SOURCE: Thomson

February 15, 2007 02:03 ET

Fourth Quarter and Full Year 2006 Results

PARIS -- (MARKET WIRE) -- February 15, 2007 -- Fourth Quarter and Full Year 2006 Results

A strong end to the year: Thomson returns to net profit

- Q4 Core Business revenues up 11.2%, at constant currency, making an 8.3% increase for the full year

- 2006 Core Business EBIT at EUR 504 million - a margin of 8.8%

- Strong Core Business free cashflow. Aggregate net financial liabilities dropped by EUR 460 million compared to end-2005

- The Group returned to net profit - EUR 55 million for the full year

- Board proposes a dividend increase of 10% to EUR 0.33

- After a successful transformation, Thomson is well positioned in growing markets: 2007-09 objectives include strong growth in net income, starting in 2007

Paris, 15 February 2007 - The Board of Directors of Thomson (Euronext Paris: 18453, NYSE :TMS), chaired by Frank E. Dangeard, met on 13 February 2007 to review and approve the Group's fourth quarter performance and full year 2006 results published today.

The key elements of these results are:

- Continued growth in the fourth quarter - constant currency revenue growth of 11.2% drove revenues up 8.3% for the full year. The quarter saw strong performances from DVD Services, Network Services, Access Products and Licensing, although some Broadcast orders slipped from the fourth quarter into 2007.

- Margins for the Core Business expanded by a percentage point in the second half year-on-year from 10.7% to 11.7%, resulting in a full year Core Business EBIT of EUR 504 million - a margin of 8.8%.

- Free cashflow from the Core Business was EUR 483 million in the year, up 15%. The level of post-retirement obligations was sharply reduced, leading to a significant one-time gain. As a result, aggregate net financial liabilities (financial and acquisition- related debt, and post-retirement liabilities) dropped by EUR 460 million over the year.

- Thomson concludes the 2004-6 plan well positioned at the heart of convergence and digital video, with sharply reduced and declining exposure to our legacy consumer electronics businesses.

- The Group intends over the next few years to strengthen and expand its leadership positions in digital video technologies, services and systems.

- Compound revenue growth over the 2007-9 period is targeted to be at or above that of the Media & Entertainment industries, whilst net income is targeted to grow strongly

- As a sign of confidence in the Group's 2007-9 plan, the Board proposes a dividend increase of 10% to EUR 0.33.

Summary of full year results

Thomson achieved consolidated 2006 net revenues for the Group of EUR 5,854 million, up from EUR 5,591 million for 2005. Currency movements were again important this year. Revenues for the Core Business reached EUR 5,747 million, representing 8.3% growth over 2005 at constant currency. The Systems division grew revenues strongly, compensating for a stable performance overall from the Services division. Technology had another resilient year with solid revenues and good profitability.

Core Business EBIT for 2006 was EUR 504 million (2005 EUR 512 million) - a margin of 8.8%. The Core Business delivered EBIT of EUR 371 million for 2H06, growing the EBIT margin by a percentage point to 11.7%, from 10.7% for 2H05. This reflected the expected seasonality, and in particular the effect of cost reduction programs in Services (which generated a margin in 2H06 of 11.0% compared to 9.9% in 2H05), cost-cutting actions and revenue growth in Systems in 2H06, and a strong Technology result.

Losses in Non-Core Continuing and Discontinued operations were substantially lower year-on-year, reflecting principally the exit from heavily loss-making Displays activities in 2005 and intensified cost-saving programs in 2006. A major revision and harmonization of the Group's North American healthcare obligations gave rise to substantial one-time gains, and the Group also initiated significant restructuring of its French Non-Core operations.

The good performance of the Core Business, lower Non-Core and Discontinued losses and a low reported tax charge enabled the Group to return a net profit of EUR 55 million in 2006, with EUR 126 million attributable to 2H06. Net income was adversely impacted by one-time costs and charges totaling EUR 181 million relating to the Group's contracts with, and holding in, TCL Multimedia, which Thomson reduced to below 20% in November 2006. Our investment in TCL Multimedia is accordingly treated as a financial asset available-for-sale at year-end (rather than as an associate under the equity method)

The Group generated good cashflow and strengthened its balance sheet in 2006. Total net financial liabilities on the balance sheet fell by EUR 460 million, reflecting a EUR 93 million fall in financial and acquisition-related debts and a EUR 367 million reduction in retirement benefit obligations (including healthcare).

Outlook 2007-9

With the Group's transformation complete, Thomson's financial focus over the 2007-9 period will be to grow revenues and net income.

We serve growing Media & Entertainment markets - for which external estimates* indicate growth of around 6% compound over the last five years. Our digital and electronic businesses now represent two-thirds of our revenues and they are growing faster than the overall market, and fast enough to more than offset the maturing physical media businesses. Given this profile, the Group expects its revenue growth to gather pace over the period, and our overall objective is to show compound growth over 2007-9 in line with or faster than the overall market.

The 2007-9 period is also expected to see a sharply reduced impact from residual Non-Core activities with an end to losses from the Discontinued activities perimeter after 2007. Accordingly, the Group's ambition is to turn its Core Business growth and profitability, and lower impact from Non-Core, into strong growth in Group net income over the 2007-9 period.

As regards 2007, the Group will continue actions to improve operating profitability in its main divisions to complement our 2006 measures. We expect another strong year of revenue growth in our digital and electronic businesses, partially diluted by our physical media businesses, and a satisfactory start to the year has confirmed these trends. Overall, therefore, we target strong growth in our net income.

Commenting on the full year results and outlook for 2007-9, Chairman and CEO Frank E. Dangeard said:

"The transformation of 2004-6 has left the Company well positioned at the heart of the digital video future, with a first class offering of services, systems and technologies in digital media and entertainment matched by no other company, a blue-chip and expanding portfolio of clients, and a highly skilled employee base.

The 2007-9 period will be about strengthening and expanding our leadership positions in the digital video and new media markets, dealing with video content - whoever produces it, in whatever form, and however it is distributed.

Our performance in 2006 has shown that, strategically and operationally, we can react effectively to changes and opportunities in our markets. We now plan to build on this result and turn our strong platform into sustained value creation for our shareholders going forward."

*Source: PriceWaterhouseCoopers - "Global Entertainment and Media Outlook: 2006-10"

Summary of Consolidated Full Year 2006 Results (unaudited(1))

Reported revenues and results for continuing operations are broken down for analysis purposes between the three Media & Entertainment divisions - Services, Systems and Technology, together with the associated Corporate activities, which are collectively termed "Core Business" - and the Displays & CE Partnerships activity ("Non-Core"). Reported IFRS revenues and profit from continuing operations before tax and financial result ("EBIT") exclude discontinued operations, principally for the periods reported in this release the Audio/Video and Accessories businesses (together "AVA") and for 2005 also the exited Displays activities. The table below sets out our full year results on a reported basis, while Core Business revenues as adjusted for currency movements, 2H06 results and 4Q06 revenues are shown in tables in the section below headed Full Year Review.

+-------------------------+-----------+--+-----------+
|In € millions unless     |  FY2006(2)|  |  FY2005(2)|
|otherwise stated         |           |  |           |
+-------------------------+-----------+--+-----------+
|Net revenues             |      5,854|  |   5,591(2)|
+-------------------------+-----------+--+-----------+
|Core Business net        |      5,747|  |      5,335|
|revenues                 |           |  |           |
+-------------------------+-----------+--+-----------+
|Services                 |      2,489|  |      2,487|
+-------------------------+-----------+--+-----------+
|Systems                  |      2,684|  |      2,262|
+-------------------------+-----------+--+-----------+
|Technology               |        547|  |        546|
+-------------------------+-----------+--+-----------+
|Corporate                |         27|  |         40|
+-------------------------+-----------+--+-----------+
|Non-Core continuing      |        107|  |        256|
|operations               |           |  |           |
+-------------------------+-----------+--+-----------+
|Core Business EBIT(3)    |        504|  |        512|
+-------------------------+-----------+--+-----------+
|Services                 |        160|  |        205|
+-------------------------+-----------+--+-----------+
|Systems                  |        132|  |        109|
+-------------------------+-----------+--+-----------+
|Technology               |        289|  |        277|
+-------------------------+-----------+--+-----------+
|Corporate                |       (77)|  |       (79)|
+-------------------------+-----------+--+-----------+
|EBIT from Non-Core       |       (25)|  |    (122)  |
|continuing operations    |           |  |           |
+-------------------------+-----------+--+-----------+
|Profit from continuing   |        479|  |     390(2)|
|operations before tax and|           |  |           |
|financial result         |           |  |           |
+-------------------------+-----------+--+-----------+
|Financial result         |      (200)|  |       (42)|
+-------------------------+-----------+--+-----------+
|Share of loss from       |       (86)|  |       (82)|
|associates               |           |  |           |
+-------------------------+-----------+--+-----------+
|Income tax               |          0|  |       (68)|
+-------------------------+-----------+--+-----------+
|Profit from continuing   |        193|  |        198|
|operations               |           |  |           |
+-------------------------+-----------+--+-----------+
|Loss from discontinued   |      (138)|  |      (771)|
|operations               |           |  |           |
+-------------------------+-----------+--+-----------+
|Net profit/(loss) (before|         55|  |      (573)|
|minority interest)       |           |  |           |
+-------------------------+-----------+--+-----------+
|Core Business free       |        483|  |        422|
|cashflow(4)              |           |  |           |
+-------------------------+-----------+--+-----------+
|Net financial            |      1,943|  |      2,403|
|liabilities(5)           |           |  |           |
+-------------------------+-----------+--+-----------+
(1) All figures are preliminary and subject to final audit.

(2) Results for 2005 and 2006 are presented according to IFRS 5 and therefore exclude activities now treated as discontinued from results from continuing operations. Prior period results are adjusted to take account of the current perimeter of discontinued operations. The originally reported revenues and EBIT for Thomson for 2005 were EUR 5,691 million and EUR 382 million respectively, of which EUR 100 million and a loss of EUR 8 million respectively were from activities since treated as discontinued (principally parts of the AVA businesses). In addition the adjusted Full Year 2005 results announced with the 1H06 figures in July 2006 have since been adjusted in respect of the "other financial income" and "loss from discontinued operations" to reflect minor changes in the discontinued operations perimeter. There has been no further change to the Group 2005 EBIT since the 1H06 announcement.

(3) Core Business EBIT includes restructuring charges amounting to EUR 37 million (2005, EUR 25 million).

(4) For 2006 excludes one-off payment of accrued interest of EUR 59 million relating to prior years on redemption of convertible bond in January 2006.

(5) Net financial liabilities are defined as the aggregate of net financial and acquisition-related debt, and post-retirement liabilities.

********************************

Fourth Quarter 2006 Revenues

Core Business net revenues for 4Q06 were EUR 1,777 million (4Q05 EUR 1,656 million). Currency effects were significant. Core revenue growth year-on-year was 11.2% at constant currency, with strong revenue growth in the Systems division compensating for broadly flat revenues in Services. Perimeter effects from acquisitions since the start of 4Q05 added EUR 91 million to revenues for 4Q06.

Services division revenues for 4Q06 were EUR 755 million (4Q05, EUR 774 million). Both DVD Services and Network Services ended the year strongly. Currency movements decreased Services division revenues for the quarter by EUR 34 million. Revenues for the quarter excluding currency movements therefore increased 1.9% year- on-year. Amongst key indicators, the Group replicated 501 million DVD units in the quarter, up 19% year-on-year and 1.2 billion feet of film, compared to 1.6 billion feet a year ago.

Systems division revenues for 4Q06 were EUR 849 million (4Q05, EUR 699 million). Access Products for telecom and cable customers ended the year strongly. Currency movements decreased Systems division revenues for the quarter by EUR 25 million. Revenues for the quarter excluding currency movements therefore increased 25.1% year-on-year. Amongst key indicators, in a strong 4Q06 Thomson shipped 2.9 million satellite set-top boxes (4Q05, 2.8 million), 0.9 million cable set-top boxes (4Q05, 0.3 million), and 3.4 million access products for telecom operators, up strongly on the 4Q05 level of 2.4 million - making a total of 7.2 million access products in the quarter (4Q05, 5.5 million). The Broadcast & Networks businesses had a strong year, but some anticipated broadcast orders slipped from the end of 2006 into 2007.

Technology division revenues for 4Q06 were EUR 168 million (4Q05, EUR 171 million). Currency movements decreased Technology division revenues for the quarter by EUR 5 million. Revenues for the quarter excluding currency movements therefore increased 0.9% year- on-year. Licensing revenues for the quarter were EUR 138 million (4Q05, EUR 141 million) and were stable year-on-year excluding currency movements.

Strategy 2007-9

The Group begins the 2007-9 period strongly positioned in its core markets to serve the needs of the media, entertainment and communications industries as they invest more in video as the key application in digital media. Thomson has diverse and leading positions in the large markets of today, but, notably as a result of the investments made in 2004-6, is also well positioned for the digital video and new media markets of tomorrow. Thomson has broadened both its customer base, geographically and by type, and its offering of services, systems and technologies. Accordingly, the Group can look forward to the 2007-9 period with confidence in its ability to create value for its shareholders, partners, customers and employees.

Thomson's mission is to deliver high quality, cost-effective services, systems and technologies for a wide range of partners dealing with video content, from traditional video users such as film studios and broadcasters to emerging customer areas such as advertising and prosumer. Our value-added lies in our deep and long-standing knowledge of video, our essential proprietary technology and our expertise in open-standards based systems. This mission remains unchanged for the coming period and our goal is to create clear leadership for Thomson in the provision of digital video technologies, systems and services. The assumptions about the strategic medium-term evolution of our markets which we set out in 2004 have proven largely valid and will inform our decisions as we seek to build and grow our business further.

Our investments should accordingly continue to be focused on our key growth businesses: in the Services division the electronic media activities within Content and, increasingly, Network Services; and within the Systems division, our Broadcast & Networks businesses (Grass Valley and Network Software) and IP- based Access Products.

In addition, investment in R&D will continue to be strong and, when combined with selective patent acquisition, will maintain our intellectual property leadership, so that our Licensing business remains a strong pillar for both the Technology division and the Group as a whole. These investments should enable us to take advantage of the main growth drivers of the digital video industries - the accelerating adoption of High Definition, mobile content, on-demand content, consumer-generated content, fixed- mobile convergence, triple-play devices, connected home networking, and internet-based and advertising-based content delivery.

Capital expenditure will be directed largely towards developing our electronic media platforms and video infrastructure assets. We expect to continue to win significant outsourcing contracts in Network Services, which may involve either capital expenditure on assets or the purchase (and upgrade) of existing facilities/operations. Although further opportunistic bolt-on acquisitions may play a part in our future, they are not necessary to deliver our 2007-9 ambitions and will be assessed on expected returns and time-to-market.

Our businesses related to digital and electronic media are now two- thirds of our overall core business, with the physical media businesses accounting for less than one-third. The digital and electronic businesses have excellent growth prospects, and therefore, even taking into account stable to declining markets in physical media, we target to grow Group revenues over the 2007-9 period in line with or faster than the Media & Entertainment industries overall.

Our cashflow remains robust and our balance sheet has improved in 2006. With the costs of exiting our Non-Core businesses largely behind us, we target a modest further reduction of financial liabilities over the coming year. Thereafter, cash is expected to become available for growing our cash returns to shareholders and/or for further investment in the business.

The key 2006 operational programs will continue into the 2007-9 period - principally cost-reduction efforts throughout the Group, with a focus on process efficiency and improvement. Significant strides have been made in the physical media businesses in 2006, which will be largely completed in 1H07 with the rationalisation of our DVD manufacturing facilities from six to two, focusing our replication activities on our low-cost facilities in Mexico and Poland. The gross cash costs of this are modest - estimated at c.EUR 65 million - and are expected to be largely offset in cash terms by asset sales. Other Core Business restructuring actions will be smaller in scope.

Over the 2004-6 period Thomson has been characterised by a strong, growing and cash generative Core Business, and the high costs and losses associated with the Non-Core business - resulting in overall cash outflows and net losses for the Group as a whole. With the 2004-6 transformation behind us, our focus going forward is on providing shareholder returns through strong growth in Group net income, following the return to net profit in 2006. Our confidence in delivering this objective is based, inter alia, on our confidence that our Core Business will continue to grow its revenues, and hence its profit and cashflow, and that Non-Core operations will have a decreasing and overall limited impact.

FULL YEAR REVIEW

Full Year 2006 Core Business Net Revenues & EBIT

+-------------------------+--------+--------+--------------------+
|In € millions and %      |  FY2006|  FY2005|FY2006              |
+-------------------------+--------+--------+--------------------+
|                         |  actual|  actual|constant currency   |
+-------------------------+--------+--------+--------------------+
|Core Business net        |   5,747|   5,335|               5,776|
|revenues                 |        |        |                    |
+-------------------------+--------+--------+--------------------+
|Services                 |   2,489|   2,487|               2,504|
+-------------------------+--------+--------+--------------------+
|Systems                  |   2,684|   2,262|               2,696|
+-------------------------+--------+--------+--------------------+
|Technology               |     547|     546|                 549|
+-------------------------+--------+--------+--------------------+
|Corporate                |      27|      40|                  27|
+-------------------------+--------+--------+--------------------+
|Core Business EBIT       |     504|     512|                    |
+-------------------------+--------+--------+--------------------+
|Services                 |     160|     205|                    |
+-------------------------+--------+--------+--------------------+
|Systems                  |     132|     109|                    |
+-------------------------+--------+--------+--------------------+
|Technology               |     289|     277|                    |
+-------------------------+--------+--------+--------------------+
|Corporate                |    (77)|    (79)|                    |
+-------------------------+--------+--------+--------------------+

+-------------------------+-------------------+
|In € millions and %      |      % change     |
+-------------------------+-------------------+
|                         |  constant currency|
+-------------------------+-------------------+
|Core Business net        |               +8.3|
|revenues                 |                   |
+-------------------------+-------------------+
|Services                 |               +0.7|
+-------------------------+-------------------+
|Systems                  |              +19.2|
+-------------------------+-------------------+
|Technology               |               +0.6|
+-------------------------+-------------------+
|Corporate                |                 Nm|
+-------------------------+-------------------+
|Core Business EBIT       |                   |
+-------------------------+-------------------+
|Services                 |                   |
+-------------------------+-------------------+
|Systems                  |                   |
+-------------------------+-------------------+
|Technology               |                   |
+-------------------------+-------------------+
|Corporate                |                   |
+-------------------------+-------------------+
Second Half 2006 Core Business Net Revenues & EBIT
+-------------------------+--------+--------+--------------------+
|In € millions and %      |   2H06 |   2H05 |2H06                |
+-------------------------+--------+--------+--------------------+
|                         |  actual|  actual|constant currency   |
+-------------------------+--------+--------+--------------------+
|Core Business net        |   3,178|   2,930|               3,262|
|revenues                 |        |        |                    |
+-------------------------+--------+--------+--------------------
+|Services                 |   1,377|   1,419|
1,422|
+-------------------------+--------+--------+--------------------+
|Systems                  |   1,503|   1,203|               1,536|
+-------------------------+--------+--------+--------------------+
|Technology               |     284|     287|                 289|
+-------------------------+--------+--------+--------------------+
|Corporate                |      14|      21|                  15|
+-------------------------+--------+--------+--------------------+
|Core Business EBIT       |     371|     314|                    |
+-------------------------+--------+--------+--------------------+
|Services                 |     152|     141|                    |
+-------------------------+--------+--------+--------------------+
|Systems                  |     109|      73|                    |
+-------------------------+--------+--------+--------------------+
|Technology               |     149|     138|                    |
+-------------------------+--------+--------+--------------------+
|Corporate                |    (39)|    (38)|                    |
+-------------------------+--------+--------+--------------------+

+-------------------------+-------------------+
|In € millions and %      |      % change     |
+-------------------------+-------------------+
|                         |  constant currency|
+-------------------------+-------------------+
|Core Business net        |              +11.3|
|revenues                 |                   |
+-------------------------+-------------------+
|Services                 |               +0.2|
+-------------------------+-------------------+
|Systems                  |              +27.7|
+-------------------------+-------------------+
|Technology               |               +0.6|
+-------------------------+-------------------+
|Corporate                |                 Nm|
+-------------------------+-------------------+
|Core Business EBIT       |                   |
+-------------------------+-------------------+
|Services                 |                   |
+-------------------------+-------------------+
|Systems                  |                   |
+-------------------------+-------------------+
|Technology               |                   |
+-------------------------+-------------------+
|Corporate                |                   |
+-------------------------+-------------------+
Fourth Quarter 2006 Core Business Net Revenues
+-------------------------+--------+--------+--------------------+
|In € millions and %      |   4Q06 |   4Q05 |4Q06                |
+-------------------------+--------+--------+--------------------+
|                         |  actual|  actual|   constant currency|
+-------------------------+--------+--------+--------------------+
|Core Business net        |   1,777|   1,656|               1,841|
|revenues                 |        |        |                    |
+-------------------------+--------+--------+--------------------+
|Services                 |     755|     774|                 789|
+-------------------------+--------+--------+--------------------+
|Systems                  |     849|     699|                 874|
+-------------------------+--------+--------+--------------------+
|Technology               |     168|     171|                 173|
+-------------------------+--------+--------+--------------------+
|Corporate                |       5|      12|                   5|
+-------------------------+--------+--------+--------------------+

+-------------------------+-------------------+
|In € millions and %      |      % change     |
+-------------------------+-------------------+
|                         |  constant currency|
+-------------------------+-------------------+
|Core Business net        |              +11.2|
|revenues                 |                   |
+-------------------------+-------------------+
|Services                 |               +1.9|
+-------------------------+-------------------+
|Systems                  |              +25.1|
+-------------------------+-------------------+
|Technology               |               +0.9|
+-------------------------+-------------------+
|Corporate                |                 Nm|
+-------------------------+-------------------+
Full Year 2006 Results

Thomson's Core Business reported net revenues for 2006 of EUR 5,747 million (2005, EUR 5,335 million). Currency movements decreased Core Business revenues for the year by EUR 29 million. Revenues for the year excluding currency movements therefore increased 8.3% year-on-year.

Our 2004-6 acquisitions have proven very successful in expanding our key growth businesses in Content Services, Network Services, Access Products for telecom operators and Broadcast & Networks. They have also enabled us to win additional business through synergies within and across divisions.

Perimeter effects from 2006 acquisitions and Thales Broadcast & Multimedia (acquired 31 December 2005) added EUR 243 million to revenues during 2006.

Other 2005 acquisitions - principally Inventel, Cirpack and PRN contributed EUR 454 million to revenues during 2006, compared to EUR 192 million in 2005. A large proportion of this EUR 262 million increase reflects the significant organic growth in acquired businesses post-acquisition, particularly Inventel and Cirpack.

Overall, the Group's key growth businesses - Network Services, Content Services, Access Products for telecom operators, and our Broadcast & Networks businesses (Grass Valley and Network Software) - increased strongly year-on-year and accounted for over a third of Group revenues against less than a quarter in 2005.

Revenues from non-core activities were EUR 107 million in the year, making total reported revenues from continuing operations for the Group for 2006 of EUR 5,854 million (2005 EUR 5,591 million).

Core Business EBIT for 2006 was EUR 504 million, ahead of our objective (2005, EUR 512 million), representing a Core Business EBIT margin of 8.8%. This reflected growth in some key businesses and cost actions across the Group, offsetting a significant investment in research and development and some increase in restructuring expenses.

Research and development expenditure charged in the Core Business (net of external funding) rose from EUR 221 million for 2005 to EUR 279 million for 2006, an increase of 26% principally in the Systems division. The Group expanded the number of products and services in the development phase across its business.

Cost and liability reduction programs focused on restructuring and on post-retirement obligations. 2006 restructuring actions were largely first-half focused, but continued into the second half across the Group. With regard to post-retirement obligations, following changes in legislation and in market practice, amendments have been made to relevant medical and healthcare plans to better harmonize benefits across the Group, including Core and Non-Core operations. This resulted in a substantial reduction in the actuarial liability required on the Group's balance sheet, this reduction being taken in part through equity and in part through a gain to P&L of EUR 167 million. Most of this gain relates to the Group's former consumer-electronics businesses and is credited to the Non-Core continuing result. The annual charges relating to these programs in future years are also expected to reduce significantly. Principally as a result of this change, but also reflecting funding, liabilities on Thomson's balance sheet in respect of retirement benefit obligations (including medical benefits) have reduced by EUR 367 million to EUR 572 million at 31 December 2006 from EUR 939 million at 31 December 2005.

Given the scale of these one-time gains, Thomson decided to accelerate restructuring plans for its residual Non-Core operations, principally in France, in 2H06. As a result, one-time restructuring charges in Non-Core operations amounted to EUR 79 million in 2006 (2005, EUR 24 million), while in the Core Business restructuring charges were EUR 37 million (2005, EUR 25 million), making a total for continuing operations of EUR 116 million (2005, EUR 49 million).

Non-Core continuing operations lost EUR 25 million before tax and financial result in 2006 (2005, EUR 122 million). In addition to the one-time items referred to above this also reflected a loss of EUR 25 million in respect of the renegotiation of sub-contract manufacturing agreements.

Overall, the consolidated profit from continuing operations before tax and financial result reached EUR 479 million in 2006 (2005, EUR 390 million).

Finance costs and share of losses from associates were impacted by mark-to-market and related charges. A total of EUR 156 million of costs and charges (largely non-cash) were recorded in these line items in relation to TCL Multimedia, of which EUR 113 million in the second half. Of these charges, EUR 70 million was accounted for in finance costs and EUR 86 million in associates (these are in addition to the EUR 25 million provision referred to above, making total charges of EUR 181 million). The net non-cash mark-to- market gain credited to finance costs in respect of the call option embedded in the Silver Lake convertible bond was EUR 4 million, a significant reduction on the gain of EUR 94 million in 2005.

The Group has a total of approximately EUR 3.9 billion of tax-loss carry-forwards, of which almost two-thirds are located in its major markets of France and the US. Of these less than 10% are time-limited. The Group's current tax charge was EUR 58 million (2005, EUR 42 million). In addition, principally reflecting major changes in withholding tax regulations, an additional deferred tax asset of EUR 58 million was recorded in 2006, leading to an overall reported tax charge of zero.

The Group's profit from continuing activities for the year was therefore EUR 193 million (2005, EUR 198 million).

Certain activities were treated in the 2006 results and/or 2005 comparative figures as Discontinued Operations under IFRS 5 - principally the held-for-sale AVA businesses and for 2005 also the exited Displays activities. The loss from discontinued activities totaled EUR 138 million for 2006 (2005, EUR 771 million), of which EUR 121 million relates to the AVA businesses (2005, EUR 46 million). The 2005 figure includes EUR 725 million related to the Displays activities exited during 2005. The Group successfully closed the disposal of its North American Accessories activities to Audiovox in January 2007, with total disposal proceeds of around $70 million.

The net profit for the Group for 2006 was therefore EUR 55 million (2005, loss EUR 573 million).

The Core Business generated free cash flow (net operating cash flow from Core Business after tax and finance costs, less net capital expenditure) of EUR 483 million in 2006 (excluding the one- off payment of accrued interest of EUR 59 million relating to prior years on redemption of convertible bond in January 2006), compared to EUR 422 million in 2005. Core Business capital expenditure on tangible and intangible assets was EUR 214 million. The Group financed its restructuring spending with asset sales which totaled EUR 150 million in the period. Cash spending on acquisitions, notably Canopus and Thales Broadcast & Multimedia which were announced in late 2005, totaled EUR 255 million.

Other cash outflows included the one-time payment of EUR 59 million referred to above and the substantial remaining payments in discontinued operations relating to the disposal in 2005 of Anagni and Bagneaux of around EUR 140 million.

The Group significantly strengthened its balance sheet by year- end. Future liabilities in respect of Non-Core and Discontinued operations have significantly reduced compared to a year ago. In addition, total net debt at 31 December 2006 totaled EUR 1,371 million, compared to total net debt of EUR 1,464 million as at 31 December 2005 (including debt related to acquisitions of EUR 13 million and EUR 138 million respectively). Liabilities relating to retirement benefit obligations (including medical benefits) provided in the balance sheet totaled EUR 572 million at 31 December 2006, compared to EUR 939 million at 31 December 2005. The remaining payments outstanding at year end in respect of the exited Displays activities fell by EUR 145 million and there are no contingent acquisition liabilities.

In total, therefore, the Group's cashflow and cost actions have significantly reduced overall financial liabilities over the year. During the year EUR 594 million of short-term debt was refinanced by longer-term maturities.

CORE BUSINESS DIVISIONAL REVIEW

Services

During 2006 the priorities of the Services division were to expand its growth businesses in electronic and digital media, whilst adapting the cost base of its physical media businesses to position those businesses to sustain profitability in mature markets. Restructuring in both DVD and Film activities was pursued largely in the first half, resulting in a significant increase in profitability in 2H06 vs 1H06.

Revenues

Consolidated net revenues for the Services division totaled EUR 2,489 million in 2006 compared with EUR 2,487 million in 2005, This includes a negative impact of exchange rate variations of EUR 14 million. Consolidated net revenues of the Services division therefore increased by 0.7% at constant 2005 exchange rates. The growth was driven primarily by significant growth in Network Services activities which offset the effects of mix and pricing across other businesses, and the lower volumes in Film Services.

Acquisitions made in 2006 contributed EUR 62 million to the 2006 consolidated net revenues (in Network Services). Acquisitions made in 2005 (mainly PRN in Network Services) added EUR 120 million to consolidated net sales in 2006, compared to EUR 47 million in 2005.

In our Network Services activities, sales in 2006 grew significantly with the expansion of our activities in broadcast playout and in retail media network services. During 2006 we entered into playout contracts with TV5 Monde and France 24, and we continued to further develop the Broadcast playout business with the acquisition of NOB in October 2006, the largest playout facility in the Netherlands. We also expanded our installation and maintenance capabilities with the early-2006 Convergent acquisition. In 4Q06 Network Services achieved double digit organic growth, in addition to significant growth through acquisitions made since the start of 4Q05. The business is well placed for further growth and in December 2006 signed a long-term contract with ITV plc to transmit its six existing channels, including ITV1, with effect from January 2007, and has launched in December 2006 a collaborative effort with CGEN to develop its out- of-home advertising presence in China.

In our physical media businesses, there was volume growth in DVD Services, which was particularly strong in 4Q06. The number of DVDs replicated in 2006 amounted to 1.44 billion, an increase of 7.5% on 2005 mainly driven by significant growth in Europe, while North America's growth was more modest. The impact on revenues of this volume growth was offset by the expected decline in VHS duplication (which will not have a significant effect going forward), pricing pressure and an increase in kiosk volumes which attract a lower price per unit. Film Services showed a reduction in volumes in 2006 by 6% versus 2005 with approximately 5.0 billion feet of film processed, compared to 5.3 billion feet in 2005, as a result of a weaker film slate in the second half - particularly in 4Q06. Physical media sales (DVD Services and Film Services) accounted for less than 75% of total sales in the Services division in 2006 compared to over 80% in 2005 and around 90% in 2004, reflecting the increasing involvement of the group in the growing electronic activities.

In 2006, net sales from our Content Services activities grew modestly, reflecting organic growth in higher end services such as digital intermediates (DI) and good activity in visual effects (VFX), offset by pricing pressure in more commoditized services and weakness in our Canadian operation. The business is focusing on consolidating its market positions and integrating its various units into a more efficient organization. Key titles included DI work on Letters from Iwo Jima and VFX work by MPC for Harry Potter and the Order of the Phoenix and 10,000 BC - as well as preparatory work for the Disney VFX contract awarding MPC lead facility status for Narnia: Prince Caspian.

Profitability and margins

Profit from continuing operations before tax and financial result for the Services division amounted to EUR 160 million in 2006 compared with EUR 205 million in 2005, a decrease of 22%. The division's 2006 profit margin was 6.4% compared with a 2005 profit margin of 8.2%. Cost cutting programs initiated in 1H06 allowed a significant improvement in margin in 2H06 to 11.0%, compared to 9.9% in 2H05.

Restructuring programs during 2006 included the cessation of VHS duplication and downsizing of DVD replication operations in Europe and in Canada, site optimization and relocation actions within Film Services and Content Services, re-organization of sales operations and site consolidation. H1 2007 will include the extension and completion of the restructuring plans initiated in 2006.

Across the full year, continuing cost-control measures and process transformation initiatives in DVD Services, including increased production shift to low-cost plants, were not sufficient to fully compensate for the impact of the sharp decline in VHS and mix and pricing. However the margin for DVD Services in 2H06 showed a good increase on 2H05.

In Film, the impact of lower volumes on profitability was partially compensated by further volume shifts to lower cost facilities and efficiency improvements.

In Content Services process optimization and site consolidation programs were implemented but product mix was disappointing resulting in weak performance.

Network Services generated significant additional profit compared with 2005 through continued organic growth and successful integration of current-year and prior-year acquisitions.

Our electronic distribution services activities reflect the increased costs of initial investments in services and technology for on-line video distribution, as well as the ongoing investment in digital cinema beta-tests deployed for various clients.

Systems

Our main aim in 2006 for the division was to ensure delivery of key set-top box platforms for our satellite and cable customers and advanced gateway products for telecom operators in Access Products. We achieved this aim, which was therefore followed by good growth in higher-end products towards the end of the year. These new platforms include several "firsts" and Thomson maintains its market leadership in this market regionally and worldwide. Going forward we are focused on improving the product mix further. The Broadcast & Networks businesses - Grass Valley Systems and Network Software - showed organic growth, enhanced by the acquisitions of Canopus and Thales Broadcast & Multimedia ("TBM") announced in late 2005. Overall, our Systems division has improved its customer diversification over the year.

Revenues

Consolidated net sales for the Systems division increased by EUR 422 million, or 18.7%, to EUR 2,684 million in 2006 from EUR 2,262 million in 2005. This increase includes a negative impact of exchange rate variations of EUR 12 million. Consolidated net sales of the Systems division increased by 19.2% in 2006 at constant 2005 exchange rates.

The increase in sales of our Systems businesses came from strong growth within Access Products notably for our cable and telecom customers, and from our Network Software activities, the integration of TBM, acquired in December 2005, and Canopus, acquired in January 2006, as well as organic growth within our Grass Valley Systems activity. The growth in these activities more than offset the price driven decline in Access Products for satellite operators.

Perimeter effects from the acquisitions of Canopus and TBM added EUR 182 million to revenues during 2006.

Other 2005 acquisitions - Inventel and Cirpack - contributed EUR 306 million to revenues during 2006 compared to EUR 139 million in 2005. A large proportion of this EUR 167 million increase reflects the significant organic growth in those businesses post- acquisition.

Access Products

Thomson shipped 11.1 million satellite set-top boxes in 2006 (2005, 10.9 million), 2.0 million cable set-top boxes (2005, 0.6 million), and 10.0 million access products for telecom operators (2005 7.6 million) - making a total of 23.1 million access products in the year, a strong increase on the 2005 total of 19.0 million units. A significantly increased proportion of the access products for telecom operators were Advanced Service Gateways which are generally triple play enabled and command a higher average selling price ("ASP") than traditional DSL modems. Mix also improved in satellite and cable.

In satellite, volumes in the US grew year-on-year in the second half, after falling in the first half. There was a high proportion of standard devices but new more featured devices were introduced through the year. DIRECTV remained the largest customer of this business, but the business expanded its footprint in other markets, gaining unit volumes in Europe, notably in the UK, and in the Asia-Pacific region. In Asia, our STB business is continuing to develop as operators rollout their services. Deliveries of products for Tata Sky, the Indian satellite broadcaster, began in 2006. The strategy in Asia is to pursue opportunities we expect to arise as Asian cable and satellite operators enhance featured pay and digital TV. Thomson brought featured products to market with the introduction of HD-DVR STB in Europe and next generation HD and DVR in the U.S. in 2006. Overall in satellite, this increased proportion of featured set-top boxes helped compensate for unit price reduction.

Sales of cable access products grew very well, following previous customer wins, and are showing good momentum going forward. A number of new customers were added to this product line: KDG and Premiere in Germany and StarHub in Southeast Asia, but growth was also driven by already existing customers, mainly UPC in the Netherlands and Net Servicios in Brazil. This led to significant market share gains, mainly in EMEA. Product mix was also enriched with a large share of sales achieved with featured set-top boxes. The favorable volume evolution more than offset market-driven price declines.

Thomson's business with telecom customers grew strongly during 2006. Growth in triple and quadruple-play enabled Advanced Service Gateways continued to be the principal driver of growth in this area. As well as the continuing roll out of the France Telecom Livebox™, the ramp up of shipments of the BT Hub quadruple-play enabled gateway in the UK contributed strongly in the latter part of the year. Thomson aims to leverage its leadership in developing and launching Advanced Service Gateways, in which we currently have a high global market share, as telecom operators rollout their triple and quadruple play offerings. Revenues grew significantly in 2006, especially in the advanced gateway market, which drove an overall improvement in mix. Improved mix and volumes more than offset price erosion.

In our telephony business, although our addressable telephony handset market continued to decline in 2006 as a whole, the business maintained its level of sales. Telephony continued to experience price erosion in 2006, but was able to offset this decline with increased volumes and improved mix of sales as we capitalized on our leadership position in DECT (Digital Enhanced Cordless Telecommunications) products in Europe by expanding into the American retail market and by continuing to win placements with new and existing customers.

Broadcast & Networks

Grass Valley Systems

Grass Valley Systems continued to gain market share during the year in the majority of the markets they operate, notably in networks and systems integration, and initial orders for products aimed at the ProAV (professional audio-video) market were promising. The business is positioned for further growth in the extended broadcast & ProAV market with the well-received launch of new products, such as the Ignite™ range. The significant revenue growth reflected both the TBM and Canopus acquisitions and organic growth, particularly in network products, customer services and the system integration activities. The World Cup soccer event in the summer of 2006 in Germany was a major event where products and services were used from Grass Valley, the first World Cup broadcasted in high definition format. In general, equipment from Grass Valley is well positioned to benefit from the switch from standard definition to high definition currently taking place in the broadcast industry. This market trend was further confirmed in our sales mix in 2006. Software solutions aimed at the management of digital assets are increasingly sold with our equipment. Sales in our production and play-out activities remained robust and benefited from strong product sales in cameras and server and news applications. The editing products and software solutions have been implemented in several key customers in North America. For network products, several major contracts were concluded in the last part of 2H06, although some contracts slipped from 2006 into 2007. Radio and television transmitter sales were in line with last year and several major deals were booked in the course of 2006. Backlog is in line with expectations for these activities. Grass Valley's product and service offering has benefited in 2006 from an increased interest from telecom and cable operators to complete their offering for VoD and mobility TV demand.

Network Software

The network software operation includes principally the Cirpack softswitch business which was acquired in April 2005 and the SmartVision IPTV system, which was part of the acquisition of TBM, completed in December 2005.

Softswitch and telecom software sales continued to enjoy a very strong growth, well above the rate of the carrier grade voice-over- IP market. Thomson's installed base grew by more than 1.5 million subscriber licenses to reach more than 4.5 million. The fixed mobile convergence market represents a new opportunity and began with the signature of two important contracts in Europe. Total installed base is now over 80 telecom operators in Europe, Africa and Central America. Our software solutions continued to gain subscribers in IPTV, notably for Smartvision through the the Orange Group IPTV solution, which had 550,000 subscribers, mainly for "live TV" and "VOD" applications. This subscriber installed base (number 1 in Europe and number 2 in the world) represents 100% growth in the second half compared to the first half. In addition we had our first success in the U.S. in addressing local operators. More than 30 platforms have now been deployed around the world and SmartVision is now well positioned for convergent operators allowing video distribution over fixed and mobile networks. This represents a key differentiator for Thomson in the IPTV landscape. Some fixed-mobile convergence operators in Europe have already selected this solution to optimize their triple play offering and this represents potential revenues for 2007.

Profitability and margins

Profit from continuing operations before tax and financial result for the Systems division amounted to EUR 132 million in 2006 compared with EUR 109 million in 2005, an increase of 21%. The division's 2006 operating margin was 4.9% compared with a 2005 operating margin of 4.8%.

The division's profitability reflects increased investment during 2006 in research and development (including the amortization of previously capitalized expenses) partially offset by a portion of the post-retirement benefit gains referred to above.

In Access Products, the volume and cost improvements within IP products for telecom operators more than offset the expected price erosion in this area, with an improving product mix through the year. The product mix improved in satellite operations although price deflation in lower end models was not fully offset by cost savings. The profitability of the telephony operations was adversely affected in the current year by the investment in sales and marketing efforts around the launch of two new product groups (5.8GHz analog with digital features and DECT 6.0).

In our Broadcast & Networks businesses Grass Valley benefited from the favorable HD/SD mix in our sales, offset by increased costs related to product introductions and a very significant increase in research and development expenses. Our Network Software operations showed strong growth in profitability over their 2005 level and, although still a small part of the division, contributed well to the division's overall result.

Technology

Revenues

Consolidated net sales for the Technology division amounted to EUR 547 million in 2006, compared with EUR 546 million in 2005, mainly as a result of a small decrease in the Licensing activity revenues offset by an increase in the revenues of Silicon Solutions and Software & Technology Solutions. Currency effects decreased consolidated net sales of the division by EUR 2 million in 2006.

Consolidated net sales for the Licensing activity amounted to EUR 443 million in 2006 compared with EUR 449 million in 2005, although most of this reduction can be attributed to currency effects. This performance reflects our continuing success in monetizing our intellectual property through licensing programs, with new licensing programs (such as Digital TV and LCD) offsetting decreases in older programs. Revenues related to digital-based licensing programs represented 79% of total revenues of the division in 2006 compared to 75% in 2005, and were particularly strong in the MPEG2 and mp3 programs. This reflects the growth of our digital licensing programs in terms of the volumes of existing contracts and the number of new contracts finalized during the year. The most significant contributor to our Licensing revenues in 2006 was the MPEG2 program (administrated through the MPEGLA pool), which increased to account for around 24% of the Technology division's revenues in 2006. Programs relating to LCD, as well as Digital TV, increased significantly compared to 2005. At the end of 2006 the Group had 959 licensing contracts in place compared to 888 at year-end 2005.

Our new Software & Technology Solutions activity which generated its first revenues in 2005, grew significantly in 2006 although from a small base, reflecting our strategy to develop these activities particularly in content security.

The Silicon Solutions activity's net sales were quite stable overall in 2006 compared to 2005, although tuners had a strong year thanks to higher demand for digital products.

Profitability and margins

Profit from continuing operations before tax and financial result for the Technology division amounted to EUR 289 million in 2006, compared to EUR 277 million in 2005, an increase of 4.3%, and showed a margin of 52.8% in 2006 compared with 50.7% in 2005.

In 2006, the profit before tax and financial result of our Licensing business accounted for EUR 366 million compared to EUR 361 million in 2005, an increase of EUR 5 million. The profit margin for licensing was 82.6% in 2006 compared with a margin of 80.6% in 2005. The other continuing operations in the division generated a slightly reduced loss, as costs to establish the new businesses of Software & Technology Solutions and the silicon business in Silicon Solutions continued. The most significant costs were research and development costs related to integrated circuits.

The total research costs which are accounted for within the Technology division reached EUR 95 million in 2006, an increase from EUR 88 million in 2005.

CORPORATE

The charge before interest and finance costs of the Gr, oup's unallocated corporate functions was EUR 77 million in 2006 (2005, EUR 79 million).

CONTINUING OPERATIONS - NON-CORE BUSINESS RESULTS

Revenues for Non-Core continuing operations, reported as the Displays & CE Partnerships segment, were EUR 107 million for 2006 (2005, EUR 256 million).

Non-Core continuing operations lost EUR 25 million in 2006 (2005, loss EUR 122 million).

With regard to post-retirement obligations, following changes in legislation and in market practice, amendments have been made to relevant medical and healthcare plans to harmonize benefits across the Group, including Core and Non-Core operations. This resulted in a substantial reduction in the actuarial liability required on the Group's balance sheet, this reduction being taken in part through equity and in part through a gain to P&L of EUR 167 million. Most of this gain relates to the Group's former consumer- electronics businesses and is credited to the Non-Core continuing result. The annual charges relating to these programs in future years are also expected to reduce significantly.

This effect of these one-time gains is partially offset by Thomson's decision to accelerate restructuring plans for the residual Non-Core operations, principally in France, in 2H06. As a result one-time restructuring charges in Non-Core operations amounted to EUR 79 million in 2006 (2005, EUR 24 million).

In addition to the one-time items referred to above the Non-Core result also reflected a loss of EUR 25 million in respect of the renegotiation of sub-contract manufacturing agreements.

FINANCIAL RESULT, ASSOCIATES AND TAX

Interest expense

Net interest charges for continuing operations reached EUR 89 million in 2006 (2005, EUR 78 million, reflecting higher average net debt and interest rates.

Other financial income / (expense)

Other financial expense for continuing operations totalled EUR 111 million in 2006 (2005, financial income EUR 36 million). This total includes a EUR 4 million (non-cash) gain on the mark-to- market revaluation of the call option embedded in the Silver Lake convertible bond (2005, EUR 94 million).

It also includes a significant charge of EUR 70 million relating to our holding in TCL Multimedia (see below).

Share of loss from associates

The share of loss from associates amounted to EUR 86 million in 2006 (2005 loss, EUR 82 million). This principally related to the Group's holding in TCL Multimedia.

Overall the Group's result for 2006 was adversely impacted by one- time costs and charges totaling EUR 181 million relating to the Group's contracts with, and holding in, TCL Multimedia, which Thomson reduced to below 20% in November 2006. The investment in TCL Multimedia is accordingly treated as a financial asset available-for-sale at year-end (rather than as an associate under the equity method). Of these charges, EUR 86 million was charged as share of loss from associates (up to the date of sell-down to below 20%), a total of EUR 70 million was accounted for in other financial expenses (including writing the residual stake down to the market price at 31 December 2006) and a EUR 25 million provision was charged against Non-Core EBIT, as referred to above.

Income Tax

The Group has a total of approximately EUR 3.9 billion of tax-loss carry-forwards, of which almost two-thirds are located in its major markets of France and the US. Of these less than 10% are time-limited. The Group's current tax charge was EUR 58 million (2005, EUR 42 million). In addition, principally reflecting major changes in withholding tax regulations, an additional deferred tax asset of EUR 58 million was recorded in 2006, leading to an overall reported tax charge of zero.

LOSS FROM DISCONTINUED OPERATIONS

In 2005 and 2006 certain activities were treated as Discontinued Operations under IFRS 5 - principally the Audio/Video ("AV") and Accessories businesses including the Group's retail terrestrial decoder activity (together "AVA") and for 2005 also the exited Displays activities. The total loss attributable to discontinued operations for 2006 was EUR 138 million, of which EUR 64 million was attributable to the second half. This represented a significant reduction on the 2005 charge of EUR 771 million. The bulk of the 2005 charge related to the displays businesses exited in 2005, whereas most of the 2006 charge related to the held-for- sale AVA businesses. AVA losses were significant but narrowed in the second half. Regarding the proposed disposal of the AVA businesses, the disposal of the North American Accessories business to Audiovox, announced on 21 December 2006, was completed on 29 January 2007. The proceeds from this disposal in 2007, combining purchase price and working capital extraction, are estimated at around US$ 70 million. The proposed disposal of the European AVA business to Oristano will not be completed. With the separation of the North American Accessories business from the North American AV business, Thomson is now remarketing the AVA Europe and AV North America businesses, with the intention of completing the disposal of these businesses as soon as possible in 2007.

Net Result

The Group consolidated net profit, including the negative impact of the loss from Discontinued Operations and losses of Non-Core continuing operations, was EUR 55 million for 2006 (2005, loss EUR 573 million).

GROUP CASHFLOW AND BALANCE SHEET

Core Business Free Cashflow

The Core Business generated EUR 483 million of free cashflow (net operating cashflow from Core Business after Group tax and finance costs, less net capital expenditure) in 2006. This is comprised of Core Business EBITDA (EBIT plus depreciation and amortization) of EUR 925 million, plus a reduction in working capital of EUR 87 million, less other movements in assets and liabilities of EUR 100 million (including contract payments), net capital expenditures of EUR 214 million, and tax and interest, restructuring and non- current cash outflows of EUR 215 million.

+-------------------------+-------+-------+
|                         |  2006 |  2005 |
+-------------------------+-------+-------+
|Services                 |    396|    256|
+-------------------------+-------+-------+
|Systems                  |    100|    178|
+-------------------------+-------+-------+
|Technology               |    230|    242|
+-------------------------+-------+-------+
|Corporate                |  (116)|  (101)|
+-------------------------+-------+-------+
|Tax and financial(2)     |  (127)|  (153)|
+-------------------------+-------+-------+
|Core Business Free       |    483|    422|
|Cashflow                 |       |       |
+-------------------------+-------+-------+
(1)Divisional cash flow is shown after divisional capital expenditure - all tax and financial cashflows as a single line item

(2)Excludes one-off payment of accrued interest of EUR 59 million relating to prior years on redemption of convertible bond in January 2006

Free Cashflow from Continuing Business

The free cashflow from continuing business was EUR 378 million, comprising Core Business free cashflow of EUR 483 million less cash outflows from Non-Core continuing operations amounting to EUR 105 million (all excluding the one-off payment of accrued interest of EUR 59 million relating to prior years on redemption of convertible bond in January 2006).

In addition, the Group paid EUR 255 million for acquisitions during the year, principally for Canopus and Thales Broadcast & Multimedia in Systems, and also for Convergent in Services.

Against this, the Group realized a total of EUR 150 million from its financial assets during the year, including the sale of part of its holding in TCL multimedia.

Cashflow from Discontinued Operations

The net operating and investing cash outflows from discontinued operations totaled EUR 265 million. The largest elements in this related to the payments relating to the disposal in 2005 of Anagni and Bagneaux totaling around EUR 140 million, as well as cash outflow from losses of the AVA businesses of EUR 83 million.

Net Cashflow from operating and investing activities

As a result, overall net cash outflow from operating and investing activities for both continuing and discontinued operations totaled EUR (51) million.

Balance Sheet

The Group's total net debt was EUR 1,371 million at 31 December 2006, including EUR 13 million of debt related to acquisitions. This compares to total net debt of EUR 1,464 million as at 31 December 2005 (including debt related to acquisitions of EUR 138 million).

With regard to retirement benefit obligations, amendments have been made to relevant medical and healthcare plans to better harmonize benefits across the Group, including Core and Non-Core operations. This resulted in a substantial reduction in the actuarial liability required on the Group's balance sheet. Principally as a result of this change, but also reflecting funding, liabilities on Thomson's balance sheet in respect of retirement benefit obligations (including medical benefits) have reduced by EUR 367 million to EUR 572 million at 31 December 2006 from EUR 939 million at 31 December 2005.

During the year the Group raised $450 million through a private placement of senior notes with various maturities from 3 to 10 years and EUR 252 million through further long-term placements. These financings were used to repay short-term debt financing.

The number of shares in issue is 273,871,296 at 31 December 2006, a slight increase of 563,264 on the 31 December 2005 total, following the exercise of warrants issued in October 2004. Treasury shares were used as planned for installment payments on the Inventel and Cirpack acquisitions and in partial payment for the shares acquired in the Canopus acquisition. Shareholders' funds totaled EUR 2,112 million at 31 December 2006 (31 December 2005, EUR 2,209 million).

Certain statements in this press release, including any discussion of management expectations for future periods, constitute "forward- looking statements" within the meaning of the "safe harbor" of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management's current expectations and beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements due to changes in global economic and business conditions, consumer electronics markets, and regulatory factors. More detailed information on the potential factors that could affect the financial results of Thomson is contained in Thomson's filings with the U.S. Securities and Exchange Commission.

About Thomson — World leader in digital video technologies

Thomson (Euronext Paris: 18453; NYSE: TMS) provides technology, services, and systems to help its Media & Entertainment clients - content creators, content distributors and users of its technology - realize their business goals and optimize their performance in a rapidly changing technology environment. The Group is the preferred partner to the Media & Entertainment Industries through its Technicolor, Grass Valley, RCA, and Thomson brands. For more information: http://www.thomson.net.

+--------------------+-------------------+--------------------+
|   Press Relations  |                   |                    |
+--------------------+-------------------+--------------------+
|  Martine Esquirou  |  +33 1 41 86 58 51|martine.esquirou@tho|
|                    |                   |mson.net            |
+--------------------+-------------------+--------------------+
|  Julie Dardelet    |  +33 1 41 86 65 24|julie.dardelet@thoms|
|                    |                   |on.net              |
+--------------------+-------------------+--------------------+
|  Marine Boulot     |  +33 1 41 86 55 97|marine.boulot@thomso|
|                    |                   |n.net               |
+--------------------+-------------------+--------------------+
|  Investor Relations|                   |                    |
+--------------------+-------------------+--------------------+
|  James Johnson     |  +33 1 41 86 61 48|james.johnson@thomso|
|                    |                   |n.net               |
+--------------------+-------------------+--------------------+
|  Marie Boidot      |  +33 1 41 86 51 00|marie.boidot@thomson|
|                    |                   |.net                |
+--------------------+-------------------+--------------------+
|  Laurent Sfaxi     |  +33 1 41 86 58 83|laurent.sfaxi@thomso|
|                    |                   |n.net               |
+--------------------+-------------------+--------------------+
APPENDICES

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

CONSOLIDATED BALANCE SHEETS (unaudited)

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Unaudited CONSOLIDATED STATEMENTS OF OPERATIONS

+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|                         |  |  |  |Year ended December |  |
|  |  |
|                         |  |  |  |31                  |  |
|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|(€ in millions)          |  |  |  |                2006|  |
2005 (*)|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Continuing operations:   |  |  |  |                    |  |
|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Revenues                 |  |  |  |               5,854|  |
5,591|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Cost of sales            |  |  |  |             (4,474)|  |
(4,240)|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Gross margin             |  |  |  |               1,380|  |
1,351|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Selling, marketing,      |  |  |  |               (674)|  |
(638)|  |  |
|general and              |  |  |  |                    |  |
|  |  |
|administrative expenses  |  |  |  |                    |  |
|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Other income (expense)   |  |  |  |                  52|  |
(96)|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Research and development |  |  |  |               (279)|  |
(227)|  |  |
|expenses                 |  |  |  |                    |  |
|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Profit from continuing   |  |  |  |                 479|  |
390|  |  |
|operations before tax and|  |  |  |                    |  |
|  |  |
|net finance costs        |  |  |  |                    |  |
|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Interest income          |  |  |  |                  19|  |
30|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Interest expense         |  |  |  |               (108)|  |
(108)|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Other financial income   |  |  |  |               (111)|  |
36|  |  |
|(expense)                |  |  |  |                    |  |
|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Finance costs – net      |  |  |  |               (200)|  |
(42)|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Share of profit (loss)   |  |  |  |                (86)|  |
(82)|  |  |
|from associates          |  |  |  |                    |  |
|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Income tax               |  |  |  |                   -|  |
(68)|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Profit from continuing   |  |  |  |                 193|  |
198|  |  |
|operations               |  |  |  |                    |  |
|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Discontinued operations: |  |  |  |                    |  |
|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Profit (loss) from       |  |  |  |               (138)|  |
(771)|  |  |
|discontinued operations  |  |  |  |                    |  |
|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Net income (loss)        |  |  |  |                  55|  |
(573)|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Attributable to:         |  |  |  |                    |  |
|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Equity Holders           |  |  |  |                  55|  |
(574)|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Minority interests       |  |  |  |                   -|  |
1|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|(*) Restated with 2006   |  |  |  |                    |  |
|  |  |
|discontinued activities  |  |  |  |                    |  |
|  |  |
|according to IFRS 5.     |  |  |  |                    |  |
|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|                         |  |  |  |Year ended December |  |
|  |  |
|                         |  |  |  |31,                 |  |
|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|(in euro, except number  |  |  |  |                2006|  |
2005|  |  |
|of shares)               |  |  |  |                    |  |
|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Weighted average number  |  |  |  |         261,188,858|  |
266,539,917|  |  |
|of shares outstanding    |  |  |  |                    |  |
|  |  |
|-basic net of treasury   |  |  |  |                    |  |
|  |  |
|stock                    |  |  |  |                    |  |
|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Earnings per share from  |  |  |  |                    |  |
|  |  |
|continuing operations    |  |  |  |                    |  |
|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|- basic (1)              |  |  |  |                0.67|  |
0.74|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|- diluted                |  |  |  |                0.63|  |
0.42|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Earnings per share from  |  |  |  |                    |  |
|  |  |
|discontinued operations  |  |  |  |                    |  |
|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|- basic                  |  |  |  |              (0.53)|  |
(2.89)|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|- diluted                |  |  |  |              (0.48)|  |
(2.62)|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|Total earnings per share |  |  |  |                    |  |
|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|- basic (1)              |  |  |  |                0.14|  |
(2.15)|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
|- diluted                |  |  |  |                0.15|  |
(2.20)|  |  |
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+
+-------------------------+--+--+--+--------------------+--+------
-------+--+--+

+-------------------------+--+-------------+-+
|                         |  |             | |
|                         |  |             | |
+-------------------------+--+-------------+-+
|(€ in millions)          |  |     2004 (*)| |
+-------------------------+--+-------------+-+
|Continuing operations:   |  |             | |
+-------------------------+--+-------------+-+
|Revenues                 |  |        5,980| |
+-------------------------+--+-------------+-+
|Cost of sales            |  |      (4,594)| |
+-------------------------+--+-------------+-+
|Gross margin             |  |        1,386| |
+-------------------------+--+-------------+-+
|Selling, marketing,      |  |        (653)| |
|general and              |  |             | |
|administrative expenses  |  |             | |
+-------------------------+--+-------------+-+
|Other income (expense)   |  |         (69)| |
+-------------------------+--+-------------+-+
|Research and development |  |        (201)| |
|expenses                 |  |             | |
+-------------------------+--+-------------+-+
|Profit from continuing   |  |          463| |
|operations before tax and|  |             | |
|net finance costs        |  |             | |
+-------------------------+--+-------------+-+
|Interest income          |  |           52| |
+-------------------------+--+-------------+-+
|Interest expense         |  |         (54)| |
+-------------------------+--+-------------+-+
|Other financial income   |  |         (26)| |
|(expense)                |  |             | |
+-------------------------+--+-------------+-+
|Finance costs – net      |  |         (28)| |
+-------------------------+--+-------------+-+
|Share of profit (loss)   |  |         (20)| |
|from associates          |  |             | |
+-------------------------+--+-------------+-+
|Income tax               |  |         (93)| |
+-------------------------+--+-------------+-+
|Profit from continuing   |  |          322| |
|operations               |  |             | |
+-------------------------+--+-------------+-+
|Discontinued operations: |  |             | |
+-------------------------+--+-------------+-+
|Profit (loss) from       |  |        (883)| |
|discontinued operations  |  |             | |
+-------------------------+--+-------------+-+
|Net income (loss)        |  |        (561)| |
+-------------------------+--+-------------+-+
|Attributable to:         |  |             | |
+-------------------------+--+-------------+-+
|Equity Holders           |  |         (559| |
+-------------------------+--+-------------+-+
|Minority interests       |  |          (2)| |
+-------------------------+--+-------------+-+
|(*) Restated with 2006   |  |             | |
|discontinued activities  |  |             | |
|according to IFRS 5.     |  |             | |
+-------------------------+--+-------------+-+
|                         |  |             | |
|                         |  |             | |
+-------------------------+--+-------------+-+
|(in euro, except number  |  |         2004| |
|of shares)               |  |             | |
+-------------------------+--+-------------+-+
|Weighted average number  |  |  273,646,869| |
|of shares outstanding    |  |             | |
|-basic net of treasury   |  |             | |
|stock                    |  |             | |
+-------------------------+--+-------------+-+
|Earnings per share from  |  |             | |
|continuing operations    |  |             | |
+-------------------------+--+-------------+-+
|- basic (1)              |  |         1.18| |
+-------------------------+--+-------------+-+
|- diluted                |  |         1.11| |
+-------------------------+--+-------------+-+
|Earnings per share from  |  |             | |
|discontinued operations  |  |             | |
+-------------------------+--+-------------+-+
|- basic                  |  |       (3.23)| |
+-------------------------+--+-------------+-+
|- diluted                |  |       (2.96)| |
+-------------------------+--+-------------+-+
|Total earnings per share |  |             | |
+-------------------------+--+-------------+-+
|- basic (1)              |  |       (2.05)| |
+-------------------------+--+-------------+-+
|- diluted                |  |       (1.85)| |
+-------------------------+--+-------------+-+
+-------------------------+--+-------------+-+
(1) After deduction of the interests, net of tax, paid on the subordinated perpetual notes during the period.

Unaudited CONSOLIDATED BALANCE SHEETS

+-------------------------+--+-------------------+--+-------------
------+--+
|(€ in millions)          |  |  December 31, 2006|  |  December
31, 2005|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|ASSETS                   |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Non-current assets:      |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Property, plant and      |  |                813|  |
886 |  |
|equipment                |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Goodwill                 |  |              1,714|  |
1,756 |  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Other intangible assets  |  |              1,071|  |
1,150 |  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Investments in associates|  |                 12|  |
204 |  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Investments and financial|  |                266|  |
341|  |
|assets available-for-sale|  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Derivative financial     |  |                  7|  |
1 |  |
|instruments              |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Contract advances        |  |                129|  |
173 |  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Deferred tax assets      |  |                397|  |
379 |  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Other non-current assets |  |                110|  |
182 |  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Total non-current assets |  |              4,519|  |
5,072|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Current assets:          |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Inventories              |  |                366|  |
333 |  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Trade accounts and notes |  |              1,018|  |
1,315 |  |
|receivable               |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Current accounts with    |  |                 97|  |
115 |  |
|associates and joint-    |  |                   |  |
|  |
|ventures                 |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Derivative financial     |  |                  8|  |
9 |  |
|instruments              |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Other current assets     |  |                535|  |
644 |  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Marketable securities    |  |                  -|  |
7|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Cash and cash equivalents|  |              1,311|  |
996|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Assets classified as held|  |                264|  |
369|  |
|for sale                 |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Total current assets     |  |              3,599|  |
3,788|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Total assets             |  |              8,118|  |
8,860|  |
+-------------------------+--+-------------------+--+-------------
------+--+

+-------------------------+--------------------+--+---------------
----+
|(€ in millions)          | January 1, 2005 (*)|  |  December 31,
2004|
+-------------------------+--------------------+--+---------------
----+
|ASSETS                   |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Non-current assets:      |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Property, plant and      |               1,051|  |
1,051|
|equipment                |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Goodwill                 |               1,186|  |
1,178|
+-------------------------+--------------------+--+---------------
----+
|Other intangible assets  |                 924|  |
924|
+-------------------------+--------------------+--+---------------
----+
|Investments in associates|                 260|  |
260|
+-------------------------+--------------------+--+---------------
----+
|Investments and financial|                 139|  |
113|
|assets available-for-sale|                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Derivative financial     |                  11|  |
-|
|instruments              |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Contract advances        |                 179|  |
179|
+-------------------------+--------------------+--+---------------
----+
|Deferred tax assets      |                 307|  |
301|
+-------------------------+--------------------+--+---------------
----+
|Other non-current assets |                 133|  |
136|
+-------------------------+--------------------+--+---------------
----+
|Total non-current assets |               4,190|  |
4,142|
+-------------------------+--------------------+--+---------------
----+
|Current assets:          |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Inventories              |                 503|  |
568|
+-------------------------+--------------------+--+---------------
----+
|Trade accounts and notes |               1,232|  |
1,180|
|receivable               |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Current accounts with    |                 143|  |
143|
|associates and joint-    |                    |  |
|
|ventures                 |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Derivative financial     |                 115|  |
-|
|instruments              |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Other current assets     |                 483|  |
616|
+-------------------------+--------------------+--+---------------
----+
|Marketable securities    |                  58|  |
58|
+-------------------------+--------------------+--+---------------
----+
|Cash and cash equivalents|               1,845|  |
1,848|
+-------------------------+--------------------+--+---------------
----+
|Assets classified as held|                  80|  |
-|
|for sale                 |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Total current assets     |               4,459|  |
4,413|
+-------------------------+--------------------+--+---------------
----+
|Total assets             |               8,649|  |
8,555|
+-------------------------+--------------------+--+---------------
----+
(*) Including the impacts of the first-time application related to IAS32 and 39 on financial instruments and IFRS 5 on non-current assets held for sale and discontinued operations.

Unaudited CONSOLIDATED BALANCE SHEETS

+-------------------------+--+-------------------+--+-------------
------+--+
|(€ in millions)          |  |  December 31, 2006|  |  December
31, 2005|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|SHAREHOLDERS’ EQUITY AND |  |                   |  |
|  |
|LIABILITIES              |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Shareholders’ equity:    |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Common stock (273,871,296|  |              1,027|  |
1,025|  |
|shares at December 31,   |  |                   |  |
|  |
|2006 with nominal value  |  |                   |  |
|  |
|of €3.75 per share)      |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Treasury shares          |  |              (225)|  |
(239)|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Additional paid in       |  |              1,764|  |
1,771|  |
|capital                  |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Subordinated perpetual   |  |                500|  |
500|  |
|notes                    |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Other reserves           |  |                 64|  |
43|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Retained earnings        |  |              (964)|  |
(980)|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Cumulative translation   |  |               (54)|  |
89|  |
|adjustment               |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Shareholders’ equity     |  |              2,112|  |
2,209|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Minority interests       |  |                  7|  |
7|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Total equity             |  |              2,119|  |
2,216|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Non-current liabilities: |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Borrowings               |  |              1,393|  |
858 |  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Retirement benefit       |  |                505|  |
877 |  |
|obligations              |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Restructuring provisions |  |                 48|  |
9 |  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Derivative financial     |  |                 51|  |
57 |  |
|instruments              |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Other provisions         |  |                107|  |
185 |  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Deferred tax liabilities |  |                143|  |
162 |  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Other non-current        |  |                 71|  |
103 |  |
|liabilities              |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Total non-current        |  |              2,318|  |
2,251|  |
|liabilities              |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Current liabilities :    |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+|Borrowings               |  |              1,276|  |
1,464|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Derivative financial     |  |                 10|  |
10 |  |
|instruments              |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Retirement benefit       |  |                 67|  |
62 |  |
|obligations              |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Restructuring provisions |  |                 72|  |
45|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Other provisions         |  |                 86|  |
77 |  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Trade accounts and notes |  |              1,032|  |
1,164 |  |
|payable                  |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Accrued employee expenses|  |                165|  |
166 |  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Income tax payable       |  |                 57|  |
47 |  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Other current liabilities|  |                671|  |
750|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Payables on acquisition  |  |                 13|  |
138|  |
|of companies             |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Liabilities directly     |  |                232|  |
470|  |
|associated with assets   |  |                   |  |
|  |
|classified as held for   |  |                   |  |
|  |
|sale                     |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Total current liabilities|  |              3,681|  |
4,393|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Total liabilities        |  |              5,999|  |
6,644|  |
+-------------------------+--+-------------------+--+-------------
------+--+
|Total shareholder’s      |  |              8,118|  |
8,860|  |
|equity and liabilities   |  |                   |  |
|  |
+-------------------------+--+-------------------+--+-------------
------+--+

+-------------------------+--------------------+--+---------------
----+
|(€ in millions)          | January 1, 2005 (*)|  |  December 31,
2004|
+-------------------------+--------------------+--+---------------
----+
|SHAREHOLDERS’ EQUITY AND |                    |  |
|
|LIABILITIES              |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Shareholders’ equity:    |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Common stock (273,871,296|               1,025|  |
1,025|
|shares at December 31,   |                    |  |
|
|2006 with nominal value  |                    |  |
|
|of €3.75 per share)      |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Treasury shares          |                (55)|  |
(55)|
+-------------------------+--------------------+--+---------------
----+
|Additional paid in       |               1,751|  |
1,751|
|capital                  |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Subordinated perpetual   |                   -|  |
-|
|notes                    |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Other reserves           |                  89|  |
(23)|
+-------------------------+--------------------+--+---------------
----+
|Retained earnings        |               (323)|  |
(125)|
+-------------------------+--------------------+--+---------------
----+
|Cumulative translation   |                (98)|  |
(98)|
|adjustment               |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Shareholders’ equity     |               2,389|  |
2,475|
+-------------------------+--------------------+--+---------------
----+
|Minority interests       |                   9|  |
18|
+-------------------------+--------------------+--+---------------
----+
|Total equity             |               2,398|  |
2,493|
+-------------------------+--------------------+--+---------------
----+
|Non-current liabilities: |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Borrowings               |               1,540|  |
1,597|
+-------------------------+--------------------+--+---------------
----+
|Retirement benefit       |                 760|  |
785|
|obligations              |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Restructuring provisions |                   -|  |
-|
+-------------------------+--------------------+--+---------------
----+
|Derivative financial     |                 122|  |
-|
|instruments              |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Other provisions         |                  55|  |
55|
+-------------------------+--------------------+--+---------------
----+
|Deferred tax liabilities |                  43|  |
37|
+-------------------------+--------------------+--+---------------
----+
|Other non-current        |                 129|  |
129|
|liabilities              |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Total non-current        |               2,649|  |
2,603|
|liabilities              |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Current liabilities :    |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Borrowings               |               1,011|  |
904|
+-------------------------+--------------------+--+---------------
----+
|Derivative financial     |                  34|  |
-|
|instruments              |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Retirement benefit       |                  65|  |
65|
|obligations              |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Restructuring provisions |                  76|  |
76|
+-------------------------+--------------------+--+---------------
----+
|Other provisions         |                  81|  |
81|
+-------------------------+--------------------+--+---------------
----+
|Trade accounts and notes |               1,199|  |
1,226|
|payable                  |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Accrued employee expenses|                 158|  |
163|
+-------------------------+--------------------+--+---------------
----+
|Income tax payable       |                  60|  |
60|
+-------------------------+--------------------+--+---------------
----+
|Other current liabilities|                 746|  |
800|
+-------------------------+--------------------+--+---------------
----+
|Payables on acquisition  |                  84|  |
84|
|of companies             |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Liabilities directly     |                  88|  |
-|
|associated with assets   |                    |  |
|
|classified as held for   |                    |  |
|
|sale                     |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
|Total current liabilities|               3,602|  |
3,459|
+-------------------------+--------------------+--+---------------
----+
|Total liabilities        |               6,251|  |
6,062|
+-------------------------+--------------------+--+---------------
----+
|Total shareholder’s      |               8,649|  |
8,555|
|equity and liabilities   |                    |  |
|
+-------------------------+--------------------+--+---------------
----+
(*) Including the impacts of the first-time application related to IAS32 and 39 on financial instruments and IFRS 5 on non-current assets held for sale and discontinued operations.

Unaudited CONSOLIDATED STATEMENTS OF CASH FLOWS

+-------------------------+--------------------+--+-------+--+----
---+
|                         |Year ended December |  |       |  |
|
|                         |31                  |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|(€ in millions)          |                2006|  |   2005|  |
2004|
+-------------------------+--------------------+--+-------+--+----
---+
|Net Income (loss)        |                  55|  |  (573)|  |
(561)|
+-------------------------+--------------------+--+-------+--+----
---+
|Loss from discontinued   |               (138)|  |  (771)|  |
(883)|
|operations               |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Profit from continuing   |                 193|  |    198|  |
322|
|operations               |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Summary adjustments to   |                    |  |       |  |
|
|reconcile profit from    |                    |  |       |  |
|
|continuing operations to |                    |  |       |  |
|
|cash generated from      |                    |  |       |  |
|
|operations               |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Depreciation and         |                 454|  |    443|  |
398|
|amortization             |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Impairment of assets     |                   6|  |     18|  |
49|
+-------------------------+--------------------+--+-------+--+----
---+
|Net changes in provisions|               (113)|  |   (16)|  |
(39)|
+-------------------------+--------------------+--+-------+--+----
---+
|Profit / (loss) on asset |                (11)|  |      1|  |
(50)|
|sales                    |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Interest Income and      |                  89|  |     78|  |
2|
|expense                  |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Other (including tax)    |                  95|  |     70|  |
95|
+-------------------------+--------------------+--+-------+--+----
---+
|Changes in working       |                 (1)|  |   (33)|  |
(82)|
|capital and other assets |                    |  |       |  |
|
|and liabilities          |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Cash generated from      |                 712|  |    759|  |
695|
|continuing operations    |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Interest paid            |                (92)|  |   (64)|  |
(35)|
+-------------------------+--------------------+--+-------+--+----
---+
|Accrued interest premium |                (59)|  |      -|  |
-|
|paid on convertible bond |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Interest received        |                  14|  |     14|  |
10|
+-------------------------+--------------------+--+-------+--+----
---+
|Income tax paid          |                (42)|  |   (67)|  |
(119)|
+-------------------------+--------------------+--+-------+--+----
---+
|Net operating cash       |                 533|  |    642|  |
551|
|generated from continuing|                    |  |       |  |
|
|activities               |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Net operating cash used  |               (118)|  |  (342)|  |
(121)|
|in discontinued          |                    |  |       |  |
|
|operations               |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Net cash from operating  |                 415|  |    300|  |
430|
|activities (I)           |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Acquisition of           |               (255)|  |  (455)|  |
(579)|
|subsidiaries, associates |                    |  |       |  |
|
|and investments, net of  |                    |  |       |  |
|
|cash acquired            |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Acquisition of Videocon  |                   -|  |  (240)|  |
-|
|Industries shares        |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Net proceeds from sale of|                 125|  |      2|  |
42|
|investments              |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Proceeds from sale       |                   8|  |     52|  |
(58)|
|(purchase) of marketable |                    |  |       |  |
|
|securities               |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Purchase of property,    |               (166)|  |  (192)|  |
(219)|
|plant and equipment (PPE)|                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Proceeds from sale of PPE|                  73|  |     10|  |
13|
+-------------------------+--------------------+--+-------+--+----
---+
|Purchase of intangible   |               (121)|  |  (102)|  |
(67)|
|assets including         |                    |  |       |  |
|
|capitalization of R&D    |                    |  |       |  |
|
|costs                    |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Loans (granted to) /     |                  17|  |     47|  |
17|
|reimbursed by third      |                    |  |       |  |
|
|parties                  |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Net investing cash       |               (319)|  |  (878)|  |
(851)|
|generated from (used in) |                    |  |       |  |
|
|continuing activities    |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Net investing cash       |               (147)|  |   (18)|  |
(138)|
|generated from (used in) |                    |  |       |  |
|
|discontinued operations  |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Net cash used in         |               (466)|  |  (896)|  |
(989)|
|investing activities (II)|                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|(3) Include repayments of|                    |  |       |  |
|
|finance lease            |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Proceeds from issuance of|                   -|  |    492|  |
-|
|deeply subordinated notes|                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Proceeds from issuance of|                   -|  |      -|  |
403|
|convertible bonds        |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Purchase of treasury     |                   9|  |  (283)|  |
(58)|
|shares and others        |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Repayment of convertible |               (611)|  |  (588)|  |
-|
|bonds                    |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Proceeds from borrowings |               1,121|  |    592|  |
272|
+-------------------------+--------------------+--+-------+--+----
---+
|Repayment of borrowings  |                (27)|  |  (423)|  |
(540)|
+-------------------------+--------------------+--+-------+--+----
---+
|Dividends and            |               (107)|  |   (77)|  |
(71)|
|distributions paid to    |                    |  |       |  |
|
|Group’s shareholders     |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Dividends and            |                 (2)|  |    (2)|  |
(3)|
|distributions paid to    |                    |  |       |  |
|
|minority interests       |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Net financing cash       |                 383|  |  (289)|  |
3|
|generated from continuing|                    |  |       |  |
|
|activities               |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Net financing cash used  |                (10)|  |     16|  |
2|
|in discontinued          |                    |  |       |  |
|
|operations               |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Net cash (used) /        |                 373|  |  (273)|  |
5|
|provided by financing    |                    |  |       |  |
|
|activities (III)         |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Net (decrease) / increase|                 322|  |  (869)|  |
(554)|
|in cash and cash         |                    |  |       |  |
|
|equivalents (I+II+III)   |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Cash and cash equivalents|                 996|  |  1,848|  |
2,383|
|at beginning of period   |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Exchange gains / (losses)|                 (7)|  |     17|  |
19|
|on cash and cash         |                    |  |       |  |
|
|equivalents              |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
|Cash and cash equivalents|               1,311|  |    996|  |
1,848|
|at end of period         |                    |  |       |  |
|
+-------------------------+--------------------+--+-------+--+----
---+
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