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Executives

Jean-Michel Bonamy – Investor Relations Director

Philippe Capron – Member of the Management Board and Chief Financial Officer

Analysts

Patrick Kirby – Deutsche Bank

Julien Roch – Barclays

Filippo Lo Franco – JPMorgan

Conor O'Shea – Kepler

Matthew Walker – Nomura

Antoine Pradayrol – Exane BNP Paribas

Charles Bedouelle – Exane BNP Paribas

Jean-Michel Köster – CM-CIC Securities

Allan Nichols – Morningstar

Doug Colandrea – RBC Capital Markets

Ian Whittaker – Liberum Capital

Patrick Wellington – Morgan Stanley

Vivendi SA (OTC:VIVDY) Q1 2012 Earnings Conference Call May 14, 2012 12:00 PM ET

Operator

Good day and welcome to the Vivendi’s First Quarter 2012 Revenues and Earnings Presentation Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Jean-Michel Bonamy, Investor Relations Director. Please go ahead.

Jean-Michel Bonamy

Thank you. Hello, ladies and gentlemen. Welcome and thank you for joining us today for Vivendi’s first quarter 2012 earnings. Your host for today’s call is Philippe Capron, Member of the Management Board and Chief Financial Officer.

This presentation will be in English with a simultaneous translation. This call is webcast on vivendi.com, where slides are available for download. I urge you to read the important legal disclaimer at the end of the presentation on page 37. The first quarter 2012 financial report will be available on our website as of today at the end of this conference call and you will be able to access a replay of this call for 15 days also on our website as of tomorrow morning. As usual, we will leave time for a Q&A session at the end of this presentation.

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

Philippe Capron

Thank you, Jean-Michel. Good afternoon, ladies and gentlemen. I am here with the usual suspect, Pierre Trotot of SFR, Julien Verley of Canal+, and Sandrine Dufour as well the Vivendi financial team. And it is my pleasure to report on the Q1, 2012 results. And I would say that it’s a good start of the year for Vivendi.

The figures we are reporting are bit blurred by the Activision Blizzard IFRS performance, which is impacted by lower revenues deferral due to lower number of releases in Q4 last year. So, it’s a mixture of accounting principles, which I am sure you are familiar by now and the release schedule which was lighter in Q4 this last year than in Q4, 2010. If you take out that division, revenues and EBITDA are flat. They are actually slightly up by 1.7% and 1.9% respectively.

Adjusted net income is significantly down by 13.4% and it is impacted by a variety of factors, which you can view in the slide. The first one is, of course, a lower EBITDA, mostly related to Activision Blizzard as we have seen. The second impact is the increase in our tax rate, which reflects the impact of the new tax environment we have had in France since the fall of last year. The disposal of our stake in NBC Universal weighs for €70 million as well because that's the amount of the dividend we had from GE in our severance agreement early last year. And of course, those negative factors are partially offset by the lower minority interest, which we have to face due to a full ownership of SFR.

Everything being taken into account, including of course the impact on interest charges, the acquisition of the full ownership of SFR has improved Q1, 2012 earnings adjusted net income by around €140 million. Thanks to this good start in the operations of our various businesses. I am pleased to be in a position to confirm our 2012 guidance both for the group as a whole and for all our businesses.

If you move on to slide 3, as you can – I mean, Activision Blizzard already reported the earnings and I commented on the deferral aspect. Universal Music did very well this quarter with EBITA up more than 40%, I’ll get back to that earlier – later. SFR is flat, but of course, compared to very weak Q1, 2011, because of the VAT turmoil on the market in the first quarter of last year. Maroc Telecom is showing very nice signs of improvement, especially in its African subsidiaries. GVT, I was almost tempted to say of course still posts a very strong growth in spite of the pay TV associated costs, and Canal+ suffers from calendar impact of content cost, but is still online nothing is wrong there as we’ll see later.

Moving on to page 4, this slide comments the adjusted net income, but as we already analyzed the various variances two slides away, I suggest we move on to page five where you have the evolution of net debt. This has increased slightly to €12.5 billion mostly due to heavy CapEx at GVT and of course to the spectrum acquisition at SFO, which is a bill we paid in January this year. But if you look at CFFO before CapEx, this has actually been stable at €1.7 billion. No significant financial investments are worth mentioning this year except the continuous program of buyback, which is in place. Activision Blizzard shows that Vivendi now owns again a slightly higher percentage of this company at 61%.

Moving on to page 6, I mean in the current financial and political environment in France it has been our policy to continue to be extremely prudent as far as our funding is concerned you all have in mind are very subjective, and I would say that we fulfilled them during the quarter. We have for a long time now committed to remain in BBB, and as our rating – our BBB rating has been reaffirmed by the agencies this quarter, and has been sustained now for long period since 2004, 2005.

We've had an objective to maintain or if possible increase the average debt duration over four years, it is now 4.3. We’ve had a steady increase of the share of bonds in our gross debt versus bank clients, it is now – it’s gone over during the quarter from 59% to 65%. We are – we have to continue to refinance one year in advance most of our expiring bank credit facilities of bonds because of the liquidity ratios we have to observe with the rating agencies, and we’ve had several such financing operations implemented during the first quarter of this year, and in the following month, and of course we continue to add a very significant cash buffer because as I speak we have €4.5 billion credit lines available.

Moving onto page 7, as you can see these financial objectives have been achieved because we’ve been very active during the quarter on the financing front also, at least since the beginning of the year. We’ve had two major bank facility refinancings for €2.6 billion. One in the very beginning of the year and one which closed just last week and issued €1.5 billion of bonds as well as $2 billion in the U.S. We don’t have any significant financing needs for this year and therefore we would not be exposed to any turmoil on the financial markets or any political difficulty.

Moving on, on page 8 to the various businesses, Activision Blizzard of course have already published the results, just a few highlights I’d like to add to that. World of Warcraft has successfully resisted the Star Wars launch. I mean we’ve had the information from EA of their Star Wars subscriber figures and it has started to go down, whereas the World of Warcraft subscriber numbers has been steady over the quarter.

Skylanders, our new franchise for kids has been a great success. It’s probably been the only successful launch in the video game space in recent years and we plan to come up with a new game this year as well as to catch up with the production of collectible toys, we’ve been, they’ve have been consistently running out of the stores faster than we could produce in those past months. And of course Activision Blizzard still has a very exciting release scheduled for the months to come starting today as luck would have it with Diablo 3 which should be another massive successful Blizzard in the PC game space. You’ve probably noticed that Activision Blizzard has slightly raised their non-GAAP and GAAP guidances for the full year and therefore we are in a position to do the same, we now guide for an EBITA above instead of around €750 million.

On page nine, you have a few elements on UMG. Of course Q1 as you are probably aware is traditionally weak quarter of music sales, therefore we should not make too much out of those figures. They are not necessarily very significant, but still we’ve been able to observe a continuous momentum of the U.S. market which is driven by very healthy digital growth and we’ve been able to observe a strong performance of UMG, thanks to better market as we said, but also successful new releases and of course the benefits of the cutting drive. So that overall we post an impressive increase of 44% of the EBITA at constant currency. Once again those are small figures, because it’s Q1, but still it’s very encouraging.

On page 10, you have some information regarding SFR. I’m sure you’ll have many questions and Pierre will be in a position to answer them, but in a nutshell what I would like to put forward is that for the full-year we are – we think we are in line with our March 1 guidance. We see that three has lost steam on the market and that of sales and churn metrics almost gone back to normal, not quite but growing there. What is a game changer, of course is prices. We are not losing a significant number of customers. As we mentioned over the first quarter it is only 274,000 subscribers which have gone away, but the price reset of course, we will have an impact and we will accumulate over the months, which is why we still guide the market to expect to 12% to 15% EBITDA decline in spite of the very satisfactory Q1 performance because EBITDA for Q1 is actually up 1%.

Keep in mind, of course the fact that as I mentioned there is no comparison with last year where there was a VAT issue and therefore a lot of churn and lot of acquisition in retentions, which was less the case this quarter. Meanwhile, a significant reengineering effort is underway even though you may be disappointed that we are not in a position today, we have not chosen to disclose details in terms of figures and objectives. Last but not least, it’s important to note that there is something which still needs to be worked on, which is fixed where all performance in terms of net adds has been lagging and so this is work in progress is very high. On Jean-Bernard Levy’s agenda and I’m sure that Michel Combes when joins – will also devote a lot of his effort in this area.

On page 11, you can see the figures from Maroc Telecom. They’ve already been reported of course that as you’ve seen, if you follow their process, their releases. The Moroccan market is stabilizing with very strong usage growth, which is offsetting price declines to a large extent. There is still pressure on the fixed price on public telephony, but – and we – it’s difficult to rejoice because of this, but one can say that this is growing – the téléboutique and most of the other public telephony revenues are upfront now to very little because of the competition of a cheaper mobile, and therefore there will be less pressure on the segment in the coming quarters because there will be basically no business to lose there.

Meanwhile, our African subsidiaries have gone back to very solid growth, which is also a very encouraging factor. And if you observe the overall figures, the EBITDA margin at above 40% for Q1 makes us very confident that we’ll be able to meet our yearly guidance of 38%. I won’t spend a lot of time on GVT except to say that they are of course still expanding their network, opening new cities and that – and therefore growing sales at a very fast rate, 35% increase of revenues at constant currency to 32.5%. If you only look at telecom in spite of the ICMS impact, which were started being felt at the very beginning of Q4 last year.

So, this is a very good performance and meanwhile the margins – EBITDA margin has still gone up at 43%, bit more that 43% for telecom themselves. And if you look at the pay TV launch was high insight now we are very happy because we are basically more than in line with a 400,000 customers with our subscribers we target for the end of the year. We are at 113,000 customers, which means, we are well underway.

Last but not least, Canal+ are successfully absorbed the VAT increase which should weigh €240 million for the whole year, thanks to cost discipline and thanks to growth in all its territories whether oversea territories or Mainland France. EBITDA is down €30 million, but that’s due integrally to calendar effects both on sports and other contents which will be reversed in the coming quarters and therefore Canal is also online with its guidance of a slight increasing EBITDA.

Overall – on page 14, we are in a position to confirm outlook for the full year. We expect adjusted net income to be above €2.5 billion, financial debt to be below €14 billion and of course we will have a dividend paid in cash around 45% to 55% of adjusted net income. This has been quick because it’s been a simple quarter in many ways, and I’m sure you will now have questions.

Question-and-Answer Session

Operator

(Operator Instructions) We take our first question from Patrick Kirby with Deutsche Bank.

Patrick Kirby – Deutsche Bank

Hi, good evening. I had three questions on SFR please, firstly on the EBITDA. Do you – are you giving any indication about fixed versus mobile EBITDA on the quarter or have you dropped that division and/or that disclosure for good? Secondly, could you give us any guidance or indications about how commercial costs will move in Q2, clearly highlighted that there was a distorting impact in the first quarter? And then thirdly, just on the fixed customer base, I see that’s down 25,000 in the first quarter, but you say that that has picked up again in April. I wonder if you could just give a bit more color on what’s happening there and how much of the recovery you had April? Thanks.

Unidentified Company Speaker

Okay. So, why we have decided not to disclose any more about fixed and mobile EBITDA, it’s a due to the fact that more and more with the increase of converge offers quadruple play, 4P offers, it becomes more and more difficult to allocate revenues and costs. This is getting more and more theoretical and meaningless. We – since the beginning does not make any difference in between fixed and mobile, and if you look at Orange figures, you will see that they recalled the fixed part of the quadruple-play offers in the mobile revenues. So, all these become theoretical or meaningless and this is why we have decided to stop reporting on that.

Philippe Capron

And also something which is very relevant on top of all those cost accounting issues raised by peer, is that there is no head of fixed and head of mobile within SFO, that’s not the way that company is organized. It is being fully merged commercially with the same brands, with the same network of stores, and managerially and a network which is more and more IP based and totally unified, and again no specific managerial responsibilities at the top distinguishing between fixed and mobile.

Unidentified Company Speaker

Just to illustrate what I said relating to Orange recordings is a fixed part of its 4P revenues in mobile. If you compare total mobile revenues of Orange and SFR for the first quarter 2012, Orange revenues are minus 1.1% and SFR minus 6.8%. If you restate and if you make SFR comparable to Orange, then Orange is still minus 1.1% and SFR is only minus 2.6%. So things are getting more and more complex. This is the first – this was your first question. Second one, some color on commercial cost on Q2, due to the fact that it’s true the basis for comparison with Q1 2011 was not adequate. I would say that now we are in – we are back to normal and Q2 2012 shall be comparable to Q2 2011, maybe less volumes as we now have, as you know a new competitor on the market.

Third question about, as Philippe mentioned, a very disappointing performance in ADSL with negative net sales of 25,000 customers. We have – first how to explain that, different ways to explain, to account for that. First, there has been a significant halo effect of the launch of free mobile on free ADSL offers. I guess they will announce a very good quarter tomorrow in ADSL. Then you have also the impact of the re-pricing of Orange ADSL and quadruple play offers that to place end of 2011, and which are bearing fruit, and the fact that we have been quite poor intrinsically SFR. This has changed. We have taken some new actions about improving quality, reducing churn, and we have first signals that things are improving and in April we are again positive in terms of net sales. And we announced – we shall announce very soon re-launch of our ADSL in September with a strong focus on our new box, which has now 15% penetration of our customer base and we should for 50% within two years and we shall also put the emphasis on the user interface, (indiscernible) that we missed to advertise on this. So, we expect strong recovery that's more on the last part of the year on ADSL.

Patrick Kirby – Deutsche Bank

Thank you.

Operator

Thank you. We take our next question from Julien Roch with Barclays. Please go ahead.

Julien Roch – Barclays

Yes, good evening. Couple of questions on SFR and then music. On SFR, if the whole subscriber base was migrated to the new tariffs, could we have an indication what the ARPU would be either in euros or in percentage decline versus the €372 million you reported in Q1? That’s my first question. Second question is the regulatory impact on revenue, mobile in Q1 was 7 points, so from minus 6.8% to 0.2%, how much revenue and EBITDA impact do you expect in ‘12? And then the last question on music, Philippe said it was a small quarter and clearly 6.7% on constant currency hasn’t been seen probably since 1999 and 2000, but is it possible to have a sense of how much was the really scheduled, how much was the underlying market? Thank you.

Unidentified Company Speaker

First question – okay, about the re-pricing of the existing customer base, of course, we don’t comment on that, so you will be disappointed. About your second question on the regulatory impact, we expect minus €550 billion on revenue and no impact on EBITDA. If you take Q1 mobile revenues, the service revenue of mobile, the decrease of 7%, in fact is minus 0.2% if you exclude the regulatory impact. And your third question, can you repeat it please?

Julien Roch – Barclays

The third question was about music?

Unidentified Company Speaker

Music.

Julien Roch – Barclays

Butt you may repeat it for Pierre.

Unidentified Company Speaker

So, Pierre wants to do music as well, okay.

Pierre Trotot

It's getting bored with SFR. Concerning music, there are two things. One is that performance, the sales performance has been driven in large part with new releases. In – on page 21, you can see that our top five, that’s in the appendices, our top five new releases have amounted to 6.3 million units, which is 50% higher than on – than last year. Of course, meanwhile I suspect that catalogue sales have gone down or have been stable and also that you know there is less concentration in this area than in many others. The top sellers do not explain the whole story, but overall, the market has been supportive as well, because we have not – I don’t have it in mind that we’ve gained very significant shares either in the U.S. or in other major territories during the first the quarter of this year. So, the market overall has been more supportive. And in terms of bottom line also of course keep in mind the impact of the cost-cutting we started 18 months ago now.

Julien Roch – Barclays

Thank you.

Operator

Thank you. And we take our next question from Filippo Lo Franco with JPMorgan. Please go ahead.

Filippo Lo Franco – JPMorgan

Hi, good afternoon everybody. I have three questions. The first is on SFR and the cost cutting. I mean, when we look at the revenues and EBITDA, it looks like that you have already started to reduce cost. I mean, there has been a lot of articles on the press about potential big cost-cutting program and then could you please help us on this? And the second question is still on SFR, I mean given that you have been doing quite well in Q1 in terms of EBITA and EBITDA, but you are still maintaining the full year guidance. In terms of facing, when really we should expect to have the strong decline in EBITDA? Is it going to be from Q2 or something really for the second half? And finally on the UMG and EMI acquisition, could you please update us where we are in terms of regulation for the antitrust, when we should expect revenues flow? Thank you.

Unidentified Company Speaker

Okay. So on the cost cutting at SFR, you have heard and read a lot about this, but unfortunately this was by unauthorized people. So, I will not comment their figures. Of course, you can imagine that since 10th of January we have not been inactive and that we have been designing plans to adapt SFR to the new competitive environment. And as always, you have quick wins and easy to implement things and you have more drastic and structural changes. We have both of them in our plans with significant cost cutting programs. We have to first – before announcing them to the market we have two things to do.

First is to have them presented and endorse through our new Chairman and CEO Michel Combes because he will add two execute the plans together with the management team of SFR. And second such plans have to be presented to the workers council and this will be done little bit later of the year, but in between as you have noted we have launched many actions. Our guidance in terms of EBITDA, Q1 EBITDA is not meaningful for the full year because as this has been said before Q1, 2001 is a favorable comparable for Q1, 2012 and second Q1, 2012 has only hardly felt the impact of the fourth entrant. So unfortunately, you will see the drop in our EBITDA as soon as Q2 and we maintain the guidance for the full year.

Filippo Lo Franco – JPMorgan

Sorry, just follow-up on this before end year, but when you look at this number today and you compare to what you are expecting in March, I mean, do you feel that you have been doing better, slightly better than expected or everything is according to plan?

Philippe Capron

According to plan.

Filippo Lo Franco – JPMorgan

Okay, okay.

Philippe Capron

And regarding your last question, the antitrust scrutiny process, I would say is on track on both sides of the Atlantic. We’re in Phase II in both cases. I won’t comment on the specifics of course, but I just wanted to make the comment that you’ll hear a lot of noise, but this noise emanates mostly from our competitors, not really from either customers or the various partners in the value-added chain of the music industry. So basically we are still very confident that some decisions will be made by the regulators enabling us to go ahead with this acquisition.

Filippo Lo Franco – JPMorgan

Okay. Thank you very much, guys. Bye-bye.

Operator

Thank you. (Operator Instructions) And we take our next question from Conor O'Shea with Kepler. Please go ahead.

Conor O'Shea – Kepler

Yes, hello. Good evening. Just three questions on my side, firstly, sorry to insist on the cost cutting at SFR, I know you said that the first quarter had an easier based of comparison this year, but in terms of the measures that you’ve already taken to reduce the impact of the declines on the top line. Can you give us some practical examples of what costs you’ve already addressed, the easy fixes as you said? Second question on mobile subscribers, you say that the churn has normalized since the end of the quarter. What was the specific net loss, if any, to the end of April? And then the third question perhaps to Philippe, could we have an idea of the average cost of debt at a group level after all the refinancing measures that you’ve taken?

Unidentified Company Speaker

Maybe your second part of your question on churn, we don’t give the figures month-by-month. What we can say is that since beginning of April things are more back to normal. The situation is not yet stabilized. It will have second wave of three, somewhere at four, or I don’t know when, so situation is fragile, but in the way to be stabilized. Cost cutting, you want to have some color, practical example on easy fixes. In our cost you have cost structure, you have cost which are viable and very link to the level of revenues that is the commissions that you are paying to dealers based on the air time.

So, when you deal out your customer decreases, as a percentage you give to your dealers decreases. So, the license fee in France, you know we are paying 1% of the revenues for license fee. When the revenue decreased we pay less for the license. Then you have other costs, which are link to the volume of acquisition – acquisition cost. If you require less customers you subsidize less, you pay less commissions to dealers or if you refocus your growth on the web and not to distributions in other physical networks, you make savings.

If you have customers looking more for similarly offers you don’t have to subsidize handsets etcetera. These are the easy fixes as you call them which are more or less easy to do. What we shall address in our plan are of course the easy fixes, we shall continue to the easy fixes, but we shall address more structural costs such as network, IT, overhead structure, third party cost, call centers etcetera.

Conor O'Shea – Kepler

Okay, that’s very helpful. Specifically did you – can you say you’ve reduced above the line advertising spend in the first quarter?

Unidentified Company Speaker

No, not yet, we have advertising spend. What we – as compared to last year as Philippe Capron mentioned last year we had this VAT turmoil where we spent a lot of acquisition and retention cost. This was not the case on Q1 2012.

Conor O'Shea – Kepler

Okay, great. Thank you.

Philippe Capron

Regarding the average cost of debt you have some elements of answer on page 30 of the document.

Conor O'Shea – Kepler

Okay.

Philippe Capron

As you can see our average, the average interest rate on the borrowings was 3.63% in Q1 this year, which is down compared to the previous year, actually we’ve – as we’ve moved towards more bonds you could have imagined that this would increase but those bonds – the most recent bonds we’ve issued are actually cheaper than the average, and also as Euribor is down. It’s now back to 0.65%. So, the debt we’re raising right now is relatively cheap compared to its duration. You should add to that the fact that compared to last year of course we have much less cash equivalents. The only cash we have is basically concentrated on Activision Blizzard’s balance sheet and therefore cost of our net debt has gone down even more.

Conor O'Shea – Kepler

Okay, great. Thanks very much.

Operator

Thank you. And we take our next question from Matthew Walker with Nomura. Please go ahead.

Matthew Walker – Nomura

Thank you. Thanks very much. Just a few questions please. The first one was on Maroc, the – the non-Maroc businesses had – for very large increase in EBITDA, and the margin was actually pretty resilient. So maybe could you explain to us why we shouldn’t be more optimistic on Maroc? And the second question is actually on the stature of the group. I mean – mostly people are pointing towards the meeting in June and saying that it is going to be a potential for revisiting of the perimeter and have move into media and telecom. Is that realistic – is that actually something that will be on the agenda? And the last question is on Mr. Bollore clearly he swapped his – some of the TV interest with a stake in Vivendi. Is he making representations to the Board about how the business should be run or is he of more a silent investor?

Philippe Capron

Okay, so why not be more optimistic on Maroc Telecom? Well, the first reason is that future is written nowhere. We always try to error on the side of cushion and also we see and we can observe in Q2 are some rekindling of the price competition triggered by some of our competitors. And therefore we are cautious what we have seen in Q1 was less competition on tariffs, but still a very significant increase in traffic and therefore very good combination where price elasticity after last year’s tariff cuts what was working in our favor. Now we hope this will continue to be the case for the whole year, but of course if our competitors are starting aggressive again in spite of the decimal results, then we could have a less brilliant continuation of the year. But it’s fair to say that we are happy with what we’ve had in Q1, both in Maroc and also as I mentioned in the various African countries where we operate, where so far this year, even in Mali until the very recent events, we’ve had a very strong start of the year.

Regarding the structure of the group, I mean the Board is periodically reviewing this strategy, reviewing, and that includes potential use of parameter. The board always has in mind the value creation for the shareholders and that’s all I – all the comment I had to make on – on this question. Concerning, Mr. Bollore has not made any specific demonstrations to the Board, it has made some public declarations last week supporting the present management and so far not making any particular criticism or whatever regarding the Board. I’m sure that if he had to, he would do it publicly. But I cannot comment for him, you would have to ask him.

Matthew Walker – Nomura

Okay. Thank you.

Philippe Capron

Thank you.

Operator

Thank you. We take our next question from Antoine Pradayrol with Exane BNP Paribas. Please go ahead.

Antoine Pradayrol – Exane BNP Paribas

Yes, good evening everyone. Just a few detailed questions on SFR, please. The first one is on the service revenue trend in Q1. My impression in mobile is that Q1 trend this year was better than the Q4 ‘11, I mean minus 7% or 7.5% compared to last year. I mean Q4 was down 9% almost, what explains the fact that the service revenue trend can improve in Q1 compared to Q4 last year? That’s the first one. The second one is, can you give us anymore details on the churn in Q1? Did you imply that the Q1 churn was lower than last year or can we have any figure and indication on the churn in Q1? And the last one is regarding customer losses. I know you said you don’t give monthly – monthly figures, but can you give an indication of what is your best expectation of the customer losses for the coming quarters or just simply do you expect us to stop from Q2? Thank you.

Unidentified Company Speaker

So, Antoine as you can imagine you are asking a lot.

Antoine Pradayrol – Exane BNP Paribas

Just say what you can or what you want?

Unidentified Company Speaker

As far as service revenue trend are concerned, Q1 better than Q4. Honestly, I have no explanation on that. I was not prepared to that question, but on the churn, what I can give you is a breakdown between the – we have on this first quarter 2012 we have lost a net of 620,000 customers, of which most of them were prepaid customers, 347,000. In fact, you saw over the last two years that progressively the prepaid market was being transferred to the postpaid market with (indiscernible) and low-entry postpaid offers being more attractive and the very attractive conditions of the three offers have accelerated these trends which are reflected at the national level for all of operators. Where SFR showed a good resilience on this first quarter 2012 is on postpaid, where we lost only 274,000 customers. I will not give you specific figures on churn. What you must know is that on this quarter, we had 1.170 million gross sales and we had 1.790 million customers leaving SFR.

Antoine Pradayrol – Exane BNP Paribas

The total?

Unidentified Company Speaker

Any comparison with last year is in my view is meaningless, because last year, it was VAT turmoil, this year, it's free turmoil. No need to compare as far as I am concerned. And customer losses for the coming quarter, I don’t know them. That’s it.

Antoine Pradayrol – Exane BNP Paribas

Thank you. Just to be clarified, I mean, the figures you gave for growth sales and channels, they are the total net, I mean, that’s postpaid and prepaid together?

Unidentified Company Speaker

Absolutely. This, if you do the math, you will come to the loss – the net loss of 620,000 customers.

Antoine Pradayrol – Exane BNP Paribas

Absolutely. Thank you.

Unidentified Company Speaker

Okay, bye.

Operator

Thank you. And we take our next question from Charles Bedouelle with Exane BNP Paribas. Please go ahead.

Charles Bedouelle – Exane BNP Paribas

Good evening gentlemen. As a follow-up after the telecom, maybe a bit of focus on the rest of the business, first on music, you commented about the success of the new artist or new albums and the relatively good probably underlying market, what do you think Q2 in terms of the continued success of those strong launches of Q1? Do we have a spillover effect, which means that Q2 is going to be good as well? That’s the first question. The second question, can you comment a little bit on the trends with Canal, it was a pretty good release at the revenue level and what you see here? And the final question still on Canal, can you update us with the timeframe on the regulatory review both for the free and pay TV and what do you think would be – well, when do you think you will be able to implement the different operations? Thanks.

Philippe Capron

Okay, on music, first, I mean, let’s not overemphasize each quarterly results, because they depend on comparisons of different release schedules, so I would hate to see people enthusiastic, because of a very good Q1. And then as we had a very good Q2 last year to come back three months down the road and say well we are disappointed we thought you are out of, you guys were out of the wood, I mean you’ll have to judge this by year end and I’m confident that your judgment will be positive. As this being said we have an exciting release scheduled this year I mean some of the names of the people should be released, this year should ring a bell with you, I mean, Akon, JLo Jenifer Lopez, Justin Bieber, Maroon 5, Nelly Furtado, whatever, Robbie Williams, Taylor Swift, The Killers. So, we have a good line up. I mean whether all those records will be released in time to make it into this year is unknown, but overall we are very happy with the existing artists we have who are going to release. And keep in mind that some of our best sales so far this years have come from another way, for example (indiscernible) who were relatively, who were totally unknown or Nicki Minaj was unknown just a few years back. So globally we’re enthusiastic about our ability to continue to serve on a good tight there.

Julien Verley

Okay, Julien Verley speaking on Canal. So, first question was the positive trends on the revenue growth at the end of the first quarter, which effectively is very encouraging, we have over 3%, and if you were to correct with the fixed effect in Poland, that would be even slightly better. In fact, the trend is positive almost everywhere as Philippe was saying in his presentation. In Mainland, France we have little growth despite the penalizing effect of the VAT increase and this is the result of increasing portfolio and increasing ARPU.

On the international side, we have very positive growth on Canal overseas on Poland, I would say small less stable if we correct with the fixed change, and then in Vietnam, we have little growth compared to last year. By the way, the trends in Vietnam are quite positive. So, we are very happy with that and finally on StudioCanal, we have a very good quarter mainly driven by good performance, good release in terms of video, good release in terms of theaters in particular theater in England which was very, very positive. And so, you are right and that’s good reason to think that this would be pursued over the year.

And then your next question – we have many by the way regulatory issues right now, so we basically have two in France and one in Poland, based on the approval of all this. So, if I start with France, which is probably the more complicated, we have one process vis-à-vis the competition criteria regarding the five years ago that seems with merger with EPS. So, this is currently ongoing and we should have – we should anticipate let’s say the main part of the process decision somehow early July, but we have also parallel process including by the way court’s process, so this maybe potentially postponed. Then we have second process, which is related to the approval of the free-to-air acquisition of the two Bollore channels, which we understood would come after the decision on the first merger, which seems worth although because the two are independent one with the other, but we understood that one will come after the other.

And, then that we anticipate that we should have the final decision on the Bollore over the course of the summer and then be in a position to stop the integration after summer holidays, hopefully in September, that’s our plan right now and we’re getting prepared as much as we can for this perspective. And then finally the Poland process so we have notified to first to Brussels, which has sent to (indiscernible) in Poland and (indiscernible) is opening then the review right now, difficult to access a precise timing, but TVN released its results last Friday and mentioned, which we are not going to deny obviously likely scenario of getting an approval by Q3.

Charles Bedouelle – Exane BNP Paribas

Okay, very clear.

Operator

Thank you. And we take our next question from Jean-Michel Köster with CM-CIC Securities. Please go ahead.

Jean-Michel Köster – CM-CIC Securities

Yes, hello. My questions are on SFR, the first one is on the regulation impact, you’ve said that you don’t expect any impact on EBITDA, I was excepting some impact of the expected that roaming that regulation. So do you – is there something which is going to offset this impact or maybe you don’t – you believe it could not be passed or? And my second question is about the penetration of smartphone. I guess I see that it’s 43%, I think it was already 43% at the end of the year, you comment the fact that it is stable, please?

Unidentified Company Speaker

Yes. So, penetration of smartphone, no it was – so is the 43% relates to our total customer base, and for me it was 36 – 41 at the end of December, okay.

Jean-Michel Köster – CM-CIC Securities

Yes, alright.

Unidentified Company Speaker

Growing, but again, it applies to the whole customer base.

Jean-Michel Köster – CM-CIC Securities

70%.

Unidentified Company Speaker

Pardon me.

Jean-Michel Köster – CM-CIC Securities

(Indiscernible).

Unidentified Company Speaker

Yes, of course. Regulatory impact, when I say the close to - close to deal on EBITDA, I was referring to the termination tariffs and wholesales tariffs for roaming. Any regulatory decision on retail roaming tariff is not included in what I said of course.

Jean-Michel Köster – CM-CIC Securities

And how much you believe it could – if it is passed as it is planned? How much do you expect of impact?

Unidentified Company Speaker

I don’t have it now. Decision should be taken and should impact end of the year, third or fourth quarter so we shall see on that – the full effect for 2013.

Jean-Michel Köster – CM-CIC Securities

Okay, thank you.

Operator

Thank you. And we take our next question from Allan Nichols with Morningstar. Please go ahead.

Allan Nichols – Morningstar

Thank you for taking my question. First on your debt you have extended from 4 years to 4.3, but with current low interest rates why don’t you take it out significantly further like 6 or 7 years? That would be my first question. And then second, do you have the subscriber numbers for your series (Red) for the first quarter? Thank you.

Philippe Capron

Well I mean it’s always an uphill struggle to extend the duration of your death, because every day that goes by actually goes down by one day. So, increasing it to 4.3 as already been an achievement, short of issuing that for very, very long period, which we already would moves the needle. What we do – if you do a 10 year bond every – every year, but for 10% of you debt you just don’t move your debt duration profile actually. So, what we’ve done is try to do tap the 7 year or the 10 year durations, but when you do this basically you find that investor appetite is spread over a variety of durations, so it’s a various, so last bond issues we’ve done have been makes a different duration.

Unfortunately you can’t go only for the 10 year, which incidentally of course depending on the slope of the curve is significantly more expensive as well. So, we feel we have a good balance if we had been able to tap a little bit more some of the longer durations we might have done it, but basically we took what money was available at the most attractive conditions. On our red offers at the end of March, we had 180,000 customers, of which 150,000 having joined over Q1.

Allan Nichols – Morningstar

Thank you.

Operator

Thank you. And we take our next question from Doug Colandrea with RBC Capital Markets. Please go ahead.

Doug Colandrea – RBC Capital Markets

Hi, good evening. I was wondering if you could just share a little bit more light on, you put out two press releases towards the end of April, one was kind of an adamant statement of denial regarding a Bloomberg article and then the other one was your commitment to investment grade. And I just wanted to follow up and going into any discussion on your strategy, I mean, is it safe to assume that whatever you decide to do that will be done in conjunction with preserving your May BBB rating?

Unidentified Company Speaker

Yes, it’s a correct assumption, which is actually why we issued the second release, because some observers, especially bond investors noticed that we were committing in the first release to, I mean, defending shareholder value and the Board having this in mind when they review strategy, but not stressing or maybe not enough even though we reaffirm it in every single presentation we do, but we hadn’t in that specific release, not stressing enough that we were also, of course, still firmly committed to remaining a BBB investor, if only because of the responsibility we have assumed vis-à-vis people who have bought our bonds in the past. And therefore, this commitment is still very much in place.

Doug Colandrea – RBC Capital Markets

Okay. Thank you.

Unidentified Company Speaker

You’re welcome.

Operator

Thank you. And our next question comes from Ian Whittaker with Liberum Capital. Please go ahead.

Ian Whittaker – Liberum Capital

Thank you. Just a couple of questions please. First of all, just in terms of GVT, the improvement in the EBITDA margin year-on-year, you are still sticking to your full year guidance. So, could you perhaps give us a little bit more detail as to where we should expect the EBITDA margins to come perhaps into the – or to show a little bit of a decline from where they were in Q1. Should it be from Q2 onwards or is it more of a Q3/Q4 event?

The second question just fairly relates to Maroc Telecom, sort of just be interested in your views as to whether you still see Maroc as a core asset for you, given that it would be the one part of the group that looks a little bit on out on limb given that you have 53% ownership. I know you have a little bit more of Activision, but Activision is higher growth. So, any thoughts there be appreciated?

And then the third thing is actually just on Activision, your stake has slightly risen again to 61%. With the share buyback programs presumably would rise again, from your view do you have a mind to repeat itself, so that you bring it back down to that 60% shareholding level, are you quite happy now to see your stake at rise, let’s say 65%, 66%? Thanks.

Philippe Capron

Thank you for all these questions. I’d try to answer them as best I can. GVT is having a complicated year, because of two elements. One is, as I mentioned, the ICMS impact, which has weighed on the performance in Q4 last year and will continue to be a drag on the top line and the bottom line for the first nine months of this year. Of course, it’s a relative drag because of the very strong momentum of the company and its ability over time to pass on some of this tax increase to its customers, but this is to be kept in mind.

Conversely, on the top line, you will see an improvement over the year, so that actually we should – growth should accelerate this year, so that with 32.5% at the – for Q1, we still guide for mid-30s and we still expect something like 35% or hopefully more for the full year, because of the additional pay TV sales which are insignificant in Q1, but which also of course will build up exponentially as the year unfolds. That the second impact will not be favorable for the margin, because we of course expect less favorable margins on pay TV, which is a less CapEx intensive deployment and therefore can have a very good ROCE without having as much commercial margin. So, if you weigh everything together, you are in a very fluid situation, which – but which when we do the math looking at Q1, we are still in online with our full year guidance.

Maroc Telecom, I mean we’re the happy owners of 53% of that company. We see no movement coming up as far as we understand the Moroccan stake as said they were happy to keep their 30%. So, we see no evolution there and we have no ambition to acquire more shares or to sell shares of course. And the same is basically true with Activision Blizzard given the, still very strong performance of the company especially vis-a-vis its peers. We’re bit frustrated by the share price and at the present price, it’s fair to say that we’re buyers rather than sellers and therefore we strongly support management when they want to continue with their share buybacks.

Ian Whittaker – Liberum Capital

Okay. Can I just ask a quick follow-up on SFR as well? Just seen from our comments, I mean you’re saying that the churn rates have now come back more to what they were like prelaunch of Free. You said that Free is losing some momentum, so really when we’re thinking about this in terms of potential revenue declines at SFR mobile going into 2013 and possibly even beyond, taking out the regulatory factors, essentially sort of due to ARPU declines coming through, sort of how – sort of how long do you think those ARPU declines will go on for on a year-on-year basis?

Philippe Capron

Well, I have no magic box, but honestly I think that things should stabilize in 2014. Of course 2013 will bear the following impacts of what is being happening in 2012. They will have more leakage of customers in 2013 and 2014 should see a stabilization of revenues, but also should see the fruits of our middle-term cost cutting plans as well.

Ian Whittaker – Liberum Capital

Okay. And now the stabilization of revenues is before any regulatory effects?

Philippe Capron

Regulatory effects? We know most of them. As far as France is concerned, no there will be less and less impact of regulatory impact, except Brussels roaming, which is not predictable.

Ian Whittaker – Liberum Capital

Okay. That’s very clear. Thank you very much.

Philippe Capron

Thank you.

Operator

Thank you. And we take our final question for today from Patrick Wellington with Morgan Stanley. Please go ahead.

Patrick Wellington – Morgan Stanley

Yes, afternoon everybody. Couple of questions. Firstly, just back to guidance where you think Activision Blizzard. They got the same deferred come roughly as they had this time last year. They have – they look as if they could be on schedule to beat the guidance, as you say, Activision have raised in Q1. They have been a regular guidance raiser in the past, so what do you think the prospects of the full-year? Secondly, did I hear you say on SFR cost savings that the improvement of Michel Combes, the incoming CEO would be required? In which case, he doesn’t arrive until August, so does that mean that we wouldn’t get any action on these cost plans until after his arrival in August? And thirdly, very quickly, I think you said right at the beginning that your mobile customer base has gone up in April and so is your fixed customer base? Just so that we don’t all get that out of proportion, can you give us some sort of indication of whether that’s 10,000, 20,000, a couple of thousands, some sort of scale on what’s happened there? Thank you.

Philippe Capron

Okay, I’ll start with the question on games. I mean Activision Blizzard is having a complex year because of course of the deferrals, which this year mean that since we’re again filling the tank so to speak of future deferrals and therefore future profits, we expect the IFRS earnings to be impacted compared to the non-GAAP figures reported by Activision Blizzard, which actually should be better. So, it’s the contrary picture to last year. But we also have a lot of moving parts in the business itself because apart from a new Call of Duty game, which is going to be Black Ops 2, which should yet another major blockbuster because preorders are actually tracking ahead of Modern Warfare 3 and apart from World of Warcraft where we launch a new expansion, Mists of Pandaria and which therefore we expect not just a good success of those boxes or downloads of the expansion, but also that it will have to capture or retain more customers. We have a few other significant launches. One has been done which has been Prototype 2. We have another Skylanders game. We have Diablo 3, which should be very significant as we said earlier. So, there is a series of new launches which in many cases will mostly move the earnings next year of course because of the deferrals, but still which show how vibrant the company is and which shows that we still in spite of concentration of success on the major franchises, we’re still making the best we can to launch new game. And meanwhile of course to monetize the existing games through a variety of techniques, the Auction House for Diablo 3 subscriptions, not just World of Warcraft but also from Call of Duty through the Elite website.

Unidentified Company Speaker

So, Patrick about the evolution of our ADSL fixed customer base since April. What we still – what we saw is the start of recovery and so we feel weaker recovery, but with "re-launch" of our ADSL offer as from September we expected to be more and more important as months will go on. About the cost savings program, as I said earlier, you can imagine that we are not standing idle, that we have started to address what I call the easy parts that we have discontinued some external contracts etcetera. It’s true that Michel Combes officially joined us as from 1st of August, and nevertheless he is working at night and we have already met him and we’ll meet executive members of SFR next week so that they will be totally involved even before this 1st of August.

Philippe Capron

And keep in mind the fact the Michel has known the company for a long time because he was a Director representing Vodafone. And he knows the industry inside out. So he’ll hit the ground running so to speak and of course as mentioned by Pierre, he and Jean-Bernard Lévy are in constant discussions already as to what the future will be and therefore everything – the transition is going to be very, very smooth.

Patrick Wellington – Morgan Stanley

That’s great. Thanks.

Jean-Michel Bonamy

Okay, this is Jean-Michel Bonamy again. We’re going to terminate the call now. For any follow-up question I think they may have Investor Relations team is really available this evening to take any of them. Thank you very much again for listening and we hope we will be able to talk to you very soon. Thank you.

Operator

Thank you. That will conclude today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.

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