Vivendi Management Discusses Q2 2012 (H1 2012) Results - Earnings Call Transcript

| About: VIVENDI SA (VIVDY)

Vivendi (OTC:VIVDY) H1 2012 Earnings Call August 30, 2012 3:00 AM ET

Executives

Jean-Michel Bonamy - Executive Vice President of Investor Relations

Jean-François Dubos - Chairman of the Management Board and Chief Executive Officer

Stéphane Roussel - Chairman of SFR and Chief Executive Officer of SFR

Philippe G. H. Capron - Chief Financial Officer and Member of Management Board

Julien Verley - Chief Financial Officer

Laurent Mairot

Analysts

Conor O'Shea - Kepler Capital Markets, Research Division

Filippo Pietro Lo Franco - JP Morgan Chase & Co, Research Division

Omar Sheikh - Crédit Suisse AG, Research Division

Jean-Michel Koster - CM-CIC Securities, Research Division

Claudio Aspesi - Sanford C. Bernstein & Co., LLC., Research Division

Matthew Walker - Nomura Securities Co. Ltd., Research Division

Julien Roch - Barclays Capital, Research Division

Polo Tang - UBS Investment Bank, Research Division

Charles Bedouelle - Exane BNP Paribas, Research Division

Jean-Michel Bonamy

Good morning, ladies and gentlemen. Welcome, and thank you for joining us today for Vivendi's First Half 2012 Earnings Meeting. With me today are Jean-François Dubos, Chairman of the Management Board and CEO; Stéphane Roussel, Chairman and CEO of SFR; and Philippe Capron, Member of the Management Board and CFO.

This presentation will be in English with a simultaneous translation, and it is webcast on vivendi.com where the slides are available for download. You will be able to access a replay of this call for 15 days, also on our website.

I invite you to read the important legal disclaimer at the end of this presentation on Page 50. The first half 2012 financial report and consolidated financial statements will be available on our website later this afternoon. And as usual, this presentation will be followed by a Q&A session.

And now, I would like to introduce our CEO, Jean-François Dubos. Thank you.

Jean-François Dubos

Good morning, ladies and gentlemen. Welcome to the Vivendi half year results. It's a pleasure for me to be up here in front of you and present along with Philippe Capron, our numbers for the first half 2012. We will also have a presentation from Stéphane Roussel, Chairman and CEO of SFR, of their plans for that business, as well as representatives from our other business units to answer your questions after our presentations.

I'm sure you have many questions on our strategy or on what the company will look like in a few months or years. However, I'm probably doing -- going to disappoint you by saying that the aim of today is just to focus on results and give you some idea of how we see the end of the year, nothing else. Sorry for that.

The strategic review is underway, and we are working hard. But these matters take time, and there will be no overnight solution to -- or quick fix. There is no reason for that. We are not in 2002. The board will review our recommendations on a regular basis at predefined dates. For instance, 3 usual meetings are programmed between now and the next year annual results. So we will go at our own neat speed, and we will announce, of course, any movement when appropriate.

Today, earnings. Our earnings for H1 can be described as solid, confirming guidance on adjusted net income and net debt. As you can see on the slide coming, we are work -- we have worked hard on stabilizing SFR and managing the ongoing regulatory processes, which are numerous and heavy this year. Our focus are both management and supervisory board -- at both management and supervisory board level is shareholder value creation and growth in earnings per share, and we are totally committed to maintaining a quality credit rating.

Here are the numbers as released this morning. I suppose you know them already. We are happy to be able to confirm our 2012 year -- full year guidance.

I mentioned earlier the different regulatory processes. This slide illustrates clearly where we are on each projects. For the EMI acquisition, we are confident and expect approval within a few weeks. Concerning the DirecTV channels, we already have the antitrust approval, as you know probably. We're already -- and we again expect CSA approval in September. And last but not least, the Polish merger should also fall in the last quarter.

On litigations. Canal+ and Vivendi are currently challenging the French Competition Authority's decision from 2011 and 2012, as you can read on this slide. In addition, last June, in New York, a jury ordered Vivendi to pay EUR 665 million (sic) [EUR 765 million] to Liberty Media. This is an old case dating back from 2002, 10 years. At this stage, no reserve has been set up in the accounts. In both cases, we will continue to defend Vivendi's interest vigorously.

To sum up, I want to repeat what I said earlier. Earnings are in line, they are solid, and we are confirming full year guidance. We have 2 priorities: Shareholder value creation and adjusted EPS growth, maintaining a quality credit rating. The benefits of both our recent planned acquisitions and the SFR adaptation plan will come in longer term.

Ladies and gentlemen, thank you for your attention. And now, I will hand over to Stéphane Roussel.

Stéphane Roussel

Thank you, Jean-François. Good morning, ladies and gentlemen. I'm very pleased to comment on SFR results and plans today. It will give me the opportunity to show you that SFR is strongly motivated, tackled the challenge in front of us. SFR has rapidly reacted deep on fast-moving developments in the French telecoms market, evolving market segmentation with growth of low-cost offer in addition to full-service offer, decreased in market value due to strong pressure on prices and digitalization of the customer relationship.

In this new environment, I have decided to focus on 3 priorities. First of all, reinforce commercial momentum with competitive offers tailored to each segment. This -- generally, we have been active on many fronts. Immediate repricing of Red and carry mobile offers, in April new carry subscription offer; since May, broadband commercial booster plan; in June, launch of the Bird Mobile, a new prepaid brand for international communities.

And of course, it's not over. Later in September, we will disclose new offers adapted to each customer segments. We will make a bold move in differentiating ourselves from our competitors.

Regarding our cost structure. Hard work on the adaptation plan started almost from day 1. This cannot be shared earlier, as we have the legal obligation to present it to the SFR workers council first.

Since March, we have been running 60 vertical and 20 horizontal antenna workshops for cost reductions and simplification processes of our IT and network system. On July 3, we announced to the workers council a voluntary redundancy plan.

In parallel, we are starting reengineering of the customer experience across channels. Digitalization of the customer relationship is driving us to reinvent the way we interact with customers, which means first of all, implementing organization changes to put a stronger focus on customer experience. This new organization will be disclosed in this -- in September. Secondly, providing our customers with a truly simple, personalized and seamless relationship across the Internet store and customer center.

Let me now detail our Q2 commercial results. The actions we took on the commercial fronts permitted us to stabilize sales and share from roughly mid-March in a very competitive market, both in mobile and fixed lines. So we achieved big improvement of our commercial results in Q2 compared to Q1, with the return to net growth subscriber bases. The mobile subscriber bases increased by 122,000 in Q2, after the net loss of 274,000 in Q1, led by strong performance on the enterprise market and much reduced churn on the residential market. The broadband Internet subscriber base increased by 22,000 in Q2, after a net loss of 25,000 in Q1, driven by a strong commercial booster plan.

Let me now detail the objective of our adaptation plan on costs. Our plan targets EUR 500 million operating cost reduction by the end of 2014. SFR total OpEx was 2 -- EUR 8 billion in 2011, split between 3 categories: one, EUR 3 billion of interconnection costs; two, EUR 2.9 billion of costs directly related to revenues; and three, EUR 2.1 billion of operating costs. We have imperative of adapting our cost structure in order to be competitive in the long run.

Two key objectives: Reduce operating cost by EUR 500 per year by end 2014; control investments by reducing CapEx to EUR 1.4 billion by 2014. This is a reduction by 25% of operating costs, which we believe is both ambitious, but absolutely required by the new market situation. And it's already a work in progress. We have set up the last process inside SFR organization to work on cost reduction and simplification initiative. We need prior approval of SFR worker council accepted end of this year to progress on the voluntary departure plan.

The plan is also well-balanced. While we optimize operation, we do not undermine our key competitive assets and commercial ad facility -- advertising marketing campaigns, store. We also preserve large investment capabilities permitting us to prepare the future, in particular, in mobile with 3G capacity and coverage on 4G and LTE.

I will conclude with 3 key messages. One, we have started an ambitious multiyear adaptation plan on costs, which is now under implementation on execution by our teams. Two, this has confirmed the SFR guidance 22 -- sorry, 12% to 15% decrease in EBITDA and for this year, close to EUR 1.7 billion. It's a start of a journey. There is still hard work for a complete turnaround, I am confident of. We have a clear action plan on the short term on both commercial and cost fronts. We have set an addition around customer experience across channels and plain organizational challenges and transformation initiative in coming weeks. Last but not least, we have highly competent and motivated staff to fight back and implement our strategy.

Thank you, and now I will hand over to Philippe Capron.

Philippe G. H. Capron

Thank you, Stéphane. Good morning, ladies and gentlemen. So I'm going to present to you the H1 figures in more detail. First of all, EBITDA operational income is down by 13%, but that's fully in line with our expectations. And you'll see that actually, the largest guilty party for that evolution is not SFR. SFR is actually down only 5% EBITDA-wise and 10% in terms of EBITDA, so that's fully in line with our figures. Now the largest impact actually comes from Activision Blizzard and as usual, this is driven by the accounting method and the cross between the IFRS treatment and the release schedule of Activision Blizzard. I'll get back to that.

There is also another significant one-off, which we have to underline, which is Maroc Telecom. Maroc Telecom is actually flat in terms of earnings, which is an excellent news. But at the same time, we have -- we booked on Q2 EUR 72 million, which is a cost of the voluntary departure plan, which has been launched and is very successful within Maroc Telecom and that's, of course, good news for the future. All of the units have actually registered an EBITDA increase for the first half of this year. At the adjusted net income level, we're down 17%. But there, the main driver is taxes, which explains 2/3 of this evolution. Of course, we have less EBITA, and that's a driver, that we pay more taxes, basically close to EUR 200 million. More taxes than on the previous year compared to our income level. Our tax rate, as you will see, has significantly increased because of the measures taken last year by the government with the BMC and the -- and ability we have now to fully exploit our past losses and to offset this year's profit with our past losses.

Based on this set of numbers, however, we are fully in a position to very comfortably confirm our full year 2012 guidance, which is an adjusted net income above EUR 2.5 billion. Before the impact of acquisitions, as we said at the beginning of the year, and we're now adding before restructuring charges at Maroc Telecom and SFR, which have not been included in our earlier guidance. Net debt, we still guide on a level of EUR 14 billion -- less than EUR 14 billion for year end.

So EBITDA is down by 13%. If we neutralize the Activision Blizzard impact and the Maroc Telecom plan, the figure would actually only be minus 3.7%. As we said, the largest impact is Activision Blizzard, down EUR 260 million, but actually deferred -- the deferred EBITDA balance is actually EUR 280 million higher than at the end of H1 last year. So that actually, if you do the math, you would see that it's basically a wash, which is very consistent with the slight increase in non-GAAP operating income, which has been reported at the end of -- at the beginning of this month by Activision Blizzard. So no bad news there. What happened is, basically, that the Diablo III sales, which have been a great success, have sustained their non-GAAP figures, whereas they have no impact on IFRS figures. We'll get the benefit of those sales in the balance of the year.

UMG, our music activity continues to post very encouraging results, with a very significant increase over the half year. As you see, 15% at constant currency, so that's good news. It's early days yet, but we feel we're on the way to recovery.

SFR is down, but as I said, in line with our expectations. Maroc Telecom shows a very strong performance. It's up before restructuring costs.

GVT is still growing very strong. It's growing by 25% on local currency in spite of tougher competition, in spite of VAT change and in spite of the costs associated with the pay-TV launch. I'll get back to all of these. And Canal is slightly down, but that's only due to calendar effects. So overall, a very solid set of operating results.

If we move on to the adjusted net income, the main observations or the main deviations compared to the previous year are, of course, the absence of investment income because of our exit from NBCU last year, an increase of our interest rate -- of our interest charges, which is due to the higher debt we have to service, but we are helped with slightly lower interest taxes -- interest rates than the previous year. So overall, the increase is not proportional to the increase of our net -- our average net debt. But -- and as I mentioned, significantly higher tax burdens with EUR 100 million of taxes more, whereas given the EBITDA decline, we would have expected, of course, to pay less taxes. This is, of course, to a large part, offset by the decline of the noncontrolling interest, which reflects our full ownership of SFR.

So generation of cash by our businesses, you know that this is, of course, a key focus for us at all times, but especially nowadays. Cash generation remains very solid. The CFFO before CapEx is at EUR 3.4 billion, so almost the same as last year. It's down only 4%, and that all businesses generate more cash, save for SFR. SFR is down 13%, but all our other businesses, including Maroc Telecom, do contribute more than the previous year.

What changes, however, is that we have invested significantly more. In front of this EUR 3.3 billion of CFFO, we invested EUR 2.9 billion. So it sounds like a very high figure, but of course, it is largely driven by the close to EUR 1.1 billion we've paid for 4G spectrum acquisition, which is one of the fundamental elements of SFR future. If -- but even neutralizing this, we invested it more than the previous year. SFR and Maroc Telecom invest less, of course, that GVT goes on deploying its network, and that weighs on the amount of CapEx we deploy. Net CFFO is therefore only EUR 400 million, but rest assured that the full year figure will be much higher, actually, significantly more than 6x higher for the full year.

So net CFFO level, which is, as you've seen, reduced by the spectrum -- the investment in spectrum and of course, the dividend payments to our shareholders and to our minority shareholders, explain why debt has increased since the beginning of the year. It's reaching -- it peaked at EUR 14.1 billion at the end of June. But in spite of the closing of the EMI transaction this quarter, hopefully, this amount will go down in H2 to less than EUR 14 billion. We've done no significant investment, as you can see on this slide, this year, save for the continuous buybacks at Activision Blizzard level, but even they have been relatively limited to EUR 240 million.

We've been very active in terms of financial management. We have been very active in the second half of last year for the refinancing of CFFO acquisition, but we've continued to do that. We set up 2 new 5-year bank credit facilities for a cumulated amount of EUR 2.6 billion in replacement for earlier lines, which were about to lapse within this year or next year. We've issued 1.5 -- EUR 1.55 billion and -- of bonds on the euro market, and $2 billion on the American market. We've signed a commitment to the pool of banks to deliver a security, if and when we would be required, which is not sure to appeal the Liberty Media judgment.

We hang on to our BBB, Baa2 rating, which we have enjoyed since 2005, and we have no intention to let it go. We will do what is -- whatever is necessary to make sure that the rating agencies and the bondholders continue to acknowledge the quality of our risk profile.

Our debt maturity has increased because of the above-mentioned operations to 4.7 years and now, we are 2/3 financed by bonds instead of drawn credit lines or commercial paper, which was one of our objectives. After reimbursement of the EUR 1 billion bond which lapsed last month and the anticipated payment of EUR 1.25 billion to Citi for the EMI recording business, this should take place in September, we would still have EUR 2.8 billion of credit lines available.

If we move on to the various businesses, quickly, for Activision Blizzard, I mean, they have reported their earnings. I'm sure you followed that. It's been a very good quarter, actually, with the spectacular launch of Diablo III, which has broken a number of records for a PC game. Skylanders, which is a new franchise we introduced last year for kids, which is a crossover between collectible toys and a video game, is doing extremely well. It's actually a bestseller this year, whereas there's no new games. It's just on the back of the new collectible toys which we issued, but there is another game coming down -- from further down this year. While it's keeping above 3 million subscribers ahead of the launch later this year of Mists of Pandaria, which is going to be the fourth expansion of the game and which normally should trigger a new surge in subscriptions. And of course, we also have further down the year, a new Call of Duty opus, Black Ops 2, which is tracking very, very well in terms of pre-orders.

So overall, it's a very good year for Activision Blizzard. We upgraded the guidance to EBITDA -- the EBITDA guidance to around EUR 800 million. It's a symbolic increase, but it's significant of the trust we have in the ability to deliver more. It's not in the ability we have to forecast how their non-GAAP earnings will translate into our IFRS accounts, that even there we are making some progress.

Universal, as I said, is doing well. The sales have been roughly stable, slightly up in euro terms, very slightly down at the constant currency. But thanks to the digital -- to the increased digital sales, and thanks to the impact of a very significant cost cutting, which has been executed at the level of Universal Music. This basically stable top line translates into higher operating income, increasing by 18% in euros, 15% at constant currency. Therefore, we are able -- I mean adding to that, the proverbial exciting release schedule, we are able to confirm the double-digit EBITDA margin we're guiding on.

I won't dwell on SFR. You've had a lot of color given to you by Stéphane. He described the commercial achievements at SFR, as well as the cost cutting initiatives which have been launched for the full year. We still forecast 12% to 15% decrease in EBITDA. But the CFFO, close to EUR 1.7 billion, excluding, of course, the spectrum acquisition, meeting in line with the previous year.

Maroc Telecom has had an excellent beginning to the year in spite of the tough regulatory and competitive environment in Morocco, but their prices are falling, but volumes exploded -- the traffic is exploding. The price reset there has liberated usage. And as it is a prepaid market, this elasticity enables a satisfactory offset, so that the EBITDA is slightly down on the -- in Morocco, 4.6%. But this is completely offset by the great success we've had in redeveloping, fixing some of our African subsidiaries, so that on the back of still relatively low penetration market, we've been able to post amazing result there. EBITDA is actually up 50% in our 4 African subs, and this is now enough to offset the plateauing in Morocco, which, overall, means that the -- before the restructuring plan, which we announced, the EBITDA grows by 2% in local currency, and the CFFO is up by 17%. Therefore, we have no difficulty in confirming our guidance, which is a 13 -- 38% EBITDA margin, excluding the restructuring charges, as well as a stable CFFO compared to the previous year. So good news from Morocco.

Good news from Brazil, of course, but there we are used to it. Brazil continues to grow fast. Some of you may be disappointed by the 25% only sales increase, but actually, it is 31% in reais, in local currency. And it would be 42%, which is the true figure we are monitoring internally without the change in the VAT ICMS following last year's transactions. But it was last year's settlements with the various authorities, we accepted at long last to pay more VAT on our sales. Our initial thought was we could pass all of it onto the customers. It's proving more difficult than anticipated, frankly, because of a tougher regulatory environment. But still, the underlying activity is still growing very, very fast. This 42% figure actually corresponds to the increase in the number of lines in service for this year.

The pay-TV launch is proving very successful. We represent 11% of net adds worldwide in Brazil, which is -- you may not realize, is which is absolutely phenomenal, because we're only offering the service in those areas where we've deployed our network, which is about 20% of households. So it is actually a very significant and striking performance. We're very happy with this, and we see increased penetration of our base of existing customers. But we also see customers joining from day 1 to get the full Triple Play package.

EBITDA margin increases at 43% for the telecoms' activities, so we've been going consistently up since the time of acquisition. And overall, we slightly adjust our sales guidance to reflect to what I said earlier following the VAT change to over 30% growth instead of mid-30 because that's a slight decline. That -- we increased the margin guidance, and we now think that we will be able to deliver above 40% EBITDA margin, which is an improvement over the previous guidance in spite of the significant cost of deployment of the new pay-TV project -- the new pay-TV product. We also confirm that our EBITDA minus CapEx figure will be about breakeven for telecoms. So on the telecoms side, we are now in the situation where starting last year, we will start generating free cash.

Last but not least, Canal. Canal's performance has been very solid with a subscription revenue growth in all geographies, including Metropolitan France, and excellent performance at StudioCanal. Over the course of the year, of course, we have to swallow or to offset the impact of the VAT increase, which is very significant. I mean, it's EUR 20 million for the beginning of the year. It's going to be EUR 40 million for the full year. But we will be able to do that and therefore, we still guide to an EBITDA increase for Canal in 2012.

Overall, we're in a position to confirm our 2012 guidance before restructuring charges in telecom operations, which should actually do significantly better than the EUR 2.5 billion, which is mentioned in the slide, before impact of the transactions and restructuring charges. Our financial net debt should be below, and I hope well below EUR 14 billion at year end. We are fully committed to value preservation for our bondholders. I mean, this is something very important for us. We have issued a significant amount of bonds over the past quarters. We feel obligated to the people who have trusted us by buying those bonds and therefore, we clearly will not do anything which would put their investment at jeopardy. And we will endeavor to remain a BBB or Baa2 with the major agencies, which means that any asset disposal, which could happen at the end of our strategic review process, would result in an adequate level of deleveraging. And last but not least, of course, we still guide on cash dividends to represent roughly 1/2, between 45% and 50 -- 55% of adjusted net income to be paid in cash next year.

That was all. And now, I guess we are ready to take some questions. For this, it would be both useful and agreeable that the CFOs of the various businesses, Jean Fourtou, Julien Verley and Laurent Mairot, who is the newly appointed CFO of Maroc Telecom, join us. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions]

Philippe G. H. Capron

We'll start with -- we have a question in the room, so we'll start with that.

Conor O'Shea - Kepler Capital Markets, Research Division

It's Conor O'Shea from Kepler. I have 3 questions. The first question on your guidance. You increased your guidance for Activision by about EUR 50 million, if you kept your overall group guidance unchanged. I'm just wondering implicitly which activities are you expecting a little bit less in 2012. And second question on SFR, just to be clear, the EUR 500 million cost savings by 2014, is that a run rate figure? Or would you expect that to be in the accounts for 2014? And then the third question, can you give us an indication in the SFR subscriber base what percentage of your subscribers are on the new tariffs? And what percentage still needs to be moved over?

Philippe G. H. Capron

Okay, I'll take the first question, and then Stéphane and Pierre will probably share the ones on SFR. It's always the same game. I mean we can't -- I mean, as soon as we have -- we are slightly ahead of plan at the beginning of the year or for one of our activity, you asked the same questions, but you maintained your overall guidance, therefore, what's happening elsewhere? I have 2 answers. One is, very often, nothing is happening. It's just that the impact on one of the components is significant. It's not so important when you add it on. It's the law of averages, in a way. Second, and specifically in this case, we have, as I said, changed somewhat the wording, because we now anticipate to have very significant restructuring charges in Morocco, but this is behind us. And it's been absorbed in a way, plus there is a tax impact and the 53% element so that the impact on Vivendi's figures are not -- adjusted net income is -- are not so relevant, but also on SFR. And actually, we feel that we will be able to deliver, as I said, significantly more than the EUR 2.5 billion neutralizing those impacts, in part, because we have good news from Morocco, because SFR is on plan, because Activision Blizzard is -- should be significantly up as far again as we can translate the non-GAAP into IFRS. So no dark magic there, no bad news.

Stéphane Roussel

Yes, on SFR. So the savings, the EUR 500 million should be the run rate between 2014 and 2015. And the proportion of the subscriber base on new tariffs, it depends on what you understand by new tariffs. If it is the Red offers that is low-cost offers, we have been less pushy than our competitors. And we have at the end of June, 296,000 customers for our Red offers, Blue has 450,000, and Orange has 370,000. To have another vision, if you -- if the question is what about similarly [ph] offers, including, of course, Red, today, 17%, 1-7 percent of our customer base is on such offers. And for the gross adds of the first half, it's about 30% of our gross adds on similarly [ph] offers.

Philippe G. H. Capron

Maybe we take questions from -- on the phone from Filippo Lo Franco?

Filippo Pietro Lo Franco - JP Morgan Chase & Co, Research Division

So I have 4 questions. I mean 3 are related to SFR. The first is on the EUR 500 million of cost cutting. You said that it excludes variable costs, and the Page 12 of your presentation said that you expect a significant saving on a variable cost. My question is that when you look at your projection, do you think that the variable cost savings should be in the same area of the fixed one? So this is the first question. The second one is, have you changed your plan on fiber development in terms of CapEx? And the third one on SFR is on network sharing, if you are contemplating anything that would wait [ph]. And then the final question, I know that you said that you will not comment on the strategy of, I would say, of disposal and so on, but as a small question is about the optionality that you have applied to yourself, if they break up, if it's still an option considering you have that label?

Stéphane Roussel

Okay. So first point was on the cost cutting. What we mentioned was relating to the what we call the operational cost, now you have the breakdown of our cost structure. Operational cost is the cost that we totally monitor, that we are responsible for. The other interconnection cost, it depends on regulatory issues, on the volumes of customers, volumes of traffic, and the cost related to revenues and to -- customer-related costs depends on the fact that we sell -- we have a lot of new customers. We have -- depends on the mix, SIM-only or including handsets offers, et cetera. These variable costs, we expect that unfortunately, due to the change in the market environment and the market structure, they will significantly decrease in the future. And when I say significantly, it's quite important as well. Change for our -- change in our plans for fiber CapEx, maybe we did not mention that. But after a peak of our CapEx at EUR 1.65 billion in 2011, which was due notably to the commitments that we had for coverage in 3G, we shall decrease over time. But it's most probably in 2014 and '15 by EUR 200 million, EUR 250 million, our CapEx. But we shall preserve the spendings for 4G where we shall start as soon as 2013 opening the network. And we shall preserve fiber with CapEx ranging between EUR 150 million, EUR 200 million value. And in our network sharing project or prospects, nothing so far.

Jean-François Dubos

Nothing so far because it's not only a discussion between competitors, but in France, there's also an issue with regulatory, so it's not so simple to contract something.

Philippe G. H. Capron

Regarding your last question, Filippo, we said 2 things. We said regarding a possible breakup of the company. We said 2 things. We said nothing is taboo, and we are reviewing all options with an eye to shareholder's interest and value creation, but we also said that we are fully committed to value preservation for the bondholders. And frankly, I do not, in spite of the imagination of investment bankers -- and I see many, many faces in the audience here at Vivendi's headquarter, I see no analyst but only investment bankers. In spite of that, we do not really see how we could reconcile those 2 aspects. Clearly, a breakup of the company would lead to very, very great difficulties in terms of proportionment of the debt. And we do not see the possibility to remain -- to retain a quality rating on the 2 remaining entities. And therefore, the straight breakup is not something, which for the time being, we contemplate.

Next question, Omar Sheikh from Crédit Suisse.

Omar Sheikh - Crédit Suisse AG, Research Division

Three questions, if I could. First of all, on SFR, I wonder if you could quantify the restructuring charges that you anticipate taking to achieve the cost savings, and if you could tell us how much of that will be in cash and how much will be a cash cost this year. Second question is on the Liberty fine. Can you just maybe help us understand at what point you will take a provision to that, and whether or not you think there's a chance that the level of the fine could, at some point, include interest backdated to 2002. That would be helpful. And then thirdly, you announced last week that there's going to be a strategy review of media under Mayer [ph]. But you didn't say much in relation to what exactly the objectives of that strategy review are. I wonder if you could give us some help in understanding what Mayer is hoping to achieve, whether it's mainly focused on costs or whether it's going to be anything more radical.

Philippe G. H. Capron

I'll start with the first question, restructuring costs at SFR. Such costs will be booked in our Q4 2012 financial statements once we shall have presented the plan de départs volontaires or voluntary redundancy plan to the workers council late -- early November. And the cash payments will occur in 2013.

Jean-François Dubos

On Liberty issues, I just have to say that for the moment, post trial motions are under review between the parties and the judge. And so there is nothing else to say. Unfortunately, we've said that we are on the due course of the trial, nothing else.

Philippe G. H. Capron

You may remember that the class action verdict, which was rendered more than 2.5 years ago, are still not being translated into a judgment by the court, by the same court.

Jean-François Dubos

On Mayer, I did not understand the -- but what I understood is what Mayer is supposed to do, correct?

Omar Sheikh - Crédit Suisse AG, Research Division

Yes, correct. What are the objectives of the review?

Jean-François Dubos

Okay. The objective of -- the mission of Mayer is the mission -- first I insist upon that first mission. So he's in charge of reviewing our media and communications -- not media, because we have not -- but communications assets, and to figure out what we could do with that and discuss with the different CEOs of these business activities, and then return to us and give us some information first, but also some views on what we could do with that more than we do to date.

Omar Sheikh - Crédit Suisse AG, Research Division

Could I just follow up on SFR restructuring charges, are you able to quantify how much they may be?

Philippe G. H. Capron

Again, workers council, has a priority on such information. It will depend on the figure of the need for voluntary that we shall announce beginning of November.

Thank you. There is also some questions in the room. Please?

Unknown Analyst

[indiscernible] from [indiscernible]. I just have 2 questions, one regarding SFR again. You seem to have some structural problem on the fixed line in customer recruitment since -- experiencing the problem since the relaunch of the box in late 2010. Now I wonder if you share this analysis and how you want to address that. The second question regards Canal+. I wonder if we can have a feedback on the launch of the new sports channel by Al Jazeera. On the one end, is it hurting you? On the second end, do you expect revenues from -- or any significant revenues from the agreement, the distribution agreement?

Philippe G. H. Capron

Okay. First question, what you mentioned as a structural problem in recruiting ADSL customers. It's true that since Q3, Q4 of last year, we have not been very good, and we acknowledged that in recruiting ADSL customers. It's true that this came after the wonderful period that we experienced end of 2011, 2009, 2010 when we had tremendous market shares. There are many reasons for that. Maybe we have been sleeping on our success, first question, first point. This is our responsibility and others have reacted. France Telecom, which had a negative or 0% from the market shares in 2010, they have reacted. They have the quadruple play offers. They have been doing significant promotions. It's there with very attractive offers. There is no -- for the first half of 2012, there is a halo effect for free, due to the launch of the mobile. However, we have been starting to react. What we see on Q2 is better sales, less churn. It's not enough, clearly. And you will see for September some new offers that Stéphane announced, and it will go on, on Q4, something which will look like a relaunch of our ADSL.

Jean-François Dubos

As they have said, small new offer than the promotion, but it's really new. And of course, if there are many offers, we would not sleep anymore.

Philippe G. H. Capron

Julien?

Julien Verley

Yes, on Canal+, I mean as you probably saw, Francois, on our slide, I mean on the first half, our top line KPI are pretty good. I mean net growth in particular, in Metropolitan France, is high, it's in historical high, by the way, and including, by the way, in terms of subscribers net adds. Churn is down, ARPU is up despite the increase. So I would say so far the beginning of the year have been quite successful. Summertime has been a bit weaker, but it doesn't prejudge what's going to be the trends between now and year end. And I would say, we still have pretty good audience on our -- to be specific, on our Sunday evening match, we had historical high of audience last Sunday. So that's part of your question. The second part is, do we expect significant revenue on distributing the bean [ph] sports channel, so I think that was your question. The answer is no, we don't expect. We have a revenue sharing with them, a very practical revenue sharing, and this would not be significant.

Philippe G. H. Capron

We have the next -- another question in the room, please?

Jean-Michel Koster - CM-CIC Securities, Research Division

Jean-Michel Koster, CM-CIC Securities. The Reuters [ph] reported yesterday by week showed the impact on margin of increase in usage. On your side, could you tell us what is the pace of growth of usage of an average customer, an average SFR customer?

Philippe G. H. Capron

No, we don't see any significant increase in usage. No.

Jean-Michel Koster - CM-CIC Securities, Research Division

And the other question is on churn, could you quantify the churn of SFR on Q2?

Philippe G. H. Capron

No, we don't comment -- we don't disclose on churn. No need to say that it has been important for this first half, and this is not significant for the recurring trends.

Claudio?

Claudio Aspesi - Sanford C. Bernstein & Co., LLC., Research Division

Claudio Aspesi for Bernstein. Three questions. As you mentioned growth in traffic in mobile in Morocco, would that lead to additional CapEx in the years to come? So can you give us a flavor for what is your current thinking on incremental demand or capital there? Second question is, have you heard anything recently from Lagadere on their liquidity option on Canal+? And finally -- just those.

Philippe G. H. Capron

Okay. On Lagadere, I mean as you probably know, for the -- is it the second or the third time, they have triggered the IPO process this year. But given the market conditions, they have not yet asked us to seriously work on it. Obviously, it's still a possibility ahead of us. But there has been no -- apart from this very formal implementation of our shareholder's agreement, there have been no specific discussions going ahead.

On mobile in Morocco, Laurent?

Laurent Mairot

Yes, we have a strong increase in our Internet usage of about 40% in the first half also. Of course, it requires increase on usage of our network, but we have made a lot of investments over the last years. And we expect our CapEx to decrease both in Morocco and in our subsidiaries despite increase of usage.

Philippe G. H. Capron

Actually, CapEx to sales and specifically, network CapEx to sales has been decreasing in Morocco for a few years now, which is consistent with the relative maturity of the market. And we want to keep it that way. I mean, we feel there is the ability in spite of this usage increase to continue to have a downward orientation of our CapEx to sales. Keep in mind that a lot of this CapEx was driven by the full coverage, universal coverage of the country, including some small towns, if not large villages. But this is behind us, as Laurent explained.

Matthew Walker from Nomura?

Matthew Walker - Nomura Securities Co. Ltd., Research Division

Just a couple of questions, 1 or 2 on SFR. What do you think your service revenue growth in the second half and for 2013 might be? And also, can you tell us how postpaid net adds have been going since the end of Q2? And then the second question is -- I'm sorry you've got so many investment bankers in the room. That must be very distressing, but just can you clarify your comments on the -- your attitude to the breakup and the apportioning of debt between the different entities. Because obviously, if you sold something that wasn't at the moment contributing much cash flow, surely that would be beneficial.

Philippe G. H. Capron

So first of all, on your question for SFR. Further revenue growth, we don't give any guidance for revenues. However, our view today is that total mobile revenues should decrease by 11% this year. Postpaid net adds since end of Q2, we are -- again, as always, we have been very good at the enterprise for the first half, and this continues. And today, enterprise compensates for residential postpaid, which are still slightly, slightly negative, slightly. On the breakup scenario, I won't enter into specifics. I just want to reiterate what I said earlier that whatever we do will be driven, in large part, also by making sure that the value is preserved for our bondholders. But I won't go into various imaginative scenarios, which I'm sure many, many bankers have in mind.

Matthew Walker - Nomura Securities Co. Ltd., Research Division

So just to clarify on the net adds point, residential is slightly negative, but enterprise is good, and so overall, net adds are still positive. Would that be a reasonable assessment?

Philippe G. H. Capron

Breakeven, that's a breakeven.

We move on to Julien Roch from Barclays.

Julien Roch - Barclays Capital, Research Division

First, a couple of questions on SFR. The first one is, you said that the EUR 500 million was the run rate between '14 and '15. Would it be possible to have the numbers that will be in the P&L for '13? That's my first question. The second one is on net adds. So you just told us that postpaid was more or less flat Q3 to date. What about the overall number? Can we still expect overall subscriber numbers to be down, i.e. prepaid to be down? They're my 2 questions.

Philippe G. H. Capron

Okay. We don't -- today, we don't give the ramp-up of the EUR 500 million savings. Our words will be progressive just to help you. The voluntary redundancy plan will be announced this November. Let's imagine that it should take place at the -- all the departures should take place end of H1 2013. Time to adjust the -- full effect should be -- full year effect, I think should be somewhere, as I mentioned, between 2014 and '15. But not everything depends on the voluntary redundancy plan, and we have already started the actions that just need simplification of process without adjusting the organization or the headcount. We have -- starting cutting cost at the customer who doesn't want to pay anymore. We have been starting renegotiating with subcontractors, providers for maintenance, et cetera. So you will see part of the savings in 2013 as well. Don't bother.

Jean-François Dubos

Because that is a redundancy plan. I just want to add that it's not only an economical issue. You know that because we changed the way to -- to a change in relationship with customer, the customer asked us to be more simple. So if they need less people in front of us, it's in front of them. So it's not only a question of economics, it's only -- it's also a question of organization and to be consistent with the new customer needs. It's important to say that.

Philippe G. H. Capron

Yes, what we have been doing since the 10th of January is value analysis of all our offers. What does a customer want today? What does he want to pay for? Is it necessary? Yes, now it's a task, so this has been done. Also to help you, in the EUR 8 billion of costs that you have in the slide of the presentation, staff costs represent EUR 825 million. So the second part of your question, net adds in the -- for the coming months, or the months since end of June, on prepaid, we are still losing customers on prepaid offers, such prepaid offers already before the entry offers of free. They were cannibalized by flexibility [ph] offers. Now as they are totally cannibalized by the new low-cost offers, so these people, we find them on Red, low-cost offers.

[ph] And we move on with Polo Tang. Polo?

Polo Tang - UBS Investment Bank, Research Division

I just have one question which is, you previously had a guidance figure of more than EUR 2.5 billion in adjusted net income for 2013. But there's no mention of this in the statement. Just given the very sizable savings that you're making SFR EUR 500 million, are you still comfortable with this previous guidance figure that you gave for 2013?

Philippe G. H. Capron

I'm sorry, I got mixed up in your figures. Can you repeat the question, please?

Polo Tang - UBS Investment Bank, Research Division

Yes, sure. I mean the question is previously, you gave guidance for both 2012 and 2013. And so both years, your previously guiding towards more than EUR 2.5 billion in adjusted net income. Given that today, you have announced quite significant cost savings at SFR, are you still comfortable with the 2013 guidance that you previously gave, i.e. will you do more than EUR 2.5 billion in adjusted net income for next year?

Philippe G. H. Capron

Well, it's early days. As you see, there are positive signals in many of our businesses, but it's still early days. We're just starting the business process, so we don't want to formulate any form of guidance at this stage if ever. Thank you.

We conclude with the last question from Charles Bedouelle.

Charles Bedouelle - Exane BNP Paribas, Research Division

I had a general question on the strategic review. Without going into details, it's been 4 months basically since you're saying there is no taboo. You're saying it's going to take time. Can you explain, is it going to take time because you don't know yet what you want to do, because you know what you want to do but it takes time, or because a bit of both actually, just to give us some idea of where you're going in terms of a thought process?

Jean-François Dubos

As you said, it takes time, so it will take time. Thank you.

Jean-Michel Bonamy

And vice versa. Thank you all. I guess this concludes this meeting. Thank you for your presence.

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: transcripts@seekingalpha.com. Thank you!