French media-to-telecoms conglomerate Vivendi SA (VIV.FR) Thursday said first-quarter earnings rose as strong sales of video-games and growth at Brazilian telecoms unit GVT offset weakness at French carrier SFR.

Vivendi said it still expects adjusted profit to grow slightly this year, counting mainly on strong growth at GVT. The Paris-based group also said that it expects adjusted profit to be higher than EUR3 billion this year and its dividend to increase after it takes full control of SFR, a deal which is due to close by the end of the second quarter.

Vivendi last month agreed to buy out Vodafone Group PLC's (VOD) 44% stake in SFR for EUR7.95 billion, giving the French company full control of its biggest cash generator. However, SFR faces increased competition in the French telecoms market, where operators are preparing for the arrival of fourth mobile operator Iliad SA's (ILD.FR) Free Mobile next year while they were hit by an increase in value added tax at the start of the year.

SFR, France's second-largest mobile phone operator behind France Telecom SA (FTE), said its churn rate, which measures the number of customers leaving the company, rose to 17.5% in the first quarter from 14% in the same period last year due to the disruption caused by the VAT tax hike, after which customers could legally switch contracts for a period of four months. This forced the carriers to invest more heavily to keep existing subscribers and acquire new ones. SFR spent EUR37 million more in the quarter than normal on client acquisition, Vivendi said.

Still, Chief Financial Officer Philippe Capron said the disruption caused by the tax hike in January and February returned to normal in March.

Vivendi said net profit surged in the first three months of the year to EUR1.73 billion from EUR589 million last year, boosted by a EUR1.26 billion settlement from the end of a legal battle in Poland. The Polish settlement offset a capital loss linked to the sale of Vivendi's remaining stake in NBC Universal.

Revenue rose 3.8% to EUR7.18 billion in the quarter, above analysts' forecasts for revenue of EUR7.03 billion, helped by strong sales at video-games unit Activision Blizzard Inc. (ATVI) and at GVT.

Adjusted earnings before interest and taxes, a closely watched figure that excludes charges relating to acquisitions and mergers, also rose 7.2% to EUR1.71 billion in the first quarter, as gains at Activision and GVT offset an 11% drop in adjusted EBIT at SFR and a 32.4% drop at Universal Music Group. The figure also topped analysts' expectations.

Activision, the maker of the hit 'Call of Duty' and 'World of Warcraft' game franchises, earlier this week reported a 23% rise in net profit as it benefited from a shift in sales to more profitable, Internet-based sources of revenue.

Recently acquired telecom operator GVT continues to benefit from strong growth in Brazil, and first-quarter adjusted EBIT more than doubled at the unit.

Vivendi shares Thursday closed at EUR19.11.

-By Ruth Bender, Dow Jones Newswires; +33 1 4017 1754; ruth.bender@dowjones.com

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