Media conglomerate Vivendi SA ADR (OTC:VIVHY) announced its second-quarter/first-half results on July 30, and reported strong adjusted net income growth, while also seeing its balance sheet grow steadily on the back of solid cash flows and the proceeds of selling its stake in Ubisoft earlier this year. The company also announced its plans for Universal Music Group, its cash-cow business that generated 41% of revenue but almost 60% of operating income for the company in the first half of the year.
Let's take a closer look at Vivendi's results, as well as management's near-term plans.
Lots of moving parts driving the results
Vivendi reported net revenue of 3.35 billion euros, up 17% year over year. The bulk of the 572-million-euro increase in revenue was due to last year's acquisition of the Havas advertising agency, which added 570 million euros in sales during the quarter. Vivendi's Canal+ TV networks saw revenue decline slightly, as did Gameloft, Vivendi Village, and its "new initiatives" segment.
Vivendi doesn't break out its quarterly results midyear, instead reporting first-half performance. It also has a substantial impact from foreign exchange, with much of its revenue generated outside of the European Union. In the first half, revenue was up 18.3%, but adjusting for currency fluctuations and excluding acquisitions, it was up 4% year over year.
Operating income was up 50.2% unadjusted, versus 27.8% higher at constant currency and excluding acquisitions. EBITDA (earnings before interest, tax, depreciation and amortization) was up 54% unadjusted and 31.6% adjusted. Earnings attributable to shareholders fell 6.3% year over year to 165 million euros. On an adjusted basis, net income was 393 million euros, up 22.8% from last year's first half.
The media giant is seeing profitability from UMG and Canal+ improve sharply. EBITDA margin improved at both segments by 1.7 and 1.9 percentage points respectively, driving EBITDA 24% and 28% higher in the first half of the year. Havas Group EBITDA was up 5.3% from pro forma pre-acquisition levels, as well.
What's happening with the balance sheet
Vivendi has made two large divestitures this year, selling its stakes in Ubisoft and Fnac Darty for 2.3 billion euros. To date the company has received 1.77 billion euros; it will receive the 500-million-euro balance later this year. At quarter-end, the company reported gross cash of 2.96 billion euros, and 4.2 billion euros in long-term debt. That works out to 935 million euros more cash than it started the year with.
An update on plans for UMG, another acquisition in the works
For some time now, Vivendi has been working on a strategy to best leverage Universal Music Group's assets. UMG's importance as a cash-generating asset will only grow as streaming becomes a bigger source of global music consumption, but management has also sought a way to leverage its value. In the earnings release, Vivendi said it had ruled out an initial public offering, but that the management board was recommending it seek a buyer for up to 50% of UMG. More specifically, the company is seeking "one or more strategic partners" to buy a stake in the music giant, which has a massive 30% share of global music sales.
Vivendi will engage with investment banks to help identify potential partners in the second half of the year, and said a sale "could be completed within the next 18 months."
Vivendi also announced it was in exclusive negotiations to acquire Editis, the second-largest publisher in France, with an enterprise value of 900 million euros and 2017 sales of 750 million euros. Vivendi said "the acquisition of EDITIS would be another major step in its building of an integrated media, content and communication group."
The next year and change should be quite interesting for Vivendi and its shareholders: The company is moving forward with its plans to leverage UMG and find financial partners, and will announce its plans to deliver shareholder returns with the proceeds once it does sell a stake in its biggest business. The growth of that business as streaming revenues increase, along with cost-cutting measures in Vivendi's other segments, is expected to continue to drive earnings and cash flows higher, even as revenue growth remains fairly modest.
In the meantime, investors can continue to expect a modest -- but steady -- dividend, yielding 2.1% at recent prices.