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Original Source: FD (FAIR DISCLOSURE) WIRE
. Jean-Bernard Levy, Vivendi Universal, CEO . Jacques Espinasse, Vivendi Universal, CFO . Pierre Trotot, Vivendi Universal, SEVP Finance & Admin . Salati Giasson, Credit Suisse First Boston, Analyst . Paul Reynolds, Deutsche Bank, Analyst . Maxim Sala, Vivendi Universal
. Julian Roth, Merrill Lynch, Analyst . Richard Houbron, IXIS Securities, Analyst . Marc Sugarman, Citigroup, Analyst . Mike Hilton, UBS, Analyst . Edward Steel, Morgan Stanley, Analyst . Jean-Christophe Liaubet, BNP Paribas, Analyst . Richard Jones, Lehman Brothers, Analyst
The Co. reported 1H05 adjusted net income is at EUR1.162b. Cash flow from operations during 1H05 increased by only EUR11m. The Cegetel-neuf Telecom merger will result in adjustment to the Co.'s 2004 and 2005 IFRS accounts for discontinued operations. Q&A Focus: EBITDA, net income, and cash flow.
A. Key Data From Call 1. 1H05 adjusted net income = EUR1.162b.
S1. Business Review (J.L.) 1. Highlights: 1. V characterizes its performance in 1H05 as excellent by all standards. 2. Revenue growth of 8% and very significant growth in profitability.
3. Earnings from operations have grown at 31% on a comparable
basis. 4. Adjusted net income is at EUR1.162b, which is EUR818m
improvement vs. 1H04. 5. Net income improvement of 49% from 1H04. 6. Consolidated cash flow from operations is growing only
slightly. 7. V is happy to guide the market towards an improvement from the earlier guidance. 1. The Co. is expected to exceed the previous guidance of EUR1.8b of adjusted net income for full 12 months of 2005. 8. V is in great shape and the strategy is to focus on its business operations as it has streamlined the Co. to keep businesses, which are leaders on the market, Number 1 or Number 2 either globally or locally. 1. The Co. is looking for growth, profitability, but also development. 9. V is investing in growing content creation, telecom infrastructure, both in France and in Morocco, the CapEx is growing significantly, and distribution platforms. 10. The financial restructuring is now complete. 11. The Co. has a handful of reasonable acquisition targets. 12. V detected that there is one opportunity for it, which the Co. feels that it can target; privatization of Tunisia
Telecom. 1. The Tunisian government recently decided to seek a strategic partner. 2. The Co. believes that it is the right partner for the Tunisian government. 13. The Co. has excellent earnings visibility for the group. 1. Most of V's business is made of subscription. 2. Next year, revenues are made of this year's new subscribers. 14. V is able to combine growth and cash returns. 2. Key Events in 1H05: 1. VU Games back to profit, which is mostly due to strong restructuring program, which the Co. started at the end of 2003, but also to the tremendous success of World of Warcraft, which is leading the market in all the territories where V launched it. 2. Creation of neufCegetel:
1. Leading alternative operator for fixed line telecom services
in France. 2. 28% stake retained by the Co. 3. In June, the Co. terminated all its relationship with InterActive Corp., and with the support of GE: 1. Removal of risk-related to tax litigation. 2. Simplification of NBCU's ownership structure.
4. V divested its cable infrastructure co. in France, a loss-making unit for 20 years. 3. Others: 1. V operates its assets, which are leading media and telecom assets. 2. V likes to show the business as made of content business, which the Co. has to manage globally, creating successful content, acquiring new rights is very expensive, and it needs to be able to distribute this content to a population as large as possible over territories as wide as possible. 1. This is a global business. 3. The Co. also has local distribution platform where V manages subscribers or more generally speaking customers, but most of them are subscribers based on its distribution platform, which are managed locally because the regulation is local, competitors are local, prices are set locally, most of the marketing is done locally.
1. In that business, which comprises Pay-TV and telecommunication services, the Co. is in three countries today, which are France, Morocco, and Poland. 4. Universal Music Group: 1. Universal Music Group gained significant market share in 1H05. 2. Digital sales are already 5% of the Co.'s total revenues. 1. A bit more of the Co.'s world revenues in recorded business in 1H05. 3. Several new initiatives to foster long-term growth: 1. Launched IMF in the US. 2. Amp'd Mobile is a stake the Co. has in MVNO that will be launched shortly in the US on the Verizon Wireless new generation infrastructure. 4. V's restructuring efforts have helped the Co. to get to much better margin from where it was in 2003, probably 2% of operating margin. 1. The guidance for the year is operating margin in the music business between 7-9%. 1. The Co. is well in line with this number. 5. Vivendi Universal Games: 1. The success of the Co. is driven by the success of World of
Warcraft. 1. Launched it in many territories, but there are some more to come, the next one being Taiwan. 2. The Co. has also decided to have better internal competence in the development of console games, especially as it sees the migration towards the next-generation of console. 3. Recent acquisitions of three development studios in console games in order to improve its development capabilities in that area. 6. CANAL Group: 1. V thinks that the performance of CANAL Group is very remarkable.
2. Two years ago, CANAL+ was losing customers. 3. V reports that there is a good response from the market in terms of net additions to that business. 4. New distribution platforms: DSL and DTT. 7. SFR Details: 1. SFR is still having an excellent commercial performance leading in terms of net addition all three operators in France at least in 1H05. 2. Successful launch of 3G. 1. Launched back in Nov. 2004. 2. At the end of June, the Co. had a little above 150,000 customers and at the end of Aug., 300,000. 8. Maroc Telecom: 1. The Co. is already in line to celebrate the 8m (Phonetic) customers. 2. 35% growth in the total number of customers to the Co.'s services from June 2004 to June 2005. 3. Fast development of DSL services.
1. The Co. had some double-digit CapEx that it had put aside
for the long-term DSL services. 2. At the end of June 2005, already one out of ten fixed line subscription is covered by a DSL subscription and obviously, the penetration rate is growing extremely quickly. 9. Growth Drivers for Next Three Years (Already in Place) & Others: 1. Digital distribution and new sources of music revenue; 5% of the business right now. 2. Launch of Pay-DTT. 3. Development of World of Warcraft in new and existing markets.
4. Mobile data services and fixed-mobile substitution are exceeding the growth of the Co.'s telecommunication operators:
1. Mobile and DSL penetration in Morocco. 2. Investing in content creation, telecom infrastructure, and distribution platforms. 5. V's businesses are distinct, but they are complementary. 1. The Co. is managing them in a de-centralized way. 6. A little earlier this year, SFR and Universal Music Group signed a long-term agreement. 7. The Co. is innovating and creating a new attraction for its 3G customers essentially to its music-based services.
1. Simultaneously, within a few days, SFR and Canal+ launched a new service, which is already available, which is a Pay-TV package, a Pay-TV platform, which is available over the 3G network. 8. The Co. is creating a wireless games div. within the Universal
Games. 1. Obviously, V …