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Management Report Financière CVT

Interim period to 30 June 2010

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1. Highlights

(In € millions)

At June 30, 2010

At June 30, 2009

Change 2010/ 2009

Change 2010/2009

(at constant exchange

rates)

Order backlog 1,193 1,369 (13)% (17)%

New orders 532 402 32% 30%

Sales 559 553 1% 0%

Current income from operations 83.3 87.6 (5)% (6)% Current income from operations (as a % of sales)

14.9% 15.8% - -

Net profit – Group share (20.2) (3.6) (461)% (453)% Net profit – Group share (excluding non-recurring items) (2)

14.0 24.8 (44)% (44)%

EBITDA (1) 89.4 93.6 (4)% (5)%

Free cash flow (3) 90.3 108 (17)% (18)%

Headcount 5,089 5,390 (6)% - Notes:

(1) EBITDA corresponds to current income from operations before depreciation and amortization; (2) In 2009 and 2010: before amortization of margin in backlog owing to the reorganization of the

Group’s ownership structure; In 2010 only: before amortization of the cost of issuing the initial LBO debt following the refinancing arranged on June 10, 2010;

(3) Before financial income & expenses and taxes. The major event in the 18-month financial year ended on December 31, 2009 was the reorganization of the Converteam Group’s ownership structure with effect from September 29, 2008 and its acquisition by Financière CVT. Following the various restructuring operations, Converteam Group became wholly- and directly owned by Financière CVT, which is itself owned notably by CVT Holding. Financière CVT and all its directly and indirectly owned subsidiaries form “the Group”. At December 31, 2009 and at June 30, 2010, Financière CVT held all of Converteam Group’s share capital. Following the reorganization of the Group in 2008, Financière CVT carries the Group’s debt arranged in connection with the acquisition of the Converteam Group. A debt refinancing transaction took place in June 2010. Accordingly, the borrowings arranged on September 29, 2008 were repaid, and the Group arranged new borrowings on June 10, 2010 (see Note 16 to the summary interim consolidated financial statements).

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It should be noted that Financière CVT’s financial statements were prepared for the first time at December 31, 2009 in respect of an 18-month financial year. The financial statements presented for the six-month period ended on June 30, 2009 were prepared as comparatives for the financial statements drawn up for the six-month period to June 30, 2010. The financial statements to June 30, 2009 did not undergo a limited review by the Statutory Auditors. The first half of 2010 was marked by an acceleration in the pace of new orders across most of the Group’s business segments. New orders booked during the first half of 2010 increased by 32% compared with the first half of 2009. This contributed to an increase of 4% in the order backlog by comparison with December 31, 2009. Efforts to adapt its business potential to current economic conditions were maintained, with measures including the strengthening of sales teams in some regions, redeployment of staff to focus on more buoyant market segments and upgrades to the range of services offered. Even so, the growth in the order backlog was accompanied by heavy pressure on margins caused by intense competition in the Group’s principal markets. Within this context, in the first half of 2010 the Group managed to sustain a comparable level of business to that recorded in the first half of 2009. The Group’s sales came to €559 million at June 30, 2010 and current income from operations totaled €83.3 million over the period, representing a decline of 4.9% compared with the first half of 2009. The Group launched a program in 2009 to adjust its cost structure and initiated several cost-cutting drives, while stepping up its commercial initiatives. These efforts were maintained during the first half of 2010. Measures implemented in 2009 to reduce inventories and renegotiate the terms of customer and supplier payments were actually maintained during 2010. Accordingly, even though free cash flow decreased over the period by comparison with the first half of 2009, its level remained high and reflected the healthy current income from operations and positive working capital requirement over the period. Net profit in the first half of 2010 notably reflected the write-down of expenses linked to the issue of the initial debt (€34.3 million) following the refinancing operations completed in June 2010 (see Notes 7 and 16 to the interim condensed consolidated financial statements) and the amortization of margin in backlog linked to the reorganization of the Group’s ownership structure in September 2008. Excluding these non-recurring items, net profit came to €14 million at June 30, 2010. Net debt of €(966.7) million at June 30, 2010 was composed of €(1,226.9) million in borrowings (including €723.9 million in loans from shareholders) and €260.2 million in cash. At June 30, 2010, net debt excluding loans from shareholders came to €(242.8) million, representing 1.42x EBITDA for the previous 12 months. The Group is in compliance with the ratios set in its banking covenants.

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1.1. Markets The first six months of 2010 were marked by a significant recovery in the segments most affected by the crisis, such as Metals, Power Generation and the Oil & Gas segments, which recorded an increase in orders of over 40% by comparison with the first half of 2009. The Services and Renewables segments also reaped the benefit of the more favorable economic conditions and specific factors driving these segments, including optimized operating expense for customers in Services activities and a focus on energies with a low carbon impact, for the wind and solar energy segment.

• Industry (Metals and other industries) Broadly speaking, worldwide demand for steel reached a high level during the first half of the year. This production represented a capacity utilization rate of over 70% (Source: World Steel Association), which nonetheless lagged below the levels reached in 2008 following the commissioning of additional capacity. The recovery was particularly marked in China (42% of world demand), India and Brazil, three countries that are together driving overall global demand. Demand in Europe and North America remained at some 25% to 30% below the level recorded in the first half of 2008. Steelmakers remained relatively cautious about their investment programs, with these remaining smaller than those implemented in 2007 and 2008. The recovery in the market paved the way for the signature of new orders during the first half of 2010 in India, Brazil and Europe. In other segments of the Industry market (mining, material handling, test benches, other industry), the situation is mixed. Certain segments, such as material handling and test benches continue to be affected by the halt of investment spending on cranes for container ports and industrial production capacity. Even so, these segments benefited during the first half of the year from the growth in the wind energy market, in which Converteam holds a leadership position, with the growing number of test bench projects for the production of new wind turbines and for the cranes used to install wind turbines offshore. All in all, Converteam’s new orders in the Industry segment grew by 41%.

New orders (In € millions)

At June 30, 2010

At June 30, 2009

Change 2010/2009

Industry (Metals, Other industries) 86 61 41%

Marine (Naval, Merchant) 59 78 (24)%

Oil & Gas (Offshore, Oil & Gas) 112 75 49%

Energy (Renewables, Power Generation) 186 113 65%

Services (Marine, Industry) 89 75 19%

Total new orders 532 402 32%

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• Marine (Merchant Marine and Naval)

After experiencing a very low level of activity during 2009, the Marine segment saw a slight recovery in investments in the cruise ship segment, and the Group recorded a high level of orders during the first half of 2010, including an electric propulsion system order for a cruise ship and the first order booked by Converteam for an electric propulsion system for a 140 meter mega-yacht. The Naval segment continued to represent a major source of new orders. Even so, the segment was adversely affected by the contraction in government budgets. Consequently, the Group focused on new markets outside its traditional markets (France, United Kingdom, United States), with a major propulsion and automation project for the South Korean Navy. However, the segment recorded a reduction in orders of (24%) by comparison with the first half of 2009 owing to a high level of Naval orders over this period.

• Oil & Gas (Offshore and Oil & Gas)

Investment spending in the Oil & Gas segment recorded a significant increase (up 62%) owing in particular to the larger number of projects in Asia and in the Middle East. Some major contracts were also signed in the LNG sector (Liquefied Natural Gas) for the recovery and recompression of gas that evaporates during the loading of methane tankers in Qatar and for an LNG liquefaction facility in China. Though affected by events in the Gulf of Mexico, the Offshore segment also brought new opportunities, with orders rising 24% compared with the first half of 2009. In particular, Converteam signed a contract with the largest offshore oil company in China for propulsion and automation systems for a heavy-lift semi-submersible vessel. Orders in the Offshore and the Oil & Gas segment surged 49% above the level recorded in the first half of 2009.

• Renewables

The Renewables market continued to enjoy strong growth. The financing difficulties experienced during the first half of 2009 were broadly overcome. Wind energy remains the principal market, but the solar photovoltaic market continued to post brisk growth. In a report published by Frost & Sullivan in November 2009, Converteam was ranked as the leading non-integrated supplier of wind energy converters. Converteam managed to increase its new orders in the Renewables market by 29% compared with the first half of 2009, including its first orders in the solar energy segment.

• Power Generation

The construction market for conventional power stations was again severely affected by a business contraction, since the principal market participants recorded further downturns in orders during the first quarter of 2010 after a very tough year in 2009. Amid these tough conditions, Converteam nonetheless managed to record a very significant increase in its orders thanks to several large projects, notably in the hydro power segment. The Group’s solutions representing a total of 1,600MW in capacity were selected for hydro power projects during the first half of 2010. Growth in the motor and generator segment for the nuclear industry, which was already evident in 2009, helped the Group to land some major contracts in China for a new power station and for the modernization of a facility in the United States. Likewise, a contract was landed by the Group as part of a major project to build a nuclear facility in South Korea. An initial contract for desalination equipment in Australia was also secured during the first half of 2010. Accordingly, the segment recorded an increase in its orders of 147% compared with the first half of 2009.

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• Services (Industry and Marine)

The Group’s Services segment enjoyed strong growth, with an increase of 19% in new orders by comparison with the first half of 2009. In the Metals and Offshore segment, the Group sealed some major contracts to refurbish equipment in order to enhance its energy performance. 1.2. Excellence in Execution (EIE) The EiE program aims to make the most of existing expertise and experience and to harmonize working definitions, methods and tools right across the Group. EiE is a means of addressing market changes through coordinated initiatives, providing appropriate resources and competencies. The EiE program promotes creativity, transparency, motivation and individual leadership through the adoption of change management principles. The effective deployment of a “Lean” mindset, of Global Project Management, innovative Total Quality methodologies, continuous improvement and standardization approaches resulted in an improvement in the quality and service provided to our customers and a reduction in manufacturing costs and cycles, thereby helping to reduce the working capital requirement and boost cash generation. 1.3. Research & Development Research and development represents a major strategic avenue for Converteam. As a result, we continued our drive, with spending totaling €14.0 million in the first half of 2010, compared with €14.8 million in the first half of 2009. R&D spending not financed by customers and excluding subsidies represented 2.5% of Converteam’s sales in the first half of 2009 compared with 2.7% in the first half of 2009. We continued to develop new generations of medium and low voltage drives (MV7000A and LV8000), high-speed motors, Inovelis pods, permanent magnet generators, and we are building for the future by working on technologies using High Temperature Superconductors (HTS) and their applications in wind energy, wave energy and hydro power. 1.4. Human Resources With 5,089 employees based in 17 countries, Converteam is a global company drawing its strength from teams of highly qualified and multi-cultural personnel. Following the 8% reduction in the Group’s headcount in 2009, the persistently weak visibility prompted management to continue managing its human resources very tightly. This said, its units operating in fast-expanding markets, such as China and India, continued to grow and recruit new staff. Given these particular economic conditions, the priorities for the human resources teams are competency management, employee motivation and internal communication. Since new orders represent one of the sensitive factors, a special bonus was introduced for 2010, and the anticipated move above the €1 billion mark for new orders in 2010 (compared with €801 million in 2009) will lead to all employees being rewarded with some of the resulting gains for the Group. Half this bonus was paid out in July 2010 owing to the achievement of over €500 million in new orders during the first six months of 2010. The Converteam Academy stepped up its activities during the first half of 2010 by training 375 employees in areas such as cash management and project management, the MV7000 and team management. New modules are currently under development, notably for sales force training. Since it firmly believes in investing in the development of its employees, Converteam is preparing for the future by ramping up key projects such as competency management, variable compensation management and the deployment of a new ethics code for Converteam. The quality of labor dialogue remains a key factor in promoting the people who work for Converteam. The European Works Committee met several times with the Group’s senior management during 2010.

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2. Cash flow and net debt 2.1 Change in net cash/(debt)

(In € millions)

a) (Decrease)/increase in net cash (in € millions ) At June 30,

2010At June 30,

2009

Free cash flow before capital expenditures 95.9 116.9 Cash flow used in investing activities in operational non-current assets

(5.6) (8.5)

Free cash flow 90.3 108.4 Financial income & expenses (29.1) (35.2) Taxes (5.7) (19.2)

Cash flow used in financing activities (26.2) (35.9)

Net effect of exchange rate fluctuations 1.9 5.1

Other items (0.2) 0.1

(Decrease)/increase in net cash 31.0 23.3

Net cash at beginning of the period 229.2 285.6

Net cash at end of period 260.2 308.9

b) Analysis of the change in net cash/(debt): At June,

2010 At June 30,

2009 Increase/(decrease) in cash and cash equivalents 31.1 23.3

(Issuance)/repayment of short-term and long-term borrowings 31.9 41.0

(Increase)/decrease in obligations under finance leases 0.9 1.0

Debt issuance costs (26.3) (14.6)

(Issuance)/redemption of other borrowings (shareholder loans) (17.6) 4.3

Net effect of exchange rate fluctuations 0.0 (0.1)

Change in net cash/(debt) 20.0 54.9

Net cash/(debt including shareholder loans) at beginning of the period

(986.7) (577.2)

Net cash/(debt including shareholder loans) at end of period (966.7) (522.3)

Free cash flow reflected the firm trend in current income from operations combined with an improvement in the working capital requirement over the period. Cash flow used in investing activities in operational non-current assets relates to the purchase of property, plant and equipment and intangible assets used in operating activities, which remained modest during the first half of 2010.

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The principal components of financial income and expense items were: - €1.8 million in interest income at June 30, 2010 (vs. €2.8 million at June 30, 2009), - foreign exchange gains of €8.6 million at June 30, 2010 (compared with foreign exchange losses of €8.2 million at June 30, 2009). Foreign exchange gains and losses mainly derived from fluctuations in the British pound against the euro, - €37.3 million in interest expense on bonds and other borrowings at June 30, 2010 compared with €29.5 million at June 30, 2009, - €1.8 million in financial charges linked to the early redemption of debt at June 30, 2010. Our operations outside the euro zone are reported in the functional currency of the relevant countries, and as a result we recognize a currency translation effect when translating their financial statements into euros. The main impact derived from our subsidiaries in the United Kingdom and China.

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2.2. Net debt

(In € millions)

At June 30,

2010

AtDecembe r

31, 2009

Cash on hand and demand deposits 260.2 229.0 A1 loan 0.0 (150.9) A2 loan 0.0 (87.6)B1 loan 0.0 (104.8)B2 loan 0.0 (24.5) C1 loan 0.0 (104.8)C2 loan 0.0 (24.5) EUR loan (357.7) 0.0GBP loan (144.6) 0.0Mezzanine facility 0.0 (37.0)Finance leases (8.7) (9.5)Cash bridge/(permanent credit line) 0.0 (0.1) Net debt excluding debt issuance costs and sharehol der loans (1)

(250.8) (314.7)

Debt issuance costs (2) 8.0 34.3

Net debt excluding shareholder loans (242.8) (280.4)

Other borrowings (shareholder loans) (3) (723.9) (706.3)

Net debt (including shareholder loans) (966.7) (986.7)

(1) Borrowings were issued in a total amount of €717.5 million at the acquisition date (Septemner 2008). At December 31, 2009, the total amount of loans came to €534.2 million. Following the renegotiation of its debt on June 10, 2010, the Group repaid several borrowings and arranged €500 million in new borrowings on the same date. Accordingly, the Group repaid a total of €535 million (including interest) during the first half of 2010 and the Group’s borrowing amounted to €502.3 million (including interest) at June 30, 1010 (see Note 16 to the summary interim consolidated financial statements for additional information concerning financial liabilities). At June 30, 2010, finance leases amounted to €8.7 million for our facility in Nancy. (2) The total amount of transaction costs directly attributable to the issuance of debt came to €43.3 million. A total of €9 million in these costs were amortized during the 2009 financial year to €34.3 million at December 31, 2009. Following the renegotiation of the debt, they were amortized in full at June 30, 2010.

The total amount of transaction costs directly attributable to the issuance of the new bank debt came to €8.8 million at June 10, 2010, of which €0.8 million had been amortized by June 30, 2010.

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(3) At September 29, 2008, CVT Holding granted Financière CVT two shareholder loans of €200 million and €10.7 million respectively. The outstanding amount of this loan, which was partially repaid during the financial year, came to €1.1 million (including interest) at June 30, 2010. In connection with the reductions in capital carried out in December 2009, CVT Holding also granted Financière CVT a shareholder loan in an amount of €490 million. At June 30, 2010, the €723.9 million in shareholder loans included €32.9 million in interest. Bank loans (excluding shareholder loans) are subject to financial covenants based on net debt/EBITDA and EBITDA/interest ratios measured at the level of Financière CVT. Following the renegotiation of the debt, a single ratio was applicable at June 30, 2010:

• The net debt/EBITDA ratio over a 12-month period must be below 2.5x At June 30, 2010, the Group met these criteria. 2.3. Balance sheet

(In € millions)

At June 30,

2010

AtDecember

31, 2009

Goodwill, net 1,705.2 1,707.4

Intangible assets, net 45.0 60.3

Property, plant and equipment, net 62.7 57.9

Other non-current assets, net 0.5 0.4

Deferred tax assets 16.8 9.0

Non-current assets 1,830.2 1,835.0

Current assets 631.6 753.8

Cash & cash equivalents 260.2 229.1

Total assets 2,722.0 2,817.9

Shareholders’ equity 505.0 546.0

Provisions 113.2 101.3

Accrued pensions and retirement benefits 45.2 43.8

Borrowings 1,226.9 1,215.8

Deferred tax liabilities 16.2 19.8

Current liabilities 815.5 891.2

Total liabilities 2,722.0 2,817.9

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Net goodwill came to €1,705.2 million at June 30, 2010 following the acquisition of the Converteam group by Financière CVT in September 2008. At June 30, 2010, the Group considered that there was no evidence of impairment in goodwill. The Group had not identified any development costs meeting the requirements of IAS 38 for recognition as intangible assets at June 30, 2010. Net debt of €(966.7) million at June 30, 2010 was composed of €(1,226.9) million in borrowings and €260.2 million in cash. Net debt (excluding shareholder loans) amounts to €(242.8) million. 2.4. Risk factors and commitments 2.4.1. Financial risks Our business requires us to be in a position to provide certain customers with bank guarantees. To support our growth, we have negotiated guarantee facilities with our banks, some of which are confirmed. We consider that these facilities (including €270 million in confirmed lines and €189 million in non-confirmed lines, representing €459 million in total) are sufficient for the medium term. At June 30, 2010, drawdowns on confirmed lines amounted to €110 million and those on non-confirmed lines to €109 million. In addition, €358 million in parent company guarantees were also issued. With regard to interest-rate risk, cash surpluses are invested in straightforward cash mutual funds, while floating-rate debt is hedged through swaps. Currency risk arises through our commercial contracts, which may be invoiced in a currency other than that in which costs are incurred. The Group endeavors to hedge currency risk either by adjusting purchasing currencies or using hedging instruments (swaps, forward currency agreements). We are also exposed to risks in connection with raw materials such as copper or steel. Our policy is to hedge these risks whenever the execution period of a contract exceeds twelve months and significant amounts are involved. In accordance with IAS 32-39, financial instruments measured at fair value represented a net liability of €(48) million at June 30, 2010, comprising €(35.1) million in interest-rate hedges and €(12.9) million in currency hedges. 2.4.2. Legal risks and insurance In the normal course of its business, the Group is exposed to risks of litigation on technical and commercial grounds. Provisions are set aside where appropriate and the Group pursues an active policy of arranging insurance cover for this type of risk. - In 2007, Marnavi Splendor GmbH & Co., KG filed a claim in the United States against Converteam. The amount claimed stands at around $1.1 million. In a ruling made on February 26, 2010, the US judge declared that the court did not have jurisdiction and invited the plaintiff to bring the case before the French courts. To date, Converteam has not been informed of any such proceedings. - During 2008 and 2009, Converteam received contractual claims from one of its customers following incidents which had been occurring since 2007 in respect of products which the Group had supplied. Investigations revealed that these incidents were notably attributable to a component manufactured by a Converteam supplier and built into the equipment sold. The Group is pursuing its investigations and has set aside provisions in an amount that it considers will cover related costs.

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- In 2008, the Group was also served with a writ of summons in the United States from Carnival Corporation and Cunard Line, Ltd claiming a sum in excess of $130 million jointly from Converteam and another group. There were no significant developments during the first six months of the year. Converteam challenges this claim. - In 2009, the Group was issued with third-party notice in the United States from Rolls-Royce AB in its capacity as guarantor. The plaintiff is claiming a sum in excess of $300 million from Converteam and from another group. This claim is linked to the litigation that Royal Caribbean Cruises Ltd (RCCL) initiated in 2003 against Rolls-Royce AB and other companies. Pursuant to the agreements signed in 2005 that gave rise to Converteam, no liability in respect of this litigation was transferred to the Group. Accordingly, Converteam considers that it is not concerned by this lawsuit. - In May 2010, Amicable Dispute Resolution proceedings were initiated against Converteam before the ICC in London concerning a dispute over the supply of equipment. The amount claimed stands at €39.2 million. Converteam denies this claim. 2.4.3. Pledges of assets CVT Holding pledged all of the shares it holds in the share capital of Financière CVT to lenders as a guarantee for the performance of the payment and repayment obligations arising from the senior facilities agreement and mezzanine facilities agreement dated September 26, 2008 arranged by Financière CVT. Within the framework of the same facilities, pledges were also made of shares in the main subsidiaries of Financière CVT, as well as of their most valuable items of property, plant and equipment and intangible assets. The same applied to the three shareholder loans that were also pledged to the Financière CVT lenders. The debt refinancing, which was effective June 10, 2010, was guaranteed solely by security interests granted to the lenders. In return, all the security interests provided under the previous financing arrangements were released. These release procedures are in progress at July 30, 2010 2.4.4. Outlook During the first half of 2010, the positive trend seen in certain markets, chiefly Oil & Gas, Renewables and Metals, which was strengthened by a focus on marketing initiatives, helped to pave the way for significant growth in new orders. Even though visibility on its principal markets remains poor, the Group anticipates a further increase in new orders during the second half of 2010 compared with the same period of 2009. These comments are subject to uncertainties that notably include economic conditions and the risks described in previous paragraphs. 2.4.5. Subsequent events No significant events occurred after the balance sheet date. Massy, July 30, 2010 ____________________ Pierre BASTID President & CEO Financière CVT SAS