Vivendi Se Unsp/Adr

Good evening, everyone, and welcome to the Vivendi Full Year 2019 results presentation. This conference call will be hosted by Mr. Arnaud Dupuy-Fontaine, Chairman of the Management Board and CEO, and Mr. Hervé Philippe, a member of the Management Board and CFO. As a reminder, this call is being recorded. During the call, you'll be on listen only. However, later on the call during the Q&A session, analysts will have the opportunity to ask questions without any follow-up questions. This can be done by pressing Star 1 on your telephone keypad to register your question at any time. If at any point you require assistance, please press Star 0 and you will be connected to an operator. I would now like to turn the call over to Mr. Arnaud de Puyfontaine. Please go ahead, sir. Your line is open.

Thank you very much and welcome to everybody and thank you for joining us today. Before I start please make sure you read the forward-looking statement disclaimer as it concerns important legal matters. 12 months ago I said that 2019 would be a hugely eventful year and that Vivendi was on the right track to building a unique content media and communications group. 2019 marks an important milestone in this ambition. If I dare say, I would call it a year in 3D. No doubt, D for delivering strong financial results. Hervé Philippe will discuss this further. D for developing our activities through major operations such as the UMG Tencent deal. And D for deepening cooperation between our businesses. 2019 was a year of value creation, a great one indeed. On a like-for-like basis, our 2019 organic revenue and EBITDA grew respectively by 5.6% and 10.8%. This is our best achievement since 2015, the year we repositioned Vivendi in content and media. Our main businesses proved our ability to transform ourselves in very challenging environments. Let's have a quick glance at the key highlights for each of them. To quote Sir Lucian Grange, 2019 was an astonishing year for Universal Music Group. For the third year running, the group achieved double-digit revenue growth. Thanks to its talented people and its iconic artists, UMG is today the most creative music company in the world. It is taking advantage of the streaming boom by continuously investing in technology and A&R, artist and repertoire. In 2019, UMG had an artist at the top of each of the five biggest platforms, Amazon, Apple, Deezer, Spotify and YouTube. And for each platform, a different top artist, respectively, Taylor Swift, Billie Eilish, J Balvin, Post Malone, Daddy Yankee. Let me take the opportunity to congratulate all the Universal Music Group artists recently rewarded at the Grammys, including the remarkable Billie Eilish. She is the youngest star to sweep four awards in Grammys history. On the TV side, Canal Plus Group is back on track. Outside France, pay TV activities keep developing fast and the acquisition of M7 is definitely a growth accelerator. On the domestic front, significant announcements were made in the fourth quarter of 2019 in both areas, sports and TV content distribution. The Champions League broadcasting rights won for 2020-2024 period needs to be emphasized. On another note, Canal signed two major agreements to distribute Netflix and exclusive distribution for Disney Plus in France, end of March. It's being increasingly recognized as both a content editor and a key aggregator too. These partnerships are a great illustration of how Canal Plus is evolving from a traditional TV player to a digital content platform. That said, this transformation process is not over yet. In the face of increasing competition, Canal Plus Group needs to pursue its reorganization in France and to keep moving forward. Avas Group is also successfully pursuing its transformation. Its new positioning based on a meaningful approach of communication is bearing fruits. In 2019, Avas Group gained many new clients locally and globally. You can find more details in the appendix of the press release. And once again, The creativity of its agencies was rewarded. As an example, BETC was named International Agency of the Year by IADWC. The whole AVAS Group was rewarded as the most sustainable company in the communication industry by World Finance Magazine. We are very proud of this recognition because we have no other choice than being socially and environmentally responsible. It is true for all the Vivendi entities. Coming back to AVAS Group. Many acquisitions of strategic importance were made in 2019, enriching its expertise and extending its global footprint. The group has demonstrated the robustness of its business model despite a challenging advertising environment. Avas, combined with Vivendi, is the only player in the market to offer such a value proposition in the creative industry. One of the key highlights of 2019 was the process of opening up Universal Music Group's share capital. Last December, on the 31st, Vivendi signed an agreement with a consortium led by Tencent for a strategic investment of 10% in Universal Music Group at an equity valuation of 30 billion euros on a 100% basis. This consortium, which includes the participation of Tencent Music Entertainment and international financial investors, has been offered the possibility to acquire an additional amount of up to 10% at the same price and terms until January 2021. As you have probably noticed, this agreement will be soon completed by a second agreement allowing Tencent Music Entertainment to acquire a minority stake in the share capital of Universal Music Group subsidiary in China. We are all excited by the strategic rationale behind this move. It will enable Universal Music Group to increase its presence on this high potential market by promoting global artists in China and accelerating the development of local repertoire. The merger control approvals to which this transaction was subject have been obtained from the relevant regulatory authorities. We are confident about closing the deal by the end of the first half of 2020. As already stated in July 2018, The proceeds from these different operations could be used for a significant share repurchase program and for acquisitions. In parallel, Vivendi is pursuing the process of potentially selling an additional minority stake in Universal Music Group to other partners. Eight banks have been mandated by Vivendi to assist it in this matter. An initial public offering is currently planned for early 2023 at the latest. The successful acquisition and integration of Editis is another highlight of 2019. Indeed, we have just celebrated the first anniversary of Editis within the Vivendi Group. I'm happy to say that the company delivered a good performance in 2019, mainly fueled by the growth of the education and literature segments. In education, the French reform of high school curricula significantly boosted the sales of textbooks, consolidating the leading position of our publishing houses, Nathan and Bordas, on the market. In literature, Editis had six of the ten best-selling authors in France, including Michel Bussy, Marc Levy, and Raphael Giordano. In 2019, Editis also continued to enrich its catalogue through acquisitions in literature and essays, as well as in graphic novels and comic books. As I often say, all good stories start with a book. Books can easily be extended to other creative universes. As a result, many joint projects have been already put in place between editors and other entities of the group. With this kind of initiatives, Vivendi is bringing back an appetite for reading and boosting the publishing market which has started to rebound. As good things always come in pairs, we also completed the acquisition of the pay TV company M7 last September. With a turnover of more than 400 million euros, M7 is one of the largest pay TV companies in Europe, operating in Benelux and Central Europe. Its core business is to aggregate and distribute local and international channels via satellite and OTT platforms. Thanks to this operation, the Canal Plus Group subscriber base now stands at 20 million subscribers worldwide, including 12 million outside France. It has almost doubled in five years. Beyond this number, this acquisition will allow Canal Plus to strengthen its distribution capacity and leverage its content. Talking about audiovisual companies, Vivendi, which holds a 31.4% stake in Banijay Group, is fully supported of the merger to come between Banijay Group and Endemol Shine. As you know, Banijay entered into a definitive agreement to acquire 100% of the equity of Endemol Shine Group last October, The operation will create the largest TV production player with almost 200 production companies in Europe and in the US, as well as the rights for close to 100,000 hours of content. Regarding our investment in Telecom Italia, we have built more constructive relationship within the board and we are truly supportive of the positive development under Luigi Gobituzzi's leadership. We are happy to be perceived today by all parties as a committed long-term industrial shareholder. While developing its activities, Vivendi is fully committed to ensuring an attractive return for its shareholders. Since last April, 3.5 billion euros have been returned to our shareholders versus 568 million euros in 2018. The breakdown is as follows, 2.9 billion euros through share buyback and 636 million euros through dividends. Please note, that the current share buyback programme will continue until April 17th for the remainder of its authorisation. Let me conclude by saying a few words on our shareholders' meeting which will take place in two months on April 20th. Our shareholders will be asked to vote on two resolutions related to share repurchase. The first one focuses on the renewal of the authorization to repurchase Vivendi shares within the limit of 10% of the share capital, and the second one concerns the authorization to purchase shares by the way of a public share buyback offer . Vivendi also proposes to distribute an ordinary dividend of €0.60 per share, representing an increase of 20% over the dividend distributed with respect to 2018 and a yield of 2.4%. To sum up, 2019 was marked by many key achievements and confirmed Vivendi's excellent momentum. None of this would have been possible without the commitment of all our teams and talents around the world. A lot was achieved in 2019. There is still a lot to do. However, we have an advantage that many other groups don't. Time. We are not interested in short-term strategies. With the support of our main shareholder, the Bolloré Group, and the Supervisory Board, we all share the same vision, building an integrated industrial group over the long term. As we like to repeat, the Vivendi project is a marathon, not a sprint. The good thing is that we have all the skills needed to run a full marathon. Focus, stamina and vision. Thank you for your attention. I will now hand over to my friend Hervé.

Thank you very much, Arnaud. Good evening to everyone. It's my pleasure to present to you our financial results for 2019. Let's begin on slide 13 with the impact of consolidation scope changes and currency fluctuations on our growth rates, as shown in the first table of this slide. The main changes in the scope of consolidation were the consolidation of EDT since February, and the integration of M7 at the Canal Plus Group level since mid-September. Regarding the change in currencies, the US dollar was up 3.6% against the euro. Therefore, this year, FX had a positive impact of 200 basis points on revenues, mostly at the UMG and Avas levels. Let me remind you that 2019 results reflected the initial application of IFRS 16 related to lease contracts and that the comparative period has not been restated. Before going through the performances of different businesses in detail, let's begin with the P&L on slide 14. As you can see, Vivendi's 2019 performance was very strong with revenues reaching almost $16 billion, up 14%, and EBITDA of 1.5 billion up 18.5%. This strong performance was supported by the continued growth of Universal Music and significant operating leverage. EBIT increased on par with EBITDA. But let me highlight the two main changes in the P&L compared to 2018. First, Other financial income and charges in 2019 primarily included the revelation of our stakes in Spotify and Tencent Music. Last year, this item included the write-down of the investments in Telecom Italia for 1,066 million euros offset by the net revelation of our equity portfolio for an aggregate amount of 365 million euros. Next, in 2019, Vivendi also benefited from a favourable one-time tax item of 473 million euros, resulting from a favourable decision from the Conseil d'Etat regarding the use of foreign tax credits upon exit from the Benefice Mondial Consolidé tax system. Excluding this impact, the effective tax rate reported to adjusted net income remained stable at 20%. So, 2019 earnings attributable to Vivendi shareholders amounted to around 1.6 billion, a 12 and a half fold increase. As a reminder, 2018 was impacted by the write-down of our Telecom Italia shares and did not benefit from the recognition of the 1.1 billion euro capital gain on our Ubisoft interest sale, which was directly accounted through shareholders' equity under IFRS rules. Finally, adjusted net income, which better reflects the group's operating performance, amounted to 1.7 billion, an increase of more than 50%. On slide 15, we can see the evolution of our cash position during the year, which mainly reflects the return to shareholders for a total amount of 3.3 billion, including dividends and share buybacks, the acquisition of Editis and M7, and the cash received from the sale of the remaining Ubisoft stake in March. The business unit generated operating cash flow of 903 million euros and interest and taxes paid amounted to 336 million euros. At the end of the year, net debt was €4.1 billion, and in the first half of 2020, we will likely receive cash proceeds of around €3 billion from the sale of the 10% stake in Universal Music's share capital to the Tencent-led consortium. On a pro forma basis, the net debt appears to be slightly above €1 billion. available credit lines of 2.9 billion as of February 10th, and the market value of the listed equity portfolio was 3.9 billion at the end of 2019. Details on the debt and the maturity of our bonds are given in appendices of our slides. Moving to balance sheet on slide 16, the most notable change compared to the opening balance sheet as of January 1, 2019, is an unfavorable change in the consolidated equity, mainly related to the dividend paid and the share buybacks carried out since May. It's worth noting that the net debt represented only 25% of the equity. Regarding assets, our financial investments decreased slightly due to the sale of the remaining stake in Ubisoft, partially offset by the revolution of the interest in Spotify and Tencent Music. The increase in the other assets on the balance sheet, especially Goodwill, is mainly attributable to the acquisition of Editis and M7. But in a nutshell, we have a very sound balance sheet. Going to slide 18 on performances by business units, which highlights the outstanding performance delivered by Universal Music. In 2019 Vivendi's revenues amounted to over 15.9 billion, an increase of 2 billion euros, mainly thanks to Universal Music, as well as to the consolidation of Editis since February. In organic terms, Vivendi's revenues increased by 5.6%, mainly due to Universal Music's organic revenue growth up 14%. The second table shows the EBITDA growth. We ended the year with an EBITDA of more than 1.5 billion euros, Vivendi's profitability significantly improved in 2019, driven by operating leverage at Universal Music. Now let's dive deeper into the key performance of metrics for each business unit, starting with Universal Music on slide 20. Universal Music experienced unprecedented commercial and creative success in 2019. As you can see, Universal Music's revenues continued to grow at a robust pace, up 14% over the year, after a 10% increase in both 2017 and 2018. Umerger Universal Music annual revenues are now above 7 billion euros. This continued strong progression comes in particular from the record and music segment, driven by the strong performance of the team in a context where growth of streaming and subscription remained very dynamic with an impressive 21.5% jump in 2019 benefiting from the success of Billie Eilish, Post Malone, Ariana Grande among many other artists and listed by Arnaud. This record year is all the more impressive considering the increase in comparison basis and the 37% growth rate achieved in 2018. As you can see on the right hand of the slide, along with the streaming and subscription, all of its other activities contributed to its growth. In a market that has been in structural decline for several years, physical sales were strong in 2019 due to the soundtrack from A Star Is Born, multiple albums from Queen, the anniversary release of Abbey Road from The Beatles, as well as releases in Japan. Publishing achieved 9% growth, driven by streaming and subscription. Merchandising performed exceptionally well this year, jumping 73%, driven by higher touring activity as well as better direct-to-consumer income, and also the acquisition of Epic Rights at the end of 2018. On the next slide, 21, we will focus on Universal Music profitability. Universal Music generated EBITDA of 1.1 billion euros in 2019, which is a 22.3% organic growth. Since 2016, substantial operating leverage on the sustained expansion of streaming and subscription led to the EBITDA improvement. On the right of the slide, you can see that As the scale of our subscription and streaming revenues continues to rise, growth in absolute figures accelerated, picking up more than 700 million euros of additional revenues in 2019. On the left hand of the slide, you can see that the growth of EBITDA continued to accelerate, reaching plus 22.3% in 2019. A significant portion of this growth came in the first part of the year, the second part being more in line with last year. Going to slide 22, you can see all of Universal Music's key financial figures for the year, which we have already gone through. To complete the overview of Universal Music's performance, let me comment on its cash flow generation. UMG's CSFO reached €704 million in 2019, a decrease of 16% year-on-year, but this is mainly due to several important artist catalog acquisitions. These strategic investments enhance Universal Music's portfolio of talent and content and will generate future revenues. Excluding these items, the cash conversion rate, which is CFFO over EBITDA ratio, was in line with 2017 and 2018 at almost 90%. You can find all the details regarding business unit CFFO in the appendix of these slides. Moving to CanalPlus Group, starting with the overall subscriber base on slide 24. As already communicated at the time of our Q3 earnings release, we have adapted the subscriber base metrics to better reflect the CanalPlus business model. Canal Plus has been evolving from an aggregator of content to an aggregator of apps, notably by entering into numerous distribution agreements. These deals will establish Canal Plus as the best gateway to the content most desired by French customers. The subscriber base includes individual, wholesale and collective contracts in all territories. As shown in the chart, Total subscribers to Canopus offers worldwide exceeded 20 million at year end 2019, and international subscribers now represent more than the half of the subscriber base. On the right hand of the slide, you can see the subscriber base growth trend with an acceleration of international operations, thanks to the integration of M7 subscribers and the organic growth in Africa. In the meantime, the decrease in the French subscriber base was reduced to less than 200,000 in 2019. In aggregate, Canal Plus Group gained more than 3.1 million subscribers in 2019. Let's look in more detail at the evolution of the international subscriber base on slide 25. This international subscriber base continued to post-sustain growth with 3.3 million new subscribers, including individual, wholesale and collective subscribers. As you can see from this graph, Canal Plus Group is gaining subscribers in all territories, Africa, Europe and Asia. Moving to the Canal Plus subscriber base in France on slide 26. In mainland France, the total subscriber portfolio, including subscribers resulting from partnerships with telco operators and collective contracts, reached 8.4 million at year-end 2019, compared to 8.6 million at the end of 2018. This evolution is notably due to the end of the two-year commitment period for the first cohorts of clients who subscribed to the new offers launched at the end of 2016. This negative effect mostly impacted the subscriber base in Q1 2019. However, since the second half of this year, the commercial trends have been improving with better recruitment and a deceleration of cancellations. As a result, the number of subscribers to Canal+, which is a nucleus of our business, recorded a net increase of 72,000 in 2019. Turning to Canal+, Group's key figures on slide 27. In 2019, Canal+, Group's revenues were 5.3 billion, up 2% compared to 2018. Revenues from the international operations saw strong organic growth of 6.1% thanks to the good performances of the individual and wholesale subscriber base. Revenues in mainland France fell slightly, down 2.8% at constant currency and perimeter, due to the decline of the self-distributed individual subscriber base. Studio Canal's revenues were $434 million, down 12.8% year-on-year due to fewer theatrical releases compared to 2018. The Canal Plus Group's EBITDA before restructuring charges was 435 million euros in 2019, including the positive impact of the M7 acquisition. In the context of TAF situation in France, as announced in July 2019, Canal Plus Group continued its cost optimization efforts with a transformation plan in France. The new organization includes the relocation of the teams to a single new building in 2021, instead of the three current sites, and a voluntary redundancy plan involving up to 492 employees, which represents a large part of the 92 million euros restructuring charges booked in 2019. The Canal Plus Group decreased by 35% to €167 million due to higher investment in content as well as in set-top boxes. The new high-definition G9 set-top box is a key driver for new equipments and leads to a much better user experience as well as a decrease in the churn rate. Going to slide 29, and Avas Group performances. Avas Group reported solid performance in 2019. Net revenues increased by 2.8% to more than 2.2 billion euros. Acquisition contributed plus 1.3% to revenue growth, and exchange rates had a positive impact of 2.5%. Net revenue organic growth for the full year 2019 was down 1% compared to 2018, a satisfactory performance in the current contracting contrasting sector environment, and against the high comparison basis in Q4 2018, we had plus 4.8%. This performance was sustained by the media businesses and strong performance from creative pure players like BOTC and Rosa Parks, like marketing at Avast Edge, as well as healthcare communication. Regarding profitability, EBITDA before restructuring charges was €260 million in 2019 compared to €245 million in 2018. In 2019, figures included the positive impact of the initial application of IFRS 16 for 15 million euros. However, it's important to emphasize Avas' very good cost control. Moving to slide 30 on Avas' strategic investments. In 2019, Avas' acquisitions were focused in three areas. In creativity, first with the acquisition of Bosman in France, Buzzman is acclaimed for its creativity and its buzz ads, with leading brands like Burger King, Ikea, L'Oréal, Boursorama Bank, among many others. Next, consultancy with the acquisition of one of the UK's leading management consultancies in business transformation, called GateOne. And finally, in India, where Avas has tripled its position in India with the acquisition of three leading agencies in 2019, ThinkDesign, Langor and Showbiz. Thus, Avas will be in a good position to benefit from the economic dynamism of this region. For the record, every year, Avas makes targeted Bolton acquisitions for a limited amount of cash, representing less than 40 million euros in 2019. These acquisitions can either expand the geographical presence of the network or strengthen AVAS expertise in specific fields. Moving to slide 31, focused on net revenue organic growth by geographical region in 2019, the North American agencies reported positive organic growth thanks to the media business, AVAS Media, performance marketing, AVAS Edge, and also healthcare communication with AVAS Health and Youth. In Europe, United Kingdom, Germany, Italy, and Portugal reported strong performances, while business in other countries has slowed down or decreased. Latin America continued to benefit from positive organic growth, driven mainly by Mexico, Peru, and Argentina. To conclude on AVAS 2019 key figures, we can say that net revenues increased by 2.8% to more than 2.2 billion euros, EBITDA's federal structuring charges were 225 million euros, up 4.5%. CFFO reached an impressive 239 million euros, an increase of 3.8% year-on-year, thanks notably to the improvement of the working capital. The CFFO over EBITDA ratio was above 100%, showing the strong cash flow generation and the solidity of the Avas business model. Going to slide 33 on Editis, Vivendi has a fully consolidated Editis since February the 1st 2019. Editis revenues were 687 million for 11 months, up 6.3% pro forma. In a difficult market environment, literature grew 2% thanks to best selling authors such as Michel Bussy and Mark Levy. Education revenues rose sharply, up 16.8% thanks to the reform in the high school curricula. Distribution revenues related to third-party publishers are increasing as well, up 4.2%. EBITDA was $52 million for 11 months, a pro forma increase of 47% year-on-year due to the rise in revenues and good cost control. The other businesses in slide 35 generated an aggregated revenues of 400 million euros, including corporate costs. EBITDA for these businesses represented a loss of 218 million euros. More precisely, Gameloft's activities were impacted by the postponement to 2020 of three major smartphone games initially planned for the second half of 2019. and the current situation of the mobile gaming market with the new games. Vivendi Village performed well in 2019, with live activities and ticketing sales continuing to increase. EBITDA was impacted by the development in Africa of a network of venues under the Canal Olympia brand. Finally, a new initiative, which comprises activities in the launch phase, such as Dailymotion and Group Vivendi Africa, recorded revenues of 71 million euros compared to 66 in 2018. This concludes our presentation of 2019 results. Thank you very much for your attention. We are now ready to take your questions.