Vivendi Says Savings Will Encourage Phone and TV Advances

Vivendi SA, the French conglomerate that owns phone company SFR, said cost cuts, asset sales and restructuring to focus on media and content will help its phone and TV units recover next year after second-quarter sales fell.

Vivendi’s SFR, pay-TV provider Canal Plus and Brazilian telecommunications unit GVT are making progress toward a turnaround, Finance Chief Philippe Capron said today. That’s after the Paris-based company revised full-year forecasts for its two biggest divisions, citing a tax adjustment at SFR and macroeconomic concerns affecting Canal Plus.

“We’ve planted the seeds for the operational improvement of our business,” Capron said on a conference call. “Canal, SFR and GVT are all on track to recovery. You just can’t see it yet in the numbers.”

Chairman Jean-Rene Fourtou, having promised to overhaul the company through a possible split, is clamping down on units suffering profit declines. Vivendi announced the $8.2 billion sale of a stake in video-games maker Activision Blizzard Inc. last month and said it’s in exclusive talks to sell Maroc Telecom SA to Emirates Telecommunications Corp. as it tries to refocus its business on media and content.

The shares rose as much as 3.3 percent to 15.86 euros in Paris. They gained 1.6 percent at 3:49 p.m., paring this year’s decline to 8 percent and valuing the company at 21 billion euros ($28 billion).

Dividend Question

As Vivendi aims to focus on the media business, which includes Universal Music Group and Canal Plus, the company has said the first step will be to use asset-sale proceeds to repay debt. Accounting for expected disposals including Maroc Telecom and Activision Blizzard, Vivendi’s net debt will drop to 6.5 billion euros from 17.4 billion euros as of June 30, the company said today.

The question remains as to how much of the proceeds Vivendi will give back to shareholders, analysts from JPMorgan Chase & Co., Natixis and Kepler Cheuvreux said in separate notes today.

Capron, who declined to comment about the dividend policy, said he and Chief Executive Officer Jean-Francois Dubos will soon make recommendations to the board, which will discuss the matter in the coming weeks.

“We’re not ready to talk about this yet, but that doesn’t mean we have forgotten about it,” Capron said. “We’ll look to balance the interest of bondholders and shareholders.”

Price War

Vivendi’s second-quarter sales dropped 0.5 percent to 5.43 billion euros, while net income rose 7.5 percent to 501 million euros. SFR, the biggest contributor to quarterly sales and profits, reported an 11 percent drop in quarterly sales, to 2.5 billion euros, while its earnings before interest, taxes, depreciation and amortization fell 16 percent to 768 million euros.

As a price war started by Iliad SA goes on for a second year, SFR has started talks with Bouygues SA’s phone unit over sharing part of their mobile-phone networks to cover more ground for less. Shrinking phone bills have also prompted SFR to simplify its structure and cut jobs.

SFR is cutting costs faster than planned and will turn around its business next year, Capron said. He predicts full-year results will show cost savings taking hold at SFR as well as an improvement in winning over new clients.

Still, because of a tax adjustment, Ebitda at the unit will be 2.8 billion euros this year, less than the 2.9 billion euros predicted earlier.


Vivendi has said an IPO is an option for SFR, though business at the unit must first be strengthened. Capron said again today that improving SFR’s operational performance would give management “more courses of action.”

Vivendi has also said it may resume a process to dispose of its Brazilian broadband unit GVT, which it said today won’t grow as fast this year as initially forecast. Fourtou’s attempt to divest GVT earlier this year failed because of differences on valuation.

In the short-term, the focus should remain on turning around SFR and adapting structure at Universal Music and Canal Plus, Claudio Aspesi, a London-based analyst at Sanford C. Bernstein said in a note.

“It’s too early to set your financial models,” Capron told analysts today on a call. “There is more transformation ahead of us before the dust settles.”

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