AccessMyLibrary provides FREE access to millions of articles from top publications available through your library.
Original Source: FD (FAIR DISCLOSURE) WIRE
UNIDENTIFIED COMPANY REPRESENTATIVE: Vivendi Universal. This presentation will be in English with a simultaneous translation here in the conference room on channel one for the French and channel 2 for English. This meeting is also transmitted on conference call, is also webcast on www.VivendiUniversal.com/IR, like investor relations, where the slides are also available for download. A replay of this conference will be available for 15 days on our website.
This presentation will be followed by Q&A. As the last time our recommendation, in order to have the best quality of communication of your question, please ask your questions one a time and as slow and distinctly as you can. Thank you so much. I am now pleased to introduce our Chief Executive Officer, Mr. Jean-Bernard Levy.
JEAN-BERNARD LEVY, CEO, VIVENDI UNIVERSAL: Thank you. Good afternoon to all of you, or good morning for those in the United States. I would characterize our performance in the first half of 2005 as excellent by all standards. We have growth of the revenue, 8%, and we have a very significant growth in profitability.
Earnings from operations have grown 31% on a comparable basis. Adjusted net income is at the EUR1.162 billion, which is EUR818 million improvement over last year. Net income is also growing, 49% improvement from 2004. Consolidated cash flow from operations is growing only slightly, but after very extraordinary performance in 2004.
And because all our indicators are positive and we see the progress of the businesses, the success of the new business in the second half of 2005, we are happy to guide the market towards an improvement from the earlier guidance. We can now say that we will exceed the previous guidance of EUR1.8 billion of adjusted net income for the full twelve months of 2005.
So, Vivendi Universal today is in great shape. And the strategy is to focus on our business operations, as we have streamlined the Company to keep businesses which are leaders on the market, number one. And number two, either globally or locally, that means we're looking for growth, profitability, but also development. And also our efforts will be to develop quicker than our competitors.
That means we are investing. 2005 is a year of large investments in content creation, in rights acquisition, but also in telecom infrastructure, both in France and in Morocco. The capital expenditure is growing significantly. And we're of course creating new distribution platforms, that is technology and content, enable us to go towards larger set of services and customers.
The financial restructuring is now complete. We went to the bond market, we went to the banks in the first month of 2005, in order to get financial costs down to standard levels. That means we're able to the acquisitive, but we're not looking at large acquisitions. We have in front of us a handful of reasonable acquisition targets, most of them in order to enhance the value of our existing business.
But we have spotted -- we have detected that there is one opportunity for us which we feel we can target. This is the privatization of Tunisia Telecom. The Tunisian government recently decided to seek a strategic partner, a telecom company that will be the long-term partner of the Tunisian government and will take 35% stake in Tunisia Telecom, which is a leading telecom operator in Tunisia, especially in the world of mobile services.
We believe we are the right partner for the Tunisian government because our management philosophy is that of a decentralized company, where the decisions are made locally, even if there is a lot of control and pressure coming from the headquarters. And also because we have proven how successful we can be in similar circumstances with the Moroccan government and Maroc Telecom.
We have excellent earnings visibility for the group. Most of our business is made of subscriptions. Tomorrow -- next year's revenues are made of this year's new subscribers, and we are not all hurt by most of the big events that one can see around, like raw material or oil prices, like currency swings, which hardly effect us, like environmental issues. So we have a much better visibility than most companies. Therefore, we're able to combine growth and cash reserves.
A few of the key events in the first half of 2005. First, and foremost, the last (ph) division which is not profitable, VU Games, is now back to profit. As you know this is mostly due to a strong restructuring program which we started at end of 2003, but also to the tremendous success of World of Warcraft, which is really leading the market in all the territories where we launched it.
We have -- creating (indiscernible) Cegetel and by merging Cegetel and neuf Telecom we are now part of the leading fixed line operator after France Telecom in France. We're keeping a 28% stake in a company which has many ties with SFR so this is, as we say, strategic. We feel we will keep it, and as we have through MVNO agreements or for the enterprise market a lot to share with that new company, neuf Cegetel. Anyway, we used to have losses both in cash and in the P&L in neuf Cegetel. We will have, very quickly, profit and positive cash inflow.
In June I have to say this was the second attempt, but this one was successful. We terminated all our relationships with interactive calls (ph). And also with the support of General Electric, this removes a major liability linked to tax litigation. It significantly eliminates also other liabilities off our balance sheet and its simplifies NBCU's ownership structure, which is also a slightly accretive transaction. We're very happy that we have simplified our group in that instance.
Finally, we also the vested our divested our cable infrastructure company in France, a loss-making unit for 20 years. I have to say, since the time of companies in (indiscernible). We created that against some cash in the 20% stake in a much larger cable infrastructure, a company which we hope will prove successful. So we operate our assets, which are leading media and telecom assets, with the philosophy to grow them in a decentralized management structure, which you can see on page 6.
We like to show (indiscernible) the business has made of content business, which we have to manage globally, creating successful content. Acquiring new rights is very expensive and we need to be able to distribute this content to a population as large as possible over territories as wide as possible. So this is a global business. As you can see for instance, we launched record (ph) in 70 countries at the time. We launched World of Warcraft or other games also over many territories.
And we also have local distribution platforms where we manage usually subscribers or more generally speaking, customers. But most of them are subscribers, based on our destination platforms which are managed locally because the regulation is local, competitors are local. Prices are set locally, most of the marketing is done locally. And in that business, which comprises pay TV and telecommunications services, we are in three countries today, which are France, Morocco and Poland.
All our operations are growing. Universal Music Group gained significant market share in the first half of 2005. That was already the case in the second half of 2004. And we see the success of the team, led by Doug Morris, (ph) that is running Universal Music Group in a stable environment and that can, with the help of us as the shareholder, still invest in new artists and launch new services.
Digital sales are already 5% of our total revenues, a bit more of our revenues in the recorded business in the first half of 2005. The number of 5% is to me already a significant growth. This number was only 2% in 2004, and it was 0%, or less than 0.5% in 2003. So it is a significant change in the business that we have, this transition between the business which where we were only selling records to a business where we sell various forms of downloads and we make revenues from various services.
Therefore, we support several new initiatives. Because the long-term growth will be stemming from the initiative, I-event (ph) is a TV channel which we launched in the United States. And mobile is a stake we had in MVNO that will be launched shortly in the United States on the Verizon wireless new generation infrastructure.
Other initiatives, for instance, include the fact that we have now renewed agreements in the much better commercial conditions whereby we have the Internet service providers faithful to the music videos which are downloaded by their own customers.
Our restructuring efforts have helped us to get to much better margins from where we were in 2003, hardly 2% of operating margin. As you know, the guidance for the year is operating margin in the music business between 7 and 9%. We are well in line with this number as we look at the first half of the year.
Vivendi Universal Games, as I said, the success of the Company today has risen by the success of World of Warcraft. We've launched it in many territories but there are also more to come, the next one being Taiwan. We also decided to have better internal competence in the development of console games, especially as we see the migration towards the next generation of console.
Our strategy is not to buy big game (ph) publisher, but is to get into the Company more content and more competencies. We have acquired the rights to the Robert Ludlum estate, which is obviously a good driver for the creation of games. And we have also this year acquired, for the time being, Korean Development Studios in console games in order to improve our development capabilities in that area.
I think the performance of Canal+ is very remarkable. Only two years ago Canal+ was losing customers. Its image was beating (ph) the shade (ph) and nobody really knew what was going to happen to that market. The strategy that has been defined by Bertrand and his team have implemented, is proving successful. Acquisition of rights, leading to growth in recruitment.
This is at the expense of short-term probability of because obviously promotion costs are quite high. But this is something we can live with. As we see that with exclusive products, and a much improved image, there is a good response from the market in terms of net additions to that business.
With the support also of new distribution platforms, not only the satellite and the cable but also the DSL network, and digital terrestrial TV, all our growth strategy is in place. We have more customers. And even …