March 1, 2012 / 12:40 PM / in 6 years

Vivendi braces for two tough years with dividend cut

PARIS (Reuters) - Vivendi SA (VIV.PA), Europe’s largest telecoms and entertainment group, slashed its dividend in anticipation of two difficult years in which profit will not grow as it wrestles with tougher competition in the French mobile market.

The French group’s dividend cut echoed moves at France Telecom FTE.PA, Telefonica (TEF.MC) and Telecom Italia (TLIT.MI) as they face a toxic cocktail of regulatory pressure, bruising competition and network upgrade spending.

Vivendi’s home market is being rocked by a price war after new player Iliad (ILD.PA) launched ultra low-cost mobile offers in mid-January.

The group’s French telecom business, SFR, lost about 208,000 subscribers in the first two months of 2012, roughly the same pace as at France Telecom, and Vivendi predicted the unit’s core profit would drop by up to 15 percent this year.

Vivendi Chief Executive Jean-Bernard Levy said group adjusted net profit would fall to more than 2.5 billion euros this year, down from a record 2.95 billion ($4 billion) last year.

Blaming a worsening outlook for SFR after Iliad’s disruption of the mobile market, Levy said 2013 would also be difficult, with profit growth set to resume only in 2014.

Shares in Vivendi were down 7.7 percent at 14.875 euros by 1218 GMT, the biggest fallers on the French blue-chip CAC 40 index .FCHI and against a 0.3 percent weaker European media index .SXMP. The stock is down more than 10 percent this year.

The situation represents a stark turnaround from Levy’s hopes when Vivendi bought out Vodafone’s (VOD.L) stake in SFR for 8 billion euros last year, taking full ownership of the unit.

Levy billed the deal as a way to strengthen the group and pledged increased dividends for shareholders.

On Thursday, Levy found himself having to answer the question of whether it was time to take a write-down on the SFR stake.

“We are not at risk of an impairment on SFR and we had made very conservative projections,” the CEO said on a conference call. “So there is no change in this view on our side.”

Levy said Vivendi had adjusted the value of its 80 percent stake in pay-TV unit Canal+ in its books, adding that it was not interested in restarting talks to buy the remaining 20 percent from media-to-aerospace conglomerate Lagardere (LAGA.PA) after negotiations between the two went nowhere last year.

Nomura analyst Matthew Walker reminded Vivendi of its past pledge on SFR.

“This represents a broken promise in terms of raising the dividend post the SFR minority buy-in,” he wrote in a note. “The outlook for profit is poor with profit growth only resuming in 2014.”


To cope with the new reality, Vivendi said it would reduce the dividend paid to investors on last year’s results to 1 euro per share from an unchanged 1.40 euros a year ago, with shareholders also receiving one share for every 30 owned.

Analysts predict Vivendi, France Telecom and Bouygues Telecom (BOUY.PA) will become structurally less profitable as Iliad takes market share in France in the coming years, draining cash flows and eroding margins for the larger players.

SFR has responded to Free with price cuts for a swathe of mobile offers and aggressive customer retention efforts.

    Further hurting SFR is the fact that, unlike France Telecom, which signed a 1 billion-euro contract to provide roaming services to Free in the coming years while it builds its network, it has no way to hedge against client losses to the low-cost player.

    “The excessively favorable conditions granted to the new mobile operator by the regulator, the state and the incumbent operator, lead SFR to reconsider very carefully its commercial offers and its cost base,” Levy said.

    Bouygues Telecom has said it is cutting costs to help offset an expected 10 percent sales slide this year due in part to the increase in competition.

    France Telecom FTE.PA said last month it had lost 201,000 mobile customers, prompting it also to take a knife to its dividend, as well as putting off a share buyback promised for this year using proceeds from the sale of its Swiss unit.

    Instead it pledged to conserve cash in the face of tougher mobile competition and the euro zone debt crisis.

    Vivendi achieved a 9.4 percent rise in group adjusted net income in 2011, helped by its GVT Brazilian telecom and Activision Blizzard video game units.

    Earnings were also boosted by the SFR minority buyout.

    Vivendi had cut its 2011 profit forecast in November to more than 2.85 billion euros, against 3 billion previously, after the French government hiked corporate tax rates to help cut the national budget deficit, leading to 600 million of extra costs.

    ($1 = 0.7476 euros)

    Additional reporting by Leila Abboud and Gwenaelle Barzic; Editing by Hans-Juergen Peters, Helen Massy-Beresford and Mark Potter

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