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"In the short term, due to the structure of our debt, Vivendi Universal is facing a liquidity problem despite the value of our assets."
VIVENDI UNIVERSAL FACES “LIQUIDITY PROBLEM”
First Half Results Include Massive Writedowns, Debt Troubles
Holy multinational conglomerate, Batman!

Feeling the effects of former chief Jean-Marie Messier's "buying-spree de corps," Vivendi Universal released operating results for the first half of 2002, saying it would begin selling assets in an attempt to raise 10 billion euros over the next two years (5 billion in the next 9 months) to reduce its 35 billion euro debt and “short term liquidity problem.”

Net loss for the half was 12.3 billion euros, or 11.32 euros per share, thanks in large part to a massive 14.4 billion euros in writedowns related to goodwill and other financial provisions during the period.

Revenue grew 8% compared to the first half of 2001, to 30.6 billion euros. Likewise, operating income increased 8% to 2.4 billion euros. For the second quarter, revenue grew 5% over previous-year figures, to 15.5 billion euros. Q2 operating income also grew 5%, to 1.4 billion euros.

Universal Music Group’s revenue was down 4% to 2.9 billion euros for the half. However, the company reported increased marketshare in a weak music market, breaking 30% year-to-date in the U.S. for the first time, with a single-week peak of about 42%. Eminem, Nelly, Sheryl Crow, the O Brother soundtrack and the Now 9 compilation helped drive sales.

Nevertheless, UMG operating income fell 28% compared to the first half of 2001. Leaving out gains on the sale of UMG's stake in MTV Asia to Viacom and real estate sales in connection with office moves, operating income dropped 45%. The company attributed the falloff to lower sales of releases carried over from 2001, a light Q1 release schedule, lower margins and increased A&R costs.

For the second quarter, UMG’s revenue dipped 2% to 1.5 billion euros. Operating income fell 14% compared to the previous year. UMG's release schedule for the rest of the year includes albums from Shania Twain, U2, Bon Jovi, Eminem (the 8 Mile soundtrack) and Mariah Carey.

Of Vivendi Universal’s overall performance, new Chairman/CEO Jean Rene Fourtou said, “My primary objective is to create as much value for shareholders as possible by focusing on three priorities. First, reducing debt. Second, improving the profitability of the businesses. Third, determining a long-term strategy for Vivendi Universal: this process is well advanced and the Board will decide on the long-term strategy at the September 25th Board meeting.”

Fourtou said VU’s debt was about 10 billion euros over a “comfortable level” and that reducing the company’s debt by that amount would require asset sales, cutting cash-sucking activities in the Canal + and Internet units, reducing “the huge level of corporate overhead” and, of course, increasing profits.

"In the short term, due to the structure of our debt, Vivendi Universal is facing a liquidity problem despite the value of our assets,” Fourtou said. “On July 10, Vivendi obtained a new bank facility of 1 billion euros. This new money has not yet been used. As announced in July, we are presently negotiating a new facility of 3 billion euros, which will include the first 1 billion euros.”

“This company has extraordinarily strong international assets,” he continued. “I am totally committed to restoring a stable financial situation and enhancing profitability. I am confident we shall be successful.”

VU has previously said it would sell its Houghton Mifflin publishing division, which it bought in June 2001 for $2.2 billion. According to Reuters, Standard & Poors quickly downgraded the company’s debt to “junk” status following the earnings release. As of this writing, VU shares were off more than 21%, down 3.25 to 12.08.

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