal (inaudible) trying to come and join us at the table to take your questions. So we can now try to open to questions.
This Q&A session is being webcast, please wait for the microphone.
If you got hold newspaper, on the telecom section I would like to ask what you mean when you’re criticizing the opacity of the contract, Orange Free contract.
Unidentified Company Representative
Well, it’s pretty clear, it doesn’t mean that it’s – its not clear, it’s a contract that was signed under conditions that we are not aware of, I mean, that’s what I’m criticizing here the fact that Telco deliberately open to its competitor, it’s network with the best available technology whereas no written directive, no law compels him to do that and that contract has not been made public, it leads us to ask questions. At the Parliament (inaudible) you were against the roaming contract that’s not true on 2G, were on the obligation to offer roaming contract that’s part of our license for over 10 years.
It’s included in our license in the event of the arrival of our fourth operator we are bound to offer 2G roaming facility. We’ve formulated a proposal on 2G, but we’ve never in any way been opposed to 3G roaming the person who said that has just stated something that his contrary to the truth. Final question you said that your assessment had a legal aspect, does that mean that you are going to investigate proceedings we’re looking at the legal implications of what has happened leading to the situation that I’ve described Telco arriving on the conditions that seem to merit in that legal analysis but for the time being you’ve not referred the matter to any authority?
Unidentified Company Representative
Well, we’re defending the interest of our shareholders, of our employees, of our partners, of our subcontractors through all legal means in the low based state in which we are.
Final point on cost cutting, will jobs be impacted at (Inaudible).
Unidentified Company Representative
Well, we’re looking at how best we can reorganize our capability in light of market developments. We’re seeing that the market is organized around a model with a two Tier offerings. We have the low cost offering as its known where prices are low but there’s not much else other than the price and then an offering with full suite services, with a wide range of handsets on offer with support assistance service. You have a network of stores, call centers that process your calls swiftly and efficiently, and that's the complete offering thus far. The complete offering was the majorities, There were the beginnings of a low-cost offering that hadn’t gained significant market share. So there will be a re-balancing, that is to say the service will remain a key factor in customer choice and decision. That's when a low-cost offering without service will gain ground and will adjust in light of market trends.
Hello, I’m from RTL radio. Can we have some more detail on how your subscriber base has trended since January, how many have left, how many have enlarged, how many have left to the fourth operator?
Unidentified Company Representative
Total net loss of subscribers down to 208,000 between the first of January, 29th of February was the period, so total of 208,000 subscribers that we’ve lost. We don’t really split the load, but most have to gone to Free.
There can’t be more than 200 (inaudible). Okay, at the back.
On strategy you mentioned a release, an aggressive advertising by Free supported by the government. Could you tell us a bit more about that, what do you mean by that? And as regards Canal+ you also mentioned optimizing streamlining 100 million Euros. What will that cover?
Unidentified Company Representative
Well on the first point, yes, we were surprised at the nature of the advertising of the fourth player and the public that support that he received from certain members of the government, where is it seemed to us the torn, the insults, the personal tax could have wanted a bit more restrained, I will let (inaudible) speak to the second aspect.
A €100 million mentioned for 2012, that’s a full year, it’s a higher number, say, it concerns essentially corporate support operating cost and then programming costs. On the program front, we’ve taken a few decisions to non renewable. But we don’t plan to cut program costs as we’ve done in the past what really on to favor, the quality of our offerings be at Canal Plus and CanalSat, but to be as responsive as possible and as agile as possible, so just structural costs, no more by that. But if a program set with all our key managers about a 110 senior executives in Canal Plus and each on the basis of – as a target to contribute to that cost cutting effort. Further questions? [Yes, at the back]. Yes, madam.
Unidentified Company Analyst
Actually, facts you that it’s a minority on the programs, but you speak about selective CapEx in contents. And I wondering what is that entail in terms of what you done thus far? I would like to know number of subscribers at Canal Infinity and what’s your position regarding sports channels from Al-Jazeera, will you screen those on CanalSat. Okay, it’s really in the hot seat here, okay. So, for CanalPlay Infinity launched in the beginning in November.
It is recent numbers, but it’s over 25,000 subscribers it’s a no strings attached, 9.99 euros per month and it is rising sharply because we are opening new platforms everyday that will contribute to driving subscriptions by seeing strong consumption by every subscriber number of averaged down loads subscriber is considerable. There is a real consumption at this item. I am trying to find the numbers. I don’t want to mislead you here, but let me just – I will get the number in a moment. Over 30 videos on average per user per month. So, that’s a lot.
Those who subscriber consumer a lot of content. And of course the series it’s Bradco and (Inaudible) in the top five of the most consumed videos. And for select TV investments is regards those – I mean we’ve always selected our content investment on the basis of subscriber feedback regarding our expect – just to give you an idea on the reductions made. It just concerns one ride, we’ve decided not to acquire the rights for the Olympic games in 2012 because we consider that it’s not really going to generate subscribers, I mean it’s good for Canal’s image because many of our subscribers say that it is very well treated on Canal, but we’ve decided to cut that investment, but as you see. No investment in the content has been covered just selective to identify what pleases our subscribers the most. Do you have another question? That I answered, Al Jazeera. Yeah okay.
Unidentified Company Representative
Yeah, Al Jazeera. Are we going to screen also sell the Al Jazeera channels, no its not on the cars because they are actually asked us to do that. yeah.
What do you think?
Unidentified Company Representative
No, I mean, we don’t rule anything out. But we haven’t spoke to them about carrying their channels platform at this stage. Okay, next question please.
Unidentified Company Representative
Unidentified Company Representative
I requesting with the 20% stake of Laguardia in Bordeaux France, should be generic at the conference call on revenues, so that you just able to selling this stakes. He said there was a discussion and there were nice effort with reduced valuation in terms of $1.5 billion and realistic I'm sure you’d appreciate that type of effort. So have you begun renewed discussions with your friends (inaudible) in recent months. I have no comment just an information point.
It's just well to say that is above you, to look our page whatever on a documents its going to be what side in a couple of days. We also have readjusted the value of Canal+ France in our book this year so we are aware that our friends at (inaudible) have done this and at the same time we've done precisely the same thing on side of (inaudible) the other points, we have no comment we'd like to make earlier (inaudible) did say that he repeated that he wanted to sell his stake, but today we’re not interested in buying it. As I’ve been saying now for – yeah, since at least last summer for about a year now.
Unidentified Company Representative
Lévy, I underscore what Bertrand has said, the reason that there is a drop in the valuation in our financials. This is due to some changes in interest rates. The rates that we use to discount on future cash flow, so when we do the mandatory tests that this Statutory Auditors’ require us and conduct every six months.
The increase in interest rates in the discount rates we use, this increase (inaudible) to change the economic value and since we have this calculated value that becomes below the book value, we then have to adjust this in those balance sheet values. And just to stop – discussions are stopped, because the regulatory authority did accept it to recheck coverage and they said the Free is covering the percent of the population they claim to. You said the opposite, can you tell us?
Unidentified Company Representative
I don’t say the opposite or I’m not here to judge and Free’s commitments there adherence to them. Yes, but you said it’s obvious that something that – as it a serious question regarding whether Free is actually covering the mandated percent of your population.
I think it’s clear even Mr. (inaudible) partner in the network Chief of the France Telecom has said that most of the bulk of traffic from Free is going through Orange’s network. So I think there are some problems as to whether or not Free is complying with its obligations. Then the question who can judge this. I don’t think the ARCEP authority is judged in the last instance that we have the rule of law here. I think there is several levels at which these types of cases are examined.
Unidentified Company Representative
Are there further questions? Go ahead.
A brief follow up question regarding the music market. You used a couple of expressions, that you talked about it change in the trend or a lessening of the negative trends. I would like to ask you regarding Universal Music Group, are you absorbing a true upturn, reversal in downward trends in the past six months?
Unidentified Company Representative
Pascale might want to comment on this.
Well for the first year, we’re seeing the market changing the United States and in to other existing countries Sweden and Germany. The interesting thing, we look at the three markets, these are three different situations basically as we can. In United States, they’re driven by iTunes. And large expression in the sales of online albums, Sweden’s growth driven by skyrocketing in the subscriber business model, subscription, spot as a being the market driver in Sweden. So that’s another model digital but it’s not other current download – did subscribed subscription. Then the third market Germany, amazing line up. It’s a physical sales remains stable, physical sales remaining stable. It’s interesting but it’s the first year where three countries with three different models giving positive signs, it will now be interesting to see how things evolve in other countries in the next few years.
In France, we can say that clearly the digital market has grown better than all other European countries, driven by our tunes and also driven due to subscriptions basically to user, it is a subscription model in France. The typical market for music down, but negative growth rates now are on the order of 4% as opposed to minus 10%, 15% a few years ago.
Yes, could you assess what was the effect of the illegal download, the Hadopi effect on your subscribers?
I will let Pascal and Bertrand speak, because we also have DVD sales at Studio Canal. So Pascal?
Well, on this Hadopi anti-piracy load, there was a study by independent researchers, where they actually compared to their study as follows: they looked at what’s happening on iTunes. iTunes, the only platform present in a number of countries and the catalogs are the majors, because that’s present in the cross countries, they were able to compare the trends across markets as compared to France and their conclusion seems to be that Hadopi has generated additional €13 million in revenue in France.
Second number, I can give you is 2 million fewer people on peer-to-peer that’s from Neilson, 800,000 more people on the Free streaming that’s Deezer, Spotify, but also YouTube, DailyMotion and 1.2 million people – single visitors on the legal (inaudible) so that’s a transfer of 200,000 from peer-to-peer to legal.
Unidentified Company Representative
Well, Megaupload fact I mean, that’s where you recently were shutdown a few weeks ago, Megaupload those a poll conducted this morning, which explains that half that people who are Megaupload have decided to stop piracy and to move, to a paid model. and then of course, key – pirates okay, well, young people, but and then we have operating income bracket.
And then in other words, the more you’ve gone to colleges, the more you download illegal content as Rick – our activity, I mean when we shutdown the Megaupload, we throw sales grow on CANALPLAY the legal platforms of video on demand per view, pay per view and we think we have to offer the possibility of a legal offering if possible at an affordable price and insufficient, but that’s what we’re doing with CANALPLAY INFINITY which is prompting interest in many customers.
Hello. Just a quick question; Free is your number one supplier of subscriptions for CANALPLAY, isn’t it? I think to get crossed with them is not going to have some downside for you. CANALPLUS, CanalSat given its way in the market requires us to distribute our offerings across all platforms and if so happens that historically Free – was one of the first and so it’s true to say that on the Free – on the ADSL platforms Free’s the leading distributor, but we’re working diligently and very conscientiously with SFR. And as you’ve seen, for example the Canalplay Infinity platform was launched first at SFR. And then of course we’re compelled to extent that because of the competition and say, we have to make offering available
They have a big market share. I mean, they’re bringing you a lot of subscriptions to Canal+ area because of the – isn’t that going to have an impact?
Unidentified Company Representative
No, I don’t think. I mean the fact to offer to their own subscribers, the best TV offering that as it should be.
We will give the lady the microphone for the third time.
MVNOs, are the most affected by Free mobile, I mean is that your rating and could that give you an opportunity to acquire MVNOs? Would you be interested in acquiring some of your MVNOs?
Unidentified Company Representative
(Inaudible) well, it’s not for us to disclose for the MVNO. I mean the MVNO strategy is very different. if we take for instance (inaudible) that also has the strategy to support their customers due to for mobile office different from Virgin. I mean each MVNO has its own strategy that performs different reactions. And on acquisition we don’t have an acquisition plan for MVNO. Our partners, we want to work with them, support the MVNOs, that’s the long-term strategy here absolutely.
And just to be sure I’ve understood correctly, when you say that the authority isn’t the judge of final result, that is the coverage issue. You’ve submitted that to the Council of State?
No. Well, I said was that we were looking at the legal implications of this matter, then you – the authority shot the case and said that the offset isn’t the final judge of the matter in France. Anyway it’s obvious that the asset isn’t the judge in the final analysis that Mr. (inaudible) is the first to recognize that, it should be because we’re in a power pipe.
Okay, I think we’ve pretty much done on the rounds and wrap up this session. Thank you, enjoy your lunch.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: email@example.com. Thank you!