Amsterdam, Netherlands
Regulatory News:
-- Revenue for the first half at EUR 760 million
-- Operating income(1) at EUR 15 million
-- Ongoing adjustments in operating cost structure delivering benefits
-- Strong net cash position at EUR 291 million after use of EUR 100 million in share buyback program
Gemalto (Euronext NL0000400653 - GTO), the leader in digital security, today announced its results for the half year ended June 30, 2007.
Highlights of the adjusted income statement(1) (figures below are at historical exchange rates):
Year-on-year
EUR in millions H1 2006 H1 2007 change(2)
----------------------------------------------------------------------
Net sales 846 760 (10.2)%
----------------------------------------------------------------------
Gross profit 260 222 (14.6)%
Gross margin (%) 30.7% 29.2% (1.5) ppts
----------------------------------------------------------------------
Operating expenses(3) 227 210 (7.8)%
Operating income 32.7 15.2 (53.6)%
Operating margin (%) 3.9% 2.0% (1.9) ppts
----------------------------------------------------------------------
Profit for the period 28.9 24.5 (15.2)%
----------------------------------------------------------------------
Adjusted basic earnings per
share (euro)(4) 0.30 0.26 (15.3)%
The above mentioned adjusted measures (unaudited)
exclude accounting entries related to the business combination with Gemplus, as well as one-off expenses and reorganization charges incurred in connection with this transaction. They are not meant to be considered in isolation or as a substitute for comparable IFRS measures, and should be read only in conjunction with the condensed consolidated interim financial statements prepared in accordance with IFRS (unaudited) provided in appendix 6. Gemalto believes these adjusted financial measures are helpful in assessing its past financial performance and its future results.
Olivier Piou, Chief Executive Officer, commented: "Gemalto's performance in the first half of 2007 reflects the benefits of our pricing discipline in Mobile Communication, the first effects of our cost structure adjustments to better address the market environment, and good patent licensing activity. During this first semester, we moved from managing post-merger integration to actively developing our joint capabilities and winning significant digital security business. We remain confident that the second half of 2007 will further reflect the benefits of our strategy, which combines initiatives for profitable growth with cost reduction programs."
Basis of preparation of financial information
The Company's condensed consolidated interim income statements, balance sheets, statements of shareholders equity and cash flow statements (unaudited) presented in appendix 6 were prepared in accordance with International Financial Reporting Standard (IFRS).
Additional financial information on an adjusted basis (unaudited) is presented that is not in conformity with IFRS, in particular the presentation of cost of sales, operating expenses and operating income, operating margin and earnings per share which exclude one-off combination related expenses, reorganization charges and charges resulting from the accounting treatment of the transaction. Charges resulting from the accounting treatment of the transaction consist of amortization of inventory step-up, additional stock-based compensation due to the revaluation of Gemplus' stock options as of combination date, amortization and impairment of intangible assets. One-off combination related expenses consist of charges which would have not been incurred had the transaction not occurred: professional advisory services incurred in connection with the integration, new Gemalto brand and logo creation and worldwide registration, as well as impairment charges related to capitalized development costs on projects which are redundant with existing products or technologies available in Gemplus. Most of the combination related expenses were incurred in 2006. Reorganization charges consist of cost related headcount reductions in the support functions, the consolidation of manufacturing and office sites (including asset write-offs and transfer cost, severance cost, lease termination and building refurbishment cost) as well as the rationalization and harmonization of the product and service portfolio. The Company believes that this information, which is not in conformity with IFRS, is helpful supplemental information in order to better assess its past and future performance. In addition, the Company's management uses this information in its own planning and in assessment of its operating performance. This information provided by the Company may not be comparable to similarly titled measures employed by other companies.
Because the business combination between Gemalto and Gemplus took place as of June 2, 2006, the adjusted financial information presented for the first half of 2006 was prepared on a pro forma basis, and reflects the combined activity of the two companies over the period, assuming that the combination had taken place as of January 1, 2005.
The Company provides reconciliations between the IFRS and adjusted income statements for the first half of 2007. This reconciliation is presented in a table in appendix 4. The IFRS consolidated income statement for the first half 2007 (unaudited) shows an operating loss of EUR 65.9 million and a loss for the period of EUR 48.4 million, including amortization and impairment of intangible assets for EUR 23.0 million, reorganization expenses for EUR 55.1 million and combination related expenses for EUR 1.2 million.
For a more detailed description of adjustments made to the IFRS consolidated income statement, please refer to DESCRIPTION OF ADJUSTED MEASURES at the end of this press release.
All comparisons in this document are at historical (reported) exchange rates, unless stated otherwise, and describe the evolution of the adjusted first half 2007 information compared to that of the first half 2006 prepared on a pro forma basis.
Fluctuations in currency exchange rates against the Euro have an impact on the Euro value of Group revenues. Comparisons at constant exchange rates aim at neutralizing this translation effect on the analysis of the Group operations. When Gemalto compares its historical figures for the current year against the prior year's figures at constant exchange rates, it assumes that the exchange rate of the Euro against such other currencies in the prior year would have been the same as in the current year.
Adjusted income statement(5) analysis
Extract of the adjusted income statement (figures below are at historical exchange rates):
Six months ended Six months ended
June 30, 2006 June 30, 2007
----------------------------------------------------------------------
As a % As a %
EUR in of EUR in of
millions sales millions sales % change(6)
----------------------------------------------------------------------
Revenue 846.3 759.9 (10.2)%
----------------------------------------------------------------------
Gross profit 260.2 30.7% 222.1 29.2% (14.6)%
----------------------------------------------------------------------
EBITDA(7) 74.2 8.8% 50.5 6.6% (31.9)%
----------------------------------------------------------------------
Operating expenses(2) 227.3 26.9% 209.5 27.6% (7.8)%
Operating income 32.7 3.9% 15.2 2.0% (53.6)%
----------------------------------------------------------------------
Profit for the period 28.9 3.4% 24.5 3.2% (15.2)%
======================================================================
At constant exchange rates revenue was down 6% reflecting lower revenue in Mobile Communication and patent licensing, partly offset by growth in Secure Transactions revenue driven by EMV(8)
and contactless payment volumes and higher pay TV activity.
On a geographic basis and at constant exchange rates revenue was down 15% in the Americas and down 4% in Asia, mainly due to lower revenue in Mobile Communication. In EMEA(9) revenue was down 4%, with growth in Secure Transactions and ID & Security offsetting lower revenue in Mobile Communication.
Gross margin was 29.2% compared with 30.7% in a first half of 2006 that had benefited from unusually high patent licensing revenue (EUR 24.1 million against EUR 14.1 million in the first half of 2007) and from a number of positive one-off items. The lower contribution of Mobile Communication to total revenue and lower margin in Secure Transactions also accounted for the year-on-year decrease.
Operating expenses decreased by EUR 17.8 million, i.e. 7.8% year-on-year, reflecting the effects of cost reduction measures implemented in the support functions after the combination. Compared with the first half of 2006, General & Administrative expenses were down by 13.6%.
Consequently, operating income was at EUR 15.2 million with operating margin at 2.0%. This performance reflects higher margins in Mobile Communication and to patent licensing revenue recorded earlier in the year than anticipated.
Financial income was EUR 10.1 million. It comprises net interest income of EUR 5.0 million, a gain of EUR 3.8 million on the disposal of an investment held for sale, and foreign exchange gains of EUR 1.4 million. The Company also recognized a gain of EUR 9.4 million in relation with the sale of an investment in an Associate. Adjusted pre-tax income was EUR 33.1 million, and income tax charges amounted to EUR 8.6 million. As a result, adjusted profit for the period was EUR 24.5 million.
Reorganization charges reported in the IFRS income statement
Charges incurred in connection with headcount reductions in the support functions, with the consolidation of manufacturing and office sites, as well as the rationalization and harmonization of the product and service portfolio, are disclosed under a line named "Reorganization expenses" in the IFRS income statement and amounted to EUR 55.1 million. This amount consisted of severance costs for EUR 42.9 million (mainly related to the closure of production facilities in the Americas, Asia and Europe), to fixed asset and inventory write-offs for EUR 11.0 million and to other costs, mainly related to IT integration, for EUR 1.2 million.
The implementation of the related reorganization plans will result in the curtailment of certain pension obligations. A credit of EUR 2.4 million was recognized in the first half of 2007 in connection with these curtailments, in reduction of cost of sales and operating expenses. This credit is reflected in the Adjusted measures.
Balance sheet and cash flow (IFRS measures)
Free cash flow(10) was an outflow of EUR 24.9 million, after capital expenditure of EUR 29.2 million, of which EUR 17.7 million was incurred for plant, property and equipment purchases, and approximately EUR 16 million used in connection with restructuring measures. The disposal of the investment held for sale and of the investment in an Associate mentioned above provided EUR 20.5 million in cash.
Working capital requirements slightly decreased during the first half by EUR 1 million. Excluding the increase in reserves for restructuring plans launched in the period, working capital requirements grew by an estimated EUR 29 million compared with 2006 year-end. This evolution was mainly due to the seasonal increase in inventory recorded at June 30, 2007 in anticipation of the stronger activity scheduled for the second half of the year. Compared with June 30, 2006 working capital requirement was down by EUR 28 million, a year-on-year improvement of 13%.
The share buy-back program effectively started on January 29 and used EUR 100 million in cash. 5.4 million shares were purchased in the first half of the year, representing 5.9% of Gemalto's share capital. This program authorizes the Company to acquire up to 10% of its share capital. In addition, EUR 4 million in cash were used as part of the completion of the squeeze-out of Gemplus shares.
Gemalto's net cash position was EUR 291 million at June 30, 2007. The decrease of EUR 105 million compared with December 31, 2006 corresponds almost exactly to the cash used in the share buy-back and the acquisition of the remaining Gemplus shares.
Segment information(11)
Extract of the adjusted pro forma income statements are at historical exchange rates unless otherwise mentioned.
Mobile Communication
Six months ended Six months ended
June 30, 2006 June 30, 2007
----------------------------------------------------------------------
As a % As a %
EUR in of EUR in of
millions revenue millions revenue % change
----------------------------------------------------------------------
Revenue 490.7 417.8 (14.9)%
----------------------------------------------------------------------
Gross profit 163.9 33.4% 144.1 34.5% (12.1)%
----------------------------------------------------------------------
Operating expenses 133.1 27.1% 109.8 26.3% (17.5)%
Operating income 30.5 6.2% 35.7 8.5% 17.1%
======================================================================
At constant exchange rates, Mobile Communication revenue was down 11%. Deliveries of SIM cards rose 4%, reflecting Gemalto's strict pricing discipline and selective approach to tenders.
As a result, the year-on-year decrease in average SIM card selling price was contained to 15% at constant exchange rates, a very significant improvement compared with 34% a year ago. The average selling price increased by 7% at constant exchange rates in the second quarter compared with the first, due to more favorable regional and product mixes. The purchasing and other manufacturing synergy measures implemented in the last twelve months have begun to generate significant savings. Consequently, with lower revenue, gross margin in the first half was up 1.1 percentage points to 34.5% of revenue.
Operating expenses were reduced by 18%, reflecting the positive impact of the operating adjustments put in place following the merger, especially in General & Administrative expenses as well as the redeployment of Research & Engineering and support resources to other segments. Accordingly, operating income was EUR 35.7 million with operating margin at 8.5%. This marks a strong improvement when compared with the 6.2% reported in the first half of 2006, a figure that included favorable one-off items.
Secure Transactions
Six months ended Six months ended
June 30, 2006 June 30, 2007
----------------------------------------------------------------------
As a % As a %
EUR in of EUR in of
millions revenue millions revenue % change(13)
----------------------------------------------------------------------
Revenue 191.3 192.8 +0.8%
----------------------------------------------------------------------
Gross profit 40.4 21.1% 33.4 17.3% (17.3)%
----------------------------------------------------------------------
Operating expenses 44.3 23.1% 43.4 22.5% (2.0)%
Operating income
(loss) (3.9) (2.0)% (9.5) (4.9)% NM
======================================================================
At constant exchange rates revenue was up by 4%, with strong growth in microprocessor-based payment products, personalization services as well as pay TV activity offsetting continued pressure on selling prices. Deliveries of microprocessor cards were up 13%, led mainly by EMV migration and card renewals in developed markets in Western Europe, and contactless payment in Asia.
Gross margin in this segment was down by 3.8 percentage points to 17.3%, reflecting the decrease in sales prices and less favorable product and regional mixes. The cost reductions expected from the restructuring plans launched should materialize significantly in this segment only in 2008. Consequently, the segment reported a EUR 9.5 million operating loss.
ID & Security
Six months ended Six months ended
June 30, 2006 June 30, 2007
----------------------------------------------------------------------
As a % As a %
EUR in of EUR in of
millions revenue millions revenue % change(13)
----------------------------------------------------------------------
Revenue 106.6 98.1 (8.0)%
----------------------------------------------------------------------
Gross profit 47.3 44.3% 34.5 35.1% (27.1)%
----------------------------------------------------------------------
Operating expenses 39.6 37.1% 46.3 47.2% +16.9%
Operating income
(loss) 7.7 7.2% (11.5) (11.7)% NM
======================================================================
At constant exchange rates revenue was down 5%, as a result of lower patent licensing revenue (EUR 14.1 million)
when compared with the unusually high revenue (EUR 24.1 million) reported in the first half of 2006. Revenue from Government Programs that includes e-passports, e-identity and healthcare cards was stable, as many of the large-scale projects recently won were only in their ramp-up phase. Security (i.e. Identity & Access Management for on-line applications) revenue was down slightly due to lower deliveries of microprocessor devices in the Americas. Transport revenue increased thanks to higher activity in Latin America.
The lower gross profit and 9.2 percentage point decrease in gross margin in the segment was mainly due to the lower patent licensing revenue. In line with Gemalto's strategy to grow the ID & Security business, operating expenses were driven up by EUR 6.7 million. Research & Engineering and Sales & Marketing expenses increased by EUR 3.3 million and EUR 2.2 million respectively, following the reallocation to this growth business of technical and marketing resources which played a key part in the winning of several large-scale tenders, such as the German healthcare project. Consequently, the segment reported an operating loss of EUR 11.5 million for the semester.
Public Telephony
Six months ended Six months ended
June 30, 2006 June 30, 2007
----------------------------------------------------------------------
As a % As a %
EUR in of EUR in of
millions revenue millions revenue % change(14)
----------------------------------------------------------------------
Revenue 32.9 22.0 (33.1)%
----------------------------------------------------------------------
Gross profit 2.1 6.3% 4.6 20.8% +119.0%
----------------------------------------------------------------------
Operating expenses 3.6 10.8% 2.2 9.8% (38.9)%
Operating income
(loss) (1.5) (4.5)% 2.6 11.6% NM
======================================================================
Memory cards for Public Telephony contribute less than 3% of Group revenue, as worldwide demand continues to decrease, reflecting the even more widespread usage of mobile telephony worldwide.
The significant improvement in gross margin and the decrease in operating expenses reflect the aggressive cost adjustments in manufacturing and support structure carried out since the merger. Consequently, the segment reported an operating income of EUR 2.6 million, against a EUR 1.5 million loss in the first half 2006.
Point-of-Sale Terminals
Six months ended Six months ended
June 30, 2006 June 30, 2007
----------------------------------------------------------------------
As a % As a %
EUR in of EUR in of
millions sales millions sales % change(14)
----------------------------------------------------------------------
Revenue 24.8 29.2 +17.7%
----------------------------------------------------------------------
Gross profit 6.6 26.5% 5.6 19.2% (15.2)%
----------------------------------------------------------------------
Operating expenses 6.7 27.0% 7.8 26.8% +16.4%
Operating income (loss) (0.1) (0.3)% (2.1) (7.3)% NM
======================================================================
The launch of a new range of products developed on a new technology platform in the fourth quarter of 2006 supported much of the revenue growth in the first half of 2007. During this period, strong activity in geographic areas where pricing levels are lower accounted for the decrease in gross profit compared with the same period of last year. Research & Engineering resources continued to be invested in the development of customizations and high end applications for the new platform, resulting in an operating loss of EUR 2.1 million.
Outlook
In the second half of 2007, operating margin(15) should reflect the usual favorable seasonal pattern and the increasing contribution of the first digital security solutions deployments. It will also benefit from additional cost synergies from the combination.
Gemalto continues to anticipate sustained demand in all of its key markets. It will continue to proactively make the necessary adjustments to its cost base and remains determined to reach its stated objective of an operating margin(15) above 10% in 2009.
Reporting calendar
Third quarter 2007 revenue will be reported on November 8, 2007, before the opening of Euronext Paris.
GEMALTO
FIRST HALF 2007 FINANCIAL RESULTS
DESCRIPTION OF ADJUSTED MEASURES
Due to the combination with Gemplus, Gemalto's financial statements have undergone significant change, due in particular to the accounting treatment of this transaction in accordance with IFRS 3 "Business Combination". To supplement the financial statements presented on an IFRS basis, the Group presents the adjusted information described in the table below.
Adjusted measures exclude certain business combination accounting entries, and expenses directly incurred in connection with the combination with Gemplus, that the Group believes are helpful in understanding its past financial performance and its future results. Adjusted financial measures are not meant to be considered in isolation or as a substitute for comparable IFRS measures, and should be read only in conjunction with consolidated financial statements prepared in accordance with IFRS. Management regularly uses these supplemental adjusted financial measures internally to understand, manage and evaluate the business and take operating decisions. These adjusted measures are among the primary factors management uses in planning for and forecasting future periods. Compensation of executives is based in part on the performance of the business based on these adjusted measures. Adjusted financial measures reflect adjustments based on the following items, as well as the related income tax effect:
-- Amortization of inventory step-up: IFRS 3 "Business Combination" requires Gemalto to value work-in progress and finished goods assumed in connection with the combination at net realizable value (the estimated revenue derived from the future sale of these goods less expected selling cost).
Therefore, the value of this inventory in the books of Gemplus on combination date was adjusted accordingly (step-up). Thus, subsequent sales of the work-in-progress and finished products carried in Gemplus' inventory at the time of the combination generate a lower margin than if they were manufactured after the acquisition, all other factors being equal. The amortization expense related to this step up is therefore disclosed in the income statement under a separate line below Cost of Sales. The adjustment, eliminating amortization of inventory step-up, is intended to restore the normal margin of such sales. The Group believes this adjustment is useful to investors as a measure of the ongoing performance of its business.
-- Additional stock-based compensation charge: As prescribed by IFRS 2 "Share-based payment" and IFRS 3 "Business Combination", vested and unvested stock options or awards granted by an acquirer in exchange for stock options or awards held by employees of the purchased company, or any substantially equivalent commitment by the acquirer to assume the obligations of the acquiree with regards to stock options granted to the latter's employees, as is the case for Gemalto under the Combination Agreement, shall be considered to be part of the purchase price for the acquirer, and the fair value (at the effective date of the acquisition or merger) of the new (acquirer) awards shall be included in the purchase price. It leads to increase the compensation charge related to stock-options granted by Gemplus prior to the acquisition. The adjustment, eliminating the additional stock-based compensation charge, is intended to reflect the compensation charge that Gemplus would expense if the company continued to operate on a standalone basis. The Group believes this adjustment is useful to investors as a measure of the ongoing performance of its business.
-- Amortization and impairment of intangible assets: amortization and impairment of intangible assets created as a result of the combination with Gemplus have been excluded from the adjusted profit for the period. The Group believes this is useful because, prior to this combination in the second quarter of fiscal 2006, it did not incur significant charges of this nature, and the exclusion of this amount helps investors understand the evolution of IFRS operating expenses in periods subsequent to the combination with Gemplus. Investors should note that the use of intangible assets contributed to revenue earned during the period and will contribute to future revenue generation and that these amortization expenses will be recurring.
-- Combination related charges: In 2006, Gemalto incurred material expenses in connection with the combination with Gemplus, which it would not have otherwise incurred. Combination related charges consist of professional advisory services incurred in connection with the integration, new Gemalto brand and logo creation and worldwide registration, as well as impairment charges related to capitalized development costs on projects which are redundant with existing products or technologies available in Gemplus. Gemalto also determined that its investment in a listed company was impaired as a consequence of the combination with Gemplus. The related impairment charge was recorded in Financial income (loss) in the first half of 2006. In the first half of 2007, Gemalto incurred combination related charges for EUR 1.2 million. The Group may incur further combination related expenses in the coming months. It believes it is useful for investors to understand the effect of these expenses on its cost structure.
-- Reorganization charges: charges incurred in connection with headcount reductions in the support functions, the consolidation of manufacturing and office sites (including asset write-offs and transfer cost, severance cost, lease termination and building refurbishment cost) and the rationalization and harmonization of the product and service portfolio.
Summary
Gemalto provides two sets of income statements for the first half 2007:
-- IFRS consolidated income statement, pursuant to its regulatory obligations
-- Adjusted income statement
Gemalto IFRS - Includes all charges resulting from the
consolidated income accounting treatment of the combination with
statement Gemplus (amortization and impairment of
intangible assets, additional stock-based
compensation), and one-off expenses and
reorganization charges incurred in connection
with the combination (combination related
charges).
----------------------------------------------------------------------
Gemalto adjusted - Combination assumed to have taken place as of
income statement January 1, 2005.
- Excludes one-off expenses and reorganization
charges incurred in connection with the
combination with Gemplus (combination related
charges) and all charges resulting from the
accounting treatment of the combination.
----------------------------------------------------------------------
In addition, because the business combination between Gemalto and Gemplus took place as of June 2, 2006, the adjusted financial information presented for the first half of 2006 was prepared on a pro forma basis, and reflects the combined activity of the two companies over the period, assuming that the combination had taken place as of January 1, 2005.
Conference call
Gemalto will hold an analysts and investors meeting to present its financial results for the first half year of 2007. The meeting will take place today at Pavillon Ledoyen (Salon Cocteau), Carre des Champs-Elysees, 1, avenue Dutuit, 75008 Paris; and will start at 10:00 am Paris time. Prepared remarks will be in French.
The company has also scheduled a conference call in English for today at 3:00 pm Paris time (2:00 pm London time and 9:00 am New York time). Callers may participate in the live conference call by dialling:
+44 (0)207 806 1967 or +1 718 354 1388 or +33 1 70 99 43 04.
The presentation slide show will be available for download on our Investor Relations web site (www.gemalto.com/investors) at 9:00 am Paris time (8:00 am London time).
Replays of the conference call will be available from approximately 2 hours after the conclusion of the conference call until September 19, 2007 midnight Paris time by dialling:
+44 (0) 207 806 1970 or +1 718 354 11 12 or +33 1 71 23 02 48, access code: 4561554#.
About Gemalto
Gemalto (Euronext NL 0000400653 GTO) is the leader in digital security with pro forma 2006 annual revenues of EUR 1.7 billion, offices in more than 85 countries and about 10,000 employees including 1,300 R&D engineers.
In a world where the digital revolution is increasingly transforming our lives, Gemalto's solutions are designed to make personal digital interactions more convenient, secure and enjoyable.
Gemalto provides end-to-end digital security solutions, from the development of software applications through design and production of secure personal devices such as smart cards, SIMs, e-passports, and tokens to the deployment of managed services for its customers.
More than a billion people worldwide use the company's products and services for telecommunications, financial services, e-government, identity management, multimedia content, digital rights management, IT security, mass transit and many other applications.
As the use of Gemalto's software and secure devices increases with the number of people interacting in the digital and wireless world, the company is poised to thrive over the coming years.
Gemalto was formed in June 2006 by the combination of Axalto and Gemplus.
For more information please visit www.gemalto.com
This communication does not constitute an offer to purchase or exchange or the solicitation of an offer to sell or exchange any securities of Gemalto.
This communication contains certain statements that are neither reported financial results nor other historical information and other statements concerning Gemalto. These statements include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, events, products and services and future performance. Forward-looking statements are generally identified by the words "expects", "anticipates", "believes", "intends", "estimates" and similar expressions. These and other information and statements contained in this communication constitute forward-looking statements for purposes of applicable securities laws. Although management of the company believes that the expectations reflected in the forward-looking statements are reasonable, investors and security holders are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond the control of the companies, that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements, and the companies cannot guarantee future results, levels of activity, performance or achievements. Factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this communication include, but are not limited to: the ability of the company's to integrate according to expectations; the ability of the company to achieve the expected synergies from the combination; trends in wireless communication and mobile commerce markets; the company's ability to develop new technology and the effects of competing technologies developed and expected intense competition generally in the companies' main markets; profitability of expansion strategy; challenges to or loss of intellectual property rights; ability to establish and maintain strategic relationships in their major businesses; ability to develop and take advantage of new software and services; the effect of the combination and any future acquisitions and investments on the companies' share prices; changes in global, political, economic, business, competitive, market and regulatory forces; and those discussed by the companies in filings, submissions or furnishings to the SEC, including under the headings "Cautionary Statement Concerning Forward-Looking Statements" and "Risk Factors". Moreover, neither the companies nor any other person assumes responsibility for the accuracy and completeness of such forward-looking statements. The forward-looking statements contained in this communication speak only as of the date of this communication and the companies are under no duty, and do not undertake, to update any of the forward-looking statements after this date to conform such statements to actual results, to reflect the occurrence of anticipated results or otherwise.
(1) The H1 2007 adjusted income statement measures presented in this press release were prepared on an adjusted basis reflecting the consolidated activity of the Group over the first half-year, excluding accounting entries related to the business combination with Gemplus, as well as one-off expenses and reorganization charges incurred in connection with this transaction; the H1 2006 adjusted income statement measures presented for comparison were prepared on the same adjusted basis and are pro forma measures, reflecting the combined activity of Gemalto and Gemplus over the period, and assuming that the combination had taken place as of January 1, 2005.
(2) At historical (reported) exchange rates.
(3) Operating expenses include research & engineering expenses, sales & marketing expenses and general & administrative expenses; they do not include other operating income & expenses, net.
(4) The H1 2007 Adjusted basic earnings per share were determined on the basis of the average number of Gemalto shares outstanding during the six-month period ended June 30, 2007 i.e. taking into account the effect of the share buy-back on the average number of shares outstanding during the period. The H1 2006 Adjusted basic earnings per share were determined on the basis of the average number of Gemalto shares issued during the six-month period ended June 30, 2007 less the average number of Treasury shares held by the Company during the six-month period ended June 30, 2006.
(5) The H1 2007 adjusted income statement measures presented in this press release were prepared on an adjusted basis reflecting the consolidated activity of the Group over the first half-year, excluding accounting entries related to the business combination with Gemplus, as well as one-off expenses and reorganization charges incurred in connection with this transaction; the H1 2006 adjusted income statement measures presented for comparison were prepared on the same adjusted basis and are pro forma measures, reflecting the combined activity of Gemalto and Gemplus over the period, and assuming that the combination has taken place as of January 1, 2005.
(6) At historical (reported) exchange rates.
(7) EBITDA is defined as operating income plus depreciation (EUR 26.7 million in H1 2007 versus EUR 31.2 million in H1 2006) and amortization expenses (EUR 8.6 million in H1 2007 versus EUR 10.3 million in H1 2006). These amounts exclude amortization and impairment charges related to the intangible assets of Gemplus identified upon Combination pursuant to IFRS 3 << Business Combination >>.
(8) EMV is a set of specifications adopted by Europay, MasterCard and Visa Card for the migration of bank cards to smart card technology
(9) Europe, Middle East, Africa
(10) Free cash flow is defined as net cash flow from operating activities less the purchase of property, plant and equipment and other investments related to the operating cycle (excluding acquisitions and financial investments).
(11) All segment information provided in this press release is on an adjusted basis (unaudited), excluding one-off expenses incurred in connection with the combination with Gemplus, reorganization charges and charges resulting from the accounting treatment of the transaction. The segment information related to H1 2006 was prepared on a pro forma basis, reflecting the combined activity of Gemalto and Gemplus over the period, and assuming that the combination had taken place as of January 1, 2005.
(12) At historical (reported) exchange rates.
(13) At historical (reported) exchange rates.
(14) At historical (reported) exchange rates.
(15) Prepared on an adjusted basis, reflecting the consolidated activity of the Group over the first half year, excluding one-off expenses incurred in connection with the combination with Gemplus, reorganization charges and charges resulting from the accounting treatment of the transaction
Appendix 1
First half 2007 Adjusted income statement by business segment
EUR in
millions Six months ended June 30, 2007
----------------------------------------------------------------------
Secure Point-of-
Mobile Trans- ID & Public Sale
Communication actions Security Telephony Terminals Total
----------------------------------------------------------------------
Revenue 417.8 192.8 98.1 22.0 29.2 759.9
----------------------------------------------------------------------
Gross
profit 144.1 33.4 34.5 4.6 5.6 222.1
----------------------------------------------------------------------
Operating
expenses 109.8 43.4 46.3 2.2 7.8 209.5
Operating
income
(loss) 35.7 (9.5) (11.5) 2.6 (2.1) 15.2
----------------------------------------------------------------------
First half 2006 Adjusted pro forma income statement by business
segment
EUR in
millions Six months ended June 30, 2006
----------------------------------------------------------------------
Mobile Secure ID & Public Point-of-
Communication Trans- Security Telephony Sale Total
actions Terminals
----------------------------------------------------------------------
Revenue 490.7 191.3 106.6 32.9 24.8 846.3
----------------------------------------------------------------------
Gross
profit 163.9 40.4 47.3 2.1 6.6 260.2
----------------------------------------------------------------------
Operating
expenses 133.1 44.3 39.6 3.6 6.7 227.3
Operating
income
(loss) 30.5 (3.9) 7.7 (1.5) (0.1) 32.7
----------------------------------------------------------------------
Appendix 2
Deliveries of secure personal devices
H1 2006
In millions of units pro forma H1 2007 % growth
----------------------------------------------------------
SIM cards 430 445 +4%
----------------------------------------------------------
Secure Transactions 97 111 +13%
----------------------------------------------------------
ID & Security 18 15 (17%)
----------------------------------------------------------
Total 545 570 +5%
----------------------------------------------------------
Appendix 3
First half revenue by region
Year-on-year Year-on-year
change at change at
EUR in H1 2006 pro historical constant
millions forma H1 2007 exchange rates exchange rates
----------------------------------------------------------------------
EMEA 449.2 427.9 (5%) (4%)
----------------------------------------------------------------------
North &
South
America 212.0 167.2 (21%) (15%)
----------------------------------------------------------------------
Asia 185.1 164.7 (11%) (4%)
----------------------------------------------------------------------
Total
revenue 846.3 759.9 (10%) (6%)
----------------------------------------------------------------------
Appendix 4
Consolidated Income Statement for the six month period ended June 30,
2007
Reconciliation from IFRS to Adjusted financial information
EUR in
millions
Adjustment
Adjustment relating to
relating to Adjustment amortization
IFRS combination relating to of
financial related reorganization intangible
information expenses expenses assets
Sales 759.9
Cost of sales (538.0)
Inventory
step-up
amortization 0.0
------------ ------------------------------------------
Gross Profit 221.9 0.0 0.0 0.0
Research &
Engineering
expenses (50.8)
Sales &
Marketing
expenses (109.6)
G&A expenses (50.7)
Other
Operating
expenses 2.6
Combination
related
expenses (1.2) 1.2
Reorganization
expenses (55.1) 55.1
Amortization
and
impairment of
intangible
assets (23.0) 23.0
------------ ------------------------------------------
Operating
Income (65.9) 1.2 55.1 23.0
------------ ------------------------------------------
Financial
Income 10.1
Share of
profit (loss)
of associates (0.9)
Gain on sale
of an
Investment in
Associate 9.4
------------ ------------------------------------------
Profit before
taxes (47.3) 1.2 55.1 23.0
Income tax (1.1) (0.6) (6.9)
------------ ------------------------------------------
Profit (loss)
for the
period (48.4) 1.2 54.5 16.1
------------ ------------------------------------------
Attributable
to
shareholders (50.1)
Attributable
to minority
interest (1.7)
EUR in
millions
Adjustment
relating to
Adjustment Management
relating to incentives on Adjusted
stock based investment financial
compensation disposal information
Sales 759.9
Cost of sales 0.2 (537.8)
Inventory
step-up
amortization 0.0
--------------------------------- ---------------
Gross Profit 0.2 0.0 222.1
Research &
Engineering
expenses 0.0 (50.8)
Sales &
Marketing
expenses 0.3 (109.3)
G&A expenses 0.6 0.7 (49.4)
Other
Operating
expenses 2.6
Combination
related
expenses 0.0
Reorganization
expenses 0.0
Amortization
and
impairment of
intangible
assets 0.0
--------------------------------- ---------------
Operating
Income 1.1 0.7 15.2
--------------------------------- ---------------
Financial
Income 10.1
Share of
profit (loss)
of associates (0.9)
Gain on sale
of an
Investment in
Associate (0.7) 8.7
--------------------------------- ---------------
Profit before
taxes 1.1 0.0 33.1
Income tax (8.6)
--------------------------------- ---------------
Profit (loss)
for the
period 1.1 0.0 24.5
--------------------------------- ---------------
Attributable
to
shareholders 22.8
Attributable
to minority
interest (1.7)
Appendix 5
Estimated cash position variation schedule
EUR in millions H1 2006 * H1 2007
----------------------------------------------------------------------
Cash & cash equivalent, beginning of period 637 430
----------------------------------------------------------------------
Cash generated by (used in) operating activities ** (46) 5
Including cash provided by (used in) decrease
(increase) of working capital (70) 1
Capital expenditure and acquisitions of intangibles (41) (29)
----------------------------------------------------------------------
Free cash flow (86) (24)
----------------------------------------------------------------------
Interest received (paid), net 8 5
Cash generated by disposal of investments 0 21
Other cash generated by (used in) investing
activities (3) (0)
Cash used in connection with the Combination with
Gemplus 0 (4)
----------------------------------------------------------------------
Cash generated by (used in) operating and investing
activities (82) (3)
----------------------------------------------------------------------
June 2, 2006 distribution to Gemplus shareholders (164) 0
Cash used by the share buy-back program 0 (100)
Cash generated (used) by other share purchase or
disposal (3) 2
Other cash used in financing activities (excluding
proceeds and repayments of borrowings) 0 (8)
Other (translation adjustment mainly) (6) (1)
----------------------------------------------------------------------
Cash and cash equivalent, end of period 382 319
----------------------------------------------------------------------
Current and non-current borrowings including
finance lease, end of period (38) (27)
----------------------------------------------------------------------
Net cash, end of period 344 291
----------------------------------------------------------------------
* Prepared on a pro forma basis
** Cash generated by (used in) operating activities takes into account
the use of EUR 16 million in cash in connection with restructuring
actions in H1 2007. There was no such use of cash in H1 2006.
Source: Business Wire (Business Wire India)