August 31, 2011 / 9:02 AM / 8 years ago

UPDATE 2-Vivendi H1 rises as France pressure grows

* H1 EBITA 3.36 bln eur vs pol avg 3.31 bln

* SFR under pressure: margins, new recruitments drop

* Annual targets on profit and higher dividend confirmed

* Shares up 4.6 pct

* No talks with Lagardere on Canal+

(Adds analyst, shares, CEO comments)

By Leila Abboud

PARIS, Aug 31 (Reuters) - Telecoms and entertainment group Vivendi confirmed annual goals and posted first-half profits up in line with expectations as growth in video games and Brazilian telecoms offset weakness in its key French mobile business.

The results showed how France’s Vivendi has been recast after buying out Vodafone’s 44 percent stake in SFR to take full ownership of France’s second-biggest telecom operator.

It now has wider exposure to France as competition heats up ahead of the entry of new mobile operator Iliad and a heavy debt load, but Vivendi also has a cleaner financial structure and better cash flow.

“We now have full control of all our assets and have simplified our organisation,” Chief Executive Jean-Bernard Levy said in a statement. “Vivendi has achieved an essential strategic objective on very favourable financial terms.”

Yet just months after the SFR deal closed, the unit remains locked in price wars with rivals France Telecom and Bouygues Telecom , sending margins down and making it harder to sign up and keep customers.

Investors sent shares up 4.6 percent to 16.92 euros at 0826 GMT, a marked change from the negative sentiment that has been weighing on the stock, which before the results had been down 20 percent since January.

“The shares are up because expectations were pretty low and the results were reassuring,” said Thomas Singlehurst, an analyst at Citigroup.

“There has been a healthy amount of fear about the future of the French telecom market already reflected in the share price, which is at eight-year lows.”

First-half earnings before interest, tax and amortisation (EBITA) rose 3.7 percent to 3.36 billion euros ($4.87 billion), while revenue was up 1.9 percent to 14.25 billion.

Adjusted net income rose 20.2 percent to 1.83 billion euros, boosted by favourable, one-off tax credits linked to Vivendi’s minority buyout of SFR.

Analysts polled by Reuters had on average expected EBITA of 3.31 billion euros, revenue of 14.24 billion and adjusted net profit of 1.73 billion.

The first-half results continued to show the diverging prospects for Vivendi’s various businesses with growth coming from Activision Blizzard’s video games and Brazilian fixed telecom operator GVT.

Meanwhile, profits are slipping at Vivendi’s Moroccan telecom and music businesses, as well at SFR, which is being forced to spend more to woo and keep customers.

In early June, SFR revamped its mobile offers yet it still saw its new client recruitments slashed to 220,000 in the first half compared with 540,000 a year earlier.

Mobile operating margins slipped to 25.4 percent in the first half of the year from 27.3 percent a year earlier.

“It’s too early to draw conclusions about the new offers,” said Pierre Trotot, senior executive vice-president of SFR.

On acquisitions, Levy said the ball was in Lagardere’s court on what would happen with its minority stake in Vivendi’s pay-TV unit Canal+.

Lagardere wants to sell the stake but has never been able to agree with Vivendi on a price. Instead Lagardere was planning to do an initial public offering in the spring before pulling it because of market volatility after the Japan earthquake.

“I don’t think the time has come today to restart these negotiations and I can assure you there have been no talks for several quarters now,” said Levy.

He added that he was more hesitant on the need to buy out Lagardere’s stake than he was a year ago, given that there could be better uses for Vivendi’s limited budget for acquisitions. ($1=.6897 Euro) (Additional reporting by Marie Mawad; Editing by James Regan and Helen Massy-Beresford)

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