98/466/EC: Commission Decision of 21 January 1998 granting conditional approval to aid which France has decided to grant to Société française de production (notified under document number C(1998) 230) (Only the French text is authentic) (Text with EEA relevance)
Date: 1998-01-21
Institutions: European Commission
Subjects: France, State aid, aid for restructuring, audiovisual production, television

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COMMISSION

COMMISSION DECISION

of 21 January 1998

granting conditional approval to aid which France has decided to grant to
Soci(cid:130)t(cid:130) fran(cid:135)aise de production

(notified under document number C(1998) 230)

(Only the French text is authentic)

(Text with EEA relevance)

(98/466/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of
Article 93(2) thereof,

Having regard to the Agreement on the European
Economic Area, and in particular Article 62(1)(a) thereof,

Having given the interested parties notice, in accordance
with the abovementioned Articles, to submit their obser-
vations (1),

Whereas:

1. INTRODUCTION

This Decision follows on from the Commission Decision
of 12 February 1997 (2)
to initiate proceedings under
Article 93(2) of the Treaty. The proceedings and this
Decision concern aid of FRF 2 500 million (ECU 379
million) (3), comprising industrial restructuring aid of FRF
1 200 million (ECU 182 million) and financial restruc-
turing aid of FRF 1 300 million (ECU 197 million) which
France intends to grant to Soci(cid:130)t(cid:130) fran(cid:135)aise de production
(SFP). At the time of the initiation of proceedings, and
pending implementation of
restructuring plan
submitted, the Commission had authorised rescue aid of
FRF 350 million to ensure the short-term survival of SFP.

the

SFP is a supplier of technical services to the audiovisual
sector, especially producers of
television programmes.
radio and television broadcasting
When the national

(1) OJ C 126, 23. 4. 1997, p. 4.
(2) See footnote 1.
(3) ECU 1 = FRF 6,6.

company ORTF was split into several companies in 1974,
television production was taken over by the newly estab-
lished company SFP, while broadcasting became the
responsibility of several other organisations. SFP, however,
continued to enjoy a protected position on the French
audiovisual market. At
the moment, SFP is wholly
controlled by the French State.

In 1986 audiovisual production was opened up to
competition in France. SFP, which was poorly prepared
for the new competitive environment, lost turnover and
got into financial difficulties. In the meantime, the work-
force was cut back sharply, from 2 515 in 1985 to 996 at
the end of 1997. The losses made since 1986 have been
offset by the State and the other public shareholders. In
four separate operations since then, the French authorities
have granted aid to SFP totalling FRF 2 370 million. Of
that amount, the Commission approved aid totalling FRF
1 260 million by decisions of 27 February and 25 March
1992. It took a negative decision (97/238/EC (4)) (to which
reference should be made for further details) in respect of
the balance of FRF 1 110 million, chiefly owing to the
lack of any restructuring plan. The French authorities
gave the Commission an undertaking that they would
recover
the aid, currently amounting to FRF 1 300
including interest, as soon as possible.

The total aid granted to date to SFP, including the indus-
trial restructuring aid covered by this Decision, amounts
to FRF 3 570 million (FRF 2 370 million plus FRF 1 200
million) or ECU 541 million.

(4) OJ L 95, 10. 4. 1997, p. 19.

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Images T(cid:130)l(cid:130)vision Internationale

When the current proceedings were initiated, France had
intended to privatise SFP by selling it to the private
undertakings
and
G(cid:130)n(cid:130)rale d’Image (ITI/GI). The buyers would then under-
take the restructuring of which the aid referred to above
formed part. In April 1997 it became clear that the sale
would not take place. On 24 November 1997, the French
authorities submitted to the Commission a restructuring
plan which was similar to the preceding plan drawn up by
the prospective purchasers of SFP except that privatisa-
tion was no longer envisaged.

2. RESTRUCTURING PLAN

2.1. Components of the plan

The plan presented on 24 November 1997 consists both
in reducing SFP’s operating costs and improving its
commercial operation.
the period from 1
It covers
January 1998 to the end of 2000. The implications as
regards turnover, results and permanent and casual staff
are set out in the table below.

(in FRF million)

1997

501

134

635

Turnover

Other yields

Total yields

Total costs

820

[. . .] (*)

Result

Number of permanent staff

Number of
staff

temporary technical

–185

996

123

Total workforce

1 119

(*) In the published text of the Decision, some information has been
omitted pursuant to the provisions concerning non-disclosure of busi-
ness secrets.

Financial equilibrium should be attained in 2000 with a
positive result of FRF 28 million, which amounts to a
14 % return on equity. The equity to total balance ratio
should be 32 %.

[...]

The proposed plan entails some restructuring of the two
largest items, i.e. external charges and labour costs. The
reorganisation of the SFP should reduce external charges
through better purchasing policy,
optimum stock
management and lower operating costs through simpler
structures. Staff costs account for most of SFP’s operating
costs. A return to equilibrium necessarily entails a reduc-
tion in those costs, according to both the bidders for SFP
and the French authorities, the latter having produced an
even more rigorous plan in this respect than the opera-
tors. The permanent workforce would be downsized to
some 450, entailing some 566 redundancies and 20 new
recruits. The 566 redundancies will be achieved by several
means:

(cid:190) departure of persons aged 55 years and 2 months and
over by 31 December 1998 at the latest (469 persons).
SFP will suggest to certain persons aged between 51
and 55 years and two months at 31 December 1998,
depending on the requirements of the firm, either
that they carry out a personal project or that they
obtain dispensation from work with a guaranteed
income. A group of 252 persons would be affected,

(cid:190) voluntary departures with incentives, in particular as

support for personal projects (55 persons),

(cid:190) transfer to the status of workers in casual employment

in show business (20 persons),

(cid:190) retirement (12 persons),

(cid:190) transfer to the public audiovisual sector (10 persons,
which corresponds to the annual average recorded
between 1994 and 1996).

The predicted permanent workforce trend is as follows:
996 (January 1998), 965 (July 1998), 435 (January 1999),
450 (July 1999) and 450 (January 2000).

This trend should be seen in relation to a limited increase
in the number of casual technical workers, from 123 in
1997 to 270 at the end of 2000.

The compulsory placing of orders with SFP by the public
television channels has been abolished for several years.
SFP now has to compete with other audiovisual firms on
the market and is thus unable to guarantee turnover by
that system. Despite the situation and the cut in work-
force, turnover would be kept at a virtually constant level
in the period 1997-2000 by measures to improve the
efficiency of the organisation:

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(cid:190) stronger commercial function (a single commercial
function, operating in conjunction with its markets,
should be set up; special personalised links between
the commercial directors of SFP and their customers
is necessary; response times will be improved by
simplifying procedures),

(cid:190) simplification of

structures, adapted to the new
smaller size of the firm (combining of scheduling and
programming, computerisation of planning, system-
atic search for the most economical organisation),

(cid:190) simpler work organisation with more incentives by
modulating working time and reorganising SFP’s
benefits system.

The improved efficiency should allow the permanent
workforce to increase productivity from 12 % to 25 %,
depending on the activity concerned. In so far as the
audiovisual market
is growing, chiefly owing to an
increase in the number of television channels and in
domestic programme productions by a large number of
turnover has virtually
channels,
levelled-off means a reduction in market share.

that SFP’s

the fact

The aid package of FRF 2 500 million contains both an
amount
to cover industrial restructuring costs and an
amount for financial restructuring. It has been verified
that the latter amount corresponds to fresh liquidity made
available as a result of the settlement of past debt [...].

2.2. Comparison with the ITI/GI plan

A comparison with the ITI/GI plan originally submitted
to the Commission and described in the decision
initiating proceedings shows how similar the two plans
are. Both are based on the same amount of aid for indus-
trial restructuring (FRF 1 200 million) and the same
amount for financial restructuring (FRF 1 300 million).
The key financial data in the table above and those in the
IOTI/GI plan as outlined in the decision initiating
proceedings have the same import:

(cid:190) ITI/GI had attached several conditions to their plan.
The most important condition, where a difference
exists and is thus worth examining, concerns the
reduction in permanent employees and the jettisoning
of collective bargaining. The current plan provides for
an even larger cut in the workforce (566 persons) than
the initial plan (460 persons). Although there will no
longer be any collective bargaining, an equivalent
system with similar effects replaces it: modulated
working time and a reorganisation of SFP’s benefits
system,

(cid:190) the ITI/GI plan provided for turnover of FRF 600
million in 1999 and a similar amount, FRF 606
million, is given in the most recent plan notified,
taking account of the difference in the definitions of
‘turnover' in both plans,

(cid:190) although costs in the first plan were FRF 590 million
in 1999, the costs presented above are slightly lower,
i.e. FRF 578 million.

3. OBSERVATIONS RECEIVED

The French authorities did not submit any observations
when proceedings were initiated. However, they answered
the Commission’s letter of 2 December 1997 (by letter of
5 December 1997) with answers
to the questions
concerning the plan of 24 November 1997. Further ques-
tions were asked by letter dated 23 December 1997, a
reply being received on 8 January 1998.

The complainant, having already lodged a complaint with
the Commission by letter dated 7 April 1994 concerning
aid to SFP, informed the Commission of its views on the
initiation of proceedings by letter dated 20 May 1997,
stating that ITI and GI had withdrawn their offer on 31
March 1997, that France had then announced the suspen-
sion of the privatisation procedure and that there was
therefore no need to submit observations to the Commis-
sion on the published plan.

By letter of 19 December 1997, the complainant, refer-
ring to articles published in the press concerning the
reorganisation plan submitted on 24 November 1997 to
the Commission, demanded the right to make known its
views on the current plan through an extension of the
Article 93(2) proceedings.

It should be noted that the SFP Works Council and the
trade unions had approached the Commission, although
they did not submit any observations within the period
specified which could be forwarded to the French author-
ities for their views.

4. PROCEEDINGS

The fact that the current restructuring plan is no longer
officially based on the plan drawn up by the private
companies ITI/GI as part of
their bid for SFP but
provides at present for restructuring under the aegis of the
public authorities is not a factor likely to affect the aid as
described above. It can be concluded that, on the whole,
the new plan is similar, if not more rigorous, than the
original plan.

Since the privatisation referred to in the proceedings
initiated on 12 February 1997 was not crucial to the final
decision on the firm’s viability, it must be concluded,
having regard to Article 222 of the Treaty, that there are
no new facts in comparison with those proceedings, and

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an extension of proceedings is not necessary and that the
final basis for the conclusion of the proceedings will not
be affected by the change in the circumstances of the
plan.

complainant, who lodged a complaint in the Article 93(2)
proceedings, presented objections on several occasions as
a result of the publication of the initiation of proceedings
and of information in the press.

5. ASSESSMENT

The financing described in point 1 and the conditions on
which it was granted to SFP as described in point 2, must
be assessed in the light of Article 92(1) of the Treaty in
order to determine whether they constitute aid. The State
resources that are to be paid to the firm are not profitable
investments as they will never generate a return for the
firm commensurate with the size of the funds allocated.
This would not be acceptable to a private investor oper-
ating under normal market economy conditions (1).

Under Article 92(1),
financial contributions constitute
State aid in so far as they are granted by a State or through
State resources. It is for the Commission to determine
whether the proposed aid distorts or threatens to distort
competition by favouring certain undertakings or the
production of certain goods and whether it affects trade
between Member States.

It should also be borne in mind that a European market
for television and cinema productions exists; it comprises
co-productions by European producers and the distribu-
tion of audiovisual products in countries other than the
country of production. This aspect is particularly relevant
in the case of the French market, where the French
Government pursues an active policy of distributing
French products to other countries.

Accordingly, the aid in question must be regarded as aid
under Article 92(1) of the Treaty.

6. COMPATIBILITY OF THE AID

Having established that
the financial contributions in
question constitute State aid under Article 92(1) of the
Treaty, the Commission must examine whether the aid
can be considered compatible with the common market
in accordance with Article 92(2) and (3).

Those conditions are met in the present case by the two
parts of the State measure: the financial contribution of
FRF 1 200 million for industrial restructuring and the
financial restructuring of FRF 1 300 million forming part
of a clearance of debt.

The derogations provided for in Article 92(2) and Article
92(3)(a) and (b) are not relevant in the present case as the
aid is not intended to favour the development of disad-
vantaged regions or to remedy a serious disturbance in the
economy of a Member State.

The aid is likely to improve SFP’s ability to market its
services both in France and in other Member States or
EEA countries; it is likely to make it harder for foreign
audiovisual companies to market their services in France.

The aid distorts or is liable to distort competition between
Member States. There is a European market for audio-
visual products where technical service providers are in
competition. Competition for the supply of integrated
audiovisual products is as strong as for simply supplying
recording teams or studios. The market consists of a few
integrated producers, such as SFP, which offer all the
technical facilities, and a vast number of specialised busi-
nesses offering only a few specific services. It should thus
be noted that SFP is itself already present on foreign
markets and that the restructuring plan provides for the
continuation of
that presence. The Commission also
notes that the complainant operates both in France and
the
in other Member States. It must be noted that

(1)

injections', Bulletin EC 9-1984 (see
‘Government capital
points 3.2 and 3.3 for
the criteria distinguishing between
capital contributions involving aid and those not involving aid.

Aid to promote culture and heritage conservation under
Article 92(3)(d) can qualify for exemption under that
provision. The aid in question, however, is intended to
ensure the survival of SFP and the French Government
has not provided any details to suggest that their aim was
to promote culture and heritage conservation within the
meaning of that provision. The only possible derogation
is that contained in Article 92(3)(c) concerning aid to
facilitate the development of certain activities.

In order further to define the conditions for the applica-
tion of the derogation under Article 92(3)(c) to aid for
firms in difficulty, the Commission has adopted guide-
lines on State aid for rescuing and restructuring firms in
difficulty (2), which stipulate a number of criteria which
the aid must fulfil and distinguish between rescue aid and
restructuring aid.

The guidelines lay down the following criteria for restruc-
turing aid:

(2) OJ C 368, 23. 12. 1994, p. 12.

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(cid:190) the aid must be linked to a viable restructuring/
recovery programme submitted in all relevant detail to
the Commission and capable of restoring the long-
term viability of the firm within a reasonable time-
scale,

(cid:190) the proposed measures must distort competition as
little as possible and must be in line with the
common interest. There must be an effect on the
recipient’s market position which offsets to a reason-
able extent
the aid on
the distortive effect of
competition,

(cid:190) the aid must be limited to the strict minimum needed
and must be in proportion to the restructuring costs
and benefits,

(cid:190) the firm must fully implement the restructuring plan

and observe any conditions imposed,

(cid:190) the implementation of the plan and compliance with
the conditions will be monitored by requiring the
submission of detailed annual reports to the Commis-
sion.

6.1. Viability

The key components of
the restructuring plan are a
reduction in production costs, in particular lower staff
costs, achievement of a more realistic projected turnover
and the granting of aid. The planned targets of achieving
financial equilibrium by 2000, with a positive result of
FRF 28 million, a return on capital of 14 % and a ratio of
equity to total balance sheet of 32 % are all factors that
can be regarded as reasonable. The likelihood that equi-
librium will actually be achieved and will be lasting (thus
ensuring long-term viability) depends on the definitive
and lasting nature of each measure and on the cohesion
between the measures. An analysis of the considerable
overall reduction in costs between 1997 and 2000 of some
FRF 220 million (or 28 % of 1997 costs) shows that the
reduction affects various categories of charges. The largest
cut is in staff costs, which will be reduced by FRF 130
million between 1997 and 2000. The target should be
achieved both by reducing permanent staff from 996 to
450 persons by 2000 and by partially replacing them by
more casual workers (from 123 in 1997 to 270 in 2000),
their costs being lower than those of permanent staff. The
reductions will constitute lasting savings and will thus
automatically make a definitive contribution to improving
future results.

Further evidence that the measures proposed are long-
term and cohesive is the staff costs to turnover ratio
which, on completion of the plan and including an extra

270 casual staff, is standard for the sector (i.e. between
50 % and 55 % for comparable companies providing
technical services, e.g. the French firm VCF).

to the viability of

According to the French authorities’ plan, the overall
reduction in permanent and casual staff and the change
in the ratio between the two categories provided for in the
schedule are essential
the firm, as
confirmed by an analysis of the consequences of not
having such restructuring measures in the past. What is
more, the firm’s recovery will be based on internal meas-
ures and not on anticipated increases in turnover, since
total yields should fall by some FRF 30 million by 2000
(i.e. 5 % of the 1997 yield); this estimate must be consid-
ered realistic if the turnover to total employment ratio is
comparable to the average ratio for the sector. The ratio at
SFP, taking account of casual staff, is expected to rise to
FRF 731 000 in 2000. A Dutch company which provides
similar integrated services and has a reputation for effi-
ciency enjoys a similar ratio of some FRF 740 000. If the
comparison with SFP is limited to video operations only,
SFP forecasts a turnover per employee of some FRF 1
million, which is similar to that of its competitors (VCF).

In order to bring its turnover to total employment ratios
up to the level of its competitors, the firm will take
internal action rather than increase the prices of services,
which would be difficult to implement. The fact that the
present plan is similar to that of private bidders, who are
acknowledged specialists in the audiovisual sector and
who projected viability using the same amount of aid,
significantly backs up the analysis that the present plan is
effectively capable of restoring viability.

The aid of FRF 2 500 million should help to implement
the cost reduction measures and improve the quality of
turnover by increasing productivity. The aid comprises
both an industrial component and a financial component
aimed at recapitalising the firm, suffering from its past
liabilities.

The aid in question covers the firm’s minimum require-
ments as regards the financial and organisational restruc-
turing (notably the reduction in staff costs) and thus
contributes to the improvement in SFP’s results that is
needed to bring it back to viability. Without financial
restructuring, SFP would have very negative equity which,
without accompanying State assistance, would lead to its
bankruptcy and thus prevent the completion of the indus-
trial restructuring plan.

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In view of the foregoing, the Commission considers that
the aid package constitutes a whole, comprising both
capital injections and the settlement of past debt. The two
aid components are all the more inseparably linked in
that neither makes sense without the other and without
them the firm would not recover. This assessment of the
various aid measures as a whole was upheld by the Court
of Justice of the European Communities in Case 323/82
Intermills v. Commission (1).

6.2. Avoidance of distortion

In recent years SFP has experienced a sharp fall in turn-
over owing to its inability to produce at competitive
prices. The restructuring plan effectively provides for a
lower turnover. In view of both this and the growth of the
market, SFP will lose market share. This is an important
counterpart to the aid. The reduction in capacity provided
for in the restructuring plan is also a major counterpart.
The cost price for SFP’s services should, according to the
plan, cover all costs incurred, evidence that SFP will no
longer be able to avoid the market conditions in which its
competitors are obliged to operate.

The Commission also considers that SFP’s difficulties are
due to the specificity of its commercial aims on the
market. SFP formed an integral part of the public audio-
visual sector. At the time, it had inherited a cumbersome
economic structure which did not facilitate competitive-
ness and it had access to public resources. Similar situa-
tions, where purely public providers supply their services
exclusively to the public broadcasters and do not compete
on the market, still exist in most of the Member States
and, indeed, in France for providers other than SFP. It
must therefore be concluded that the restructuring of SFP
is necessary to its viability, but that it is at the same time a
complex process where some degree of distortion of
competition cannot be avoided.

6.3. Limitation of the aid

The aid is used to attain specific objectives and is in strict
proportion to the financial requirements of the objectives.
It is not, therefore, excessive. Further evidence of this is
the fact that the expected result is simply the achieve-
ment of
in
results is not such as to distort competition continuously.
From that standpoint, therefore, the aid is not contrary to
the common interest.

financial equilibrium. The improvement

It is not possible to reduce the aid of FRF 2 500 million
as it would have the direct effect of diminishing the

forecast results and thus preventing SFP from attaining its
aim of viability.

6.4. Implementation of the plan and observance of

conditions

Although it is necessary to implement all the measures in
the plan, it should be borne in mind that the French
authorities regard the core of the plan as the reduction in
staff costs. The Commission considers that their view is
borne out by past experience, which has shown that the
difficulties of aligning staff costs on the level of activity
were clearly the basic cause of the (continuing) problems
affecting the firm. The Commission therefore concludes
that specific guarantees should be provided for. In order
to ensure that this time the restructuring plan is carried
out in full, it is essential that the French authorities do
not grant the aid until all the elements of the plan,
including the reduction in staff costs, have been defini-
tively implemented.

The aid should be paid in keeping with the timetable of
the plan so that none is granted until SFP has actually
disbursed the funds for the purposes envisaged.

Although the aid is not deemed excessive in this Decision
under any of the headings under which it is assessed as
restructuring aid, the Commission must acknowledge that
the same firm has received aid since 1986 which overall
represents very substantial sums,
two of which were
approved as restructuring aid. It must be understood that
the aid concerned by this Decision is the last aid measure,
save in the event of unforeseeable exceptional circum-
stances taking place outside the firm, which can be
granted to SFP or its activities (for a recent application of
this principle, reference should be made to the condi-
tional
favourable Commission Decision of 1 October
1997 in the Thomson SA/Thomson multimedia case (2)).

The French authorities must not
favour SFP, either
directly or indirectly through public television channels,
in particular by compelling such channels to place orders
with SFP.

6.5. Detailed reports

According to the Commission’s long-established policy
in particular,
with regard to restructuring plans and,
having regard to the amount of the aid and the impor-
tance of implementing the plan correctly, such imple-
mentation must be monitored by the Commission
through the submission by the French authorities of
biannual reports.

(1)

[1984] ECR, p. 3809, paragraph 39.

(2) OJ L 67, 7. 3. 1998, p. 31.

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7. CONCLUSION

Article 2

The aid contained in the SFP restructuring plan of 24
November 1997 in the form of industrial restructuring aid
totalling FRF 1 200 million and financial restructuring
aid of FRF 1 300 million constitutes aid within the
meaning of Article 92(1) of the EC Treaty and Article
61(1) of the EEA Agreement.

The aid may be regarded as compatible with the common
market under Article 92(3)(c) of the EC Treaty and Article
61(3)(c) of the EEA Agreement, subject to compliance by
the French authorities with the conditions set out in this
Decision,

HAS ADOPTED THIS DECISION:

Article 1

The aid by France contained in the restructuring plan of
24 November 1997 for Soci(cid:130)t(cid:130) fran(cid:135)aise de production in
the form of industrial restructuring aid of FRF 1 200
million (ECU 182 million) and financial restructuring aid
of FRF 1 300 million (ECU 197 million) is compatible
with the common market under Article 92(3)(c) of the EC
Treaty and Article 61(3)(c) of
the EEA Agreement,
provided that France complies with the conditions set out
in Article 2.

1.
Prior to any aid payments, France shall give the
Commission an undertaking that the restructuring plan,
including the reductions in staff and the timetable for
such reductions, has been definitively confirmed.

2. Aid shall be paid only as and when the plan is
implemented.

The aid in question shall be the last possible aid for
3.
SFP; no further aid may be granted in future, save in
exceptional,
occurring
outside the firm.

circumstances

unforeseeable

The French authorities shall submit to the Commis-
4.
sion a detailed report on the implementation of the plan
every six months from 1 January 1998 to the end of 2000.

5.
The French authorities shall not favour SFP either
directly or indirectly through public television channels,
in particular by obliging such channels to place orders
with SFP.

Article 3

This Decision is addressed to the French Republic.

Done at Brussels, 21 January 1998.

For the Commission

Karel VAN MIERT

Member of the Commission