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VIVENDI UNIVERSAL REPORTS SMALLER Q2, H1 LOSSES
UMG Reports Operating Loss; NBC Deal on Track
Universal Music Group owner Vivendi Universal reported second-quarter and six-month results today, narrowing losses for both, but revealing a sharp drop in revenue and an operating loss for UMG.

As a whole, VU reported a net loss of 313 million euros ($358.3 million) for its second fiscal quarter ended June 30, compared to a loss of 11.5 billion euros a year earlier. The year-earlier number included a massive goodwill writeoff of 11 billion euros. For the half, net loss was 632 million euros, compared with a of 12.3 billion euros the year before. Operating profit declined 27% in the first half to 1.7 billion euros from 2.3 billion euros, but still beat analysts' expectations of 1.6 billion euros.

The good news is VU’s net debt was reduced to 13.7 billion euros at the half, compared to 35 billion euros a year ago, with the company saying it’s on target to reduce its debt to 13 billion euros at the end of 2003 and 5 billion euros at the end of 2004, following the merger of VUE with NBC, which the company says is on track.

As for UMG, second-quarter revenue slipped a steep 29% to 1.1 billion euros from 1.5 billion euros a year ago. This led to an operating loss for the quarter of  14 million euros, compared to operating income of 142 million euros the previous year.

For the half, UMG revenue declined 25% to 2.2 billion euros, compared to 2.9 billion euros in 2002. Operating loss for the half was 42 million euros, compared to operating income of 169 million euros a year earlier.

The company explains that weakness in the global music market, restructuring costs and “other income from the sale of assets in 2002 not repeated in 2003” contributed to the poor showing, as did 2002’s stronger release schedule compared to 2003. Reductions in marketing spending and catalogue amortization expenses, however, partially offset losses.

Major UMG releases scheduled for VU’s fiscal 2003 second half include albums from Bon Jovi, Sheryl Crow, Enrique Iglesias, Ronan Keating, Limp Bizkit, No Doubt, Luciano Pavarotti, and Sting.

VU also reiterated UMG’s plans to complete the rollout of its price-slashing JumpSTART program “with the aim of bringing music fans back into retail stores and driving music sales,”  but cautioned that “while the Company believes this sort of fundamental pricing change is necessary for the long term health of the industry, there may be negative implications on near term results.”

Now, about that NBC merger: According to VU, when the deal gets done, NBC parent General Electric will own 80% of the new company, and VU will own 20%. VUE shareholders will be due $3.8 billion cash at closing, and GE/NBC will assume $1.6 billion in VUE debt. “Vivendi Universal and General Electric have committed to work toward a quick resolution of pending matters before closing, in particular the negotiation of a definitive agreement, due diligence and regulatory approvals,” VU reports.
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