Vivendi Se Unsp/Adr

Hello, good evening, everyone, and welcome to the Vivendi half-year 2020 results presentation. This conference call will be hosted by Mr. Arnaud de Prefontaine, 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 will 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 Bruyfontaine. Please go ahead, sir. Your line is open.

Thank you very much and hello, good evening everyone. Welcome and thank you for joining us today. First of all, I hope that you are all keeping healthy. I would like to invite you to read carefully after the call the disclaimer on slide two and on slide three, the information notice related to the impact of COVID-19 on our activities. Thank you in advance. Like any company, We have been facing an unprecedented situation in the past few months. We have had to adapt to the unknown because nothing prepares you for this. However, one thing we do have is a resilient business model which has enabled us to announce today good financial results for the six months of 2020, six first months of 2020. Hervé will share more details in a few minutes. It is no surprise that the lockdown has significantly affected our businesses related to advertising, publishing, or live events. Yet, we have delivered a solid performance mainly driven by Universal Music Group, UMG, thanks to its subscription-based activities and by Canal Plus Group, which achieved strong growth in its international operations. As a group, we succeeded in increasing our revenue, plus 3% compared to the first half of 2019. In addition, our adjusted net income grew by 5.4%, reaching nearly 600 million euros. And this increase doesn't include the capital gain of 2.4 billion euros resulting from our decision to begin opening the UMG share capital. The last six months have also enabled Vivendi to strengthen our financial position. Our net debt decreased from 4.1 billion euros at the end of 2019 to 3.1 billion euros at the end of June 2020. The first half of 2020 is a great illustration of how Vivendi has kept moving forward in challenging times. Let me give you two examples. The first one is the opening of UMG's capital. At the end of March, Vivendi concluded an agreement with a Tencent-led consortium for strategic investment of 10% in UMG at a total equity valuation of 30 billion euros. We are very pleased to welcome Tencent as a great new partner and are looking forward to the tremendous growth opportunities offered by this cooperation. The transaction completed in March is only a first step. Following our previous announcements, we are pursuing the process of potentially selling additional minority interest in UMG. And, as you know, an IPO is scheduled for early 2023 at the latest, or even before, if possible. The second example. is the closing of the Endemol Shine Group acquisition by BunnyJ. This acquisition has created the largest international player in audiovisual content production and distribution. We are very happy to now own 32.9% of the new combined group. This investment perfectly fits our ambition to build a world-class leader in the content industry. While progressing along our strategic roadmap, we have continued to deliver value to our shareholders. From January to end of June, 1.4 billion euros were returned to the Vivendi shareholders. The breakdown is as follows. 690 million euros through the payments of the six cents dividend per share approved at the last shareholders meeting. and 719 million euros through our share buyback scheme. The current share buyback program runs until the end of October. It covers a maximum of 10% of the share capital at the maximum purchase price of 26 euros per shares. Coming back to my introduction, let me share with you how we are preparing for the weeks and months to come. Of course, there are uncertainties about the evolution of the health crisis as well as about the global economic context. We need to be cautious. That being said, we are already seeing some tentative recovery signs on our most impacted markets. For example, as soon as bookshops reopened in France, consumers were back. Editis revenue grew by 38% in June compared to June 2019. More generally speaking, we remain confident. Vivendi has unique assets to succeed. First, we can rely on a coherent and diversified model, which is a real strength in the current context. Being well established in many entertainment segments and in many countries makes it possible to offset difficulties in one market with a strong performance of another. Second, Most of our activities were already strongly digitized before the crisis, which has limited the impact of the lockdown. In addition, we are less exposed in the vague areas of the economic situation thanks to the strength of our subscription-based activities. They help guarantee regular income over a sustained period of time. It is particularly true in music and TV. Third, We are driven by a culture of agility. Our group is made of entrepreneurial teams who stay very close to their business and can make the right decision accordingly. The crisis has demonstrated our ability to quickly adapt to changing environments and specific situations. To conclude, I would like to take this opportunity to thank once again the 45,000 employees of our group for their commitment Thank you for your attention, and it's my great pleasure to now hand over to my friend Hervé.

Over to you, Hervé. Thank you very much, Arnaud, and good evening to everyone. It's my pleasure to present to you our financial results for the first half of 2020. Just before beginning with impacts of changes in the consolidation scope and currency fluctuation on our growth rate, Let me say a few words on the impact of the COVID-19 crisis on our businesses. As Arnaud recommended, please read the disclaimer on slide 3. In a nutshell, we first say that the health crisis is having a limited impact on our main activities. Second, that it is still difficult to assess how it will impact the rest of the year. Third, that we did not identify any indications of a decrease in the recoverable amount of our assets with a non-definite life. And four, that our balance sheet is very healthy. Back to the first table of this slide, you can see that this earth, the scope effect is much more important than the currency effect. The main changes in the scope of consolidation were the acquisition of EDT since February 2019 and the integration of M7 at the Canal Plus Group level since mid-September 2019. Regarding the change in currencies, the US dollar was up 4% against the euro. Therefore, this half, SX had a positive impact of 80 basis points on our revenues, mostly at the UMG level. However, the trends have reversed in the recent weeks, and should the U.S. dollar decline continue, the FX impact could be reversed in the next quarters. On slide 12, we have a summary of the key financial metrics for H1 2020. As announced by Arnaud, Vivendi's financial results are good, with a good resilience of our revenues driven by the subscription activities of UMGs and Canal Plus Group. a 2.4% increase in EBITDA, an adjusted net income going by more than 5%. The IFRS results show the same positive trends with a 2.3% increase in EBIT and a net profit that reached 757 million euros. Cash flow generation was also strong in H1 with a CFFO of 338 million euros an increase of €302 million compared to the same period of 2019. I will comment on this variation later. Finally, our balance sheet indicators are solid, with equity amounting to more than €17 billion after the recognition of the capital gain of the sale of 10,000 of UMG for €2.4 billion. And for the same reason, net debt was reduced to 3.1 billion euros at the end of June 2020 compared to 4.1 billion euros at the end of 2019. Going to slide 13 and the P&L. Revenues EBITDA and EBIT will be commented later in the section related to the performances by business units. Below a bit, let me highlight the two main changes in the P&L compared to H1 2019. First, income from equity affiliates amounted to 76 million euros and notably included Vivendi's share of the capital gain recognized by Telecom Italia on the Inuit transaction. Next, other financial income and charges this half primarily included the revaluation of our stakes in Spotify and Tencent Music. So, earnings attributable to Vivendi shareholders amounted to 757 million euros, an increase of 45%. At this stage, it's also worth noting that the P&L did not benefit from the recognition of the 2.4 billion euro capital gain on the sale of 10% of UMG. which was directly accounted for through shareholders' equity in accordance with IFRS rules. Yet, you can see the impact of this sale on the non-controlling interest, which increased to minus 84 million euros, reflecting the entry of Tencent into UMG's share capital. Adjusted net income, which better reflects the group's operating performance, amounted to €583 million, an increase of 5.4%. Moving to our balance sheet on slide 14. In short, our balance sheet is in very good shape. The most notable changes compared to the 2019 year-end balance sheet related to the impact of the sale of 10% of UMG as already mentioned. This positive item was partially offset by the dividends paid in Apple on the share buybacks. Consolidated equity increased to 17.4 billion euros and net debt decreased to 3.1 billion euros. Consequently, the net debt to equity ratio decreased to less than 18%. As for assets, Our financial investments increased mainly thanks to the revelation of the interest in Spotify and Tencent Music. On slide 15, we can see the evolution of our debt position during these hours, which mainly reflects the cash received from the sale of 10% of UMG in March, the return to shareholders for a total amount of 1.4 billion, including dividends and share buybacks, which amounts were already recalled by Arno. And third, the acquisition of a stake in Lagardère. As of July 10, we owned 21% of Lagardère's share capital. Finally, the business unit generated operating cash flows of €338 million. And at the end of the year, net debt was €3.1 million. The analysis of this amount can be found on the next slide. Out of the €3.1 billion in net debt, Vivendi's gross cash position amounted to €2.6 billion and gross debt was €5.5 billion. As shown by the chart at the middle of the page, the maturities of the bonds are spread over time until 2028 and the debt average maturity is quite long, 5 years. Also, at the end of June 2020, Vivendi has available credit lines of $3.7 billion, and the market value of our listed equity portfolio was $4 billion. In total, Vivendi's liquidity position is solid, as confirmed by the credit rating agencies with stable outlooks. Going to slide 18 and the performances by business units, which highlights the good performances delivered by UMG and Canal Plus Group. In H1 2020, Vivendi's revenues amounted to over €7.6 billion, an increase of more than €200 million, mainly thanks to UMG and the consolidation of M7. In organic terms, Vivendi's revenues decreased by 2%, mainly due to the impact of the pandemic on Avas, Editis and Vivendi Village. The second table shows increase in EBITDA of 29 million euros. UMG grew 16.6% organically and Canal Plus groups EBITDA before restructuring charges also grew 16% excluding the M7 contribution. The growth of Universal Music and Canal Plus was partially offset by the slowdown of the other businesses. Going to slide 19. Unorganic Growth by Quarter The second row of figures show the impact of the pandemic on our businesses. After a positive first quarter, you can see that UMG and Canal Plus Group were quite resilient in the second quarter. As anticipated, there was a decline in the revenues of Avas and some of the other businesses, which were strongly impacted by COVID-19. However, it is worth noting that the Gameloft revenues increased sharply during the lockdown of the second quarter, with a plus 6.5% increase. We also saw a significant rebound in edited revenues in June, with a plus 38% increase following the end of the lockdown in France. Going to slide 20, with the operating cash flow generation. In H1 2020, Vivendi's CFFO increased of more than 300 million euros, mainly thanks to the performance of Canal Plus Group, which benefited from the postponement of content investments, notably at Studio Canal, linked to the pandemic. Let me also remind you that the cash flow generation at Vivendi is highly seasonal for almost all our businesses. Cash flow generation in H1 at Universal Music Group, Avas and Editis, is usually much lower than H2 due to the seasonality of the businesses themselves. Let's move to the next slide to have a more in-depth look to the breakdown of this cash flow, because this slide provides the details of our cash flow conversion from the EBITDA level. The EBITDA increase reflects the good operating performances we already saw in the previous slides, but as you can see, the bridge from EBITDA to CFFO Our CFO calculations include the content investments paid. At Vivendi, we continuously invest in artists' content and rights to fuel our future growth. And especially at Universal Music, we pay advances to artists that are recouped over time after the albums are released. We also buy catalogues when the right opportunities arise. So, taking into account these investments and also favorable change in working capital, notably at Canal Plus Group level, CFFO in H1 2020 amounted to €338 million. Now, let's take a closer look at the key performance metrics for each business unit, starting with Universal Music on slide 24. As already mentioned, UMG's revenues continued to increase this half, up 3.5% organically, thanks to the growth in streaming and subscription, which generated an additional €250 million in revenues in H1 2020. New releases from The Weeknd, Justin Bieber, King & Prince, Eminem and Lil Baby, as well as continued sales from Billie Eilish and Post Malone, drove the digital music consumption on platforms. This half year, streaming and subscription represented more than 65% of recorded music revenues compared to 60% in H1 2019. As you can see on the left-hand of the slide, physical sales and merchandising were more affected by COVID-19. We'll focus on the impact of the pandemic on Q2 figures on the next slide. On the right-hand slide, We focus on UMG's profitability, which improved by 160 points, driven by revenues growth and cost control. On this slide, you have the detail in the Q2 revenues and the pandemic's impact of the different revenue lines for UMG's. Trimming and subscription revenues were up 8.5% in Q2. The decrease in the growth rate compared to Q1 is due to the impact of COVID-19 on the ad-funded streaming business. The subscription business is inherently more stable and resilient. Other digital sales included the receipt of a digital royalty claim in Q1 that accounted for a little more than 1% of recorded music growth in H1. As expected, physical sales declined 20% 22% in H1 2020, of which 39% in Q2. Licensing revenues include synchronization income as well as third-party complication license income and other revenue diversification opportunities. The result may vary from quarter to quarter. Publishing was up 24% in Q2, driven by subscription and streaming, as well as the receipt of another digital royalty claim. Excluding this settlement amount, publishing revenue grew over 6% in Q2 2020. Finally, merchandising revenue declined by almost 62% in Q2 due to the COVID-19 pandemic's impact on touring and retail. You can see all UMG key financial figures for the period, which we have already gone through. Regarding EBITDA, let me just add that the two one-time items I just mentioned accounted for less than half of the margin improvement, meaning that EBITDA grew 9.1% excluding these items. To complete the overview of Universal Music Performance, let me comment on its cash flow generation. UMG's CFFO reached €60 million in H1, an apparent decrease mainly due to content investment and the timing of artist payments. These strategic investments enhance UMG's portfolio of talent and content and will generate future revenues. Excluding these investments, the CFFO amounted to €449 million, representing an increase of almost 21% compared to last year, on par with the increase of EBITDA. Moving to CanalPlus Group, starting with the overall subscriber base on slide 27. On the left hand of the slide, you can see that total subscribers to CanalPlus offers worldwide exceeds 20 million. The international subscriber base growth notably accelerated thanks to the integration of M7 subscribers and the organic growth with more than half a million additional clients in Africa. Now, international subscribers represent more than half of the subscriber base. Meanwhile, the French subscriber base stabilized, as we will see in the next slide. In aggregate, Canal Plus Group gained more than 3.2 million subscribers compared to June 2019. On the right, you have the evolution of the EBITDA before securing charges, which was 329 million euros. The 93 million euro increase reflects the positive impact of the M7 acquisition and of the efforts made over the last four years. As a reminder, since Canal Plus has initiated its cost optimization plan, it has generated around 1 billion cumulative savings in four years from its 2015 cost base. Moving to the Canal Plus subscriber base in mainland France on slide 28. The subscriber portfolio, including subscribers resulting from partnership with Telco and collective contracts, reached 8.5 million at the end of June 2020, representing a slight increase year on year. Since the second half of 2019 and even during the lockdown, the commercial trends have been improving with the deceleration of cancellations and better recruitments, helped by the launch of This Day Plus in April, the return of English Premier League and the distribution deal with Beansport. On the slide 29, you can see the details of Canal Plus Q2 revenues and the contrasted situation. In Maine and France, revenues decreased 3.5% in a context marked by a downturn in the advertising market due to the COVID-19 pandemic. And Studio Canal revenues were down 41% in Q2, due to the closing of cinemas over the entire period. However, the total lack of income from fresh film was partially offset by sales of films and series from the catalog. Meanwhile, international operations continued to increase, excluding the M7 acquisition revenue grew 1.7% in Q2 2020. Turning to Canal Plus Group's key figures on slide 30, The Canal Plus Group EBITDA was €300 million in H1 2020 after restructuring charges. The €92 million restructuring charges booked last year in the context of the transformation plan were augmented by €29 million in the first half of this year. Finally, bear in mind that the sharp increase in CFFO already mentioned is mainly linked to temporary effects linked to the pandemic in Q2 that may reverse in the coming months. Moving to slide 32 on Ava's key figures. As anticipated, the second quarter of 2020 was significantly impacted by the COVID-19 pandemic. This unprecedented crisis has affected the entire communications industry as some advertisers were forced to postpone or cancel a number of campaigns. At Avas, all divisions felt the impact, except for Avas Health & You, which continues to deliver positive performance thanks to the gains in market share achieved last year. Net revenues were 977 million euros, down 11% organically. In terms of regions, at the end of June, North America delivered a satisfactory performance thanks to a resilient market and growth in health communications. Europe was severely affected by the pandemic. However, the agencies in the United Kingdom and Germany have proven more resistant than others. Both Asia-Pacific and Latin America recorded sharp declines. For the first half of 2020 EBITDA was 46 million euros compared to 108 million euros for the same period of 2019. This change was due to the sharp downturns in activity reported by both the media and creative divisions. A cost prediction plan was implemented, as we'll see in a few moments. Slide 33 presents Avas organic growth quarter by quarter and by geographical area, focusing on the second quarter on Avas two most significant geographic areas. We can say that North America was down 8% organically, and Europe was down almost 23%. Those two areas represent almost 90% of the net revenues at the end of June 2020, and perform in line with many European competitors. The next slide, which is 34, focused on the bridge to extend the EBITDA variation between June 2019 and June 2020. EBITDA was 108 million euros at the end of 2019, You can see the impact of the organic decrease in the net revenues for €123 million. It has been partially compensated by the positive impact of the cost reduction plan for €58 million in this semester. This cost reduction plan was implemented in both the media and the creative division in the early weeks of the crisis. By the end of June, Avas Group has already absorbed nearly half the decline in revenues before restructuring costs. Accordingly, EBITDA came at 46 million euros at the end of June 2020. To finish on Avas, let's look at slide 35 with the different breakdowns of net revenues. We can see on the left that Avas has a well-balanced sectoral portfolio. Health and Wellness reached 27% compared to 19% at the end of December 2019. The other categories are represented equally. On the right, you have the breakdown by geographical areas. We can note that the increasing weight of North America, which stands at 42%, bringing it closer to the level of Europe, which stands at 46%. To conclude on Avast, we can say that the group quickly reacted and adapted thanks to its agility and flexibility. As the economic context is still complicated, Avas remains cautious about the evolution of its businesses for the second part of the year 2020. On the profitability side, its EBITDA should be supported by the full benefit of the Cost Reduction Program. Going to slide 37 on Editis, Livendi was has fully consolidated Editis since February 2019. Editis' revenues were €262 million in H1 2020, down 15% pro forma. The COVID-19 pandemic impacted all of Editis' activities with the shutdown of the book retailers. However, after the lockdown, Editis enjoyed a strong recovery with revenue increase of 38% in June You can see the curve on the right of the slide. This positive trend continued in early July. Finally, let me remind you that Editis is structurally and heavily weighted to the second half of the year with the final part of the high school curriculum reform, the impact of which should be observed in Q3, summer sales that could be higher than usual since people will stay in France for their vacation, and novel sales being strongly linked to the new releases in the autumn as well as Christmas sales. Let me now give you the main facts regarding the other businesses. Together they generated revenues of €162 million. For the second quarter of 2020, Gameloft's revenues were €69 million, up 6.5% year-on-year, with sales on OTT platforms up 16.3% thanks to the stay-at-home measures. On the contrary, the lockdown measures imposed in Europe and Africa during the first half of 2020 had a significant impact on Vivendi Village ticketing and live activities. For the conclusion, this concludes the presentation of our half-year 2020 result with the good results driven by UMG and Canal+. During this half, we also finalized the first step in the opening of Universal Music Share Capital. Please note that we will release our Q3 2020 revenues on October 20 after market close, and our shareholders meeting next year will be convened on June the 27th. Thank you very much for your attention, and we are now ready to take your questions.