Lagardere Earnings Call INSIGHTS: Canal+ IPO, Acceleration-Deceleration Issue

On Thursday, Lagardere (MMB) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Canal+ IPO

Julien Roch – Barclays: A few questions. The first one is on the Canal+ IPO, Vivendi said this morning that you had requested during the available window in June for the IPO to start again. So, I was wondering whether you’d give us an update on that because you said recently that it would depend on the regulatory outcome and on market condition and based on how positive the market is up. The regulatory outcome is quite positive. So, can we expect an IPO in the short-term? That’s my first question. The second one is on the provision the IOC, is that it, have you sold everything and there can be no more provision on that particular subject? That’s the second question. The third one is, owing to the unpredictability of the business, I wonder if you could give us some color on the ’13 profitability, can we expect a positive number in sports? The fourth question is on the consolidation of LeGuide, which is starting in the second half which should bring 6 million, 7 million of profit, but you’ve maintained the guidance. So, is there a positive impact of LeGuide in the guidance and therefore the guidance is actually 6 million, 7 million lower ex- LeGuide? That’s my fourth question.

Arnaud Lagardere – General and Managing Partner: Thank you, Julien. I will start maybe on the sports leaving the floor to Alain on the IOC provision, is it everything that we’ve clean on that specific subject. Laurent, on the outcome of 2013, although we don’t give, as you know, any forecast or (provision) about the next year, but maybe you can give us a little flavor, Arnaud. Alain, can you start please on the IOC?

Alain Lemarchand – COO, Lagardere Unlimited Europe and Africa: Yes. At this – as we speak, we said more than 80% of the contract is – of the rights are sold. Around we said 10% are being, we said, negotiated right now, meaning that we have also clear understanding and clear view on the likely outlook, which means that we have, we say, visibility, over around, say, 90% of the rights value. So the uncertainty is still around, we said, remaining 10%. It’s pretty, we say, spread out, mainly we say small countries; 47 of them. So you can consider that the remaining risk which we say now small is diluted so that in the end the real uncertainty is pretty limited now.

Arnaud Lagardere – General and Managing Partner: Okay. Laurent; 2013, as much as you can say.

Laurent Carozzi – CFO, Lagardere Unlimited: Right. As you’ve mentioned, we do not provide guidance for 2013. The only thing we could say is; first, that the first half of this year is in line or slightly better than what we’re expecting, so we are pretty much confident for 2012. If I refer back to the past comments, the comments we’ve made when we closed the account last year and actually also the calendar a year ago, we always said that the turning impact of Lagardere Unlimited will take a few years and you have to take in mind – to keep in mind that you have a cycle to deal with. So, what we said at that time is that excluding the IOC effect of the French Football Federation or any issue on the IPL litigation that 2012 should be more or less in line with the results in ’11. If you look at our first half results, you see that we have a good grip on that and we also highlighted the fact that in ’13 we’ll be dealing with a less favorable cycle, especially into Asia where we won’t have, as we have this schedule in Olympic qualifiers, so it’s going to be a low year for Asia and it’s going to be also a complicated year in Europe as we do have some (indiscernible) as of the (backdrop) we had, it just won’t be as stronger as we’ve been in the past. So, we flagged a year ago that ’13 will be a tougher year than 2012. We see no reason to change on this point. But bear in mind also that part of the so called results in 2012 and ’13 are also impacted to a certain degree by investment we make in the structure to build it and to hopefully (further) the business. So, that is also to be taken into account. So, no change really from what we said in the past except that the first half looks reasonably satisfying according to our tenets.

Julien Roch – Barclays: Okay. Thank you, Laurent. But this is not – I mean, there is no news about what you said Laurent. We’ve always said that the recovery of the business unit would take time that we would see the beginning of a significant recovery starting in 2014, which doesn’t mean that the efforts are not going on and we were – I mean, most of the cleaning, if not all the cleaning has been done so far. If you don’t see your questions Julien, and we’ll see what happens next year. The current year is not in favor, we know that, which doesn’t mean that we don’t have opportunities to do better than we expected. Julien, you asked a question on Canal+ referring through a conference call, I guess from (United) this morning. Obviously, we were not at the conference call, but we had some feedback, whether they are true or not, we don’t know. But let me just tell you in term of introduction that there has been a change in the management, as you know. It’s not that we’re happy or not happy with the new management, it’s not our decision. But we have to say that, I would say, the attitude – the environment is much better from what we say. And should you both say – as you mentioned that we told them again that we will do our best and try again. In IPO, you mentioned that the market were better, so I don’t know usually or not that optimistic, I’m not so sure that Dominique would agree on you, there are some cloud still out there which doesn’t mean that we’re not going to try again and again, as much as we can and do our best because as I said at the beginning this is one of our top priority to divest from the stake that we have in Canal. Nothing else new, although, I will leave the floor to Dominique, who will also answer on the question about LeGuide because he is still leading the team on the Canal negotiation, which is not an easy task, I would say, Dominique?

Dominique D’Hinnin – Co-Managing Partner: So, as Julien mentioned, we obviously make sure we were in a – on a relationship with (indiscernible). We were in a position to be able to launch the IPO process as soon as it is feasible from a market point of view and also from a business point of view if you consider the uncertainties around the regulatory issues of Canal+ in France. These uncertainties are not yet fully solved, even if there were the right – good news, but it’s not fully solved yet. Still we are resuming talks with the Canal+ management in order to side with them when exactly is best period to launch the IPO process again. So, obviously, we are working on that. On the guidance, as you know, it’s based on the same perimeter as in March. The March perimeter was not with LeGuide, so the guidance is not with LeGuide. So it’s on top of the guidance, of course. Plus I have to say, not sure I agree with your valuation about LeGuide. That’s another question.

Acceleration-Deceleration Issue

Adrien de Saint Hilaire – Exane: I have two questions please. First of all, can you confirm that you are still expecting ad revenues to be in the range of minus 3% to minus 5%, and if that’s the case, can you confirm that this implies a reacceleration from the minus 7% and where you see the reacceleration coming from? Is it of a better month in summer or hopes about Q4? Then secondly, I was wondering if you could discuss with us what kind of assumptions you’re making for the new books that you were mentioning Dominique, Fifty Shades of Grey and the new J.K. Rowling. If you can share with us what kind of the million number of titles you expect to release in H2, so as to meet your guidance?

Arnaud Lagardere – General and Managing Partner: Dominique on the acceleration, deceleration issue and maybe Arnaud on the millions of books expected, although we don’t give those kind of numbers. So tough question for you guys. Dominique, you can start.

Dominique D’Hinnin – Co-Managing Partner: I leave the floor to Denis Olivennes who is on top of the advertising revenues.

Denis Olivennes – Chairman and CEO, Lagardere Active: Yes, we confirmed the minus 5% in (the H2), it’s just a question of seasonal effects. As Dominique said it, the first half of the year is usually worse than the second half and on top of that there was the election effect this year. That’s why confirmed the minus 5% today.

Dominique D’Hinnin – Co-Managing Partner: In fact, we achieved close to minus 7 in first half, when we say minus 5, it’s minus 5 in the second half. So, on a full year basis, excluding different weighting it closes to minus 6 in fact. So, it’s a slight acceleration compared to the first half, maybe but it’s still a negative number, but keep in mind, the second half of 2011 was quite slower than the first half, so the comps are slightly easier for the second half. We are cautious. The economic environment in France is not positive to say the least. There are a lot of uncertainties among advertisers. Everybody is very cautious. So, we are also very cautious about our expectation in advertising revenues.

Adrien de Saint Hilaire – Exane: Arnaud, changing the subject?

Arnaud Lagardere – General and Managing Partner: I am afraid we never give any guidance on the number of copies per title and in the case of the J. K. Rowling we have agreed with the offer that we would not communicate any figures. So, I just can tell you the book is excellent and it is going to be a big one in numbers, but I am afraid I won’t – it is more than that. The other one is the French edition of Fifty Shades of Grey and that’s been selling like crazy in the U.S. and in the U.K. whether it will have the same impact in France remains to be seen. In the U.K. it sold the three titles sold in the region of 0.5 million copies per week which is unseen before at a lower price than what we anticipate in France. It will be significant, but I will be more than happy to comment on the actual figures in six month time.

Adrien de Saint Hilaire – Exane: I will try with some follow-up questions then but still on the same topic. So, first of all can you give us some evidence for maybe July and August that would support your view that ad revenues would decline by 5% in H2?

Denis Olivennes – Chairman and CEO, Lagardere Active: Yes, July was a good one and August a bad one but on the average basis it is alongside – minus 5%.

Adrien de Saint Hilaire – Exane: Then my follow up question is again on books. So, I understand you don’t want to share any figures but can we expect the same kind of Stephenie Meyer effect where I think in ’09 the peak was reached with 45 million titles sold like in (indiscernible)?

Denis Olivennes – Chairman and CEO, Lagardere Active: That sounds like asking for figures, am I wrong?

Adrien de Saint Hilaire – Exane: Well, deducting figures.

Denis Olivennes – Chairman and CEO, Lagardere Active: No. Certainly, I have no reason to believe that it is of that magnitude.

Adrien de Saint Hilaire – Exane: So it would be high, but lower than…

Denis Olivennes – Chairman and CEO, Lagardere Active: It’s a big book. It will be an excellent book. It will be a best seller, but certainly not in the region of these figures.

Dominique D’Hinnin – Co-Managing Partner: Keep in mind Stephenie Meyer was four books. Here we talk only about one.