tas 2014 : vivendi : revitalizing a french conglomerate
TRANSCRIPT
TAS
TAS 2014 Inhouse Selection Process
Vivendi: Revitalizing a French Conglomerate
TAS
Company profilePre 1976Scheme of the presentation
Case Overview
Financials
Leadership
Compagnie Generale de Eaux (CGE) was a primarily Water Utility company with some activities in Waste Treatment
Legacy of Guy Dejouany1976-1995
• Revenues increased 11 times in 20 years• Diversification - “Capilarite” growth• Colbertist Management approach• Problems in 90s: Cash crunch, Corruption scandal
Jean Marie-MessierPost 1995
• Restructuring through consolidation and Divestment• Corporate Structure: Employee mobility, Performance
based incentive system, Shareholder value creation• 1998: CGE renamed to Vivendi
TASScheme of the presentation
FINANCIALS Financial performance of
Vivendi as on today (2014).
Change in company Financials over the years.
Case Overview
Leadership
Source: Vivendi Full year 2013 results
Basis: Vivendi Full year Financial results released on on 25th Feb,2014
Indicators All figures in Euros
Change year over year (yoy)
Revenues 22,135 mn -2.0 %
EBITDA 4,928 mn -11.2 %EBITA 2,433 mn -23.1 %Adjusted Net Income 1,540 mn -9.7 %Cash flow from Operations (CFFO)
1,453 mn +19.8 %
Financial net debt – adjusted
6.9 bn* vs Euro 13.4 bn in 2012
Adjusted net income per share
1.16 -11.4 %
* Including the disposal of Maroc telecom interest for €4.2 bn
TASFinancials: Vivendi Important Trends over past 5 yrs
2009 2010 2011 2012 20130
5000100001500020000250003000035000
Revenue
2009 2010 2011 2012 20130
1000
2000
3000
4000
5000
6000
7000
EBITA2009 2010 2011 2012 2013
0500
100015002000250030003500
Adjusted Net Income
2009 2010 2011 2012 20130
2000400060008000
10000120001400016000
Financial Net Debt
2009 2010 2011 2012 20130
100020003000400050006000
CFFO
2009 2010 2011 2012 20130
0.5
1
1.5
2
2.5
Adjusted Net Income per share in Euros
Source: Financial Report and Audited Consolidated Financial Statements for the Year Ended December 31, 2013
All figures in Million Euros except where mentioned
• Iliad offered low-cost mobile offer in mid January 2012, disrupting mobile market in France
• France increased Corporate Tax in 2012 to cut national deficit. Effective tax rate on adjusted net income was 28.3 % (2012) against 25.8% (2011)
• Sale of 88% of Activision stake for $8.2 bn completed on Oct 11,2013
• Sale of Maroc Telecom 53% stake for €4.2 bn on the way to being completed in near future
Cash Flow generation and Net debt reduction in a tough environment achieved
TASFinancials: Vivendi Division wise financials
Source: Vivendi Full year 2013 results
SFR is the major source of
Revenues, EBITDA and
Cash flow for the Vivendi group
17%
14%
13%
1%2%
53%
24%
30%
5%4%
5%
33%24%
22%
8%0%
46%
Revenues EBITDA CFFO
Vivendi Division wise breakdown
* After closing of Maroc telecom disposal expected in the near future
TAS
Financials: Comparison with the Peers
Source: www.investing.businessweek.com
Fortune 500 Global rank
(2013)Name Revenue (Billion US
$)
34 AT&T 127.43
170 Orange ( formerly France Telecom) 55.92
289 Vivendi Group 37.26
Total Revenue -2.0 -5.82 1.03
EBITDA -11.2 0.69 61.09
Gross profit -7.64 -1.03 7.04
Cash from opns 19.8 -27.53 -11.18
Source: www.money.cnn.com
Gro
wth
ove
r prio
r yea
r (%
)
Negative growth in most areas in line with French market conditions.Way behind international growth standards
TAS
Total assets turnover 0.4 0.5 0.5
Fixed assets turnover 2.5 1.8 1.2
Total Debt/Equity 64.2 147.5 82.3
Total Liabilities/Total assets
61.3 69.3 67.1
Return on assets -3.41 4.55 6.93
Return on equity -10.98 8.09 20.15
Return on Capital -5.56 6.08 11.54
Financial Ratios: Comparison with PeersPr
ofita
bilit
yLo
ng T
erm
So
lven
cyA
sset
Tu
rnov
er
• Vivendi is fundamentally strong. However, the market conditions in France in general has a negative outlook which has impacted the profitability of the company
• Vivendi performed poorly in the last fiscal year in terms of returns.
• Earnings from continuing operations attributable to Vivendi SA shareholders = -€1964 Mn
Source: 1. Vivendi: Financial Report and Audited Consolidated Financial
Statements for the Year Ended December 31, 20132. www.investing.Businessweek.com
3. www.markets.ft.com
P/E Ratio 13.92 11.42 13.97
Stoc
k
TAS
Gross margin 41.23 39.46 60.03
EBITDA margin 18.66 30.39 36.3
Financial Ratios: Comparison with Peers
Mar
gin
anal
ysis
• Even though the Gross Margin is high, higher operating expenses owing to difficult business conditions has led to lower EBITDA Margin
• The lower cash conversion cycle has helped Vivendi to increase Operating cash flow. However, a very low cycle may have negative effect on credit line.
Source: 1. Vivendi: Financial Report and Audited Consolidated Financial
Statements for the Year Ended December 31, 20132. www.investing.Businessweek.com
3. www.markets.ft.com
Current ratio 0.9 0.6 0.7
Quick ratio 0.4 0.5 0.5Cre
dit
Rat
ios
Accounts receivable turnover
57.9 40.1 36.1
Inventory turnover 24.4 40.6 47.1
Accounts Payable Turnover
345.8 154.8 82.0
Cash conversion Cycle
-263.5 -74.1 1.2
Wor
king
Cap
ital
Man
agem
ent
TASFinancials: Vivendi Stock prices past 2 yrs
Source: 1. www.markets.ft.com2. Vivendi: Full year 2013 results
• Significant Shareholder value creation over the last two years• 67% Total Shareholder return representing €9.5 gain per share*
€15.7 FY 12
earnings release
Feb 26,2013
€14.0 FY 11 earnings
releaseMar 1,2012
€20.6FY 13 earnings
releaseFeb 18,2014
As on 02/04/2014
Market Cap: €27.43 bn No. of shares outstanding: 1.34 bn
* Includes €2 dividend per share in total
TAS
Financials: Vivendi vs CAC 40 index (since Jan 2013)
Source: www.markets.ft.com
• Vivendi underperforming the CAC 40 index since Jan 2013• Catching up with the CAC 40 index in recent months
TASScheme of the presentation
FINANCIALS Financial performance of
Vivendi as on today (2014).
Change in company Financials over the years.
Case Overview
Leadership
Dejouany1976-1995Diversified into many sectors using cash flow from Energy and Utility.
Messier1995 onwardsConsolidation of group into core 8 activitiesIncreased focus on Telecommunications
Pre 1976Primarily Water utility company
TAS
1994 1995 1996 1997 20130
20,00040,00060,00080,000
100,000120,000140,000160,000180,000 Revenues
1994 1995 1996 1997 20130
1,000
2,000
3,000
4,000
5,000 EBITDA
1994 1995 1996 1997 20130
2,000
4,000
6,000
8,000
10,000Cash Flow
Financials: Vivendi Important Trends over the Years
All figures in Million of French Francs (Ffm)€1 in 2013 = 6.187 French Francs in 1997
30490 Ffm
1995: A year of change• Debt/Equity =155 making CGE one of
the highest leveraged companies of France
• Net Loss of 3.6 bn French Francs • Real estate collapsed• Debt levels ballooned• Stagnant share prices
Corporate Management, Restructuring, Divestments and Partnerships under the leadership of Messier turned around the company
In 1997 Stocks appreciated 71.8% since Jan 1996, when Messier assumed leadership.CGE Stocks started outperforming CAC 40 index from 1996 due to Renewed shareholders confidence.
Divestments:Increased cash flow and reduced debt• 1995: 6 bn French Francs• 1996: 13.3 bn French francs• 1997: 12 bn French francs
Partnerships:• 1997: Cegetel Alliance with British telecom &
Mannesmann• 1997:Partnership with French Railroads,
SNCF• 1998: Cegetel in partnership with
Bertetsmann took 51% stake in AOL France
1998: CGE merged with Havas and was renamed Vivendi
TAS
1994 1995 1996 19970
10
20
30
40
50
60Revenue breakdown
1994 1995 1996 1997
-250
-150
-50
50
150
250
350EBITDA breakdown
1994 1995 1996 1997
-100
-50
0
50
100
150Cash Flow Breakdown
Financials: Percentage Breakdown business wise over the years
Utilities was the bread earner of the company during 90s as compared to Telecom which is today.
• CGIS formed by consolidating all 7 Property subsidiaries• Reduced stake in SGE, main Construction subsidiary to 51% and in Eiffage, another construction
subsidiary to 5 %
TAS
Total assets turnover 0.70 0.69 0.65 0.4
Fixed assets turnover 1.35 1.32 1.22 2.5
Accounts receivable turnover days 141.6 144.4 144.9 57.9
Inventory turnover days 59.1 56.5 58.9 24.4
Gross margin 43.72 44.22 41.86 41.23
EBITDA margin 1.05 2.32 2.5 18.66
Total Debt/Equity 155 130.5 98.2 64.2
Total Liabilities/Total assets
84 84 78 61.3
Return on assets -1.59 0.81 2.09 -3.41
Return on equity -12.22 5.28 12.01 -10.98
Return on Capital -3.12 1.64 3.74 -5.56
Financial Ratios: Comparison over the yearsPr
ofita
bilit
yM
argi
nLo
ng T
erm
So
lven
cyA
sset
Tu
rnov
er
From 1995-1997All the ratios showed a positive trend since Messier took over indicating that the Financial health of the company is improving.• Return on Equity improved
by 200%• Debt to Equity decreased to
98 from 155• EBITDA margin improved to
2.5 from 1.05
Except profitability, the company is better of today as it was in mid 90s
Source: 1. Vivendi: Financial Report and Audited Consolidated Financial Statements for the Year Ended December 31, 20132. Exhibits 4,5 & 6 of case study3. www.investing.Businessweek.com4. www.markets.ft.com
1995 1996 1997 2013
Current Ratio 0.98 0.95 1.09 0.9
Quick Ratio 0.74 0.73 0.84 0.4Cre
dit
ratio
s
TAS
Change over the years
Increased focus on shareholder value creation
Initial years
Pre 1976
Water management
Dejouany1976-1995
Transformation into a
conglomerate
Messier1995-2012Return to core
activities
Today2014
SFR demergedGlobal player
in Media & Content
TASScheme of the presentation
LEADERSHIP Change in management
styles experienced by Vivendi.
Dejouany Management1976-1995
Messier Management1995 onwards
Early ManagementPre 1976
TAS
Dejouany Management Messier Management
ReportingStructure
Colbertist managementPersonal style of trust. Upto 70 direct reportings by 1995
Corporate ManagementExecutive committee formed. Clearer reporting structure with only a dozen direct reports
Corporate Staff Minimum
Corporate headquarters established separately housing finance, legal, HR & Investor relations
Decision Making Highly Decentralised
Asset allocation done at Corporate level.Clearly defined costs of capital and targets in terms of return on Invested capital
Change in Management Style
TAS
Dejouany Management Messier Management
Growth
Capilarité growthMultiple subsidiary approach prominentFocus on Vertical Integration & transformation into a conglomerate.
Systematic growthReturn to core businessesDivestments, Mergers and Partnerships to drive growthFocus on creating shareholder value
Bonuses Not linked to performance. Stock options absent
Performance related management incentive system established. Stock options started
Employee Mobility Minimum
Employee Mobility & firm culture promoted through “Internal Job Transfer Charter” and mobility program for 200 specially selected top managers
Change in Management Style
TASScheme of the presentation
LEADERSHIP Suitability of the
management styles with relevance to the business context of the period.
DirigismeWeak Capital market1976-1995
RigueurCorporatization1995 onwards
Early ManagementPre 1976
TAS
Noyaux Drus
• Dejouany management style was good for the initial phases of the business expansion as it was conducive to maximising water business through multiple subsidiaries as well as diversification
• The conglomerate had grown too big to be run without an organised structure by mid 90s
Business Context: Dejouany
GDP growth rate: 2.2% between
1974 & 1993
Collapse of real
estate in 1991
80s Unprecedented
opportunities
Cash crunch in mid 90s
Weak corporate
governance system
Corruption scandal
1995
International water market
opened up in 1980s
Lack of venture
capitalists
French economy
CapitalMarket
Company Affairs
TAS
Noyaux Durs
Foreign investors: 35 % of share market
Messier brought about changes in the organisation keeping in mind demands of changing laws, capital market and the push for “Shareholder value”
Business Context: Messier
Labor market regularisation attempts
failed
Unemployment: 12.8 %
1995: Barnier
law
Pressure to
conform to market capitalism
Largest employer
1995: 270000
employees
1993: Law for open
bidding in water
business
French economy
CapitalMarket
Company Affairs
Economic slide: GDP
1.6 % in 1996
TASScheme of the presentation
LEADERSHIP Management style for
me
Dejouany MessierMe
TAS
Management Style
• Personal style of management based on trust backed by corporate structure
• Bringing about order and consistency in the organisation through good management and exhibiting Transformational leadership for coping with change
• People Specific Management style driven by Individualized consideration, Intellectual simulation, Inspirational motivation and idealized influence.
• Discretionary power based not on individual perception but on cumulative participation of expert group
• Risk taking within the confines of corporate system keeping in mind that the company belongs to the people
• Establishing communication channels that connect to the grassroots
TAS
Thank You!!!
TASAnnexure 1: Accounting principles used by Vivendi
• International Financial reporting Standards (IFRS): A set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are issued by the International Accounting Standards Board.
• All listed EU companies have been required to use IFRS since 2005
• International Accounting Standards (IAS) : IAS are the older standards that IFRS replaced. (IAS were issued from 1973 to 2000.
• In compliance with IFRS 5 (Non current assets held for sale and discontinued operations), as a result of the plans to sell Activision Blizzard and and Maroc Telecom group , These groups have been reported in Consolidated statement of earnings and Statement of cash flows as Discontinued Operations
• Data published wrt Fiscal year 2012 has been adjusted following the application of amended IAS 19(Employee Benefits), whose application is mandatory in EU on or after 1st jan,2013, with retrospective effect from Jan,2012
TAS
Annexure 1: Accounting principles used by Vivendi• Generally Accepted Accounting Principles (GAAP): Generally
accepted accounting principles (GAAP) refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards or standard accounting practice. These include the standards, conventions, and rules that accountants follow in recording and summarizing and in the preparation of financial statements.
• Vivendi considers that the non-GAAP measures of EBITA, Adjusted Net income, Financial net debt, and cash flow from operations are relevant indicators of group’s operating and Financial Performances
TASAnnexure 2: Key events• Sep 28,2012: Vivendi and UMG completed acquisition of 100 % of recorded music
business of EMI group.The authorization by EC was notably conditional on the divestment of the Parlophone, Now, and Mute labels.
• Feb 7,2013: Vivendi and UMG announced that they had entered into an agreement for the sale of Parlophone label group to Warner Music group for an enterprise value of £487 mn to be paid in cash. The sale was completed on July 1,2013.
• Oct 11,2013: Vivendi deconsolidated Activision Blizzard pursuant to the sale of 88 % of its interest for $ 8.2 bn ( or €6 bn )
• Nov 4,2013: Vivendi entered into a definitive agreement with Etisalat for the sale of Vivendi’s 53% interest in Maroc Telecom group for €4.2 bn in cash
• Nov 5,2013: Vivendi acquired Lagardère group’s 20% interest in Canal + France for €1,020 mn in cash
• Jan31,2014: SFR and Bouygues telecom entered into a strategic agreement to share a part of the mobile access networks. They will roll out a shared network in an area covering 57 % of the French population
TASAnnexure 3: Balance Sheet 2013
TAS
Annexure 3: P&L 2013
TAS
Annexure 3: Cash Flow statement 2013
TASAnnexure 4 : Recent Events, Demerger of SFR
• Sep 2013: Supervisory board launches a study under Vincent Bolloré to split the Group into two major companies
• International Media group based in France• SFR
• Nov 2013: Group’s planned demerger approved• April 2014: Altice/Numericable to buy SFR in a €17 bn deal
• €13.5 bn cash in closing• Potential earnout of €750 mn• Possibility to sell its 20 % stake in the combined company at a later stage
Currently Vivendi shares reflect a conglomerate discountVivendi estimates that its global media businesses are trading with at least a 40%
discount to other global media conglomerates.
Heralding of a leaner and Meaner era for the company and its stock
TAS
Annexure 5: 1 French Franc (1997) = € 0.1616 (2013)
FRF 1997 USD 1997
1 0.1628 www.asi.org
USD 1997 USD 20131 1.36 www.stats.areppim.com
USD 2013 EURO 20131 0.73 www.google.com
FRF1997 EURO 20131 0.161628
TAS
Annexure 6: Financial Ratios (1995-1997)Exhibit 5 Vivendi Consolidated Balance Sheet 1995-1997 (in Ffm)
S.No 1997 1996 19951ASSETS2 Intangible assets other than goodwill 11,334.5 11,771.8 11,039.33Goodwill 24,726.8 15,648.3 16,946.04 Owned property, plant and equipment 81,597.9 82,791.7 77,590.0
5 Publicly-owned utility networks financed and managed by the group 7,015.7 8,216.1 7,530.06 Accumulated depreciation -33,588.7 -33,618.8 -29,610.97Tangible assets 55,024.9 57,389.0 55,509.1
8 Investments accounted for by the equity method 16,466.6 12,186.6 10,987.09 Unconsolidated investments 5,086.7 3,541.9 3,705.5
10 Portfolio investments held as fixed assets 8,222.9 9,722.2 10,789.2
11 Other investments held as fixed assets and other financial assets 15,644.6 14,967.9 11,575.012Financial assets 45,420.8 40,468.6 37,056.7
13 Total fixed assets 136,507.0 125,277.7 120,551.1=Financial asets+ tangible assets+Goodwill+Intangible assets
14 Inventories 27,296.8 25,919.7 26,825.515 Accounts receivable 66,348.5 65,623.4 63,227.416 Short-term financial receivables 10,281.3 10,584.7 9,942.617 Cash and marketable securities 17,785.4 12,838.2 11,265.318Total current assets 121,712.0 114,966.0 111,260.819TOTAL ASSETS 258,219.0 240,243.7 231,811.9=Total current assets+Total Fixed assets20SHAREHOLDERS’ EQUITY AND LIABILITIES21Capital stock 13,404.5 12,261.3 11,739.622 Additional paid-in capital 21,235.1 15,469.4 13,517.223 Retained earnings 10,271.7 5,951.2 4,918.824Shareholders’ equity 44,911.3 33,681.9 30,175.625Minority interest 11,428.9 5,417.7 6,044.826Grants related to assets and deferred income 3,035.0 2,408.8 1,769.827Total provisions 35,617.0 28,679.9 28,861.9
28 Provision for replacement and full warranty and amortization of capital employed in publicly-owned networks 10,221.8 10,047.8 13,287.8
29Provision for liabilities and charges 25,395.2 18,632.1 15,574.130Subordinated securities 1,216.9 1,252.1 1,298.631 Project financing 5,918.2 5,715.0 6,070.532 Other long-term debt 38,166.7 38,228.0 40,703.433Total long-term debt 44,084.9 43,943.0 46,773.934Other long-term liabilities 4,050.2 3,556.5 3,264.2
35Total capital employed
144,294.2 118,939.9 118,188.8
=Shareholder's equity+ Minority interest+Grants+Total Provisions+Subordinated sec+tot long term debt+ other long term liabilities
36 Accounts payable 91,651.4 86,733.4 80,190.737 Short-term debt 22,223.4 34,570.4 33,432.438Total current liabilities 111,874.8 121,303.8 113,623.1
39TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 258,219.0 240,243.7 231,811.9= Total Capital employed+ Total current liabilities
Current Ratio 1.09 0.95 0.98Current Assets/Current liabilities
Quick assets 94415.20 89046.30 84435.30Quick assets = Current assets- (inventory+prepaid expenses+other illiquid expenses)
Quick Assets ratio 0.84 0.73 0.74Quick assets/Current LiabilitiesWorking capital 9837.20 -6337.80 -2362.30= Current assets-Current liabilitiesTotal liability 201878.80 201144.10 195591.50Total Equity 56340.20 39099.60 36220.40Debt/Equity 98.16 130.46 155.01
Total Debt/Total Equity (%) 358 514 540Debt = Long term debt Equity = Shareholders equityTotal Liability/Total Assets (%) 78 84 84
TAS
Annexure 7: Financial ratios (1995-1997) Exhibit 4 Vivendi Consolidated Statement of Income
1995-1997 (in FFm)1997 1996 1995
Net sales 167,115.6 165,913.8 162,961.1Other revenue 6,262.0 5,274.8 4,310.9Purchases -97,153.3 -92,549.0 -91,713.0Wages and social security costs -44,346.1 -47,493.9 -46,491.6Taxes other than income taxes -3,120.4 -3,261.6 -3,092.6Other operating expenses -15,967.8 -16,097.3 -15,412.4Depreciation -8,619.1 -7,941.6 -8,861.9
Operating income 4,170.9 3,845.2 1,700.5 Financial expense -1,184.4 -2,087.2 -2,724.8 Financial provisions -792.3 -65.9 -673.7Net financial expense -1,976.7 -2,153.1 -3,398.5Operating income less net financial expense 2,194.2 1,692.1 -1,698.0
Exceptional items 11,660.1 2,629.5 843.6Depreciation -5,896.5 -1,712.5 -2,211.0Amortization of goodwill -2,458.0 -962.8 -1,020.8
Net exceptional expense 3,305.6 -45.8 -2,388.2Employee profit-sharing -264.5 -260.8 -310.9Income taxes -1,277.0 -1,189.8 -1,437.8
Net income/expense) before equity interest and minority interest 3,958.3 195.7 -5,834.9= Equity in net earnings of affiliated companies 679.3 1,387.2 876.1Minority interest 754.9 369.8 1,272.5Net income/(expense) 5,392.5 1,952.7 -3,686.3
1997 1996 1995Return on equity (%) 12.01 5.80 -12.22= Net income/Total shareholders equity
Return on Assets (%) 2.09 0.81 -1.59= Net income/Total assets
Return on Capital (%) 3.74 1.64 -3.12= Net Income/Total capital
14.78 12.02 -22.12= Net income/Capex+ investments
Accounts receivable turnover 144.91 144.37 141.62= Accounts receivable*365 days/Net Sales
Cost of goods sold 169206.70 167343.40 165571.50= Net sales - Gross Profit
Inventory Turnover 58.88 56.53 59.14= Inventory*365/ Cost of goods sold
Total assets turnover 0.65 0.69 0.70= Revenue/Total assets
Fixed assets turnover 1.22 1.32 1.35= Revenue/Fixed assets
Gross Profit 69,962.3 73,364.8 71,248.1= Net sales-cost of goods sold
Gross Margin 41.86 44.22 43.72= Gross Profit/Net salesLevered Free cash flow marginEBITDA margin 2.50 2.32 1.04= EBITDA/Net salesSG&A marginNet Profit Margin 3.23 1.18 -2.26= Net Profit/net sales