NETGEM ANNUAL FINANCIAL REPORT 2006

Transcription

1 NETGEM ANNUAL FINANCIAL REPORT 2006 Netgem S.A. Limited company with capital of 5,975, euros Registered office: 27 Rue d Orléans, Neuilly sur Seine (France) Tel: Fax: Website: 1

2 CONTENTS CHAPTER 1. STATEMENT ON THE ANNUAL FINANCIAL REPORT BY THE CHAIRMAN AND MANAGING DIRECTOR... 3 CHAPTER 2. ANNUAL REPORT THE GROUP S ACTIVITY AND NOTEWORTHY EVENTS IN COMMENTS ON THE GROUP S 2006 RESULTS COMMENTS ON THE RESULTS OF NETGEM SA THE GROUP S OBJECTIVES, RECENT DEVELOPMENTS AND PROSPECTS FOR SUBSIDIARIES AND OWNERSHIP INTERESTS ALLOCATION OF THE RESULT TRANSACTIONS IN NETGEM S OWN SHARES INFORMATION ON THE COMPANY S OFFICERS INFORMATION ON SECURITIES TRANSACTIONS BY THE DIRECTORS AND THE PEOPLE MENTIONED IN ARTICLE L OF THE MONETARY AND FINANCIAL CODE EMPLOYEES PARTICIPATION IN THE CAPITAL INFORMATION PRESCRIBED BY LAW Nº OF MARCH 31, 2006 ON TAKEOVER BIDS FINANCIAL RISK FACTORS SUSTAINABLE DEVELOPMENT OTHER INFORMATION TABLE OF THE RESULTS OF NETGEM SA FOR THE LAST 5 FINANCIAL YEARS (INDIVIDUAL ACCOUNTS) CHAPTER 3. CONSOLIDATED ACCOUNTS CONSOLIDATED INCOME STATEMENT CONSOLIDATED BALANCE SHEET TABLE SHOWING THE VARIATION IN THE CONSOLIDATED SHAREHOLDERS EQUITY TABLE OF CONSOLIDATED CASH FLOWS APPENDICES TO THE CONSOLIDATED ACCOUNTS STATUTORY AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS...52 CHAPTER 4. FINANCIAL STATEMENTS NETGEM SA INCOME STATEMENT NETGEM SA BALANCE SHEET VARIATION TABLE OF NETGEM SA NET SITUATION APPENDICES TO THE ANNUAL ACCOUNTS STATUTORY AUDITORS REPORT ON THE ANNUAL FINANCIAL STATEMENTS SPECIAL STATUTORY AUDITORS REPORT ON THE REGULATED AGREEMENTS AND UNDERTAKINGS CHAPTER 5. TABLE ON THE FEES OF THE COMPANY S AUDITORS.80 2

3 CHAPTER 1. STATEMENT ON THE ANNUAL FINANCIAL REPORT BY THE CHAIRMAN AND MANAGING DIRECTOR I certify that to my knowledge the accounts have been produced in accordance with the applicable accounting standards and give a true picture of the financial situation and result of the company and all the entities included in the consolidation and that the annual report presents a true picture of the development of the business, results and financial situation of the company and all the entities included in the consolidation, as well as a description of the risks and uncertainties confronting them. Joseph Haddad Chairman and CEO Netgem SA 3

4 CHAPTER 2. ANNUAL REPORT 2.1 THE GROUP S ACTIVITY AND NOTEWORTHY EVENTS IN ACTIVITY IN 2006 GENERAL CONTEXT In 2006, the French market will have experienced an increase in the number of IP television subscribers (mainly ADSL and fibre to a lesser extent) and in the supply of highdefinition decoders by telecommunications operators to their clients. In this very favourable context, the Netgem group, which markets highdefinition decoders, achieved an excellent performance, recording a significant growth in its turnover to 52,650,000 (+ 205%), with more than 300,000 IPTV solutions deployed with the main alternative telecommunications operators in France. In this particularly promising market, the group will have demonstrated: its technological expertise and capacity for innovation by adding a highdefinition version of its hybrid terminal (TNT/ADSL) to the its product range which will be available as from the second half of 2006, its capacity to manage the increase in its customer base both from the industrial point of view (more than 400,000 solutions in the last 24 months, of which more than 300,000 solutions were provided in 2006) and in terms of customer satisfaction, its efforts to expand its client portfolio by adapting its offer of terminals and services to Internet access suppliers (agreement with AOL in June 2006, support for Télé2 in the launch of its tripleplay offer in September 2006), broadband operators (contract with Erenis, the fibreoptic network operator, in June 2006) and to distributors (Netbox HDTV: first highdefinition offer distributed to Darty and Fnac) will have enabled the group to improve its profitability, recording a current operating profit of 7,003,000 as compared with a loss of 697,000 over the same period in The group s net income share also showed a very marked increase to 7,934,000 from 2,105,000 in Noteworthy events during the financial year The following events, listed in chronological order rather than in order of importance, were noteworthy in 2006 and were publicly announced owing to their financial, organisational, marketing or commercial effect. Because of their nature, they may not have been included in the appendices to the consolidated sixmonthly accounts. Recruitment of Marc Tessier (January 2006) The group announced the recruitment of Marc Tessier, former chairman of the France Télévision group (June 1999 to July 2005), as managing director of its Media Services centre where he will have particular responsibility for developing new service offers in synergy with the group s Terminals centre. Launch of the HighDefinition Netbox (February 2006) During the IPTV Word Forum exhibition in London, the group presented its new multimedia TNTADSL terminal which is compatible with highdefinition MPEG 4. This terminal will enable free and subscriber TNT services to be received in standard and high definition. Moreover, when connected to the Internet, it will grant access to the packages of services offered by television operators via ADSL (IPTV) and new interactive services such as ondemand video and television. This terminal will be added to the group s netbox range of multimedia terminals and came on to the market in the second quarter of It should be distributed in France and for export under the brand names of telecommunications and/or electronics operators for the general public. Announcement of a new ondemand television service for the British market (April 2006) At the Cannes MIPTV exhibition, the group announced that it had been approached by the companies Red Bee Media and Microsoft to launch an ondemand television service for the British market. By combining Digital Hive, Red Bee Media s technological platform, Netgem s compatible highdefinition terminals and Microsoft s Windows Media technologies, this new service will enable consumers to obtain digital television and a range of ondemand 4

5 downloadable content. The content will be encoded in Windows Media format (VC1) and protected by Windows Media Digital s DRM10. The group reported that this service should be launched in Great Britain in the autumn of Availability of Netbox HDTV from FNAC (June 2006) In June 2006, Netgem announced the availability from FNAC and on its website of the first digital terminal enabling highdefinition TNT services to be received (MPEG4 standard) without subscription. When DTT was launched, MPEG4 was agreed as the standard for new DTT services. At the moment, the DTT terminals sold by retail outlets (or integrated into televisions) use the previous MPEG2 standard to receive the basic freetoair offering, and cannot decode the MPEG4 highdefinition services. Television viewers in Paris, Lyons and Marseilles were the first to be offered the advantages of the highdefinition MPEG4 standard, as, by June 2006, they were able to watch Roland Garros via TNT in high definition without subscription, followed by the football World Cup and other events. All they needed was an HD Ready flatscreen television set. Apart from providing connectivity to an HDReady flatscreen (an HDMI connection), the Netbox HDTV is an advanced digital terminal, with a smartcard reader, an Ethernet port for highspeed Internet access, and a USB connector. The software can be updated remotely so that any customer with a Netbox HDTV can access the free 2 upgrades needed to activate new services. During the period of the launch, people who buy the Netbox HDTV will be able to download the media centre function free of charge. They can then use special features to gain access to their own multimedia content (such as photos, music or videos) stored on a PC, and present it on a TV. Formalisation of an agreement for the supply of HDTV terminals with ERENIS, France s leading fibreoptics operator (June 2006) All the new subscribers to the ErenisTV offer will be equipped with a Netgem remotecontroller. In June 2006, the group announced that it had signed an agreement for the supply of highdefinition TNT multimedia terminals with Erenis, France s leading fibreoptics operator on the residential market. Erenis s fibreoptics network will facilitate the imminent launch of highdefinition (TVHD) television services via the Internet. Requiring 10 to 15 Mbps of useable flow in MPEG4, the HD programmes will appear progressively during the year. Launched in July 2006, Erenis s video service uses one of the market s leading highdefinition decoders, the new Netgem netbox. Once connected to the Internet, this remote controller, which is compatible with the highdefinition MPEG4 format, makes it possible to receive the packages of services offered by the Internet television operators (IPTV) and allows access to new interactive services such as ondemand video or the sharing of digital content stored on a PC. It can also be equipped with a hard disk so as to use the pause services of direct and digital recording. The terminal is also able to receive both free and paid DTT services in either standard quality or highdefinition. Access to all these facilities is facilitated by a video portal containing an interactive guide to programmes and other interactive services. A simple, ergonomically designed remote control device gives direct access to the most useful functions (for example, time shifting, which enables the recording of a broadcast to be launched immediately). Formalisation of an agreement for the supply of Netbox HDTV hard disk terminals with AOL (June 2006) In the context of AOL s launch of its digital television offer via ADSL, in June 2006 Netgem announced that it would be supplying the latest generation of personalised harddisk highdefinition netboxes for AOL. These new hybrid ADSL/DTT terminals include a hard drive, and can receive services in standard and high definition, giving access to a wide range of innovative services. They expand the Group s range of multimedia terminals. The parties have signed a threeyear nonexclusive contract, covering the sale of terminals and the licence to use the software loaded on them. Netgem will also supply specific enhancements, including the integration of some of AOL s feature services (such as AOL Photos and AOL Radio). In August 2006, Neuf Cegetel made the takeover of all AOL s Internet access supply activities in France official, that is, a client portfolio estimated by the AFP at a million subscribers (500,000 in broadband and 500,000 in dialup). 5

6 Médiamétrie partnership (July 2006) In July 2006, Médiamétrie and the Netgem group announced that they were combining to develop a new usermeasurement activity. This business, which is an innovation in the digital television market, will collect information from homes that have digital settop boxes, specifically Netgem terminals. The information gathered via the reverse channel of the decoders will include measurement of target television audiences carried out by Médiamétrie. To that end, a joint subsidiary was created, 50% of which is owned by Médiamétrie and 50% by Netgem Media Services, a 100% subsidiary of Netgem. It will be run by Patrick Ballarin who is currently Project Leader reporting to the Chief Executive Officer of Médiamétrie. In that respect, the new company will market the business activities of Médiamétrie and Netgem in two domains: TVPerformances, the range of Médiamétrie services geared towards producers and sports rights holders who wish to evaluate the performance of their TV programmes. The range of Viewtime software that deals with Médiamétrie s Mediamat audiences and allows for better understanding of audience and performance flows over the course of a programme being aired. After the takeover of AOL France by Neuf Cegetel, Télé2 France was absorbed by SFR. More precisely, the French group acquired the fixed telephone and ADSL activities of Télé2 France. The virtual mobile telephone operator activity was taken over by the Télé2 AB group. Extension of the contract with NEUF CEGETEL (December 2006) Netgem announced that an agreement had been reached with Neuf Cegetel which planned to extend the framework contract for two further years, starting on September 7, It is specified that according to the framework contract Netgem undertook to deliver all the connection equipment to Neuf Cegetel (decoder, software programs and other accessories) for the Neuf TV offer. 2.2 COMMENTS ON THE GROUP S 2006 RESULTS The group s consolidated accounts are now established in accordance with the IASIFRS set of references as adopted in the European Union Consolidated income statement IAS/ IFRS figures (Euros in thousands) Change (%) Turnover % Current operating profit (loss) (697) na Operating profit (loss) % Net income (loss) Group share Minority interests Figures per share (Euros): Group share of net income per share in EUR Net income, group share diluted per share ,25 0, % na not applicable Analysis of the group s operational performance IAS/ IFRS figures (in thousands of euros) Change (%) Turnover % Gross margin % Gross margin as % of turnover 28.7% 30.8% Other business linked income 397 na Operational disbursements (8529) (6011) +42% Current operating profit ("ROC") (697) na ROC as a % of gross margin 46.3% NA Net PV on perimeter variation % Operating profit ("RO") RO as a % of the gross margin % % +255% na: not applicable 6

7 In 2006, the group recorded a marked improvement in its operational profitability with a current operating profit of 7,003,000, compared with a loss of 697,000 over the same period in This performance, in the context of strong growth in the turnover ( 52,650, %), was the result of an appreciable improvement in the gross margin of 15,135,000, a controlled increase in fixed costs which came to 8,529,000 over the period (+42%) and also includes other income in the sum of 397,000. sustained growth of group sales represented by sales of TNT/IP terminals in France (+ 277%) This return to operational profitability is linked to the commercial performance of the group s terminals business which recorded a growth of nearly 277% in its sales over the period to 49,378,000 and thus contributed nearly 94% of consolidated sales. This activity benefited from the success of the triple play offers (TV, Internet, fixed telephone) of the group s clients in France (90% of consolidated sales) and particularly its client Neuf Cegetel which was the main reason for the group s increased activity. The significant growth in sales of terminals reflects an increase in the volumes of terminals delivered by the group and an improvement in the average sale price of terminals. Over the financial year, the group will thus have distributed over 300,000 terminals, compared with 119,000 over the same period in 2005, under the effect of the acceleration of requests from its operator clients in a context of strong competition in innovation and the acquisition of new subscribers between the three main French telecommunications operators (France Telecom, Free, Neuf Cegetel). At the same time, the average sale price of terminals improved appreciably following the introduction of the TNTADSL highdefinition terminal with the MPEG4 compression standard (netbox 7600) whose technological value is greater. In the light of this terminal business which uses all the group s energy, the investments made with a view to developing media services activities have been limited. Nevertheless, the group has succeeded in establishing its constitution in France by creating a joint (50/50) subsidiary, with Médiamétrie, whose objective is the commercial management of the commercial services of Médiamétrie s TVPerformances and Netgem s Viewtime and by using the return of terminals to develop a new system or recording use. During the 2006 financial year, these activities contributed less than 10% of sales, compared with 24% in consolidation of the gross margin derived from the activity The group s gross margin increased markedly in absolute value and stood at 135,000 (+ 185%), but declined in relative value, being established at 28.7% of the turnover, compared with 30.8% in 2005, thus reflecting the effects of increased sales of terminals on the group s turnover. Over the financial year, the group continued its efforts at controlling the development of its gross margin with actions aimed at reducing the cost price of the TNT/ADSL terminals which the group has entrusted to the company Asteel Normandie since October This situation also reflects the effects linked to the marketing of highdefinition terminals in the second quarter of 2006, enabling the average sale price per terminal to be increased. controlled rise in operating expenditure (+ 42%) In order to support its clients and the market, the group increased the level of operating expenditure assigned to its terminals business, in particular by committing the technical and marketing resources necessary for launching its highdefinition terminal. The mixture of operating expenses is developing in that way, and is established as follows: 7

8 Marketing and commercial expenses 56% 46% Research and development expenses (*) 21% 21% General expenses 23% 33% (*) Net expenses after activating part of the development expenses The group s operating expenditure includes principally personnel expenses which came to 4,340,000 in 2006, thus representing nearly 51% of the group s operating expenditure over the period Analysis of the net income IAS/ IFRS figures (Euros in thousands) Change (%) Operating profit (loss) % Financial profit (loss) % Income tax expense (benefit) 592 (108) na Net income (loss) Group share Minority interests Considering an operating profit of 7,003,000 and a financial profit of 339,000, essentially linked to exchange effects and cash placement income, and an income net of tax of 592,000 resulting from the recording of a deferred tax income of 645,000, the group showed a net income of 7,934,000 over the period. This performance should be compared with a net income of 2,105,000 in 2005, mainly consisting of a noncurrent income on perimeter variation recorded at 2,672,000 in Result per share Over the 2006 financial year, the group s net income per share was 0.25, compared with 0.06 in The development of the net income per share from one period to the next is essentially linked to the development of the group s net income, in a context of slow growth in the average weighted number of shares in circulation on December 31, 2006 (31,147,865 shares at December 31, 2006 compared with 30,833,991 at December 31, 2005) The graph below shows how the price of the Netgem SA share has moved over the last 12 months: % Balance sheet and financial structure At December 31, 2006, the consolidated balance sheet totalled 35,565,000, compared with 15,194,000 at December 31, Liquid funds and capital resources At December 31, 2006, the group had cash funds of 10,758,000, 4,504,000 of which were invested in cash SICAVs [cf unit trusts]. Considering its net available cash funds at December 31, 2005 of 6,209,000, over the period the group has thus improved its cash situation by 4,549,000, supporting its selffinancing capacity. 942,000 of that improvement is accounted for by the exercise of subscription warrants for units in creators of companies ( BSPCEs ). During the 2006 financial year, the net cash variation can be analysed as follows: 8

9 IAS/ IFRS figures (thousands of euros) Net cash from (for) operating activities thus cashflow before debt and tax expenses (336) of which variation in working capital (,487) requirement («BFR») and tax paid Net cash for investment activities (1 056) (1 373) Net cash from financing activities Effects of translation 1 2 Net change in cash In 2006, the group s operational activities generated a financing surplus of 4,620,000 compared with a surplus of 1,529,000 in 2005, under the effect of the group s improved operational profitability and the control of its working capital requirement ( BFR ). Over the period, the group achieved a selffinancing capacity of 8,107,000, which was sufficient to cover its financing requirements linked to the variation in the BFR ( 3,487,000) and its investment operations ( 1,056,000). In the context of the strong growth in activity and the concentration of sales in the second half of 2006 over the last three months of the financial year, the negative variation in the BFR noted over the period is reflected particularly in the increase in stocks of components supplied directly by the group and the client/supplier liabilities. Lastly, over the period, the group has maintained a voluntary investment plan, strongly focused on the terminals business and particularly the development and industrialisation of the highdefinition TNTADSL terminal. Financing operations produced a complementary financing resource of 984,000, 242,000 of which came from capital increases linked to the exercise of BSPCEs Consolidated shareholders'equity and liabilities Shareholders'equity and the financial leverage effect The group s financial structure is presented as follows: IAS/ IFRS figures (in thousands of euros) 31/12/ /12/2005 Cash and cash equivalents Debts payable: Positive bank balances Interestbearing loans (linked to withdrawals from leases). Deposits and guarantees received (145) (8) (1) (40) Net resources Shareholder's equity (16 306) (7 144) Total capital used (5 701) (975) Financial leverage effect 65.0% Net resources (indebtedness) / total capital used 86.4% 186.0% 632.7% The group made very limited use of financing via net indebtedness and financed most of its operational activities and investments using its own funds. Shares issued over the financial year During the past financial year, the group issued 521,416 new shares following the exercise of BSPCEs. The exercise value of those warrants was 942,000, 99,000 of which was assigned to increasing the capital and 843,000 to the issue premium. Indebtedness structure (including shareholders current accounts) 9

10 At December 31, 2006, the structure of the group s indebtedness was as follows: IAS/ IFRS figures (Euros in thousands) 31/12/ /12/2005 Current: Lease contract commitments Positive bank balances Current shareholder accounts Reimbursable advances from the Finance and Economics Ministry Deposits and securities received Non current: Lease contract commitments Shareholders current accounts (TrustCapital Partners) Reimbursable advances from the Finance and Economics Ministry Total At December 31, 2006, the group s debt consisted essentially of property leases terminating during 2007 and 2009 and shareholders current accounts. During the last financial year, the only significant developments concerned the agreement in August 2006 of a threeyear leasing contract for 178,000 to finance the network infrastructures constituting the media services platforms installed in France and England. At December 31, 2006, the shareholders current accounts came to 494,000 ( 377,000 at December 31, 2005), 486,000 of which corresponded to contributions made by the group s financial partner in Mediaxim SA which has been financing that entity s principal development projects since March In view of its liquid funds and the nature of its debt, the group does not believe it is subject to a liquidities risk that could jeopardise its continued operation Investment policy The following table summarises the amount of tangible and intangible investments the group has made over the last two financial years and the way they were financed, first pointing out that the development expenses fulfilling the criteria of IAS standard 38 Development expenses are recorded in the assets of the consolidated balance sheet: Figures in thousands of euros 31/12/ /12/2005 Selffinanced investments: Intangible investments Tangible investments Total Investments financed by leasing: Tangible investments Intangible investments Total Total investments of which selffinanced part of which part financed by leasing % 14% % Over the past financial year, intangible investments accounted for 728,000, or nearly 59% of the group s investment effort over the period ( 1,234,000) compared with 55% in Those investments corresponded chiefly to the development costs incurred for the design of a new highdefinition terminal ( 511,000) which went into production in the first half of They also include the licences and the development costs incurred in implementing a new system for measuring advertising pressure in Belgium ( 122,000), a beta version of which has been used commercially since January 1, The latter were financed by the group s joint shareholder. The balance of the acquisitions during the period ( 95,000) corresponds to technological licences for the terminals business. The tangible investments made during the financial year concerned production equipment and tools and technical installations. They correspond particularly to the equipment and tools put in place to manufacture and test highdefinition terminals ( 218,000) and the network infrastructures constituting the media services platforms installed in France and England ( 178,000). 10

11 All the latter investments were financed by the threeyear lease set up in August The remaining acquisitions ( 110,000) concern mainly the office and computer equipment necessary for the development of the terminals business in France and the media services in Belgium. While preferring to finance its investments itself, the group does not rule out setting up other financing solutions (leasing, etc.) to support the development of its present activities and increase its presence in certain markets (products, services or territories) Research and development activities The group s development efforts in 2006 accounted for nearly 31% of its operational expenditure, that is to say 1,759,000, to which must be added the development costs capitalised over the financial year in the sum of 634,000, bringing the overall investment in development to 2,393,000, nearly 45% more than in 2005 ( 1,649,000). The principal development projects initiated in 2006 led firstly to the launch of a new highdefinition MPEG4 compatible terminal (netbox 7600) inaugurated at the IPTV World Forum exhibition in London (March 2006) and put into production in the second quarter of 2006, and secondly the marketing in Belgium of a new advertising pressure measurement service (press, radio and TV media) accessible via the Internet. All the development costs incurred in the context of those two projects have been recorded in the balance sheet assets. The other development costs, recorded in the accounts under expenses over the period, were incurred on developing maintenance and the current improvement of the terminals marketed by the group. 2.3 COMMENTS ON THE RESULTS OF NETGEM SA General Midyear accounts of Netgem S.A., the Group s parent company, have been prepared in application of the usual accounting practices admissible in France and the methods and principles regarding corporate accounts (regulation of the Accounting Regulation Committee). The accounting rules and assessment principles applied at December 31, 2006 are identical to those applied to the company accounts closed at December 31, Netgem s principal activity is focused on the development and marketing of digital terminals distributed by television operators, ADSL and the direct or indirect distribution networks. For fuller comments on this activity, please refer to section During the period, the company devoted more than 511,000 to developing the new hardware platforms, software programs and applications constituting much of the framework of the new highdefinition digital terminal that went into production in the second quarter of Moreover, it will have devoted nearly 1,131,000 to maintaining and improving the quality of its terminals Key corporate figures Figures in thousands of euros Turnover 49,786 13,548 Operating loss 7,823 (943) Net income (loss) 8,193 (848) Net cash 10,105 5,098 Total shareholder's equity of which share capital 17,929 5,975 8,794 5,876 Total balance sheet 35,376 14, THE GROUP S STRATEGIES, RECENT DEVELOPMENTS AND PROSPECTS FOR The group s strategies and objectives Netgem now has significant references in the sphere of alternative fixed operators (Neuf Cegetel), virtual operators (Tele2), mobile operators (SFR) and fibre optics (Erenis). Its current priority is the commercial replication of those references in France and internationally. The company expects the first successes in Europe to be achieved in that field in

12 2.4.2 Recent development Implementation of a liquidity contract (January 2007) In January 2007, the company announced the implementation, as from January 15, 2007, of a liquidity contract in compliance with the Charter of Ethics of the AFEI approved by the Financial Markets Authority in a decision of March 22, To implement this contract, agreed until December 31, 2007 and then tacitly renewable for successive periods of 12 months, the company has allocated 100,000 euros in cash and 5,430 of its own shares to the liquidity account. Formalisation of a patents licence agreement with Thomson (February 2007) In February 2007, Netgem announced that it had formalised a patents licence agreement with the Thomson company (Euronext 18453: NYSE: TMS). This nonexclusive licence agreement, with an initial duration of 5 years, includes Thomson s present and future patents in the sphere of digital decoders (Digital SetTop Boxes), especially those covering the DVBT standard. This licence agreement will enable Netgem to guarantee its clients increased protection in the increasingly sensitive sphere of intellectual property in the digital and audiovisual sector. Agreement for the supply of IPTV decoders to SFR (April 2007) In April 2007, Netgem announced that it had reached an agreement with SFR for the supply of the IPTV decoders used by SFR to provide a highdefinition television solution as part of its quadruple play offer combining television, fixed telephone, ADSL access and unlimited mobile telephone use at home. On that occasion, Netgem specified that the fixed mobile continuity offers were a new opportunity which expanded the potential of the triple play market, offering new possibilities of innovatory services to consumers. Consolidated turnover of the first quarter of 2007 (April 2007) The group announced a turnover for the quarter closed on March 31, 2007 of 19.2 million, a 143% increase compared with the first quarter of Regarding the last quarter, the group announced that it had succeeded in setting up the first stages of the commercial development plan announced when it reported its annual results, adapting its offer to the requirements of a frontrank mobile operator in France. Over the period, the group also stated that it had noted an increase in invitations to tender and consultations in France and internationally for solutions using the technologies the group had developed. Figures in M IFRS Standards Q1 Quarter Q1 Var 07/ Total Turnover 19,2 7,9 +11,3 +143% France 18,5 6,2 +12,3 +195% Exports (Benelux, UK, Spain) 1 0,7 1,7 1,0 53% (1) Downward variation reflecting mainly a lag in terminal delivery to Telefonica in Spain (2) Percentage variations calculated from actual figures in thousands of euros Prospects for 2007, a year of diversification France In 2007, the telecommunications operators market should become further consolidated. In this context, by the end of 2008 the group hopes to embark on actions designed to help reduce its dependence on the market of French fixed telecommunications operators. This policy should be assisted by the appearance of new players in that market, both mobile operators and distribution networks. To achieve its aim, the group intends to adapt its offer to the needs of the market and its clients. Over 2007, the group s chief investments should concern two essential spheres: Adapting the architecture of the terminals and developing its industrial model as a response to its clients expressed wish for a reduced acquisition cost. 12

13 Investments in services, so as to expand its client base and achieve the ARPU increase objectives (average receipts per subscriber) which its clients have set themselves. In that respect, the company does not rule out external growth operations. International Great Britain is one of the most mature markets in Europe. In 2007, the group will propose a complete white brand offer there, combining TNT and ondemand video intended for Internet access providers and other services distributors, enabling them to compete rapidly with the similar offer British Telecom has recently successfully launched ( BT Vision ). In the rest of the world, opportunities should develop but may not significantly contribute to the group s results before SUBSIDIARIES AND OWNERSHIP INTERESTS Participations and controlled companies Entities that have joined the perimeter In November 2006, Netgem Media Services, a 100% subsidiary of Netgem SA, and Médiamétrie finalised the constitution of a shared subsidiary called Digitime to develop a new use measurement activity. The activity of that subsidiary, 50% of whose capital and voting rights are held by Netgem Media Services, was consolidated by proportional integration as from October 1, 2006, the date when it started its activity Entities that have left the perimeter In accordance with the participations exchange agreements formalised in March 2005 with the Belgian investment fund Trust Capital Partners ( Trust ), in January 2006 Netgem Media Services transferred an additional 2% of the share capital of the Belgian and Dutch entities to the Koceram company which took over Trust s rights and obligations. On completion of that operation, Netgem Media Services held only 49% of the capital of those two entities. This transaction has no effect on the joint management methods of these two companies, consolidated by proportional integration since July 1, Activity of the subsidiaries During the past financial year, marked by the company s significant development in France, the subsidiaries and subsubsidiaries made a marginal contribution to the group s result, representing in fact less than 10% of sales, compared with 27% in The principal investments made for development continued to focus on media services activities in Belgium and France, particularly by the constitution with Médiamétrie of a shared subsidiary (50/50) for the commercial management of Médiamétrie s TVPerformances services and Netgem Media s Viewtime and the operation of the means of returning terminals for the development of a new system of use observation. The key 2006 figures of the subsidiaries and subsubsidiaries are presented in paragraph below Table of subsidiaries Figures in Capital Noncapital Percentage Book Loans and Amount of Turnov consolidat Dividends thousands of (local shareholder' of capital value of advances bonds and er (excl. ed received euros, unless currencies, s capital (in securities awarded by guarantees tax) in (profit or by the mentioned in local held the granted the last loss of last company otherwise thousands) currency) Gross company year financial during the Net and not yet ended year closed) financial reimbursed year Netgem Iberia 3 (11) 100% 3 94 (11) S.L 1 (1,207) 100% 1 1, (56) Ltd NMS S.A. 2,500 (1,109) 100% 3,228 3, (444) 13

14 2.5.4 Table of subsubsidiaries Figures in thousands of euros, unless mentioned otherwise NMS SA Peaktime UK Ltd (Royaume Uni) Mediaxim S.A. (Belgium) TV Times Netherl. B.V. (Hollande) Digitime SAS (France) Capit al (local currenci es, in thousand s) Noncapital shareholde r's capital (in local currency) Percentage of capital Book value of securities held Gross Net Loans and advances awarded by the company and not yet reimburse d Amount of bonds and guarantees granted Turnover (excl. tax) in the last year ended consolida ted (profit or loss of last financial year closed) Dividends received by the company during the financial year 450 (3,926) 100% (111) 49% ,009 (182) % % (46) 2.6 ALLOCATION OF THE RESULT The Mixed General Meeting of June 15, 2007 approved the allocation of the profit of the financial year ended on December 31, 2006 which came to eight million one hundred and ninetythree thousand and seventyfive euros and fiftyeight centimes ( 8,193,075.58), to the legal reserve and to be carried forward, as follows: Two hundred and two thousand three hundred and fortynine euros and eightythree centimes ( 202,349.83) to the legal reserve which, including the legal reserve already constituted, now comes to five hundred and ninetyseven thousand five hundred and thirtynine euros and fiftyfour centimes ( 597,539.54), or 10% of the company s share capital; The balance of the profit of the financial year, that is seven million nine hundred and ninety thousand seven hundred and twentyfive euros and seventyfive centimes ( 7,990,725.75) to the carried forward account which now comes to seven million nine hundred and ninety thousand seven hundred and twentyfive euros and seventyfive centimes ( 7,990,725.75). Lastly, it is reiterated that the company has not distributed any dividends since its creation in TRANSACTIONS IN NETGEM S OWN SHARES During the financial year ended on December 31, 2006, the company did not acquire any shares as part of the purchase of its own shares authorised by the Mixed General Meeting of June 12, At December 31, 2006, the company held 5,430 of its own shares for a value of 7,000 which it acquired in previous financial years. In January 2007, the company announced that as from January 15, 2007 it would be implementing an AFEI liquidity contract whose management had been entrusted to an investment services provider, allocating 100,000 euros in cash and 430 of its own shares to the liquidity account. The Mixed General Meeting of June 15, 2007 also authorised the board of directors to buy the company s shares as part of a share purchase programme whose principal characteristics are set out below: Concerned securities: shares Maximum capital repurchase percentage: 10% Maximum unit purchase price: 10 euros Maximum amount allocated for the programme: 4 million euros Purposes of the share repurchase programme to hold shares for later use, in exchange or in payment as part of a possible external growth strategy; 14

15 to provide liquidity in Netgem stock under a liquidity contract with an investment services provider, in keeping with the statement of professional ethics accepted by the AMF [French exchange regulatory commission]; to make and honour commitments with respect to stock option programmes or other allocations of stock to Company employees, or associated companies and in particular to allocate stock to Netgem employees especially in terms of (i) profitsharing plans, (ii) all stockpurchase or stockaward plans for employees under the terms prescribed by law, particularly Articles L and ff. of the French Labour Code, or (iii) all stockpurchase or stockaward plans for employees and corporate officers, or for certain of them, and to do so while observing the rules set by market regulators and at such times as the Board of Directors or its delegate shall see fit; to reduce the company s capital, to offer its shares when rights thereto are exercised in connection with securities giving present or future entitlement to Company stock, as well as to perform all hedging operations arising from Netgem's obligations due to those securities, while observing the rules set by market regulators and at such times as the Board of Directors or its delegate shall see fit; and to execute any market transaction found acceptable in law or by the AMF. This authorisation enabled the AFEI liquidity contract implemented in January 2007 to be continued. 2.8 INFORMATION ON THE COMPANY S OFFICERS Composition of the board of directors In December 2006, the company JH2 informed Netgem of the change of its permanent representative on the company s board of directors and the appointment to those duties of Mr Marc Tessier. This appointment became effective as from the board meeting of December 14, Mr Marc Tessier is also the managing director of the company Netgem Media Services. The board meeting of December 14, 2006 also appointed Mr Casey Slamani as deputy managing director of Netgem with effect from January 1, As part of that mandate and under the supervision of the chairman and managing director, Mr Slamani will take part in studying and implementing operations aimed at expanding the group s offer and/or encouraging its commercial, technological and/or financial development. As part of an employment contract with the company, Mr Slamani will also undertake operational responsibilities and particularly will be responsible for commercial management in France. Lastly, the Mixed General Meeting of June 15, , making its decisions as an ordinary general meeting, approved the appointment of Mr Charles Berdugo as a director for four years expiring at the end of the ordinary general meeting called to decide on the accounts for the financial year ending on December 31, As he has thorough knowledge of the telecommunications industry and computer services, is the founder of several computer companies and has taken over others, the company s board of directors considers that Mr Berdugo s experience will be useful to the company in the context of its development projects Remuneration and benefits The following table details the remuneration and benefits of all kinds received by the officers of the company and of all the companies in the group. It shows firstly the remuneration due for the financial year and secondly the remuneration actually paid during the financial year. No arrangements for paying joining or leaving bonuses have been put in place for the group s company officers. They do not have any specific supplementary pension schemes either. (in euros) FIXED VARIABLE ATTENDAN CE FEES Joseph Haddad Due 200,000 40,000 (1) Paid 200,000 20,000 GROSS ANNUAL REMUNERATION 2006 GROSS ANNUAL REMUNERATION 2005 Olivier Guillaumin Due Paid J2H, Due represented by Marc Paid Tessier (2) Raphael Palti Due Paid Casey Slamani Due (3) Paid (1) Remuneration received for the company mandate (no employment contract). 15 TOTAL FIXED VARIABLE ATTENDAN CE FEES 240, ,960 20, , ,960 TOTAL 164, ,960

16 (2) Since January 2007, in addition to his mandate as Managing Director of Netgem Media Services S.A., Mr Tessier has acted as the special adviser to the Chairman of the company J2H and in that capacity has been remunerated under an employment contract with that company. (3) Director of the company between June 2005 and April Mr Slamani had an employment contract with the company J2H, the company s chief shareholder, under which, in 2005, his total annual gross income due (including fixed and variable remuneration and benefits in kind) came to 120,088 euros and his annual gross remuneration paid came to 110,088 euros. In May 2006, Mr Slamani became an employee of the company and was also appointed as its Deputy Managing Director as from January 1, It is reiterated that the remuneration of the company s officers is validated by the company s board of directors. Mr Haddad does not benefit from any complementary retirement plan or parachute clause. During the 2006 financial year, he did not receive any allocation of warrants for shares in creators of companies and has not done so since the company was created (1996) Mandates and duties carried out by the members of the company s board of directors Mandates and duties carried out by members of the company s board of directors Joseph Haddad* Director (from January 2003 to July 2003) then Chairman of the Board of Directors (since December 2005) of Netgem Media Services SA (a French company and subsidiary of Netgem) Chief executive of SGBH SNC (a French company whose object is investment in real estate) Chairman of the board of directors of Netgem Iberia S.L. (Spanish company, subsidiary of Netgem) Sole director of TV Ltd (a UK company and subsidiary of Netgem) Director of Mediaxim SA from January 2003 to February 2007 (a Belgian company and subsidiary of Netgem) Sole director of Peaktime UK Ltd since December 2005 (a UK company and subsidiary of Netgem Media Services S.A.) Director of d Altavia SA (unlisted French company) Chairman and Managing Director of J2H between April 1990 and December 2005 Olivier Guillaumin Director of RS Com SA. (an unquoted French company) Chairman of PC Presse (an unquoted French company) Director of Celticom Sarl (previously KQWZ) (an unquoted French private limited company) Chairman of the oversight committee of Intersec SAS (an unquoted French private company) Various offices outside the group J2H, represented by Chief Executive of Netgem Media Services S.A. Marc Tessier Director of Mediaxim SA since February 2007 Member of the oversight committee of SBDS Active Sarl (an unquoted French private company) Director of Alternative Media Initiative Inc (an unquoted Canadian company) Member of the oversight committee of Gaumont SA (a quoted French company) Director of G7 entreprises SA (an unquoted French company) Raphaël Palti ** Chairman and chief executive of Altavia and holder of various offices within the Altavia group (an unquoted French company) Director of Netgem SA since June 12, 2006 Various offices outside the group * There has been no movement in the appointments, other than group appointments, held by Mr Joseph Haddad in recent years with the notable exception of his resignation from the office of chief executive of J2H to comply with regulations prohibiting holding the function of chief executive in more than one quoted company. ** The company does not know of any sensitive events concerning the mandates undertaken by Mr Raphael Palti in the Altavia group INFORMATION ON SECURITIES TRANSACTIONS BY THE DIRECTORS AND THE PEOPLE MENTIONED IN ARTICLE L OF THE MONETARY AND FINANCIAL CODE In accordance with article of the AMF s general regulations, a summary of the operations mentioned in article L of the Monetary and Financial Code during the 2006 financial year concerning the company s shares is presented below. Category (1) Name Role Nature of operation (2) 16 Month when operation was realised Number of shares Average unit price Value of operation a Olivier Director C February , ,000 Guillaumin a Olivier Director C March , ,930 Guillaumin c Jacques na (3) C March , ,550 Haddad a Casey Slamani Board member S March , ,850 (4) a Casey Slamani Board member C March , ,655 (4) a Olivier Director C May , ,495 Guillaumin a Olivier Director C June , ,831 Guillaumin c Jacques N/A (3) C December 20, ,640 Haddad 2006 na: not applicable

17 (1) Category: a: The members of the board of directors, board of management and the supervisory council, the managing director, sole managing director and deputy managing director. b: Anyone else who, on the conditions defined by the general regulations of the Financial Markets Authority, has, firstly, within the issuing entity, the power to take management decisions regarding its development and strategy and, secondly, regular access to privileged information directly or indirectly concerning that issuing entity. c: People who, on the conditions defined by a decree of the Council of State, have close personal links with the people mentioned in paragraphs (a) and (b). (2) Nature of the operation: To: Acquisition, B: Transfer S: Subscription E: Exchange (3) Family of Mr Joseph Haddad (4) Director of the company between June 2005 and April EMPLOYEES PARTICIPATION IN THE CAPITAL In accordance with article L of the Commercial Code, at December 31, 2006 no share in the company was owned by: the employees of the company and the companies linked to it as part of a company savings plan, the employees and former employees as part of a company joint investment fund, the employees during the periods when shares were not transferable concerning share option subscription plans INFORMATION PRESCRIBED BY LAW Nº OF MARCH 31, 2006 ON TAKEOVER BIDS Capital structure At December 31, 2006, Netgem s share capital was fixed in the sum of 5,975,000, divided into 31,351,733 shares with a face value of euros per share. 1 There are no double voting rights. On December 31, 2006, the Company s share capital broke down as follows: Number of shares at December % of capital and of voting rights Number of shares at December % of capital and of voting rights J2H (*) % % Olivier Guillaumin % % Subtotal, founders % % Founders families % % Other directors and % % company officers Employees % % Own shares held Public % % Total % % (*)A family holding company controlled by Mr Joseph Haddad, whose main activity is to create or take industrial or commercial stakes in French or foreign companies developing particularly in the information sector, their promotion, management and, where applicable, the supply of administrative, legal, accounting, financial or propertyrelated services. The principal significant movements affecting the composition of the capital during the last two financial years concerned an increase in the number of shares owned by the public. During the last financial year, the company did not receive any notifications indicating that the statutory or regulatory thresholds had been exceeded. Thus, the company does not know of any shareholders who individually own more than 2% of the company s capital, other than the founding shareholders (the J2H company and Mr Olivier Guillaumin). (1) The precise face value of each share is euros. 17

18 Please refer to note 17 of the appendices to the consolidated accounts for a statement of the activity recorded during the last financial year regarding the plans for warrants to subscribe to shares in company creators and options for the subscription to or purchase of shares Voting rights There are no double voting rights in the company. Moreover, the company s articles of association do not impose any particular limitation on the voting rights of shareholders, subject to the statutory provisions applicable if the statutory declaration that thresholds have been exceeded is not made Shareholders pacts and agreements Provisions concerning shareholders None. To the company s knowledge, there are no shareholders pacts or agreements between shareholders that are likely to affect the company s assets and liabilities, business, financial situation, results and prospects Provisions concerning issuing entities As part of the agreement reached in March 2005 between the company and the investment fund Trust Capital Partners ( Trust ), the shareholders pact agreed between Netgem and Trust following the takeover of Netgem Media Services S.A. (January 2003), formerly called Peaktime SA, was annulled. A new shareholders pact between Peaktime and Trust was set up for a period expiring on December 31, 2014 which envisaged in particular that between January 1, 2007 and December 31, 2008, Netgem Media Services would have an option to sell all the shares it would then hold in its Belgian and Dutch subsidiaries to Trust, and viceversa. Trust also has an option to buy these same shares but may not exercise its option until January 1, The price set for these promises was mutually agreed upon by the parties. Netgem is currently unable to estimate the value of this commitment. To the company s knowledge, there are no other shareholders pacts/clauses that could affect the company s assets and liabilities, business, financial situation, results and prospects. Lastly, at December 31, 2006, the company s principal shareholders and founders were not bound by any undertaking to retain their shares Capital authorised but not issued, capital increase undertaking The following table summarises the share issue authorisation situation and the securities in existence today, as they result from the last extraordinary general shareholders meeting of Netgem on June 12, 2006: 18

19 In euros Increase maintaining the shareholders preferential subscription right (1) (5) Increase eliminating the shareholders preferential subscription right (1) (5) Authorisation to issue shares and securities to remunerate contributions in kind consisting of capital rights or securities (1) Authorisation to issue shares and securities in favour of investors who are qualified or belong to a restricted circle of investors (1) (5) Increase by incorporating premiums and other reserves (1)) Authorisation date. Maturity date 12/06/ /08/ /06/ /08/ /06/ /08/ /06/2006 Next ordinary annual general meeting 12/06/ /08/2008 Authorised amount (in euros) (2) Will be determined according to the regulation by the board (4) (2) At least equal to the amount envisaged in the regulations (3) (4) 10% of the company's capital Issue price Increase realised Residual authorisation to dater Will be determined in the context of the contribution evaluation operations In previous financial years In the financial year closed December 31, % of the company's capital (2) At least equal to the weighted average of the former share price recorded in the Eurolist of Euronext Paris SA during the 3 stock market days preceding the start of the issue, possibly reduced by a maximum discount of 15% (7) (1) These authorisations were approved by the general shareholders meeting of June 12, (2) These amounts are assigned to the maximum ceiling of capital increase of 5,000,000 approved by the mixed general meeting of June 12, 2006 (21st resolution). (3) The regulations envisage that the price must be at least equal to the weighted average of the prices of the last three stock exchange sessions preceding its fixing, possibly reduced by a maximum discount of 5%. (4) The mixed general meeting of June 12, 2006 authorised (16th resolution) the board of directors to determine the issue price according to the terms fixed by the meeting within the limit of 10% of the share capital per year. Its limits are as follows: issue price at least equal to the closing price of the Netgem share on the Eurolist market of Euronext Paris at the last stock exchange session preceding its fixing, possibly reduced by a maximum discount of 15%. (5) The mixed general meeting of June 12, 2006 authorised (17th resolution) the board of directors to increase the issues up to the limit set out in article L of the Commercial Code which envisages the possibility of increasing the issue by a maximum of 15%. (6) Qualified investors are loan institutions, investment companies, venture capital companies, innovatory financial companies and large commercial companies (+ 150m). (7) This amount is not assigned to the ceiling of 5,000,000 referred to in the 21st resolution. The Mixed General Meeting of June 15, 2007 approved the introduction of a new plan for warrants to subscribe to shares in company creators with a duration of 12 months, reserved for the company s employees and directors who are subject to the employees taxation system, and authorised the board of directors to issue 500,000 warrants enabling a maximum of 500,000 new shares to be subscribed to. The price of the warrants was fixed at 3.80 euros, but that price could not be lower (i) if, within the six months before the allocation of the warrants, the company had made a capital increase, than the issue price of the securities as part of that capital increase, or (ii) than the minimum amount envisaged by the laws and regulations in force when that delegation was used, after any correction of that amount, where applicable, in order to take account of the difference in the ownership date. It is specified that this programme replaces the one approved by the Mixed General Meeting of June 12,

20 2.12 FINANCIAL RISK FACTORS The preamble points out that in October 2006 and January 2007 the company published revised versions of its 2005 reference document in which the item on risk factors was updated. These updates are available on the company s website ( and on the AMF s website ( Liquidity risks According to the definition given by the AMF (French financial market authority), the liquidity risk is characterised by the existence an asset with a longer term than the liability, concretely by the inability to repay shortterm debts if it is possible to use assets or new lines of bank cash. The group deems that it is not exposed to this risk given its general financial structure, the level and structure of its current assets, its lack of significant financial debt and its ability to use new financing if necessary. The following table shows net consolidated debt broken down by term, at December 31, 2006: (Euros in thousands) Moins de 1 an 1 to 5 years Plus de 5 years TOTAL Borrowings for the restatement of equipment leases Current shareholder accounts Reimbursable advances from the Finance and Economics Ministry Deposits and securities received 8 8 Borrowings and financial debt (including current shareholder accounts Investment securities (4 504) (4 504) Available assets (6 254) (6 254) Consolidated net debt (Source) (10 687) 626 (10 061) Market risks Exchange rate risks Given the international nature of its business, the group is exposed to an exchange rate risk (Euro/US dollar and Euro/pound sterling) with regard to both its customers and its suppliers. At December 31, 2006, the net exchange position for these currencies was as follows: Assets 661 1,256 Liabilities (444) (1 888) Net currency position excl. management 217 (632) Offbalance sheet Net currency position incl. management 217 (632) Impact on the net position of the 1% currency exchange (3) (5) Since July 2006, the group has implemented an exchange risk coverage policy which provides that any significant individual currency operation requires the use of special coverage (generally forward purchases). However, there can be no guarantee that the group will have the necessary resources to efficiently manage its exchange risk in the future and that the policies it follows will prevent it from experiencing losses related to exchange risks. GBP USD Over the 2006 financial year, the group made a net exchange profit of 248, Rate risks At December 31, 2006, the breakdown of assets and financial debts, including current shareholder accounts, depending on whether the rates are fixed or variable, is as follows: 20