Earnings Transcript for VIV.PA - Q2 Fiscal Year 2019

Operator: Good evening, ladies and gentlemen. Welcome and thank you for joining Vivendi's First Half 2019 Results Presentation. This call is webcast on vivendi.com. Today's call is hosted by Mr. Arnaud de Puyfontaine; Chairman of the Management Board and Chief Executive Officer and Mr. Hervé Philippe, a Member of the Management Board and Chief Financial Officer. As a reminder this call is being recorded. I would now like to turn the call over to Arnaud de Puyfontaine, please go ahead sir, your line is open.

Arnaud de Puyfontaine: Welcome everyone and thank you for joining us today. I would like to briefly review so given these key achievements during H1 before handing over to Hervé Philippe, who will give -- who will go through the figures. So, I'm very pleased to report that the results delivered in the first six months of 2019 confirm Vivendi's positive momentum. The figures speak for themselves. At constant currency and perimeter, our revenues for the first half of 2019 grew by 6.7% compared to the first half of 2018 while our EBITDA increased by 27.6% on a year-on-year basis. As a result, the earnings attributable to Vivendi shareholders actually tripled between H1, 2018 and H1, 2019. This strong operating performance was fueled by our main activities especially Universal Music Group and by the positive contribution of entities since its integration in February. For Universal Music Group, the first half of 2019 was a continuation of what we saw in 2018, which was described as a historic year by Sir Lucian Grainge himself. Streaming and subscription, physical sales, publishing and merchandising, all of the businesses, contributed to UMG's outstanding performance plus 18.6% in revenue and 43.6% in EBITDA at constant currency and parameters. Universal's artist keep topping the charts on the Spotify global charts. Universal Music Group achieved an amazing 8 of the top 10 songs, for the first half of 2019, including all of the top six. On the TV side now, Canal+ Group in France is preparing to face the arrival of new content players with huge financial resources, such as Disney who is likely to launch its new streaming service early next year. To adapt to this new competitive landscape, the Group is pursuing its transformation plan. Recently, the management presented the details of this plan for France to its employees. Outside France growth remains strong, especially in Africa with the broadcasting of the African Cup of Nations has led to a very satisfactory increase in the subscriber base. In communication Havas continued to generate both and profitability in the first half of 2019 compared to the first half of 2018. Its creativity was recognized at major advertising festivals. It is worth mentioning that the theme of this years Can Lions International festival of creativity was entertainment. This confirms the relevance of Vivendi strategy. Today, we are the only player in the market to offer such a value proposition in both advertising and content. In addition, the last few months have been marked by a number of new developments at Vivendi our targeted acquisition strategy is bearing fruit. Point number one, Editis. As you know, we completed this acquisition on February this year. Editis being the second largest French publishing group. Its integration within Vivendi is proceeding according to plan even better, actually. The first joint projects between Editis and other group entities have already become a reality. Lizzie, [ph] Editis audio book brand has been included in the cannabis offer and Editis is working closely with StudioCanal on the development of audiovisual projects based on books. The [Foreign Language], as we say in French. The autumn literally season, looks promising for Editis with the release by best-selling authors such as the New Ireland carbon and the Sequel to the end made still by Margaret Atwood. Point number two and seven, in May, Canal+ Group announced the planned acquisition of M7, one of the largest independent pay-TV companies in Europe. This acquisition would allow Canal+ Group to expand into seven countries in Benelux and Central Europe and to increase its global subscriber base to nearly 20 million. The closing of this transaction is expected to take place in September. While expanding its European footprint Canal+ Group strengthened its presence in English speaking Africa with the recent acquisition of a major Nollywood player, Yoko media. Last but not least, the first half of 2019 has demonstrated that Vivendi is fully committed to delivering value to its shareholders. The shareholders meeting in April approved the payment of a $0.50 dividend per share, representing an increase of to 11.1% compared to the dividend distributed last year. Following this authorization given by the shareholders at the AGM, we successfully launched the share buyback program, 5% of share capital was repurchased between end of May and of July. Let me now say a few words on the evolutions of Universal Music Group's share capital. When we announced this operation in July 2018, we said that it could be completed within the next 18 months. The opening of Universal Music Group's share capital for the acquisition of the minority interest is progressing in line with the original timeline. The advisory banks that will assist us in finding the best partners for Universal Music Group have been selected, the vendor due diligence was presented to the Supervisory Board at the end of May and will be updated by PWC with the first half 2019 financial statements. And several contracts that have been established with potential strategic partners. As you can see, we are working on creating the best conditions for an efficient sale process. There is a French proverb which states, [Foreign Language]. This basically means that there is no need to rush, we must take things step by step. This is especially true for such an important transaction. To sum up, we are very proud of what we have achieved over the last six months and we are confident about the six months to come. With the support of our main shareholder, of (inaudible 00

Hervé Philippe: Thank you very much, Arnaud. Good evening to all of you. It's my pleasure to present to you our results for the first half of 2019. Let's begin on Slide 7 with the changes in currencies, scope of consolidation and IFRS. Regarding the change in currencies the euro was down 7% against the U.S. dollar and 5% against to Japanese yen, which had a favorable on impact on Vivendi's figures for the first half of 2019. The main change in the scope of consolidation was obviously the consolidation of facilities since February 1, 2019. The second table of this slide shows the impact of the exchange rates and perimeter changes on our gross rate. Before going through the results in detail, let me remind that the first of 2019 results reflect the initial application of IFRS 16 related to lease contracts and that the comparative period have not been restated. I will elaborate on this impact and this application on our H1 results later. On Slide 8, we have a summary of the key financial metrics for H1, 2019. As we can see Vivendi's performances were quite strong. During the first half of 2019, revenues 6.7% organically, reaching more than EUR7.3 billion. EBITDA reached EUR718 million on organic growth of around 28%. This strong increase in profitability was supported by our three main businesses, as we will see. Universal Music Group posted growth of 47% songs to the strong operating leverage. Canal+ Group posted growth of 5.4% despite the unfavorable evolution of its revenues in France, others posted growth of 5.8% at the end of June, including IFRS 16 impact. As a result, adjusted net income grew by more than 40%. As we will come on later the IFRS net result reached EUR520 on more than tripled relative to H1 2018. Finally, at the end of June 2019, Vivendi's net debt amounted to EUR2.1 billion against a positive net cash position EUR0.2 billion at the end of December, 2018. It's worth noting that the net debt calculation does not include IFRS 16 lease liabilities. On Slide 9, we can see the evolution of cash during the first half of the year, which is mainly explained by the Editis' acquisition in January. So cash received from the sale of the remaining new visa stake in March and the shareholders returns for a total of EUR1.6 billion including dividends and share buybacks. And although six months, the business units generated positive operating cash flow, which was offset by the taxes and interest paid during the period, resulting in (inaudible 00

Operator: Thank you. [Operator Instructions] And we take our first question from Omar Sheikh from Morgan Stanley. Please go ahead.

Omar Sheikh: Good evening, everyone. I've got a couple of questions if I may. First of all, I want to ask you about the comment you made about contacts with potential strategic partners. And I wonder whether you could maybe just define two words in there. If you could define several that would be helpful if you could let know approximately how many contracts you've made? Or potential strategic partners you have contact with? And then it will be interesting to maybe if you can give us some color on what sort of contact you've had? Are these initial discussions, you've had down the road. Just some help on those would be good. And then secondly, I wanted to just touch on the streaming revenues in the second quarter, which were about 23% I think. Did anything change in the terms of the contracts? Was there any phasing issue in relation to the payments that you received from the distributors that might have impacted the second quarter? And then looking into the back half of the year, the second half of 2019, could you maybe update us on where you are on the negotiations with distribution partners? I understand the agreement for example we Spotify expired during Q2. So if you could give us an idea of whether you think the outcome of that particular negotiation might involve any changes in the economics for the second half? Those are my two questions. Thank you.

Arnaud de Puyfontaine: As regard to the first one, I will stick to our communication that we made in our press release. And at this stage, I'm not in a position to provide any further information as regards to those context. Hervé .

Hervé Philippe: To answer the question moving in Q2, I just can say that there is no specific exceptional one-off in the revenue or at the EBITDA level, I would say, but we had some exceptional as a little bit of the CFFO because we had some slippage from the end of June to the beginning of July in the collection of advances paid by some big platforms. That's why particularly, the CFFO was a little bit low in the first part of the year also due to the very high level of advances paid to artist the beginning of the year. So, as we know, the problem regarding the figure of the CFFO, which will be very good in all the year. Concerning your question on the negotiation with platform, I cannot give any comments on that because obviously those negotiation confidential, but we are very, very confident first in the possibility to conclude a negotiation with them especially we Spotify. And we are also confident that Universal Music is in a very good position in terms of power of negotiation with the platform and they're taking also in accounts that as a market leader, we have to take account of everybody favorable and positive growth everybody. Thank you.

Operator: We take our next question from William Packer, Exane BNP Paribas. Please go ahead.

William Packer: Thanks so much for taking my questions. It's well here. Three from me please. Firstly, could you comment on the sustainability of physical growth into the second half of the year? We've had another positive surprise there. Secondly, just to kind of extend Omar's question, could you just confirm if there are any one-off the toll on the cost side or on the revenue side across the whole business rather than just the streaming business? And then finally, could you help us a little bit within the streaming business, how is Page streaming versus ad streaming and other streaming performing and how Page streaming progressing compared to this period last year. Thank you.

Arnaud de Puyfontaine: Thank you, William. As regards to your first question and physical sales trend, the physical strengths in the first half was driven by Japanese Act Kings and King and Prince and Back Number and continued sales of the Sun track a star is born and the multiple albums from Quinn [ph], but while physical results can be released driven the trend on the basic is still downward over time as the industry continues to transition to streaming. We've got also, I must say this trend as regard to the vinyl, which is growing even for the slow base. But as regard to the ongoing trend we see it over time as a down trend.

Hervé Philippe: Maybe to answer the questions on streaming and subscription, there was no specific one-off in the first part regarding revenues or EBITDA for the streaming and subscription businesses. Just I wanted to highlight up from the CFFO point of view, we have some slippage from correction from the end of July -- from the end of June to July. But this add only impact on the cash and absolutely not on the result of this business during the first part of the year. To answer your question on the split between the streaming and I would say ad funded streaming and subscription, we do not give the split between those two parts of this business but obviously they are growing and you can see in the different communication meant by the major platforms, which tells a development of their base of subscribers. So we'll not give the detail but therefore growing.

William Packer: Maybe just a quick follow-up. Would it be right to think that ad streaming and page streaming are decelerating at the same rate? Or is Page streaming proving more resilient? And just to confirm, should we expect H2 physical to be negative?

Hervé Philippe: To answer on the second part in the year, we will see, we have very good growth in streaming and subscription in this part of -- in the first part of the year, we -- it has also been supported by a very good result in physical sales, the trend on physical as logically to be a decline. So, but you can add some ups and downs from one quarter one half to the other but logically, we should have -- we could have a decrease in the physical which is a normal trend. This being said, we are very satisfied when we are very good success and the success are linked to the geographical part with Japan mainly, but also to -- (inaudible 00

Operator: We take our next question from Richard Eary from UBS. Please go ahead.

Richard Eary: Thank you. Can I just three questions, myself, just this is a clarity. The first one in terms of the margin side, obviously a very strong margin expansion that UMG in the first half. I don't know how much you can maybe elaborate -- how much of that was driven by the strong physical performance particularly in Japan, where obviously margins are there and therefore, if physical sort of slows in the second half of the year. Are we going to see a slower expansion in margins? So just clarity in terms of how much the margin expansion was driven by physical adult [ph] -- by margin markets like Japan and Germany. The second question, just coming back to the UMG sale process. You said that you are confident of still getting the deal done within 18 months. Is that -- just to be clear, is that announcing a deal or completing a deal? Just say we've got some clarity on that. And then, just lastly on Editis. As we go into second half, we still don't have full year numbers or proforma numbers of Editis. So I'm just wondering whether you could help us in terms of thought process, in terms of growth into the second half and profitability for the asset.

Arnaud de Puyfontaine: As we keep on saying as regard to the announcement for the transaction, we are on plan and as regard to the 12 months to 18 months, we said about in a position to announce deal. As regard to completion you can imagine that there are kind of a momentum, which is not under our watch. So I'm not going to elaborate of what may be post the announcement of the deal the difference of timing between announcement and completion. But when I -- what I can say is that as regard to what we said, literally one year ago, we are doing things according to plan, we’re managing the process in a very controlled approach, should I say and we are sticking to the initial announcement we made in July 2018.

Hervé Philippe: Towards the more financial question. I would say on the -- as a margin expansion for Universal Music, obviously we have a very good leverage effect, in this very good leverage effect, physical takes its part. This being said, we will have probably a good second part of the year. We are very confident in the development of the business for the second part of the year. It's always difficult to predict what will be the level of the margin also because probably as you know, we have some changes in 2019. So past we had a large part of the profitability of the business, which was in the second part of the year on some of the streaming and subscription changes we have more an average profitability throughout the year, but we are quite confident. On Editis, it's difficult for us to give more precise figure on the full year. First, difficult to give figures for 2018, because it was not exactly the same perimeter when Editis was inside Zucanita [ph] Group; so we have both the company but the uptake -- we have kept some assets, it's quite difficult, but we can say -- what we can say is that obviously there was a big seasonality effect in this business with Mabel [ph] in September. I would say on the Christmas sales, which are always very, very important on this year. We'll have a specific effect on the Q3 sounds to the educational part of the business in France. So difficult to predict, but obviously you have to take account of the seasonality and the positive impact of reform in high school.

Richard Eary: Thank you. Could I just ask a follow-up on Editis? If we look at the numbers, I mean, what sort of margins do we expect for that business for the full year? And how big is the seasonality impact between first half and second half typically?

Hervé Philippe: Well, is a profit of the first half of the year. It's absolutely not significant of the profitability of the full year, which is largely -- I would said put on the second part of the year. And when we have paid -- you see we have paid EUR833 million, it's a bidding of 2019 you can imagine, it's really what could be the sort of multiple, which have been paid. So you can make the calculation to find what could be as the personal for fit of the year then for the second part of this year. This is my suggestion.

Richard Eary: Thank you.

Operator: We take our next question from Adrien de Saint Hilaire from Bank of America. Please go ahead.

Adrien de Saint Hilaire: Yes, good evening everyone, and thanks for taking the questions. Back to the streaming growth in quarter two. So I'm just wondering if you have any thoughts whether the strong rates that you've seen physical. Is that cannibalize streaming at all? Secondly, your release mentions that you've established contact with potential partners. I know you can't give much details but I'm just curious if it's more you contracting partners or if it's the other way around. Third question on the deal. I think last year you mentioned that the valuation framework for UMG would be based on the full year range numbers. Is that still true or would the H1 performance be factored in? And then I have a last question around UMG if I may. Do you have any view whether a deal with for example, of Chinese digital platform? Would that go through with the U.S. administration given the trade tensions? I know it's a bit philosophical, but I'm just interested in your thoughts here. Many thanks indeed.

Arnaud de Puyfontaine: Adrien, I will repeat myself, I'm sorry for my poor English. But I think that some minutes ago, I said quite literally that I wouldn't comment anymore as regard to the statement, which you can read on Page 3 of our press release. So that's the reason why I'm not going to provide any more comments. That's your second question. And as regards to your fourth question, I am -- we intend to sell a minority stake and to keep control of UMG. So we do not expect to face those kind of issues. So we are confident as we got to the point you were making. I'm now going to end over to Hervé to answer your other question. Thank you.

Hervé Philippe: To your first question on the physical and streaming and subscription, it's very difficult to believe that there is some cannibalization effect between physical and streaming to contrary, which is happening and if we look to the Japan side of the business, they made very big development in physical in Japan, it's that against subscription and swimming off the opposite I would say.

Adrien de Saint Hilaire: And on the point about the valuation of UMG based on full-year 2018 or inclusive of H1 2019?

Hervé Philippe: Well, do you mean the valuation of Universal Music in the sale process?

Adrien de Saint Hilaire: Yes, I think I'm -- it's what do you said at the full year results presentation. That's the disposal process would be based on the full year 2018 numbers a UMG. So now that you've got six months in the back, I'm just wondering if, well, this will be used as the starting point for discussions.

Arnaud de Puyfontaine: No, just for clarification. As regard to the momentum in terms of that process, we said in terms of the timeline, when we were asked about the length of the timeline that we wanted to get the process organized a very efficiently and as regards to the numbers, the more we could have numbers as regard to showcase and to prove the trend within the business, the better is going to be. So now we've got the results for the first half of 2019. What we said is that as we get to the work that has been done in the vendor due diligence, we will have a Pricewaterhouse working on an update of this vendor due diligence based on our numbers for the first half 2019. Is it clarifying your question?

Adrien de Saint Hilaire: It is very clear. Yes, absolutely. I mean, I don't think you really ignored performance. So I'm not surprised, I just wanted to confirm.

Arnaud de Puyfontaine: No, very clear. Thank you very much.

Operator: We take our next question from Lisa Yang from Goldman Sachs. Please go ahead.

Lisa Yang: Good evening. I have a few questions as well. First on UMG, maybe could you comment on the pipeline of new leases we should expect in the second half and how that might compare versus last year? And therefore that basis, how do you see your market share in the second half? My second question is on the sale process of UMG. I understand the current process about selling a minority stake but I'm just wondering, I mean, in order to make the asset more attractive especially to a U.S. buyer, would you be willing to put some form of shareholder agreement? What you could eventually sell the entire asset over time? Maybe at high valuations. And the third question is on Canal+. I think you probably said your 2019 EBITDA will be higher than 2018 ex restructuring. First half we see was down 5%. Would you still think that's going to be the case, especially with the cost savings? Thank you.

Hervé Philippe: I will just answer the third question on Canal+. Obviously, in the final figure for 2019 will be impacted by those suffering charges linked to the organization plan, but if we exclude the impact of this voluntary plan, I would say, we expect Canal+ Group to continue to improve its profitability in 2019 and also to keep investing programs, commercial initiatives to boost its revenue growth. So we haven’t change our vision on Canal+ performance in 2019. Before I would say, less recurring charges.

Arnaud de Puyfontaine: So on your first question, we are excited about the remainder of our 2019 really schedule with the upcoming releases from instance, Taylor Swift, Lionel Richie and Mabel and the number of original soundtracks like the Lion King, like Star Wars

Hervé Philippe: Well, I also need to mention the planned release on second half for The Avener and also DJ Snake. So to answer your question, you know Solution King, Solution Range [ph] always puts the very high level of creativity and the capacity of our team worldwide in terms of the A&R to be able to attract the very best performer and based on the releases of the past quarters and the plan release for H2 2019, we expect the momentum to prove that it is exactly what Universal Music Group is really as second to known at.

Arnaud de Puyfontaine: Could you repeat your second question, please?

Lisa Yang: Yes, I think just on the sale of UMG, the sale is about selling a minority stake. But I guess if you're dealing, especially with the U.S. buyer, they would want at some point to probably have the control. So would you be willing to put some form of shareholder agreement where you could sell the assets, the entire asset over time, 100% of the asset over time?

Arnaud de Puyfontaine: Thank you for your question. We have an expression in French, we say [Foreign Language], which doesn't translate in English. But we can't speculate. What are we absolutely sure about is that the process is to get the sales process up to 50%. And you know exactly what has been our regular statement as regard to the process and our objective and as we speak it has absolutely not changed.

Lisa Yang: Okay, thank you.

Operator: We take our next question from Matthew Walker from Credit Suisse. Please go ahead.

Matthew Walker: Thank you, and thanks for taking the question. Just firstly, I guess a philosophical thing is -- which is about sort of reinvestment of proceeds. Clearly, the business is going extremely well on UMG, so just philosophically why recycle capital from that business into other businesses? And if you could just remind us what other types of businesses you are likely to, be attracted to in recycle capital into? The second thing is on tax rate. You made some comments on the tax rate. If you could be helpful and give us an effective tax rate going forward for 2019 and 2020 in the light of the increase of UMG profit, that would be helpful. And then finally, around Canal+. What is the plan for the football when you get to that point with MediaPro. I think in the past you've commented your confident of strike an agreement with MediaPro. They seem to be equally confident that they're going to go alone and set up a channel. If you could tell us your thoughts around what are you going to do about the French football rights when it comes to it? Thank you.

Arnaud de Puyfontaine: Thank you. On your question number one, as we said in the past and we are exactly sticking to our initial statement. The proceed could be used for a significant share buyback program, but we will also when it occurs, see what could be the potential bolt-on acquisition that could reinforce our position in the different operations which are making Vivendi. So priority share proceeds would be used by significant share buyback and second, in terms of taking opportunities on bolt-on acquisition, but always based on very strict financial discipline as we do. Second point on tax rate, maybe I handover to Hervé.

Hervé Philippe: Yes. Thank you. Well, you have note that we have a decrease no, I think the tax rate. This being said also depends to profit in different countries. And it's also -- it's not a guess but if we take something between 20% to 25% of effective tax rate, I think that we are not far from the reality, it can differ from one quarter to the other, but I think this is a good level. And then to answer the question on Canal+ on the football rights in France. Just to say that we have still -- is a right for the League 1 for the coming season from 2019 to 2020. So this is only after, so we have more than one year for that question comes. Canal is always confident that there will be some League 1 much season on Canal+ after 2020, mainly because Canal+ is the best distribution offer on Canal+ unique broadcasting capabilities in France. So we cannot comment more but this is the strength of Canal+ on this subject.

Matthew Walker: Okay, thank you.

Operator: We take our next question from Laurie Davison from Deutsche Bank. Please go ahead.

Laurie Davison: Hi there, thanks for the questions. You mentioned the restructuring costs of Canal associated with the headcount reduction, but given you're getting rid of about 20% of the workforce, can we have an idea of what the EBITA benefit could be from this restructuring once -- from the headcount rationalization once those restructuring costs are clear? So are you going to give out any kind of new EBITDA targets for Canal+ in 2020 as first question. Second question is just on the music publishing side as accelerating. It looks like it's down 15% in the second quarter and it's been on the steady acceleration path. Is this just catch up because of the delays in royalty collection from streaming platforms or is there something else going on in the music publishing revenues that we should be aware of in terms of market share? Thank you.

Hervé Philippe: First, on sales equation on the Canal+ reorganization plan; I can say that we -- it's very, very early for us to give an idea of the magnitude of such plan and they are also expected savings. We are just at the beginning of the process and that's what we have said, this is a voluntary plan upto 492 people as a condition of departures that have not yet been discussed and negotiated. So we'll come back to you later this year with the possibly impact on the 2019 second half and I would say exceptional cost, our organization cost on what could be as the impact on the profitability of Canal+ in 2020 and later. Regarding the question on publishing, we can say that this is -- the growth in publishing is mainly and directly linked to the trend in subscription and streaming, which favor us [ph] is also the publishing side of our business. Thank you.

Laurie Davison: Okay. Just one final question as well. You have established a strategic partnership with Tencent Music for the Diabie Road [ph], China initiative. Will that qualify as one of the strategic partnerships that you mentioned in regard to the UMG sell?

Arnaud de Puyfontaine: Thank you for your question. As I mentioned during this call, we are going to stick to the comment, which is mainly in our press release, and I'm not going to comment any further on those potential partners. Thank you.

Laurie Davison: Thanks.

Operator: Thank you. We take our next question from Julien Roch from Barclays. Please go ahead.

Julien Roch: My first question is -- which banks have you appointed? I would not mind Barclays because of my fav results today and being restricted means that can go home early, but probably not. Then the second question is again on music. What margin do you get on merchandising another? Good is boosted by new tooling revenues, which you never had in the past, but are they lower margin 5% to 10% or actually higher than the Group average? Merci.

Hervé Philippe: The first part of the question on the banks we have not given the names of the bank. We are in the process of discussing with those banks so we have no attention today to give a precise list of some bank advisors, but you can show that they are very good partners for us on that. On the merchandising side in the music, it's very difficult to answer the question. It can depend on each or two and so, but I can say that this is not above the average margin of the business, this is mainly -- PCs, closest features of -- seems like that was it -- but if -- when also some good business results and we are happy to do it also because it's good with our relationship we have with our artist to make also merchandising in there too, so we are happy with this business, which is quite small; in fact regarding the global fields of Universal Music.

Julien Roch: Thank you.

Operator: Thank you. We take our next question from Conor O'Shea from Kepler Cheuvreux. Please go ahead.

Conor O'Shea: Yes, thank you. Good evening. A couple of questions from my side as well. Just come back on Universal and the growth. Is there anything you can help us out with in terms of forecasting in the second half on merchandising? I think you had a very strong quarter, fourth quarter last year. So should be the kind of touring impact cycle out in the second half of the year and growth slowed significantly? And also on the music publishing. I think Spotify has come out and has said that they were overpaying music publishing levels last year due to a misinterpretation of change in the U.S. legislation and that some of those labels, of the money obviously, numbers are very strong again in the first -- in the second quarter after a slower first quarter. Are there any other risks to slowing growth in the publishing side including obviously that comment from Spotify because it kind of [indiscernible]. Can you help us out in terms of the pipeline first to kind of in the second half of the year, anything to call out? And on the restructuring costs, so if your potential voluntary redundancy of 500 people, potentially very long-serving staff, so it could be quite a big restructuring charge. I think in 2017 you had about $50 million on restructuring charges. Could that be a similar number in the second half of 2019? And just a very last question, I mean if you could just give us some help on the expected full year net interest costs on an underlying basis after the recent refinancing. Thank you.

Hervé Philippe: Well, to take the financial question. I would say on the forecast on gross, it's very difficult to give precise figures on the merchandising in the second part of the year if we clearly dependent on the different touring activities we can have, is one part. We have some good artist making tools like Ariana Grande, Travis Scott, Elton John, Post Malone, so you know we have good artist doing tours in the second part of the year. For publishing it, I will say there is no specific -- in my understanding, there is no specific reason or no specific risk so in terms of growth in publishing. To answer your question on Canal+, voluntary reorganization plan. I would say you are making your own as this month, I would say calculation, I cannot comment more on that. Obviously, it will depend clearly on the people who will ask for leaving the company, but I would say if there are more restructuring charges probably there will be more savings later. So you have to balance that. For the pipeline on Studio Canal, I have no specific information to give you. Have you [indiscernible].

Arnaud de Puyfontaine: Thank you Hervé for your question. And the first half was a very small pipeline related to the first half 2019. We expect the second half to be with more release. As regard to the details, they can be forwarded to you by our IR team.

Conor O'Shea: Just on the full year interest costs, post refinancing?

Hervé Philippe: Well, we have an interest cost which is known for the second half of this year, we'll probably have some slight increase in the financial cost due to the bond we've issued in June considering that the [indiscernible] bonds will be done on the beginning of December. So we have a very good impact in 2020 from that pure side because this bond, which will be I both in early December for $700 million is at rate of 4.87 I believe so.

Conor O'Shea: For next year.

Hervé Philippe: That's it, it’s all I can give you.

Conor O'Shea: Okay, right, thanks.

Operator: [Operator Instructions] We take our next question from Tom Singlehurst from Citi. Please go ahead.

Tom Singlehurst: Good evening. It’s Tom here from Citigroup. Thank you very much for taking the question. I have one question on UMG, obviously fabulous performance in the first half, but I did want go back to the news in June about the about buyer. I know it's a long time ago. I know you've been very clear in some of the public commentary about not having any financial impact, but it does look like there has been some -- feathers ruffled with some of the artists. Can you just talk about the risk of that and then specifically without any provisions needed to be taken that account of any legal thought? That was the first question. And then the second one on Canal+, and seven -- looks like a very sensible way of broadening the footprint. I was just wondering whether there are any more transactions along those lines that we should expect. I know in the last 18 months, there have been some fresh reports about you considering acquisitions in Africa. So, I am wondering whether those are anymore we should be looking forward in terms of international expansion? Many thanks.

Arnaud de Puyfontaine: Thank you for your question. As regard to your question number one. Solution range has committed for full transparency to UMG's artist, with respect to the status of its recordings. But it's important to note that the fires had affected the commercial availability of music that was possibly stored in the vaults. But as we got to the legal process, which I'm not going to comment on, the thing which has been our position as we got to this matter is that we believe the lawsuit is without merit and we do not expect any material impact on the business. Thank you. Question number two.

Hervé Philippe: Question number two was about M7 and the possibility for Canal+ to do other acquisition in the coming 18 months. I would say it will depend clearly on the opportunities on the development of the international levels. We have nothing very specific on the review today, but it can happen in the coming quarters. It's always interesting to rely on the international development for Canal+. Globally, when you put the current results in the context of what we said in 2015 as we got to the group Canal+. We have reorganized the operation in -- France and we have kept good momentum on an international basis, if we were to be given the agreement to complete the transaction within seven, the Group Canal+ will then be comprised of more than 20 million subscribers. And as we already said, we as Vivendi with Canal+ are positive as regard to the prospects in the future of pay-TV. So any opportunities in due time that could arise and help us to be able to maintain the momentum by Bolton acquisition done with strict financial discipline, that would be a project that we will work on with a positive stance. Thank you.

Tom Singlehurst: There's one follow-on on that. Is there a geographic emphasis that we should look out for Africa and area do Bolton, so should we expect focus there [ph]?

Hervé Philippe: No that's specifically, I would say we can't.

Arnaud de Puyfontaine: We have at the international level. We've got Europe, we've got Africa, and we've got Asia. Those are the three pillars of our priorities as we got the two potential international development.

Operator: We take our next question from Thomas Coudry from Bryan Garnier. Please go ahead.

Thomas Coudry: Good evening everybody, thank you for taking my question. I have two actually. First one is a quick follow-up on the CFFO at UMG. I would like to know if you can give us some color on the contribution of the advances from platform topic versus the higher artist advances one. And said otherwise, if it was only the artist advanced impact, would we be actually growing the FFO or we'd still be down versus last year? And my question here is also should we look at this rise in artist advance as a structural phenomenon in today's market and thus expect CFFO generated by UMG structurally lower than in the previous years due to these new advances? So that was my first question. And my second question is actually on Telecom Italia. In the recent weeks or months, it seems that relationships between earlier Vivendi at the Board or more peaceful I would say, I would like to know if we can expect the Board to be able to consensus around the major issues that Telecom Italia such as network sharing deal with Enel [ph] and also conversion of saving shares? Thank you very much.

Hervé Philippe: Well, I will take the one on the CFFO of Universal Music to give you just an idea of the-- I don't see to artist where more than EUR100 million. More important in the first half of this year and then the first half of 2018 due to the very specific, very good at is improve enough after that we have invested in. And in fact, in my view, this is a very good news for Universal Music to develop this part of the business on proven artist to finalize those artists and to make them work with us for the longer term. You have also some information on the cash flow from operation and the seasonality of it which is something which is very important as a group level because we have always more important CFFO in the second part of the years than in the first part. In fact, increase with the acquisition of Editis, which has also the same seasonality at partly at Universal Music too, so you have to consider that. And frankly, I'm very, very confident in the possibility for Universal Music to have a very good CFFO. Keep also in mind that we had some slippage at the end of June for some dozen of millions of euros. At the time the CFFO of the first part of the year is not really significant and comparable to the past. Arnaud, do you want to answer from Telecom Italia and Music business.

Arnaud de Puyfontaine: So as regard to the Telecom Italia situation, as the first shareholder of the company, we've got a strong long-term commitment to the company and we still believe that the company as much greater potential than what is currently reflected in its share price. You know that Vivendi as number one shareholder as always been with a pragmatic approach as regard to two and approach based on the possibility to get Telecom Italia building strength around its network and we are as a shareholder, really ready to support any long-term strategic plan which will help Telecom Italia to regaining the value that the company should be reflecting. Post the AGM end of March, there has been a kind of a call from the [Foreign Language] as regard to as they need to get better and efficient governance, to create the best environments to support what he wants to implement and we are absolutely aligned with this approach in the interest of all the shareholders. As you have seen post the last Board of the company, there has been the first step with the arrival of [indiscernible] at the level of the Board, and there has been also a rendezvous that have been stated by the company for the next Board on August 1, so we expect the governance to be able to reach what we as Vivendi are expecting, which is full transparency and efficiency in the context of the corporate governance of the company. And as regard to what is currently happening at Telecom Italia, we as Vivendi are supporting the different initiatives from [indiscernible] and is theme and we are expecting to be able to build success for the company. Thank you.

Operator: It appears there are no further questions.

Arnaud de Puyfontaine: There's no further question. I don't see any more on my screen. So I'd like to on behalf of all our team at Vivendi and Hervé to thank you for your question. Thank you for your interest in Vivendi and very much look forward in six months’ time. Thank you very much. Bye-bye.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, you may now disconnect.