OIL & GAS

Bull's board of directors approved the reviewed consolidated financial statements for the first half. As communicated on July 27, revenue was €559.2 million, down -2.2% compared to €571.8 million in the same period last year. Gross margin was €141.3 million or 25.3% of sales and compares to €150.9 million or 26.4% of sales in the year-ago period. EBIT before restructuring and exceptional items was €9.3 million, which compares with €18.2 million in the first half of 2005. Net income (group share) recorded was a profit of €3.9 million (including a net positive impact of €7.7million from changes to the valuation of the CRMF accrual and deferred tax assets) which compares with a profit of €9.4 million in the same period last year. In addition the board of directors reviewed third quarter 2006 financial statements. Revenue in the period was €250.9 million, down -2.1% compared to revenue of €256.2 million in the same period last year. Didier Lamouche, Chairman and CEO, declared " The reassessment of our strategic plan confirmed that the strategic options we took to build Horizon 2008 are completely valid. We also saw how our portfolio of product and service offerings was tracking. Many of our businesses are in line with the plan. Some of the businesses &ndash like our telco business, or our Latin American operations -- are gaining better traction than anticipated. Some businesses are below plan and we have taken steps to rectify their performance. "Bull's management is entirely mobilized and focused on addressing the challenges that the company faces. We believe that, based on the transition that we are driving to a more service-oriented business model, an increased focus on value added products and services as well as continued cost reduction, will allow us to get back on track for growth". First half 2006 results: financial highlights The following comparisons are made for the first half compared to the year-ago period. Order intake grew 21% with +55% in Services Order intake grew by 21 % thanks to a strong performance in services (+ 55 %). Even when excluding two major contracts won in the last few months, Barnsley Metropolitan Borough Council in the UK and La Poste in France , growth in order intake in Services remains at 21 %. Revenue slightly declined -2.2% at €559.2 million as Service revenue increase of 9% was offset by declines in Products and Maintenance Revenue in the first half declined slightly as strong performance in Services was more than offset by a slight decline in Product sales due to the performance of the Italian subsidiary and a less robust Unix market. At the same time Maintenance revenue decreased as the business is shifting away from proprietary systems. Nevertheless, the rate of decline in Maintenance revenue has decreased for the last three quarters as the action plans' benefits are seen. The acquisitions completed in the first half had a negligible impact on revenue for the period. Gross margin at €141.3 million or 25.3% of revenue declined 1.1 point, mostly due to product mix and anticipated decline in contribution from Maintenance Gross margin as a percentage of revenue declined by 1.1 point due to the situation of the Italian subsidiary, the slowdown in Product sales and the mix between proprietary and open systems. EBIT before restructuring and exceptional items at €9.3 million, 1.7% of sales SG&A as a percentage of sales increased by 0.9% as the effort concomitant with success in services led to an increase in selling expenses. R&D expenses expressed as a percentage of sales declined from 4.8% to 4.3% of revenue. EBIT before restructuring and exceptional items was registered at €9.3 million, above our indication in July. Net income registered at €3.9 million (includes positive impact of €7.7 million due to changes to CRMF(1) accrual and deferred tax assets) Net income was favorably impacted (+ €27 million) by the revision of our CRMF accrual from €54 million to €27 million. This new amount reflects the net present value of future payments to the French state and, especially, low payments in the next two years due to the criteria that trigger payments under this clause. At the same time our deferred tax asset balance sheet position was adjusted from €51 million to €32 million, generating a €20 million loss. Finally, €16 million of restructuring charges were booked in order to reduce the Group cost base and improve its future profitability. Net cash position at €213 million on June 30 Operating cash flow for the first half of 2006 amounted to €2.7 million; at the same time non recurring items resulted in a negative cash outflow of €23.9 million mainly linked to acquisitions and restructuring. As a result, gross cash position on the balance sheet was a strong €296 million and net cash position was €213 million. Third quarter 2006 Orders and Revenue: financial highlights The following comparisons are made for the third quarter compared to the year-ago period. Order intake grew by +16.7% Order intake grew by +16.7% year-on-year, confirming the trend seen in the first half, with another strong performance in Services which registered a progression of 35% in orders confirming our ability to move to a business model where services and products are more balanced. Orders for Products grew +4.5 % with continued market recognition in High Performance Computing (HPC) in the UK and in Italy . Revenue declined slightly by -2.1% while service revenue increased by +20.8% Third quarter revenue decreased slightly by -2.1%. This compares to a -4.2% decline in the second quarter. By activity, Product revenue was down by -12.3% whereas Service revenue was up by +20.8%. The third quarter was actually the sixth quarter in a row of Service growth. Finally Maintenance revenue was down by -8.2 %, confirming the success of the reorganization and the actions implemented to curb the revenue decline, after -9.7% in the second quarter and -13.7% in the first quarter and -11.6 % in 2005 compared to 2004. Focus point: Italian operations In the first half of 2006 revenue of €33.5 million declined by -28% year-on-year. Orders recorded during the first half were €17.3 million, down by -51 % compared to the year-ago period. In the third quarter revenue of €14.7 million was recorded, down by -28 % compared with the year-ago quarter. In order to turn around the situation, a new management team (CEO, CFO, Sales Director) has been appointed, and has started to implement a strong action plan aiming at refocusing Bull's offering and cutting losses drastically. The sales force has been reorganized and refocused on 3 of the 7 growth initiatives (HPC, Storage, Telcos). A first success has been registered in September with an order in High Performance Computing. The restructuring plan finalized in May has led to a reduction in headcount to 435 people at the end of September 2006 compared with 585 at the end of December 2005. A new non-salary cost reduction plan is being implemented that is expected to yield further savings. Bull now forecasts a full-year EBIT loss for the Italian operations of less than our previous estimate of €(18) million. The restructuring actions and cost reduction plans are expected to bring the Italian operations' EBIT to breakeven before the end of 2008. Focus point: Field Engineering and Customer Support A general manager has been appointed with the task of transforming the maintenance offering to address declines in revenues and margins linked to the shrinking installed base of legacy systems. The benefits of the reorganisation are notable. The year-on-year rate of decline of maintenance revenues has slowed from -13.7% in the first quarter to -8.2% in the third quarter. Review of Bull's forecasts In July, Bull announced a review of the company's forecasts in order to validate assumptions about our future business performance and their justification of two balance sheet items: the CRMF(1) accrual and the deferred tax assets. An examination of the strategic options taken at the start of the year was undertaken; the review is now complete; all of the initial strategic plan's initiatives remain in place. Bull will continue to focus on high technology offers with a special emphasis on High Performance Computing, storage, offers to Telco operators and high added value services. The Group action plan unveiled in July is now fully in place. Its main aspects are : - new R&D organization to speed up innovation in product and services - new sales organization in France to optimize sales efficiency - focus on high growth offers (High Performance Computing, storage, integration systems in telcos, customs & tax administrations) - cost reduction actions. Business highlights for third quarter 2006 In the servers business , Bull capitalized on its expertise around the new-generation Intel processors. This was reflected in the availability of the Intel® Itanium® 2 processor (formerly codenamed Montecito) on its new NovaScale 3005 and NovaScale 5005 series. Bull here doubles the performance of its high-end NovaScale servers with new Dual-Core Intel® Itanium® 2 processors. Bull also focused its development on the design and production of 2 new NovaScale blade servers models, boosted by the new Dual-Core Intel® Xeon® 5100 processor. In the HPC arena, Bull has provided a more than 2 Tera Flop cluster of 51 NovaScale servers to Aliena Aeronautica (a Finmeccanica Company) for the implementation of a high-performance computing centre dedicated to the development of advanced scientific research and to the simulation of aeronautic products . The University of Manchester , one of the leading centers for High Performance Computing (HPC) in the UK has chosen Bull to provide a new supercomputer to help researchers undertake more advanced simulations. The supercomputer is the first in the UK to use Intel's new Dual-Core Itanium® 2 processor. In the services arena , to manage its vast Medicaid (health care for the needy) program, the State of New York renewed its confidence in Bull for its BI/data warehouse solution. This program is the nation's largest in terms of budget size ($ 44 billion) and serves more than 4.2 million participants. The Bull solution in New York was recognized in 2004 by the National Association of State CIOs (NASCIO), winning first prize in the organization's Enterprise Information Architecture category. Bull further enhanced its offerings and strengthened its competitive position with the acquisition of Agarik, a French company specializing in critical Internet infrastructure outsourcing and managed on-line services. The move will consolidate Bull's presence in the strategically important Telecoms sector. The Home Affairs Ministry in France entrusted Bull, leader of a consortium with Thales to build, deploy and maintain the new vehicle licensing application, and to perform the migration from the existing system. This project amounts to more than € 5 million. France 's nuclear agency, CEA CESTA, entrusted Bull with a contract for support services for around 2,500 PCs, 200 scientific workstations and 200 servers. This outsourcing contract is worth around €3 million over 3-5 years. In Morocco , the Ministry of Education has chosen Bull to equip 1,000 schools with multimedia rooms. Bull will supply the infrastructure and equipment and perform the deployment over 8 months for this contract worth € 11 million. Altogether, Bull helps close to one million students worldwide surf on the web. In Brazil , Embratel, chose Bull to implement a new integrated Oracle & Java based Customer database to consolidate customers' information from all of their previous databases (legacy, distributed, etc). Bull also recorded significant successes in the countries of Eastern and Central Europe . The Polish city of Rybnik chose Bull to implement its citizen card project. Bull provided the infrastructure based on Bull NovaScale servers, business analysis and consulting, system integration (card and user management, PKI, electronic purse, etc). This Europe funded project is worth over € 1 million. And in Bulgaria , the National Healthcare Insurance Fund (NHIF) signed a € 3.5 million contract with Bull for the implementation of its new integrated information system to enhance NHIF's overall quality and efficiency. Outlook The objective for full year revenue is for a decline by approximately 2 percentage points compared to 2005. The objective for full year EBIT before restructuring and exceptional items is close to €18 million, at the high end of our previously guided range. Restructuring charges of €12 million to €15 million should be booked in the second half resulting in a full year 2006 net income close to breakeven. Didier Lamouche declared " The work accomplished enables us to target for 2007 modest growth in revenue and an improvement of EBIT before restructuring and exceptional items compared to 2006".