PARIS Vivendi (VIV.PA), a conglomerate whose interests range from entertainment to telecom, raised its annual profit target by 8 percent, to 2.7 billion euros ($3.43 billion), because of strong video game sales, though weakness persisted at its key French telecom unit.
The group, which is in the midst of a strategy review and is working on asset sales, posted revenue for the third quarter in line with analysts' average estimates, and operating and net profit ahead of estimates.
French telecoms operator SFR, which brought in nearly 40 percent of Vivendi's operating profit last year, continues to struggle with the fallout of Iliad (ILD.PA) launching its low-cost mobile service in January.
Dubbed "Free Mobile", the newcomer touched off a price war and swiftly won more than 5 percent of the market.
SFR's third-quarter operating profit sagged nearly 17 percent compared with a year earlier to 537 million euros.
Nevertheless, Vivendi said it now expects SFR to post a decrease in full-year earnings before interest, tax, depreciation and amortization (EBITDA) of close to 12 percent, against 12 percent to 15 percent predicted previously.
SFR added only 40,000 new mobile customers on long-term contracts and 24,000 broadband customers in the quarter, compared with larger rival France Telecom's 320,000 new mobile contract customers.
Analysts say over time Iliad's arrival to the market will make established players SFR, France Telecom FTE.PA and Bouygues Telecom (BOUY.PA) structurally less profitable.
Despite the challenges, Vivendi Chief Financial Officer Philippe Capron said SFR was making progress adapting to the new reality in France.
"Commercial results at SFR are back in line in fixed and mobile and cost reductions are underway and starting to yield results," said Capron, adding that some 30 percent of the customer base had been transferred to new lower mobile tariffs.
"We warned in the beginning of 2012 that we would be facing two difficult years. This still holds true but within the general context, things are going a bit better than planned, hence the improvement of our earnings forecast," he said.
Vivendi's third-quarter group revenue was down 3.4 percent to 6.67 billion euros. Earnings before interest, tax and amortization (EBITA) fell 8 percent to 1.39 billion euros, while adjusted net income stood at 665 million euros ($845 million).
Analysts had on average expected EBITA of 1.27 billion euros and adjusted net income of 602 million, according to a Reuters poll based on eight estimates.
Vivendi did not provide any fresh details about its ongoing strategy review in which it is considering selling assets to reduce debt and reverse a slump in its shares.
It is seeking bidders for its Brazilian telecom unit GVT and Maroc Telecom (IAM.CS), and earlier shopped around video game maker Activision Blizzard (ATVI.O) but found no takers at the price it wanted.
Capron declined to comment on specific asset sales.
"The strategic review is going ahead at full speed, although we have not fixed a specific calendar for decisions," he said.
"But rest assured, we are committed to delivering value to shareholders while keeping our current credit rating."
Vivendi shares closed up 1.28 percent at 14.99 euros on Tuesday before the results were published.
($1 = 0.7867 euros)
(Editing by James Regan and M.D. Golan)