Vivendi's Management Presents At Morgan Stanley 11th Annual TMT Conference (Transcript)

Vivendi SA (VIVDY.PK)

Morgan Stanley 11 th Annual TMT Conference

November 17, 2012 2:50 AM ET


Patrick Wellington – Morgan Stanley

Philippe Capron – CFO


Patrick Wellington

Good morning everybody, and our next meeting is with the Vivendi Group. We'd very much like to welcome them to the conference. (inaudible) today is Philippe Capron, who is the CFO. Eileen McLaughlin, Investor Relations, in the front row. Encouragingly more people are coming in as we start. It shows such a big draw you are. And that might be because your share price was up 5% yesterday on the back of some pretty good Q3 numbers.

And for those of us who may have missed those highlights, Philippe do you just want to run us through the essential parts of that statement?

Philippe Capron

Sure. Well, first of all good morning ladies and gentlemen. And Patrick thank you to start with such an agreeable question. The timing couldn't be better, especially because we've not always been very happy looking at our share price, those past weeks, or I should say those past years. But it is true that yesterday the market reacted well to objectively what is a good set of numbers.

We had a very strong Q3 on the back of our usual suspects, TVT and Activision Blizzard, which did very, very well since the beginning of the year, but also because the music company, Universal Music, did deliver good results for Q3, up 36% compared to the same quarter. Of course, one quarter does not completely change things but we see at the same time the recovery in the US market being confirmed, and the first impact of the restructuring flowing through the P&L with reduced costs, so a strong set of results.

Also because – since we closed the deal with Vodafone in June, Q3 was the first quarter in which we started to have the benefit of having swapped 20% of NBCU for full control of SFR. And of course, this has an accretive impact on our earnings as well, which is what we're aiming at, and this is of course starting to materialize. This enabled us to revise our guidance. We had to revise it downwards first because we were at 3 billion and the total tax bill we are having to face from the government, because of the restriction on our ability to use our NOLs.

We'll use only 60% of our NOLs going forward instead of the full 100% to taking advantage of Vivendi's NOLs and SFR's profits. This has an impact of 350 million this year and probably a similar impact next year. And so, we revised the guidance downward and then upwards because we think will do 200 million better meaning if the tax environment had not changed, we would be delivering 3.2 million. Since it has changed we will be delivering at 2.85 million, and of course analysts had expected a bigger downward revision.

I must add, of course, that those tax effects are just calendar effects. We're not losing any NOLs. We will use them up over a longer period. It's just a timing impact.

Patrick Wellington

Yes, that was a bit frustrating to have the immediate effects of the tax benefit for the SFR be unwound, but you are now extending those NOLs out?

Philippe Capron

Yes, just the timing impact and the fundamental, the underlying improvements due to the ownership of SFR is still there, regardless of any tax considerations.

Patrick Wellington

I like to say you have been busy on the acquisition front this year. You have bought the minorities in SFR despite what it says in our company description. And – but you've also been active on the media side, so your content and platforms (inaudible) benefits of that combination?

Philippe Capron

That is good for media analysts. That is mostly why we do it. Actually we know that you guys are following the GVT acquisition and the reinforcement in SFR, where we are afraid that we would become a pure telco, so we did it purely for you.

Patrick Wellington

Thank you very much. We were very upset.

Philippe Capron

We reacted to (inaudible). It's not just, I mean, you do not choose the timing of your M&A activity basically. But we were happy to reinforce two of our very significant media businesses. BMI is a once-in-a-lifetime opportunity. I mean in a market which has suffered as much as the music industry is suffering, the opportunity for consolidation is of course very attractive.

We feel that this will pass with the antitrust authority because the power has shifted so much towards the consumer with piracy and towards the distributors, especially the concentration of digital distributor is extremely high and that is where the real power lies. So, I feel we will be able to go ahead with this consolidation and it should yield very, very significant benefits.

At a time when the music market, at least in the US, because it is now 55% or 60% digital and only 40% physical CDs, is starting to show some signs of recovery. And at a time when I should add the credit market was such that there was little competition, especially for the private equity investors, to grab that asset. On the Canal side, it is two very different deals. The opportunity to jumpstart our planned development into free to air by buying the Bollore channels at a time when GTT is not yet fully deployed in France. Seemed like a very good opportunity as well.

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