UPDATE 2-Vivendi trims annual goals as battles to turn round SFR
* Vivendi still deciding how to use cash from disposals
* SFR sales down 11 pct in Q2 as price war persists
* CFO says no decision yet on SFR spin-off plan
* Q2 sales down 0.5 percent to 5.43 bln euros
* Q2 EBITA down nearly 20 pct to 762 mln euros
By Leila Abboud and Gwénaëlle Barzic
PARIS, Aug 29 (Reuters) - French media and telecoms group Vivendi trimmed annual targets for its pay-television and French and Brazilian telecoms businesses after posting declining sales in the second quarter.
Pressure at telecoms unit SFR, its largest in terms of sales and profit, continued amidst a mobile price war in France. But there were some glimmers of improvement with a rise in contract customers, a lower rate of customer departures, and a smaller decline in operating profit than last quarter.
The change in annual targets "amounts to a small profit warning of some 150 million euros" on earnings before interest, tax, and amortisation (EBITA), said Conor O'Shea, analyst at Kepler Capital Markets.
"But the signs on French mobile are starting to be more encouraging. Vivendi just needs to strip out more costs at SFR."
Vivendi shares were up 2.3 percent at 1030 GMT, while the French blue-chip index was flat and the European telecoms index was up 3.3 percent.
"Vivendi shares are benefiting from strength in the telco sector today and an upbeat results call (with analysts)," wrote Polo Tang, analyst at UBS.
The French group cut its annual operating profit guidance for SFR by 100 million euros to 2.8 billion euros because of a tax change in France, while the sales growth target for Brazil's GVT was cut from above 20 percent to the mid-10 percent range.
In pay-TV, it projected Canal Plus's operating profit at 650 million euros, 20 million euros less than before.
Vivendi is in the midst of a broad revamp to pay down debt and focus on media. Its second quarter results were shorn of video games maker Activision Blizzard and Maroc Telecom , which were listed as income from discontinued operations after their divestments were announced in July.
While the two deals leave Vivendi smaller and less profitable, their roughly 10.4 billion euros in proceeds are expected to allow the group to pay down debt, return money to shareholders and possibly pave the way for a spin-off of SFR.
"Undoubtedly, the disposals of both Activision and Maroc Telecom gives us ample leeway to do any type of restructuring, which the board might have in mind and to organize cash returns as well," said Chief Financial Officer Philippe Capron, declining to give details on returns to shareholders.
"We have a wide variety of possible financial strategies in terms of capital allocation."
Vivendi's second-quarter sales fell 0.5 percent to 5.43 billion euros, while EBITA dropped nearly 20 percent to 762 million, largely because of the competition to SFR.
The results were ahead of consensus expectations reported by analysts at Exane BNP Paribas, who predicted sales of 5.42 billion euros and EBITA of 720 million.
Including the businesses being sold, second-quarter group net profit attributable to Vivendi shareholders rose 7.5 percent to 501 million euros, helped by strong video games sales.
Like French rivals Bouygues and Orange, SFR has been hit by tough competition from low-cost player Iliad , which launched a mobile service in January 2012, sparking a price war.
SFR, saw sales fall by 11.3 percent to 2.51 billion euros despite increasing the number of customers on mobile contracts by 552,000 in the second quarter.
SFR's cost-cutting efforts have only partly offset the damage to profits. Earnings before interest, tax, depreciation and amortisation (EBITDA) fell 16.3 percent to 768 million euros, compared with a 24.5 percent drop in the first quarter.
Capron said on a conference call that the SFR results were "disappointing" but promised the benefits of cost cutting would come through next year to spark a turnaround.
He declined to say when Vivendi would decide to pursue a plan to do an initial public offering of SFR.