Vivendi SE (VIV) Earnings Call Transcript

Good evening, everyone, and welcome to the Vivendi First Half 2023 Earnings Presentation. This conference call is being hosted by Mr. Arnaud de Puyfontaine, Chairman of the Management Board and CEO; Francois Laroze, a member of Management Board and CFO. As a reminder, this conference is being recorded. [Operator Instructions] I'd like to turn the call over to your host today, Mr. Arnaud de Puyfontaine. Sir, please go ahead, your line is open.

Thank you very much. Hello. Good evening, everyone, and welcome, and thank you for joining us for the Vivendi 2023 First Half Earnings Presentation. Before handing over to Francois, I would like to highlight the quality of our operational results. Revenues increased by 3.7% compared to H1 2022 with an acceleration of growth in Q2 and group EBITDA increased by 7.7%. This semester can be characterized by 2 key words in line with what we have achieved since 2014, solidity, and dynamism. First, solidity. Our businesses have shown their robustness in challenging environments may be the intensive competition on its several markets for Canal+ Group. The challenges faced by the advertising sector, rising paper prices for Prisma Media, downturn in the gaming market, mobile and of course, the macroeconomic and geopolitical uncertainty impacting every sector. Their performances illustrate their resilience as well as their ability to transform themselves to adapt to a fast-moving environment. On a corporate level, our solidity is expressed through the resistance of our share price despite the exit from the [indiscernible]. Over the long term, our stock performance illustrates this resilience. As you can see on the chart, our share price has risen by 123% with dividends reinvested between June 2014 and July 2023 compared to plus 116% for the CAC. The second key word I wanted to stress today is dynamism. Vivendi is a fast-growing group in all its businesses. Let me just take a few examples. Canal+ has made recent significant moves pushing its international expansion one step further. In June, the group invested in Viu Asia's leading streaming platform by taking a 26% stake. Asia is a continent with strong growth prospects, particularly in OTT. Last week, we also announced the acquisition of a 12% stake in Viaplay, the leading pay TV company in the Nordic countries, a company that is very complementary to ours geographically. As you know, we also have made an important stake in MultiChoice 32.6% as June 30. In addition to its excellent sales momentum Havas has continued to make acquisitions at a steady pace. 4 new agencies have already joined the group in 2023. Of particular note is the acquisition of a majority stake in Uncommon the U.K.'s most awarded independent creative agency and recently named International Agency of the Year by Advertising Age Magazine. Prisma Media's policies of acquisitions and launches is also on the offensive with a majority stake in MilK, publisher of high-end home and fashion magazines and also the success of the new launches, Mortelle Adèle and Les clés de mon Energie, together with Harper's Bazaar, that demonstrates the team's ability to execute in unexplored fields so far, [yachts] and Luxury. At the same time, Prisma Media continues to digitalize and create new growth opportunities. You certainly read that we have just entered into exclusive negotiation for the acquisition of the assets of [indiscernible] Digital Services division. As for Gameloft, the company is benefiting from its strategic shift towards PC console games, which accounted for 37% of Gameloft total first half revenues. All our businesses continue to demonstrate constant innovation and agility, thanks to the quality, enthusiasm and dedication of our teams around the world. This explains our dynamism, which is set to continue. The second half of the year promises to be just as active. On the Italian front, first, as Telecom Italia's largest shareholder, Vivendi will continue to ensure the fair valuation of the company's assets while preserving the long-term strategic vision, the sustainability and the interest of the company and all its shareholders. As the process with the Lagardère Group, we are now entering the final phase. On June 9, we received approval from the European Commission to complete our proposed transaction with Lagardère. This approval is contingent upon the completion of Vivendi's commitments, the sales of Editis and the Gala Magazine. Everything is well on track. The agreement with International Media Invest for the sale of Editis was signed mid-June. The European Commission will have to approve EME as a suitable purchaser. The transaction also remains subject to IMI obtaining the required merger control clearances in the relevant jurisdictions. As for Gala, yesterday, we entered into a put option agreement for itself to the sale to the Figaro Group. The transaction is subject to information consultation procedures with the relevant employee representative bodies. The European Commission will also have to approve the Figaro Group as a suitable purchaser. We are confident that we will be able to finalize this operation by October 2023. I would like to stress that the opening of an investigation into suspicions of early implementation of Vivendi's acquisition of Lagardère doesn't affect the transaction nor does it prejudge the existence of an infringement. We have complied with the applicable regulations and concentrations, and we are committed to continuing to respect them until the complete execution of the remedies offered to the European Commission. Yet, we are looking forward to realizing this transaction, which will give our group a whole new dimension. With the addition of the Lagardère group, Vivendi would have some 66,000 employees compared to 38,000 as to the end of December 2022 with a stronger presence in key markets such as France, United Kingdom, Spain and the U.S. Annual revenues are projected to reach approximately EUR 17 billion based on 2022 results compared to around EUR 10 billion today. This will provide many opportunities to our 2 groups and represent a major step forward in our strategic project. It is safe to say that we are definitely pursuing our transformation, internationalization and integration, ambition and strengthening our leading position in culture and entertainment. Thank you for your attention. Let me now hand over to Francois.

Hi, everyone. Pleased to walk you through the Vivendi first half results, starting by the figures in a nutshell. In addition to what Arnaud just described, let's say that our EBITDA of the group is up by 7.7% to EUR 440 million and that adjusted net income is up to EUR 324 million from EUR 58 million, taking into account the good operation of our recurring businesses. In terms of financial situation, it's still very robust with a net debt of EUR 1.5 million at the end of the first half compared with an equity of EUR 17.5 billion. The cash flow delivered by the operation has been very solid, EUR 228 million, and we still have EUR 2.8 billion of available credit facilities. Let's move now to the revenues. The revenues, as we said, are up by 3.7% in gross figures, 3.2% in organic. Important to point out that the main 2 business units, Canal+ Group and Havas are delivering very strong organic growth, 2.3% for Canal+, 4.2% for Havas Group on this first half. Important to note as well that during this first half, the performance of the second quarter has been extremely strong and far stronger than the one of the first quarter. For the first quarter, we delivered 2% of organic growth and we are up to 4.3% during the second quarter. And here again, Canal+ moving from 1.2% to 3.5% and Havas from 1.9% to 6.3% are confirming this very positive trend during the first half. If we move to EBITDA now, the EBITDA is -- of the control business amounts to EUR 379 million compared with EUR 366 million last year. It's an increase by 3.5%. Canal+ is at the very same level than last year, but very strong level of EUR 337 million for the first half, Havas up by 6% to EUR 118 million. Prisma Media down by $4 million and we will come back on it and all the other businesses are doing better than last year. When we move from the EBITDA of control business to EBITDA of the group, we take into account the share into UMG and Lagardère, and we have some detail to explain this performance for the first half. Universal Music, let's remind that we take 10% of the result of the group. And we took EUR 39 million for the first half compared with EUR 66 million for the first half 2022. So it's a reduction compared with last year, even if the net earnings of the group share for the World Group UMG moved from EUR 241 million to EUR 625 million. The reason of this variance came from the elimination of the revaluation of stakes in Spotify and Tencent Music, which are not taken into our P&L. For Lagardère positive first half, which has been released 2 days ago with a strong increase of the revenues and therefore, our contribution to Vivendi EBITDA moved from a loss of EUR 20 million last year to a profit of EUR 26 million, reminding that with the seasonality, we know that Lagardère will do far better during the second half. A few words on net debt now. We moved from EUR 0.9 billion at the end of last year to EUR 1.5 billion at the end of June 2023. Let's take a few minutes on the financial investment because Vivendi spent more than EUR 400 million in financial investment, mainly in Canal+ through Viu, which has been announced very recently, a little bit below EUR 200 million, multi-choice more than EUR 1 million to increase our stake to 32.6%, but also some midsized acquisition within Canal+ in Studio for Studiocanal, mainly and in Havas. In the same time, the business units were delivering a very positive CFFO of EUR 0.2 billion, even if below the one of last year, knowing that in 2022, there have been some exceptional performances in the CFFO of Canal, which was clearly nonrecurrent. We, again, are very confident taking into consideration the seasonality of our cash that the performance of the second half will be very high and will lead to an increase of the CFO on the whole year compared with last year. Remind also that we have spent almost EUR 300 million of dividend paid to shareholders, which explains this move from EUR 0.9 billion to EUR 1.5 billion of net debt. Still on the debt always, we remind that having this net debt of EUR 1.5 billion, we have a gross cash position of EUR 1.9 billion and some bonds for EUR 3.3 billion. That's a positive moment for Vivendi, knowing that the interest on the bonds are very low, below 1%, and that the remuneration of our cash position is up month after month. It's 2.3% as an average of the first half, but it's closer to 4% for the last month of the first half. In terms of bond maturity, we remind you that we have some bonds to reimburse at the end of the year, EUR 600 million in November '23, and then EUR 850 million in 1 year time in September 2024, but we still have a long time before the reimbursement of all these bonds up to December 2028. During the first half, we have the confirmation by Moody's that our rating level, BAA2, will be confirmed. So the outlook is stable, which is good news. And we have been able to convince Moody's that the, I would say, the future performance of the group, including Lagardère can lead us to confirm this level of rating. A few words now on the business units. For Canal+, an increase by 3% of the revenues coming from all the business units, TV International, plus 2%; Mainland France, 1.7% and the extraordinary performance of Studiocanal, 21.7% of increase. In terms of subscriber base, we have reached the level of 25 million subscribers compared with 23.9 million one year ago at the end of June 2022. So it's a very strong increase, which comes from all geographies, Europe, but also Africa. Let's remind that on these 25 million of subscribers, 18.3 million are self-distributed, reminded that these self-distributed subscribers are the ones with the highest ARPU. In terms of figures by continent, we have 16 million in Europe, including 9.8 million in France, 7 million in Africa, 1 million in Asia Pacific, and 0.8 million in the other territories, including the French overseas territories, but also Haiti and Mauritius. I will go very rapidly on the new developments of Canal+ International that Arnaud has already commented just reminding that we keep on extending the network of StudioCanal all over the world with some acquisitions in the U.S.A. and in the U.K. Havas has done a very, very solid first half. As we said, 4.2% of organic growth for the whole half, 6.3% of increase of the EBITA inorganic from EUR 112 million to EUR 118 million. And as already described, a very, very solid second quarter at 6.3%. Let's remind that with this performance of 6.3%, Havas will be in the best-in-class of the first half compared with its peers, and we know that most of our peers will be far below this performance for the second quarter. The organic growth of 6.3% in the second quarter comes from all our regions, Europe, 3.4%; North America, 5. 5%; Asia, 7.6% and also Latin America, 13.4% due to major wins with new clients joining the Havas portfolio. Concerning the Havas acquisition, Arnaud already commented. Just a few words on the new brand identity that has been revealed in June and which seems to be very appreciated by our partners, clients and vendors and also the award-winning creativity with 121 awards, including Grand Prix at Cannes for the very already iconic campaign concerning Anne de Gaulle with Aéroport de Paris. On Prisma, as I said, some one-off positive revenues and EBIT explain the deterioration of the revenues and EBITDA, but also some impact of the paper price, which has been higher during the first half '23 compared with first half 2022. Nevertheless, the evolution of the paper price over the last few months confirms that the second half will be far stronger in terms of performance. For Prisma, just a few words to tell you that the duty of Gala is to try to prepare the post Gala operation in 2024. And for this, as Arnaud has already mentioned, we have a plan with some M&A, we described MilK and Ensign Digital, but also to launch new magazine that has been already described and to reshape some of our new or existing formats like Ca m'intéresse or Femme Actuelle. And all these operations should enable us to offset the negative impact of the disposal of Gala. For Gameloft, very solid figures. Revenue up from EUR 120 million to EUR 139 million. The EBITDA, which moved from minus 16% to minus 12% and very positive trend for the second half, and we are more than comfortable on the target of reaching a very positive result for the whole year 2023 taking into consideration the seasonality in this gaming business. For the other operation, ticketing live, very solid first semester of the See Tickets operation, but also the secondary business like l'Olympia, [indiscernible] , all the festivals have done very well. And thanks to this operation, the loss of last year has been replaced by the profit of EUR 7 million. The new initiatives, mainly Dailymotion and GVA are doing very well. Dailymotion reducing its losses quarter after quarter, increasing its revenue with a new app, which has been launched in May and GVA expanding its network with 12 cities in 7 countries and more than 2 million of eligible homes and business. If we have a word on Vivendi financial asset portfolio. At the end of June, the portfolio was amounting to EUR 8.4 billion, and we've received during this first half almost EUR 200 million of dividends. You know most of the stakes of the Group Vivendi, let's stop one minute on MultiChoice because we have increased, as I said, our stake to 32.6%, investing more than EUR 100 million during this first half. The new stake in Viu, 26% in Asia and a slightly increase of the Prisa stake from less than 10% to almost 12% during the first half. In terms of return to shareholders, we have delivered a dividend of EUR 260 million during the first half, roughly at the same level as last year, EUR 29 million of share buybacks, mainly due to planned -- our employee share ownership operation. During this first half, we have canceled 78 million of treasury shares as already announced during our previous call. Now the Vivendi group only owns 5.2 million of treasury shares, 0.5% of the share capital. And all these shares are dedicated to performance stock plan and employee ownership operation. Let's remind that the former shareholder meeting of the 24th of April 2023, authorized a share buyback program for up to 10% of the share capital and APRA up to 50% of the share capital, with a maximum price of EUR 16. As a conclusion and before giving you the floor for questions, let's say that this first half has been extremely strong and with an acceleration of the growth during the second quarter, that our financial situation is very solid, that we still intend to finalize the combination with Lagardère by the end of October. And hopefully, at the end of the year, Lagardère will be among the control business and not anymore among the stakes -- financial stakes, and let's also tell you that we will release our Q3 revenues on October 19. And now thank you for your attention, and we are ready with Arnaud to answer all your questions.

[Operator Instructions] Our first question is coming from Lisa Yang calling from Goldman Sachs.

I have 3 questions, please. Firstly is on your broader strategy. I think you said previously, you wanted to shift more towards the operating company rather than a holding company. And I think if you look at the group today, most of the value is still in listed and control stakes and more recently, you acquired more minority stakes in Viu and Viaplay. So I was just wondering is there any sort of change in the strategy and how you envisage that transition towards being a more operating company. That's the first question. Second question is on the capital allocation. So as you mentioned, how the authorization to buy up to 10% of your share capital. With the discount today, I think, probably be close to 50% after the VIV share price moves. So I was just wondering what would make you consider buying back stock again? That's the second question. And the third one is on Havas. I was just wondering with all your peers reporting, I think they're talking about project delays, weaker trends. Just wondering what drove the activation at Havas if you just own new business. I think at the Q1 results, you mentioned some project delays and delayed billings. I just wonder if that came through in Q2, or is that yet to come through in the second half? So any update in terms of the current trends on Havas would be great.

Maybe I will take the first, and you will take second and third. Okay. Lisa, Arnaud de Puyfontaine speaking. Well, clearly, on the agenda, we are working intensively just to change the perception of the company and to make it an industrial integrated group. But as Rome, we don't build that in only one day, and it's a work in progress. When you see our different financial participation, and since we opened the new chapter last year with our Chairman, Yannick Bollore and we implemented the new management board, and we built the Executive Board it's really to create the momentum and to achieve our goal. And there is a difference between, I would say, historic stake that we have in our portfolio like the one of the situation in Italy and others. And what we have announced in terms of momentum for Canal+, for instance, because the approach on Canal+ and the different situations is to take a stake just to be able to work in terms of strategy to work with the management team and then after to see whether there is an opportunity or not to reinforce. So it's a work in progress. So again, our intention to answer your question, Lisa, is still the same, remains the same. Perfectly understand that based on our, I would say, discount in our share price, there is a lot of probably expectation as regard to providing tangible elements, but we are working on that. And hopefully, we'll be able to share with you progress in the foreseeable future.

On the following 2 questions, Lisa, in terms of cash allocation, we will repeat what we said earlier that we have this option to buy back up to 10% of our share capital. Today, we still consider it's not the priority. As Arnaud just mentioned, we have invested a lot in operation directly related with our control business in Viu and Viaplay and the other, so I think we focus on this. We have this option to buy some shares. So we know the level of discount, but we still do not consider for the coming weeks and months. That is not the priority for us to buy back our shares. On Havas, the second quarter has been extremely strong. We have on the industry received some mixed comments from our different peers. Some are quite confident, others are more cautious. What we know is that we are not sure to be able to deliver such high growth that we delivered during the second quarter all year long. Nevertheless, for the moment, we do not see any major threats, any headwinds coming. We are quite confident to keep on growing at a good pace for Havas knowing that the performance of some of our agencies has been quite weak, as I said earlier, especially in Edge in the U.S., and they should do better in the second half. So we remain for the moment, let's say, cautiously optimistic.

Our next question is coming from Adrien de Saint Hilaire of Bank of America.

Hopefully, you can hear me well. So I've got a few questions, if you don't mind. So Arnaud, you alluded to this investigation from the European Commission and the possible fine related to gun jumping. Can you help us frame what you think the maximum risk is around this? Because I understand it could be 10% of combined sales, but maybe you have a better assessment. Secondly, UMG, if I'm not mistaken, is now trading above your book value? Is that, therefore, a level where you might consider an exit? Or do you think there is further upside here? And then thirdly, I'm just wondering what you're trying to achieve with Viaplay, what does the 12% stake bring? Because historically, to your point, you've rather taken bigger stakes in companies when you're trying to like build something. So is 12% just a starting point or not? I'm just curious.

Thank you, Adrien. So on the former question, on the first question, well, as I said, we have been informed of this investigation. I do reiterate that we followed the rule by the book as regard to the regulation. So we do consider that as we did in the past that in the future until a final decision from the European Commission we're not going to make any move in terms of taking control before the agreement to go ahead now. So what you're asking is a theoretical question. And I don't have substantial elements to answer that question because we don't think that we are going to be eligible to any fine. So we shall see. . But to put a number, there is a theoretical 10%, fine on our turnover, but that's by the book. So can't be more specific, Adrien. On the second thing and on Universal Music Group and our stake in the company, so we have seen the quality of the results that have been disclosed. We have seen the perception of the market and the trading today. And we have seen the number you put about the target price for Universal Music Group. So we're a happy shareholder, and we remain happy and truly believe that there is future growth in that business. And maybe you want to take Viaplay, Francois .

Yes, I think important things to say is that today, it's a minority stake, but none of the stake that Canal+ took over the last 12 months, i.e., MultiChoice, Viaplay and Viu are stakes which are dominant ones. Today, we are not in control position in none of them. Nevertheless, we have discussions with the shareholders, as partners, as clients, as vendors sometimes. So today, it's clearly financial stakes as we are not in control position, but it's really stakes that generates some movement in our operation of Canal+ clearly. And there have been recent discussions with MultiChoice, discussions already with Viaplay. And we view, obviously, the target of Viu is to try to bring to Viu some of our know how to help them to reach their target of going back to profitable results in the coming 2 years. So it's clearly, I would say, minority stakes, but with very operational global view. .

Our next caller is going to be Julien Roch, who's calling for Barclays.

Oui, bonsoir. The first question is on Telecom Italia. So answering Lisa's question, you said that the historic stake, including Telecom Italia were different from the new stakes that you mostly bought for Canal+ implying that you wanted to sell Telecom Italia. But you seem to not like the KKR bid. And you just said to journalists in the previous call that any offer that does not answer our questions about the future of Telecom Italia strategy will not have the support of Vivendi. So, what other questions do you have for KKR? That's my first question. The second question on MultiChoice, you keep getting more stake, but there's a rule that you can't get more than 30% of the voting rights because you're not South African. So you can't get control of MultiChoice ever. So where are you going there? Is the idea to agree with management to basically buy Africa outside of South Africa and get control there. So a question on MultiChoice. And then the last question is on Canal+. There was a leak in the French press where the employee representative again leaked the financial numbers that are given to them. And so Canal+ France is now loss-making with all the investments you've made in Netflix and Disney and Sports. Do you see a path to profitability in France for Canal+?

Bonsoir Julien. It's Arnaud de Puyfontaine. So as regards to your other question on Telecom Italia, number one, I would not draw too fast a conclusion as regard to intention on the stake. The response I brought to Lisa was just to say that the logic of our investment in 2015 on Telecom Italia and other situation is different from the approach we're currently having on the different situation that we expressed during first half with Canal+. But our agenda as regard to the stake in Telecom Italia today is to make sure that we're going to get a fair valuation for our stake, and then we'll decide what's next. We said that we wanted to be able to build a stronger development in Italy. But first and foremost, to be able to make that happen, we need to get a situation sorted as regard to Telecom Italia. As regard to the message to a potential bidder on the Telecom Italia situation, we said that the message number one; a, the jewel of Telecom Italia is its network. So if you want to separate the network from the rest of the business, you need to have a few very compelling questions to be answered like what is going to be Telecom Italia post separation from its network because if you sell the jewel, what is going to be happening next to the new, what they call ServCo. So we need those kind of answers. So it's what's going to be the MSA between the remaining part of the business and the network. What is going to be the level of employees and the level of the debt that you're going to provide to the newly formed ServCo and so on and so forth. So to make a transaction as regards to a certain kind of valuation about the network without answering that kind of question, I've got a whole list as regard to the situation. And as you know, I left the Board early this year, to be able to play the role as a CEO of the first shareholder and to defend our position in that situation. And so I want to be seen as a positive active shareholder. But for me to be able to only sell the network without answering the global strategic vision and how to implement a sustainable and profitable and value creation plan for the global company, is just procrastination. And that's the reason why we said out loudly that what we want is an operating plan to be able to step-by-step generate much higher cash flow in Telecom Italia, create the possibility to reinvolve the debt step-by-step and having different plans. So for me, the sale of the network at a price without answering this question, it's just not good enough. Now the other part of your question and my answer to the question is obviously, if there is a compelling plan. If there is a kind of a vision as regards to the future of the company, if the network were to be carved out or separated or whatever, obviously, this is the jewel of the crown. So it has to be paid a price, which based on my current information which I read in the press, is currently in the offer made by you mentioned KKR, is well, well, well below the real value of the network. So that's the current situation. And last but not least, as you know, this is a situation that is moving on a daily basis. I kept on saying that the situation of Open Fiber was a situation that I didn't see the sustainability. Well, 72 hours ago, I guess there was a kind of a call as regard to the problem of financing of this Open Fiber, which has been created in 2016 as a competitor to the network of Telecom Italia. So this is an example, if needed, which is bringing substantial elements as regard to there is a kind of a need of a big research before the creation of a kind of an environment in the telco market in Italy that could be a step change and at last create kind of a new chapter for the telco sector in Italy, on the one hand, but Telecom Italia more specifically. So my answer to your question, which I have been a little bit extensive. But it's just to explain what is our position today and what to expect.

I will move to the question 2 on MultiChoice. Just to remind that, first of all, MultiChoice, when you look at the geographical footprint of it, it's incredibly complementary with Canal+. You know their footprint in the southern range of Africa compared with ours. So first of all, it's extremely complementary. Second, they are delivering very positive results in terms of EBIT. This first half has been hit by some, I would say, one-off and below EBIT results, which at the end have led to a loss for the group for the first half. But the recurring cooperation are still very, very positive, almost EUR 500 million of EBIT. Then what we say that we are discussing back and forth with them. We do have a frequent relation with them, and there are clearly 2 options. The first one is to try to find some agreements as partners, buying some programs, selling others and trying to organize and win some geographies agreement together. I would say that's the minimum we can get with them. And the good news is that now that the line is clearly open with them, and we have discussions to optimize our operation there. Then maybe there could be another step and obviously, this next step that could lead us to be above the 35%, won't be plain sailing. The situation is very complex there with the black empowerment rules, with the local rules as well. So we do not know how it ends. But today, we keep all the options. First one being a strong partner of a very complementary group. The second is to go to a more -- to a closer agreement with them. And here again, it will require some more weeks, months to build the perfect system. But even if we take time to build this partnership with them, in the meantime, we'll be able to work together to increase both MultiChoice and Canal+ results. Concerning the leak, the numerous leaks we have suffered during the last few weeks. Among these leaks have been the leak on the Canal+ France. I think, first of all, you know as I do, that the social results which are delivered are not really the ones that give them more information on the real performance of the company. So I don't think these figures can really be considered as a real trend. Nevertheless, you know that the situation in France is always under attention. We have never hidden the fact that France was not delivering very high results, and we are working with all the Canal+ team to make this result in France increasing in the coming half.

Our next question is coming from Mr. Christophe Cherblanc from Societe Generale.