PARIS (Reuters) - France’s Vivendi (VIV.PA) reported a lower third-quarter operating profit on Tuesday, as its music and pay-television units struggled with competition and subscriber losses, and said it expected to be spending heavily on new investments to rebuild the group after a series of asset sales.
It also reaffirmed its annual financial targets after posting weaker than expected third-quarter core profits largely because of weakness at French pay-television operator Canal Plus.
“In its ambition to build an international media and content production and distribution group, Vivendi anticipates that the next two years will be a period of potentially heavy investments, during which priority will be given to the long term development of the Group with a strict cost management policy,” the company said in a statement on Tuesday.
The company declined to give any specifics about the type of investments envisaged, leaving analysts to wonder whether the commitment to invest meant that Vivendi was now unlikely to undertake the share buybacks that it had said were possible next year if the shares were below 20 euros.
Led by Vincent Bollore, chairman and largest shareholder, Vivendi has sold off three telecom businesses in France, Brazil and Morocco to focus on its media activities, which include the world’s biggest music label Universal Music Group and Canal Plus.
However more than a year after finishing the asset sales that left it with net cash at the end of September of 8 billion euros ($8.6 billion), Vivendi has not yet splashed out on a big media deal as some investors thought it would, given Bollore’s stated ambitions in media.
Instead Vivendi spent about 3 billion euros to build a 20 percent stake in Telecom Italia (TLIT.MI), bought online video site Dailymotion for 217 million euros, and last month bought minority stakes in French video games makers Ubisoft and Gameloft for 278 million euros.
Analysts have questioned the stake building in telecoms and games and worry Vivendi could be returning to its past as a sprawling business empire having disparate units with little strategic coherence between them.
At both Telecom Italia and the French games makers, Vivendi could struggle to influence the companies. At the Italian phone group, French telecoms tycoon Xavier Niel has positioned himself as potentially the second-biggest holder via derivative contracts that allow him to buy a 15.14 percent stake in Telecom Italia’s share capital, and possibly rival Vivendi there.
Chief Executive Arnaud de Puyfontaine reiterated on Tuesday Vivendi’s intention of being a long-term shareholder at Telecom Italia so as to further develop its southern European presence but added that Vivendi was still considering whether to ask for seats on the board.
Meanwhile the family owners of Ubisoft and Gameloft have hired bankers to advise them on a defense strategy to protect their independence and put off what they call a hostile move from Vivendi.
In the third quarter Vivendi’s group sales were up 4.5 percent at 2.52 billion euros, while income from operations was down 20.4 percent at 257 million euros. Adjusted net income was down 8.8 percent at 172 million euros.
Analysts at Citi Research had expected third-quarter sales of 2.56 billion euros, earnings before interest, tax, depreciation and amortization (EBITDA) of 390 million euros and adjusted net income of 199 million euros.
Universal Music Group saw a slight decline in sales, while Canal Plus continued to struggle with lower subscriber growth, weak ratings at some of its key shows and growing competition from online rivals like Netflix (NFLX.O).
Under Bollore Canal Plus is undergoing a major restructuring to overhaul programming and cut costs, with many top executives having been replaced since the summer.
Shares in Vivendi have risen about 4.5 percent this year, while the Stoxx Euorpe 600 media sector index <0#.SXMP> is up nearly 15 percent.
Editing by Jeremy Gaunt, Greg Mahlich