Reference Document 2005 5_1 Lagardère SCA - Business activities and strategy .................................32 5_2 The Group's principal activities and main markets – Operations in the course of 2005.................................................................35 5_2_1 Media operations ..........................................................................................................35 5_2_1_1 Book Publishing ..............................................................................................................35 5_2_1_2 Print Media ....................................................................................................................41 5_2_1_3 Distribution Services ........................................................................................................47 5_2_1_4 Lagardere Active .............................................................................................................52 5_2_2 High Technologies .........................................................................................................61 5_2_3 Other business activities ...............................................................................................75 5_3 Labour and environmental information – Business ethics ......................77 5_3_1 Labour information .......................................................................................................78 5_3_2 Corporate citizenship ....................................................................................................99 5_3_3 Environmental information ...........................................................................................113 5_3_4 Ethics – Code of conduct .............................................................................................127 30 LAGARDÈRE / REFERENCE DOCUMENT 2005 Information on the business activities of the Company 5and the Group 5 INFORMATION ON THE BUSINESS ACTIVITIES OF THE COMPANY AND THE GROUP / LAGARDÈRE 31 INFORMATION ON THE BUSINESS ACTIVITIES OF THE COMPANY AND THE GROUP 5_1 LAGARDERE SCA – BUSINESS ACTIVITIES AND STRATEGY In addition to the media operations which constitute the Group's core business, Lagardère has a strategic share in the European Aeronautic Defence and Space Company (EADS). 5In the field of the Media, the Lagardère Group's major assets include an international presence, strong brand names (Elle, Paris Match, Europe 1, Hachette, Hodder Headline, Relay, Virgin, etc.), control of editorial content (book publishing, magazines, audiovisual and new media), world leadership in the businesses of consumer maga- zines and distribution of cultural/leisure products and services. It is the Group's ambition to capitalise on these key assets to consolidate its presence and performance in all of the major sectors related to the publishing and distribution of contents. In the long term, Lagardère intends to become one of the top three Media groups in the world. Hachette Livre continues to actively pursue its objective of achieving a position among the global leaders in book publishing. Following the acquisition of the British publishing house Hodder Headline at the end of 2004, the Division has proceeded to the operational integration of its assets in Great Britain (Orion, Octopus and Watts), while actively preparing a new advance into the English language markets. On 6 February 2006, the Group announced an agreement with Time Warner (see Chapter 9, section 9_1_1_2) for the acquisition of Time Warner Book Group, for a total amount of US$537.5 million. This acquisition, which is subject to the approval of the United States anti-trust authorities, will provide Hachette Livre with a solid footing in the American market, through the control of a major high-performance book publishing group which may be used as a basis for consoli- dating other American publishing activities. This transaction also reinforces the Division's presence in the United Kingdom, where it becomes the largest publishing group. Globally, this makes Hachette Livre the third largest book publishing group in the world, with no impact on operational performance. Once again, the Group's ambitions in this domain have been confirmed. Hachette Filipacchi Médias (HFM) experienced a year of stabilisation and rationalisation of its business activities in 2005, under the pressure of the magazine publishing markets, which were tense in Western Europe, as in the United States and Japan. 2005 was also a year of preparation for Internet-related projects, which should take form in 2006. It is essential to provide alternative ways of accessing the editorial contents published or con- trolled by the Division, in order to renew magazine readerships and increase advertising revenues. HFM has therefore developed an online magazine product offer, which is expected to grow considerably in 2006, both in terms of subscriptions and per copy sales. In addition, significant efforts are currently being devoted to rein- forcing the editorial offer on the main Internet sites to attract surfers and provide advertising buyers with more structured offers. The majority of these developments will concern internal growth, but the Group will be atten- tive to any opportunities for acquisitions that could help achieve this objective or strengthen HFM's portfolio of magazine titles. As regards international development, HFM will continue to develop its flagship editorial subject matter in new countries, in order to capitalise on emerging markets' dynamism in countries such as Russia and China, which today have a high potential for growth and increased profitability. 32 LAGARDÈRE / REFERENCE DOCUMENT 2005 REFERENCE DOCUMENT 2005 Hachette Distribution Services' (HDS) development does not imply radical change to its existing activities, but is mainly based on the gradual extension of its networks of sales outlets, especially in the Central European coun- tries where growth rates are significant. HDS also remains attentive to the impact of digitisation on its retail sales activities. The website virginmega.fr was the first to be launched on the market in 2004, and is now in second position in the field of websites for the legal purchase and download of music in the French market place, one of the rare countries where iTunes competes with a real local alternative. HDS' principal lines of strategy are aimed at reinforcing current activities: consolidation of its position as global leader for retail commerce in travel areas (Travel Retail); developing of new sales points and launch of innovative commercial concepts for the high street and travel areas. In addition, the Division will seize growth opportunities generated by the digitisa- tion of contents. HDS possesses powerful brands and the requisite commercial skills to achieve these ends. Lagardere Active, in the radio sector, is facing up to profound changes related to broadcasting: the preparation of a new FM frequency plan and projects in digitisation. While these two factors include certain risks (in particu- lar, the opening up of the radio landscape to new entrants potentially introducing pressure on the advertising market), they are primarily to be considered as opportunities to strengthen the Group's position: the possibility of producing variations and the segmentation of programme offers, enhanced geographic coverage, etc. Lagardere Active is extremely attentive to these changes in its competitive environment and will play the role of leader by actively accompanying these adjustments. The Central European markets in which Lagardere Active Radio International (LARI) operates offer strong growth potential for the Division. The advertising markets in this geographic area are growing at a fast pace. For this reason, any opportunities for acquisitions complementary to current activities will be examined, in order to quickly extend the Division's presence while at the same time improving operating profitability through the potential synergies that LARI could exploit. Regarding special interest TV channels, Lagardere Active helped redefine the Digital Terrestrial Television (DTT) offer in 2005 following the reallocation of certain authorisations that were previously withdrawn. In the autumn, the Group was able to launch the free channels Gulli (youth) and Europe 2 TV (music), as well as Canal J as part of its paying offer. The first audience ratings are very encouraging; with priority now being given to raising performance levels in order to attain the threshold enabling free channels to reach profitability through adver- tising revenue. On 17 February 2006, the Lagardère Group announced a draft agreement with Vivendi Universal (see Chapter 9, section 9_1_1_1) for the acquisition of a 20% share in Canal+ France. This investment demonstrates the Group's ambition in the television sector and places it in an ideal position, as 2nd largest shareholder, to become the company's operator in the event of a future capital reorganisation. Canal+ Group, by the quality of its teams, its editorial ambition, and rigorous management, has re-conquered a unique position in the French television land- scape. If the merger with TPS is authorised by the competition authorities, it will gain access to the most attractive con- tents, a database of extremely loyal subscribers and a particularly high performance television distribution plat- form with a presence on most of the digital television broadcasting networks (satellite, ADSL, DTT and mobile). 5 INFORMATION ON THE BUSINESS ACTIVITIES OF