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

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Tu

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• 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

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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