Thomson: First half 2007 Results

Strong H1 revenue growth and reduced net loss
“¢ Q2 Core Business revenue growth was 7.8%, at constant currency, making a 6.2% increase for the first half
“¢ Group net loss reduced significantly to €(20) million
“¢ Strong performance and underlying markets across divisions, except for Broadcast & Networks businesses

Paris — The Board of Directors of Thomson (Euronext Paris: 18453, NYSE:TMS), chaired by Frank E. Dangeard, met on 25 July 2007 to review and approve the Group’s first half 2007 results published today.

SYSTEMS

The performance of Access Products was strong. However, the Broadcast & Networks businesses moved into loss for the half, impacted by weak markets and some delays in product introductions. Action plans have been launched to drive improvements in performance.

Revenues

Consolidated net sales for the Systems Division increased by €82 million to €1,263 million in 1H07 (1H06, €1,181 million). Currency movements decreased net sales by €35 million. Accordingly, at constant currency, the Systems division increased its sales by 9.9% in 1H07.

The increase in sales of our Systems Division came from strong growth within Access Products across all platforms. Volume growth and mix improvement more than offset price declines. The Broadcast & Networks businesses however declined year-on-year overall.

Access Products

Activity was strong across satellite, cable and telecom platforms. Unit volumes were healthy, particularly for cable and telecom operators. Thomson shipped a total of 11.0 million access products in 1H07, a strong increase on the 1H06 total of 9.6 million units – of which 4.7 million satellite set-top boxes (1H06, 4.6 million), 1.2 million cable set-top boxes (1H06, 0.7 million), and 5.3 million access products for telecom operators (1H06 4.3 million). There was an improvement in mix which more than outweighed anticipated price declines. Revenues for all network types grew in 1H07.

In satellite, whilst standard devices remained the main volume driver, volumes of recording and high definition devices increased strongly. The business also expanded its footprint in the Asia-Pacific region.

Growth in cable was driven mainly by existing customers, notably Kabel Deutschland and UPC in Europe, and customers in Asia such as Dalian Tiantu Cable TV in China. Our increased focus on the US cable market has led to the recently announced contract to supply Comcast in the future with dual play VOIP and data modems (eMTA’s).

The growth in business with telecom operators continued to be driven by triple and quadruple-play enabled Advanced Service Gateways, supplied to a number of major customers. As planned, we also began to ship IP-based set-top boxes to France Telecom in 2Q07. IP set-top box volumes will grow in the second half, although will remain limited compared to Advanced Service Gateways and other featured access devices. We have also introduced a number of new DECT and VOIP products over the last 12 months (such as the Hub Phone for BT) and will also focus on products associated with the home networking eco-system (such as the Music Box being supplied to customers of AOL France).

Broadcast & Networks

The market for Broadcast products and systems continued to be weak in the second quarter, after a poor first quarter and year-end 2006. Revenues were also held back by slower product introductions. Weakness in cameras and post-production systems were partially offset by strength in routers and switchers, as well as other key segments such as HD live production and news. Our editing products and tools had a good half: amongst contract wins, we will install our EDIUS editing software at NBC in the US.

Although the launch of new products at/after the NAB show in April were favourably received, notably for High-Definition cameras, this was not sufficient to offset slow sales in older products during the half.

Product delays also held back sales for network products. Turnkey contracts and systems integration work was at a lower level than last year.

However, order backlog was stronger at the half-end than at both year-end and the first quarter-end. Amongst recent contract wins for network products is a multi-million dollar contract with Arqiva in the UK to upgrade its transmitter network.

The network software operations, which include principally the Cirpack softswitch business and the SmartVision IPTV service platform, also had a slow half. Softswitch sales grew year-on-year. Thomson’s installed base grew by around 2 million subscriber licenses to reach more than 6 million. Despite continuing delays in IPTV rollouts for most operators, our software solutions continued to gain subscribers in IPTV, notably for SmartVision through the Orange IPTV solution, which has over 700,000 subscribers, mainly for “live TV” and “VOD” applications. We continue to work on a significant number of mobile TV trials. We increased our R&D investment in mobile TV significantly in the half.