Business segment performance analysis

Revenues, EBITA and cash flow from operations by business segment²

na: not applicable.

2. The information presented above takes into account the consolidation of the following entities from the reported dates:

   - at Maroc Telecom Group: Sotelma (August 1, 2009); and

   - GVT (November 13, 2009).

Comments on operating performance of business segments

Preliminary comments:
Vivendi Management evaluates the performance of Vivendi’s business segments and allocates the necessary resources to them based on certain operating performance indicators, notably non-GAAP measures EBITA (Adjusted earnings before interest and income taxes) and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization):

• The difference between EBITA and EBIT consists of the amortization of intangible assets acquired through business combinations and the impairment of goodwill and other intangibles acquired through business combinations that are included in EBIT. Please refer to Note 1.2.3 to the Consolidated Financial Statements for the year ended December 31, 2010.
• As defined by Vivendi, EBITDA is calculated as EBITA as presented in the Adjusted Statement of Earnings, before depreciation and amortization of tangible and intangible assets, restructuring charges, gains/(losses) on the sale of tangible and intangible assets and other non-recurring items (as presented in the Consolidated Statement of Earnings by each operating segment - Please refer to Note 3 to the Consolidated Financial Statements for the year ended December 31, 2010).

Moreover, it should be emphasized that other companies may define and calculate EBITA and EBITDA differently than Vivendi, thereby affecting comparability.

As a reminder, the Vivendi group operates through six businesses at the heart of the worlds of content, platforms and interactive networks; as of December 31, 2010, Vivendi’s ownership interest in each of these businesses is as follows:

• Activision Blizzard: 61%;
• Universal Music Group (UMG): 100%;
• SFR: 56%;
• Maroc Telecom Group: 53%;
• GVT: 100% (please refer to Acquisitions/divestitures of financial investments); and
• Canal+ Group: 100% (as from February 22, 2010, Canal+ Group holds an 80% interest in Canal+ France; please refer to Transactions with shareholders).

Activision Blizzard

IFRS measures, as published by Vivendi³

3. The reconciliation of US GAAP and non-GAAP data published by Activision Blizzard (net revenues and EBITA) to data relating to Activision Blizzard prepared by Vivendi in accordance with IFRS standards is described in an appendix to this Financial Report (“II – Appendix to Financial Report: Unaudited supplementary financial data”).

Non-GAAP measures, unaudited, as published by Activision Blizzard

Revenues and EBITA

Activision Blizzard’s revenues reached €3,330 million, a 9.6% increase compared to the same period in 2009, and EBITA reached €692 million, a 43% increase. These results were determined using the accounting principles requiring revenues and related cost of sales associated with online component games to be deferred over the estimated customer service period. The balance of deferred operating margin was €1,024 million as of December 31, 2010, compared to €733 million as of December 31, 2009.

Activision Blizzard’s new releases Call of Duty®: Black Ops, Starcraft II®: Wings of Liberty and World of Warcraft®: Cataclysm™ were the main driving force of this strong performance. Revenues from digital channels accounted for over 30% of the Activision Blizzard’s overall revenues.

World of Warcraft®: Cataclysm™, which was launched on December 7, 2010, sold through more than 3.3 million copies worldwide during its first 24 hours of release, making it the fastest-selling PC game of all time. As of December 31, 2010, more than 12 million gamers worldwide had subscribed to play World of Warcraft®⁴. In November 2010, Call of Duty®: Black Ops became the first video game ever to surpass $650 million in retail sales in its first five days of release⁵. To date, the game has achieved more than $1 billion in retail sales worldwide⁶.

Activision Blizzard continues to invest in opportunities afforded by online gaming worldwide and will reduce its exposure to low-margin and low-potential businesses. In 2011 and beyond, Activision Blizzard will allocate its resources toward high-margin growth and long term opportunities. New developments include Blizzard Entertainment’s games, investments in forthcoming Call of Duty® titles, the development of a digital community surrounding the Call of Duty ® franchise, a new property from Bungie and an innovative new universe Skylanders Spyro® ‘s Adventure® that will bring the world of toys, video games and the Internet together in an unprecedented way.

Activision Blizzard announced a new stock repurchase program under which the company can repurchase up to $1.5 billion of the company’s outstanding common stock. As of December 31, 2010, Activision Blizzard had purchased an aggregate of 86 million shares of its common stock for approximately $966 million under the $1 billion 2010 program. As of December 31, 2010, Vivendi held an approximate 61% interest (non-diluted) in Activision Blizzard.

Activision Blizzard also announced a cash dividend of $0.165 per common share with respect to fiscal year 2010, a 10% increase.

Cash flow from operations (CFFO)

Activision Blizzard’s cash flow from operations amounted to €1,173 million, a €178 million increase compared to 2009. This increase reflected the exceptional commercial results in 2010 as well as favorable movements in working capital.

4. According to Blizzard Entertainment internal data.
5. According to Activision Blizzard internal estimates.
6. According to The NPD Group, Charttrack and Gfk.

Universal Music Group (UMG)

Recorded music: Best-selling artists (physical and digital album units sold, in millions)

Revenues and EBITA

Universal Music Group’s (UMG) revenues were €4,449 million, a 2.0% increase compared to 2009 (a 3.6% decrease at constant currency) with the favorable currency movements and growth in digital sales and merchandising more than offsetting declining physical product sales and slightly lower music publishing activity. Digital sales increased 13.8% year-on-year.

UMG’s EBITA was €471 million, a 18.8% decline compared to 2009. Changes in sales mix, restructuring costs and write-downs from underperforming investments offset operating cost savings.

Under the leadership of new CEO Lucian Grainge, UMG has launched a significant reorganization plan leading to cost optimization, redeployment of resources towards key initiatives such as further expanding the company’s creative investments, including maintaining high investment in local artists and talents, support and development of new digital platforms and services, and a more global approach. By the end of 2011, cost savings are expected to reach €100 million globally on a full year basis.

Major 2010 sellers included titles from Eminem, Taylor Swift, and Japan’s Masaharu Fukuyama, in addition to prior year releases from Lady Gaga and Black Eyed Peas. Vevo’s success is confirmed: 1# online music destination in the United States, it had nearly 60 million unique viewers in December 2010.

UMG continues to lead the music industry in supporting new digital services, recently partnering with Indian telecom Reliance Communications (RCOM) to launch the first-ever comprehensive music service for that developing market. UMG also continues to expand its global television presence, completing deals with such ratings leaders as ‘American Idol’ (Fox) in the United States and “The Voice Of…” in Holland and in the United States (NBC).

Cash flow from operations (CFFO)

UMG’s cash flow from operations amounted to €470 million, a €161 million increase compared to 2009. This increase of 52.1% was driven by favourable movements in working capital and the decrease in content investments, net, which more than offset the decrease in EBITDA.

SFR

1. Relates to cash used for capital expenditures, net of proceeds from sales of property, plant and equipment, and intangible assets.

2. Includes M2M (Machine to Machine) customers.

3. Source: Arcep.

4. ARPU (Average Revenue Per User) is defined as revenues net of promotions and net of third-party content provider revenues excluding roaming in revenues and equipment sales divided by the average ARCEP total customer base for the last twelve months. ARPU excludes M2M (Machine to Machine) data.

Revenues and EBITA

SFR’s revenues were €12,577 million, a 1.2% increase compared to 2009, despite a more competitive market and substantial tariff cuts resulting from regulatory decisions. Excluding the regulated price cut impacts, revenues increased by 5.8%.

Mobile revenues⁷ reached €8,930 million, a 0.6% decrease compared to 2009.

Mobile service revenues⁸ decreased by 1.1% to €8,420 million. Excluding the impact of the 31% and 33% mobile voice termination regulated price cuts on July 1, 2009 and July 1, 2010 respectively, the 33% SMS voice termination regulated price cut on February 1, 2010 and the roaming tariff cuts resulting from regulatory decisions, mobile service revenues increased by 4.8%.

In 2010, SFR achieved good commercial results, adding almost 1,288,000 new postpaid net adds, in particular due to the success of smartphones and offers including an Internet remote access. 28% of SFR customers were equipped with a smartphone at the end of December 2010 (compared to 15% at end of 2009) allowing a data revenue growth of 16% in 2010. At the end of 2010, SFR’s postpaid mobile customer base reached 16.095 million, improving the customer mix by 3.0 percentage points year-on-year to attain 75.6%. SFR’s total mobile customer base reached 21.303 million.

SFR and La Poste entered into an agreement for the launch of a Mobile Virtual Network Operator (MVNO) in the second quarter of 2011 that is expected to become one of the market leaders.

Broadband Internet and fixed revenues7 were €3,944 million, a 4.5% increase compared to 2009, reflecting an excellent commercial performance from the broadband Internet mass market segment (for which revenues increased by 11.9%) as well as a dynamic Enterprise segment. SFR added 443,000 net new active broadband internet residential customers, representing a market share of more than 30%⁹. At the end of 2010, the broadband Internet residential customers base totaled 4.887 million, a 10.0% increase year-on-year. Additionally, SFR has benefitted from the success of the new neufbox Evolution which was launched on November 16, 2010 and has attracted more than 200,000 customers at the end of February.

SFR reached an important step regarding the fiber-optic deployment with the signature of an agreement with Bouygues Telecom to share their investments and their fiber horizontal networks in some cities within very concentrated areas.

SFR’s EBITDA was €3,973 million, a 0.2% increase compared to 2009. This growth included €58 million of non-recurring (“non-cash”) items related to the termination of some of SFR’s fixed network indefeasible right of use (IRU) by third parties.

SFR’s mobile EBITDA was €3,197 million, a 3.3% decrease compared to 2009. Growth in the customer bases, the expansion of mobile Internet and the strict control of costs did not totally offset the very negative impacts of the regulation and strong competition on the French market.

SFR’s broadband Internet and fixed EBITDA was €776 million, a 17.4% increase compared to 2009. This increase was driven by the effects of broadband Internet growth and positive non-recurring items. Excluding the impact of those non-recurring items, EBITDA growth was 8.6%.

SFR’s EBITA was €2,472 million, a decrease of 2.3% compared to 2009.

Cash flow from operations (CFFO)

SFR’s cash flow from operations amounted to €1,978 million, a 12.6% decrease compared to 2009. The decrease in CFFO was mainly due to the increase in broadband Internet and fixed net capital expenditures (reflecting both good commercial performances in ADSL and fiber deployment), and to the acquisition of mobile 3G spectrum for €300 million in 2010, given that EBITDA was stable (+0.2%). Excluding acquisition of 3G spectrum, SFR’s cash flow from operations amounted to €2,278 million, stable compared to 2009 (+0.7%).

7. Mobile revenues and broadband Internet and fixed revenues are determined as revenues before elimination of intersegments operations within SFR.
8. Mobile service revenues are determined as mobile revenues excluding revenues from equipment sales, net.
9. According to SFR.

Maroc Telecom Group

1. Notably includes Sotelma, consolidated since August 1, 2009.

Revenues and EBITA

Maroc Telecom Group’s revenues were €2,835 million, up 5.2% year on year (+2.4% at constant currency and perimeter¹⁰) due to the solid performances of its domestic market and of its subsidiaries in Africa.

Maroc Telecom Group’s customer base was 25.8 million, up 19% compared to the end 2009. This evolution reflected a continuing sustained growth of the mobile customer base in Morocco (+10.6%) and especially in the African subsidiaries, where it reached over 6.8 million mobile customers, up 58% year-on-year.

Maroc Telecom Group’s EBITDA was €1,667 million, up 3.4% year-on-year (+2.0% at constant currency and perimeter). Its high EBITDA margin rate was maintained at 58.8% due to the pursuit of growth in revenues and of the very proactive cost optimization policy both in Morocco and in the subsidiaries.

Maroc Telecom Group’s EBITA was €1,284 million, up 3.2% year-on-year (+2.7% at constant currency and perimeter). The EBITA margin rate remained at a high level, 45.3%. Maroc Telecom Group pursues a major investment program, both in Morocco and in the subsidiaries.

Cash flow from operations (CFFO)

Maroc Telecom Group’s cash flow from operations amounted to €1,150 million, a decrease of 2.0% compared to 2009. The €23 million decrease mainly reflected the 14.4% increase in net capital expenditures, notably in African subsidiaries, which was partially offset by the 3.4% increase in EBITDA.

10. Constant perimeter includes the consolidation of Sotelma, as if this transaction had occurred on January 1, 2009.

GVT

IFRS measurement, as published by Vivendi

1. GVT has been consolidated since November 13, 2009: IFRS measurement published for 2009 therefore corresponds to the period between November 13, 2009 and December 31, 2009.

2. The pro forma 2009 (unaudited) presents IFRS measurement in millions of euros, as though GVT had been consolidated since January 1, 2009.

As measured pursuant to local Brazilian accounting standards

1. The adjusted EBITDA, a performance measurement used by GVT’s management, is calculated as net income for the period excluding income and social contribution taxes, financial income and expenses, depreciation, amortization, results of sale and transfer of fixed assets / extraordinary items and stock option expense.

Revenues and EBITA

In IFRS, GVT’s revenues, EBITDA and EBITA, for the full year 2010, were €1,029 million, €431 million and €277 million, respectively. Pro forma, the increase year-onyear was respectively 71.2%, 79.6% and 143.0%. Vivendi took control of and has consolidated GVT since November 13, 2009 and has fully owned its share capital since April 27, 2010.

In Real, the increase in revenues was 43% driven by an 80.5% increase in broadband service revenues and a 34.0% increase in voice service revenues. Due to GVT’s competitive value proposition, the net additions of lines in service (LIS) totaled 1.416 million, an increase of 54.6% compared to 2009. As of December 31, 2010, the total number of the lines reached 4.232 million.

Adjusted EBITDA margin was 41.3%, compared to 38.6% in 2009, which represents a 52.9% increase in adjusted EBITDA in local currency. These changes were due to a better product mix, including the widespread deployment of 10 Mbps’ and 15 Mbps’ broadband and continued cost optimization.

In 2010, GVT expanded its coverage with 13 additional cities in particular in the States of São Paulo and Rio de Janeiro.

On October 19, 2010, GVT launched Power Music Club powered by UMG, a free access to audio and video services for all GVT Power broadband subscribers. Additionally, in November 2010, GVT upgraded to 5 Mbps’ its initial speed offer and established the 15 Mbps’ speed as its main offer. For the second consecutive year, GVT’s broadband was elected as the best broadband in Brazil by the readers of the leading Brazilian tech magazine “Info”.

Since its acquisition by Vivendi, GVT has been accelerating its geographical expansion. For the full year 2010, GVT capital expenditures amounted to €535 million, compared to €238 million in 2009. And in 2011, GVT’s capital expenditures will reach about €750 million.

Cash flow from operations (CFFO)

GVT’s cash flow from operations amounted to -€69 million. In 2010, net capital expenditures amounted to €482 million, primarily related to investments in network to cover in regions I and III, notably Rio de Janeiro and São Paulo. GVT’s good operating performance generated cash flow from operations before capital expenditures (CFFO before capex, net) of €413 million in 2010.

Canal+ Group

1. Canal+ France’s revenues are presented before elimination of intersegment transactions within Canal+ Group. Canal+ France notably holds and consolidates Canal+ SA, Multithematiques, Canal+ Distribution, Kiosque and Canal+ Overseas.

2. Includes Poland and Vietnam.

3. Includes overseas territories and Africa. Since 2010, Canal+ Overseas’s subscriber base includes the non-binding subscriptions offered in Africa on a 12 month equivalent basis. The information presented is consistent with respect to fiscal year 2009.

Revenues and EBITA

Canal+ Group reported full year revenues of €4,712 million, which represents a 3.5% increase year-on-year or 2.9% at constant currency. Canal+ Group’s total subscription base reached 12.7 million as of December 31, 2010, which represents a net increase of 344,000 year-on-year.

Canal+ France revenues were up 3.1% to reach €3,956 million, notably driven by subscription growth, increased revenue per subscriber and higher advertising revenues.

At the end of the year, Canal+ France had 11.1 million subscriptions, which represents a net growth of +335,000 year-on-year. Mainland France saw a net growth of 151,000 subscriptions year-on-year, reaching 9.7 million mainly due to a reduced digital subscriber churn rate, which stood at 11%, compared to 12.3% at the end of 2009. Average revenue per individual subscriber was up €1.6 year-on-year, reaching €46.3, due to the full effect of price increases implemented in 2009, improved cross-sell between Canal+ and CanalSat offerings, and a higher penetration of content and service options. Since the analog land signal switch-off in November 2010, Canal+ subscriber base is now almost 100% digitized. The subscriber base in regions operated by Canal+ Overseas (French overseas territories and Africa) grew by 184,000 to reach 1.3 million due to strong market dynamics, particularly in Africa.

Revenues from other Canal+ Group operations also increased, partly driven by Canal+ in Poland, where subscription revenues grew significantly. StudioCanal’s revenue decreased slightly. i>Télé channel continued to grow due to a steady increase in advertizing revenues.

Canal+ Group’s EBITA was €690 million, which represents a 5.8% increase year-on-year. Canal+ France’s EBITA was €616 million, or a 11% increase year-on-year. All pay-TV operations in mainland France and abroad contributed to this growth due to a general increase in the subscription bases combined with overall cost control. Canal+ Group continued to invest in Vietnam. StudioCanal was impacted by costs related to the release late December 2010 of the film The Tourist, for which most revenues was accounted in 2011.

Cash flow from operations (CFFO)

Canal+ Group’s cash flow from operations amounted to €410 million, a €82 million increase compared to 2009. The good operating performance of Canal+ France reflected the increase in cash flow generated through EBITDA (+€50 million). In addition, CFFO also benefited from the favorable movements in changes of net working capital.

Holding & Corporate

EBITA

Holding & Corporate EBITA was -€127 million, a €36 million decrease compared to 2009. In 2009, it included a €40 million earn-out income related to the disposal of real estate assets in Germany in 2007.

Cash flow from operations (CFFO)

Cash flow from operations was stable compared to 2009; it amounted to -€100 million in 2010, compared to -€101 million in 2009. In 2010, CFFO notably included an increase in net working capital. In 2009, CFFO mainly included the earn-out payment (€40 million) received in connection with the disposal of real estate assets in Germany in 2007.

Non-core operations and others