Gemalto First Half 2006 Results
Amsterdam (ots/PRNewswire)
- Revenue[1] Up 2% at Constant Exchange Rates (-1% at Current Exchange Rates)
- Operating Margin1 at 3.7%, Reflecting Fierce Competition in Mobile Communication
- Cash and Cash Equivalents at USD 478 Million
- Continuing Challenging Industry Environment
- Synergies and Long-Term Objectives Confirmed
Gemalto (Euronext NL0000400653 - GTO), a leader in digital security, today announced its results for the half year ended June 30, 2006.
Highlights of the adjusted pro forma income statement1 (all figures below are at current exchange rates):
In millions of USD H1 2005 H1 2006 Year-on-year
change
Net sales 1,047.0 1,035.9 -1.1%
Gross profit 342.2 313.7 -8.3%
Gross margin (%) 32.7% 30.3% -2.4 ppts
Operating expenses 266.1 275.0 +3.4%
Operating income 76.1 38.7 -49.1%
Operating margin (%) 7.3% 3.7% -3.6 ppts
Profit for the period 65.3 34.4 -47.3%
Basic earnings per share (USD) 0.67 0.27 -59.5%The above mentioned adjusted measures exclude business combination accounting entries, and one-off expenses incurred in connection with the combination with Gemplus (Nasdaq: GEMP). Gemalto believes these measures 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 the condensed consolidated interim financial statements prepared in accordance with IFRS provided in appendix.
Olivier Piou, Chief Executive Officer, commented: "I would like to thank our shareholders for the outstanding success of the public exchange offer: it demonstrates their endorsement of our vision to create a global leader in digital security.
The integration is progressing smoothly and Gemalto is fully focused on capturing growth opportunities and on realizing the planned synergies that will both materialize progressively. Our work since execution of the combination allows us to confirm the synergies and long term financial objectives previously outlined.
Since the beginning of this year competitive pressure has been intense. We expect that our market environment will remain challenging in the coming months and we are adjusting to these demanding circumstances.
Yet, the simultaneous global spread of communications systems, mobile personal devices, and the internet, all requiring higher levels of security, plays well for fully realizing our digital security vision."
The Company's condensed consolidated interim financial statements (unaudited) are prepared in accordance with International Financial Reporting Standard (IFRS).
The pro forma income statement for the first half 2006 has been prepared assuming that the combination with Gemplus had taken place as of January 1, 2005, allowing the Group to present it in comparison with the first half of 2005. The one-off, combination related items are therefore charged to the first half 2005 pro forma income statement, so that the first half 2006 income statement only reflects the recurring intangible asset amortization charges resulting from the accounting treatment of the transaction, as well as the additional stock compensation charge arising from it.
Additional financial information on an adjusted pro forma basis 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 charges arising from the accounting treatment of the combination and one-off combination related expenses. 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 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. The Company believes that this information, which is not in conformity with IFRS, is helpful supplemental information in order to better understand its past and future performance. In addition, the Company's management uses this information in its own planning. This information provided by the Company may not be comparable to similarly titled measures employed by other companies.
The Company provides reconciliation between pro forma and adjusted pro forma income statements which is displayed in tables at the end of this press release. The IFRS consolidated income statement for the first half 2006 shows operating loss of USD 9.7 million and net loss of USD 6.4 million, and the pro forma income statement shows operating income of USD 11.8 million and profit for the period of USD 13.4 million.
For a more detailed description of adjustments made to the IFRS consolidated income statement, please refer to EXPLANATION OF ADJUSTED AND PRO FORMA MEASURES at the end of this press release.
All comparisons in this document are at current exchange rates, unless stated otherwise, and describe the evolution of the adjusted pro forma first half 2006 information compared to that of the first half 2005.
As of the third quarter 2006, the Company will adopt the euro as its reporting currency.
As of the first quarter 2007, the Company will report full financial results on a quarterly basis.
Adjusted pro forma income statement2 analysis
Extract of the adjusted pro forma income statement[2]:
Six months ended June 30, Six months ended June 30,
2005 2006
USD millions As a % of USD millions As a % of % change
sales sales
Revenue[3] 1,047.0 1,035.9 -1.1%
Gross 342.2 32.7% 313.7 30.3% -8.3%
profit
EBITDA[4] 125.1 11.9% 86.8 8.4% -30.6%
Operating 266.1 25.4% 275.0 26.6% +3.4%
expenses
Operating 76.1 7.3% 38.7 3.7% -49.1%
income
Profit for 65.3 6.2% 34.4 3.3% -47.3%
the periodAt constant exchange rates, revenue was up 2%, reflecting varying performance between market segments. Solid revenue growth in Identity & Security and Secure Transactions was fully offset by the effect of strong price pressure on Mobile Communication revenue. After adjusting for the acquisition of Setec and currency fluctuations, revenue was down 2 %.
On a geographic basis, revenue was up 3% in Asia, driven by Identity & Security and Secure Transactions. In EMEA[5], revenue was almost stable, while in the Americas revenue was down 6%.
Microprocessor card shipments grew 39% to 561 million units, sustained by strong demand in all core segments.
Gross margin was 30.3% compared to 32.7% a year ago, due to the lower performance in Mobile Communication.
Overall, operating expenses were up 3.4% including Setec. Research & engineering and general & administrative expenses were stable, while sales & marketing expenses were up 5.6%, due to increased field marketing and customer support resources in the regions.
Consequently, operating income was USD 38.7 million and operating margin was 3.7%.
Financial income was USD 7.0 million. The effective tax rate for the period was 25%. As a result, profit for the period was USD 34.4 million.
Balance sheet and pro forma cash flow
Pro forma free cash flow[6] of the period was an outflow USD 90 million. Capital expenditure amounted to USD 50 million and USD 100 million were used by an increase in working capital requirement. Payments of costs incurred in connection with the preparation and execution of the combination amounted to approximately USD 14 million.
After the distribution of reserves (USD 212 million) to the Gemplus shareholders prior to the execution of the first step of the combination (EUR 0.26 per share), cash and cash equivalents remain strong at USD 478 million as of June 30, 2006.
Segment information[7]
Mobile Communication performance impacted by strong price pressure
Six months ended June 30, Six months ended June 30,
2005 2006
USD millions As a % of USD millions As a % of % change
revenue revenue
Revenue 672.8 600.8 -10.7%
Gross 259.7 38.6% 200.4 33.3% -22.8%
profit
Operating 164.7 24.5% 162.4 27.0% -1.4%
expenses
Operating 95.0 14.1% 38.0 6.3% -60.0%
incomeAt constant exchange rates, Mobile Communication revenue was down 9%: the strong volume growth was not sufficient to fully compensate for extreme price pressure.
SIM cards shipments for the first half 2006 were up 38% to 430 million units, driven by strong demand in Asia and in EMEA. Shipments in the Americas show limited growth compared with a strong first half 2005.
The average SIM card selling price for the first half 2006 was down 35% compared to the first half 2005, reflecting the intensified competitive environment this year. In the first half 2006, the market was characterized by very strong volume growth in emerging countries which use a higher proportion of low-end cards, and by delays in migration to high-end products in other countries.
The average SIM card selling price for the second quarter 2006 was down 1% at current exchange rates, compared with the first quarter 2006.
Compared with the strong performance of the first half 2005, gross margin decreased, reflecting the intensified competitive environment since the beginning of the year.
Secure Transactions (Financial Services and pay-TV)
Six months ended June 30, Six months ended June 30,
2005 2006
USD millions As a % of USD millions As a % of %
revenue revenue change
Revenue[8] 213.9 234.4 +9.6%
Gross 45.4 21.2% 47.7 20.4% +5.1%
profit
Operating 46.4 21.7% 52.6 22.5% +13.4%
expenses
Operating (1.0) -0.5% (4.9) -2.1% NM
incomeAt constant exchange rates, revenue was up 14%. After adjusting for the acquisition of Setec and currency fluctuations, revenue was up 9%.
Microprocessor card shipments for the first half 2006 were up 37% to 109 million units, driven by on-going EMV[9] deployment, particularly in Turkey, Latin America, North Asia and Southern Europe.
Average selling prices decreased reflecting price pressure in certain markets, as well as a change in the regional mix and a greater share of modules in the total volume sold.
ID & Security
Six months ended June 30, Six months ended June 30,
2005 2006
USD millions As a % of USD millions As a % of % change
revenue revenue
Revenue[8] 77.0 130.3 +69.2%
Gross 26.4 34.3% 55.4 42.5% +109.8%
profit
Operating 41.3 53.6% 47.9 36.8% +16.0%
expenses
Operating (14.9) -19.3% 7.5 5.7% NM
incomeAt constant exchange rates, revenue was up 73%, driven by strong sales of microprocessor card solutions for e-passports, healthcare and transportation management, as well as by increased IP licensing activity. After adjusting for the acquisition of Setec and currency fluctuations, revenue was up 44%.
Microprocessor cards shipments for the first half 2006 were up 58% to 22 million units, fuelled by initial deployments of large scale e-passports programs in France and Portugal and by strong Transportation activity.
During the first half 2006, the Group won several meaningful and highly visible contracts for e-passport projects in France, the Czech Republic, Portugal and Slovenia, and healthcare management in France and Mexico.
Gross margin was up 8.2 percentage points compared with a strong first half 2005, reflecting high revenue derived from patent licensing contracts: these are fully offsetting lower margin in the ID business as the rollout of e-passports in Europe is still in its early stages.
Public Telephony
Six months ended June 30, Six months ended June 30,
2005 2006
USD millions As a % of USD millions As a % of % change
revenue revenue
Revenue 44.7 40.1 -10.3%
Gross 1.0 2.2% 2.5 6.3% +164.0%
profit
Operating 6.6 14.7% 4.3 10.8% -33.7%
expenses
Operating (5.6) -12.5% (1.8) -4.5% NM
incomeMemory cards for Public Telephony now contribute for less than 4% of Group revenue.
Point-of-Sale Terminals
Six months ended June 30, Six months ended June 30,
2005 2006
USD millions As a % of USD millions As a % of % change
sales sales
Revenue 38.6 30.2 -21.6%
Gross 9.7 25.2% 7.7 25.5% -20.6%
profit
Operating 7.1 18.5% 7.8 25.8% +9.2%
expenses
Operating 2.6 6.7% (0.1) -0.3% NM
incomeThe activity in this segment reflects a transition period in advance of the introduction of a new range of products later this year.
Outlook
Market conditions have been difficult since the beginning of this year, and the Company expects it will remain challenging, particularly in light of the uncertainties in the global economic environment. With synergies from the combination materializing progressively, in line with plans, and the significant resources required this year to converge product roadmaps and processes, Gemalto expects operating performance in the second half 2006 to be similar to that of the first half.
The deployment of the electronic passport and ID projects won in recent months will produce their full effect in 2007.
The Group has taken cost reduction measures beyond the initially identified synergies, and continues to review the adequacy of its current configuration in light of these circumstances. On August 31, 2006, Gemalto announced consolidation of its two production centres in Owing Mills and Montgomeryville in the United States into the latter's facility, which better meets the future needs of its business strategy and customers.
Given its technology and market leadership, Gemalto is uniquely positioned to address the increasing need for security in the digital world. The Company is confident in its ability to play a leading role in the digital security industry as it expands on a global scale and to realize its objective for 2009 of a low teens operating margin.
GEMALTO
FIRST HALF 2006 FINANCIAL RESULTS
EXPLANATION OF ADJUSTED AND PRO FORMA MEASURESDue 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 pro forma and adjusted pro forma information described in the table below.
Pro forma measures
The pro forma income statement for the first half 2006 has been prepared assuming that the combination had taken place as of January 1, 2005, allowing the Group to present it in comparison with the first half 2005. The one-off, combination related items are therefore charged to the first half 2005 pro forma income statement, so that the first half 2006 income statement only reflects the recurring intangible asset amortization charge resulting from the Purchase Price Allocation and the additional stock-based compensation charge.
Adjusted measures
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 condensed consolidated interim 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 acquirer 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 the last months, 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. The Group expects to continue to incur integration-related professional services in the coming months. 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 period. Gemalto believes it is useful for investors to understand the effect of these expenses on its cost structure.
Summary
Gemalto provides three sets of income statements:
- IFRS consolidated income statement, pursuant to its regulatory obligations
- Pro forma income statement
- Adjusted pro forma income statement
Gemalto IFRS - Includes Gemplus income statement consolidated as
consolidated income from June 2, 2006, date on which the first step of
statement the combination between Gemalto and Gemplus was
executed.
- Includes all charges resulting from the accounting
treatment of the combination (amortization and
impairment of intangible assets, additional
stock-based compensation), and one-off charges
incurred in connection with the combination with
Gemplus (combination related charges), as described
in notes 4 and 5 to the condensed consolidated
interim financial statements attached to this press
release.
Gemalto pro forma - Includes Gemplus income statement for the full
income statement reported period (6 months).
Basis of presentation - Combination assumed to have taken place as of
and assumptions for January 1, 2005.
preparation are
described in note 6 - Consequently, one-off charges incurred in
to the condensed connection with the combination with Gemplus
consolidated interim (combination related charges), as described in note
financial statements, 5 to the condensed consolidated interim financial
which also includes statements, are booked in fiscal year 2005.
the reconciliation of
the pro forma income - Recurring charges resulting from the accounting
statement with the treatment of the combination with Gemplus
consolidated income (amortization of intangible assets, additional
statement stock-based compensation) are booked in fiscal year
2005 and 2006 according to the amortization schedule
set as if the combination had taken place on January
1, 2005.
Gemalto adjusted pro - Includes Gemplus income statement for the full
forma income reported period (6 months).
statement
- Combination assumed to have taken place as of
January 1, 2005.
- Excludes one-off expenses incurred in connection
with the combination with Gemplus (combination
related charges), as described in note 5 to the
condensed consolidated interim financial statements,
and all charges resulting from the accounting
treatment of the transaction.The first half 2005 and 2006 pro forma income statements established in accordance with IFRS are included in the condensed consolidated interim financial statements attached to this press release.
Conference call
The company has scheduled a conference call for Wednesday, September 13, 2006 at 3:00 pm CET (2:00 pm GMT and 9:00 am New-York time). Callers may participate in the live conference call by dialling:
+44(0)207-138-0816 or +1-718-354-1171 or +33-1-55-17-41-49.
The slide show will be available on the web site at 10:00 CET (9:00 GMT).
Replays of the conference call will be available approximately 3 hours after the conclusion of the conference call until September 19, 2006 midnight by dialling:
+44(0)207-806-1970 or +1-718-354-11-12 or +33-1-71-23-02-48, access code: 8442332.
Earnings calendar
Third quarter 2006 revenue is scheduled to be reported on October 26, 2006, before the opening of Euronext Paris.
Corporate Media Relations Corporate Communication
Emmanuelle SABY Rémi CALVET
M.: +33(0)6-09-10-76-10 M.: +33(0)6-22-72-81-58
emmanuelle.saby@gemalto.com remi.calvet@gemalto.com
Investors Relations FINEO
Stéphane BISSEUIL
T.: +33(0)1-55-01-50-97 T.: +33(0)1-56-33-32-31
stephane.bisseuil@gemalto.comAbout Gemalto
Gemalto (Euronext NL 0000400653 GTO) is a leader in digital security with pro forma 2005 annual revenues of US$2.2 billion (EUR1.7 billion), operations in 120 countries and 11,000 employees including 1,500 R&D engineers. The company's solutions make personal digital interactions secure and easy in a world where everything of value -from money to identities - is represented as information communicated over networks.
Gemalto thrives on creating and deploying secure platforms, portable and secure forms of software in highly personal objects like smart cards, SIMs, e-passports, readers and tokens. More than a billion people worldwide use the company's products and services for telecommunications, banking, e-government, identity management, multimedia digital right management, IT security and other applications. Gemalto was formed in June 2006 by the combination of Axalto and Gemplus.
For more information please visit www.gemalto.com
DISCLAIMER
The Gemalto N.V. securities referred to herein issued in connection with the exchange offer of Gemalto N.V. for the securities of Gemplus International S.A., and the Gemalto N.V. shares issued in connection with the reopening of such exchange offer, have not been (and are not intended to be) registered under the United States Securities Act of 1933, as amended, (the "Securities Act") and may not be offered or sold, directly or indirectly, into the United States except pursuant to an applicable exemption. The Gemalto securities have been and will be made available within the United States in connection with the exchange offer pursuant to an exemption from the registration requirements of the Securities Act.
The exchange offer and its reopening relate to the securities of a non-US company and are subject to disclosure requirements of a foreign country that are different from those of the United States. Financial statements presented have been prepared in accordance with foreign accounting standards that may not be comparable to the financial statements of United States companies.
It may be difficult for an investor to enforce its rights and any claim it may have arising under U.S. federal securities laws, since Gemalto N.V. and Gemplus International S.A. have their corporate headquarters outside of the United States, and some or all of their officers and directors may be residents of foreign countries. An investor may not be able to sue a foreign company or its officers or directors in a foreign court for violations of the U.S. securities laws. It may be difficult to compel a foreign company and its affiliates to subject themselves to a U.S. court's judgment.
This release does not constitute an offer to purchase or exchange or the solicitation of an offer to sell or exchange any securities of Gemalto N.V. or an offer to sell or exchange or the solicitation of an offer to buy or exchange any securities of Gemplus International S.A.
Gemplus security holders are strongly advised to read the offering circular relating to the exchange offer and related exchange offer materials regarding the transaction (see below), as well as any amendments and supplements to those documents because they contain important information.
The exchange offer and its reopening described herein are not (and are note intended to be) made, directly or indirectly, in or into the United Kingdom, Italy, the Netherlands, Canada or Japan or in or into any other jurisdiction in which such offer would be unlawful prior to the registration or qualification under the laws of such jurisdiction. Accordingly, persons who come into possession of this release should inform themselves of and observe these restrictions.
Copies of the free English translation of the joint French language offering document which has received visa No. 06-252 of July 6, 2006 from the French Autorité des marchés financiers and of the documents incorporated by reference thereto are available from the Internet websites of Gemalto N.V. (www.gemalto.com) and of Gemplus International S.A. (www.gemplus.com) as well as free of charge upon request to the following: Gemalto N.V.: Koningsgracht Gebouw 1, Joop Geesinkweg 541-542, 1096 AX Amsterdam, the Netherlands; Gemplus International S.A.: 46A, avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg; Mellon Investor Services LLC, U.S. Exchange Agent: 480 Washington Boulevard, Attn: Information Agent Group,AIM # 074-2800, Jersey City, New Jersey 07310, Call Toll Free: 1-866-768-4951.
[1] Prepared on an adjusted pro forma basis, reflecting the combined activity of Gemalto and Gemplus over the whole first half year, excluding one-off expenses incurred in connection with the combination with Gemplus and charges resulting from the accounting treatment of the transaction, and assuming that the combination had taken place as of January 1, 2005
[2] Prepared on an adjusted pro forma basis, reflecting the combined activity of Gemalto and Gemplus over the whole first half year, excluding one-off expenses incurred in connection with the combination with Gemplus and charges resulting from the accounting treatment of the transaction, and assuming that the combination had taken place as of January 1, 2005.
[3] Setec consolidated as of June 1, 2005.
[4] EBITDA is defined as operating income plus depreciation (USD 36.6 million in H1 2006 vs. USD 36.5 million in H1 2005) and amortization expenses (USD 11.5 million in H1 2006 vs. USD 12.5 million in H1 2005). These amounts exclude amortization and impairment charges related to the intangibles assets identified pursuant to IFRS 3 "Business Combination".
[5] Europe, Middle East, Africa
[6] 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). The pro forma free cash flow is the combination of Axalto and Gemplus free cash flow for the full six months ended June 30, 2006.
[7] All segment information provided in this press release is on an adjusted pro forma basis, reflecting the combined activity of Gemalto and Gemplus over the whole first half year, excluding one-off expenses incurred in connection with the combination with Gemplus and charges resulting from the accounting treatment of the transaction, and assuming that the combination had taken place as of January 1, 2005.
[8] Compared with the pro forma segment revenue information reported on July 27, 2006, USD 1.9 million was reclassified from Secure Transactions to ID & Security.
[9] EMV is a jointly defined set of specifications adopted by Europay, MasterCard and Visa for the migration of bank cards to smart card technology.
Gemalto IFRS Consolidated income statement
All amounts in USD thousands (except where otherwise stated)
Six months ended June 30
2005 2006 % change
Sales 498,200 578,446 +16.1%
Cost of sales (329,995) (408,372) +23.8%
Amortization of
inventory step-up (5,153) N/M
Gross profit 168,205 164,921 -2.0%
Gross margin 33.8% 28.5%
Operating expenses:
Research and engineering (35,432) (37,397) +5.5%
Sales and marketing (56,554) (70,584) +24.8%
General and administrative (31,070) (38,106) +22.6%
Other income, net 1,914 (2,328) N/M
Combination related
expenses(x) (8,671) N/M
Amortization and
impairment
of intangible assets(xx) (17,521) N/M
Operating income (loss) 47,063 (9,686) N/M
Operating margin 9.4% -1.7%
Financial income
(expenses), net 401 1,320 N/M
Share of profit (losses)
of associates (196) 157 N/M
Profit (loss) before
income tax 47,268 (8,209) N/M
Income tax expense (14,018) 1,848 N/M
Profit (loss) for
the period 33,250 (6,361) N/M
Attributable to:
Equity holders of
the company 31,914 (5,620) N/M
Minority interest 1,336 (741) N/M
Basic earnings (loss)
per share (in USD) 0.79 (0.13) N/M
Diluted earnings (loss)
per share (in USD) 0.77 (0.13) N/M
In thousands :
Basic average number of
shares outstanding 40,440 43,917 +8.6%
Diluted average number
of shares outstanding 41,558 44,796 +7.8%
(x) Combination related expenses: (8,671)
- Integration consultant fees (3,376)
- Gemalto brand and logo creation
and registration (1,111)
- Capitalized costs related to
redundant devlpt. projects (4,184)
(xx) Amortization and impairment
of intangible assets: (17,521)
- Gemplus brand name impairment (12,596)
- Gemplus Customer Relationships (595)
- Gemplus existing Technology (4,330) Gemalto pro forma income statement
(assuming the combination was executed on January 1, 2005)
All amounts in USD thousands (except where otherwise stated)
Six months ended June 30
2005 2006 % change
Sales 1,046,983 1,035,881 -1.1%
Cost of sales (705,514) (720,383) +2.1%
Amortization of inventory step-up (18,492) 0 -100.0%
Gross profit 322,977 315,498 -2.3%
Gross margin 30.8% 30.5%
Operating expenses:
Research and engineering (72,920) (71,469) -2.0%
Sales and marketing (127,554) (132,360) +3.8%
General and administrative (72,373) (71,596) -1.1%
Other income, net 2,193 (189) N/M
Combination related expenses(x) (10,805) 0 -100.0%
Amortization and impairment of
intangible assets(xx) (43,305) (28,040) -35.2%
Operating income (loss) (1,787) 11,844 N/M
Operating margin -0.2% 1.1%
Financial income (expenses), net 2,680 6,973 +160.2%
Share of profit (losses)
of associates (1,306) 327 N/M
Profit before income tax (413) 19,144 N/M
Income tax expense 6,801 (3,970) N/M
Profit for the period 6,388 15,174 N/M
Attributable to:
Equity holders of the company 10,358 8,739 -15.6%
Minority interest (3,970) 6,435 N/M
Basic earnings per share (in USD) 0.17 0.14 -15.6%
In thousands:
Basic average number of shares
outstanding ('000) 62,425 62,399 -0.0%
(x) Combination related expenses: (10,805) 0
- Integration consultant fees (3,408) 0
- Gemalto brand and logo
creation and registration (1,111) 0
- Capitalized costs related to
redundant devlpt. projects (6,286) 0
(xx) Amortization and impairment
of intangible assets: (43,305) (28,040)
- Gemplus brand name impairment (13,333) 0
- Gemplus Customer Relationships (3,618) (3,385)
- Gemplus existing Technology (26,354) (24,655) Gemalto adjusted(x) pro forma income statement
(assuming the combination was executed on January 1, 2005)
All amounts in USD thousands (except where otherwise stated)
Six months ended June 30
2005 2006 % change
Sales 1,046,983 1,035,881 -1.1%
Cost of sales (704,794) (722,154) +2.5%
Gross profit 342,189 313,727 -8.3%
Gross margin 32.7% 30.3%
Operating expenses:
Research and engineering (72,623) (72,417) -0.3%
Sales and marketing (124,934) (131,873) +5.6%
General and administrative 70,763) (70,566) -0.3%
Other income, net 2,193 (189) N/M
Operating income 76,062 38,682 -49.1%
Operating margin 7.3% 3.7%
Financial income
(expenses), net 5,102 6,973 +36.7%
Share of profit (losses)
of associates (1,306) 327 N/M
Profit before income tax 79,858 45,982 -42.4%
Income tax expense (14,524) (11,540) -20.5%
Profit for the period 65,334 34,442 -47.3%
Attributable :
Equity holders of
the company 41,803 16,903 -59.6%
Minority interest 23,531 17,539 -25.5%
Basic earnings per
share (in USD) 0.67 0.27 -59.5%
In thousands:
Basic average number of
shares outstanding 62,425 62,399 -0.0%
(x) excluding one-off expenses incurred in connection with the
combination with Gemplus and charges resulting from the
accounting treatment of the transaction Gemalto adjusted pro forma income statement
(assuming the combination was executed on January 1, 2005)
Reconciliation from pro forma to adjusted pro forma
Six months ended June 30, 2006
All amounts in IFRS Amortization of Additional Combination
US$ thousands inventory stock based related
step-up compensation expenses
Sales 1,035,881
Cost of sales (720,383) 277
Gross profit 315,498 0 277 0
Operating
expenses:
Research and
engineering (71,469) 38 -662
Sales and
marketing (132,360) 487
General and
administrative (71,596) 1030
Other income,
net (189)
Combination
related (x) 0
Amortization
and impairment
of intangible
assets (xx) (28,040)
Operating
income 11,844 0 1,832 (662)
Financial
income
(expenses), net 6,973
Share of profit
(losses) of
associates 327
Profit before
income tax 19,144 0 1,832 (662)
Income tax
expense (3,970) 228
Profit (loss)
for the period 15,174 0 1,832 (434)
Attributable
to:
Equity holders
of the company 8,739 800 (434)
Minority
interest 6,435 1,032All amounts in US$ Amort. or impairment Adjusted
thousands of intangible assets
Sales 1,035,881
Cost of sales -2048 (722,154)
Gross profit (2,048) 313,727
Operating expenses:
Research and engineering -324 (72,417)
Sales and marketing (131,873)
General and administrative (70,566)
Other income, net (189)
Combination related (x) 0
Amortization and impairment of
intangible assets (xx) 28,040 0
Operating income 25,668 38,682
Financial income (expenses), net 6,973
Share of profit (losses) of
associates 327
Profit before income tax 25,668 45,982
Income tax expense -7798 (11,540)
Profit (loss) for the period 17,870 34,442
Attributable to:
Equity holders of the company 7,798 16,903
Minority interest 10,072 17,539 (assuming the combination was executed on January 1, 2005)
Six months ended June 30, 2005
All amounts in US$ Pro forma Amortization of Additional
thousands inventory stock based
step-up compensation
Sales 1,046,983
Cost of sales (705,514) 1,401
Amortization of
inventory step-up (18,492) 18,492
Gross profit 322,977 18,492 1,401
Operating expenses:
Research and
engineering (72,920) 536
Sales and marketing (127,554) 2,620
General and
administrative (72,373) 1,610
Other income, net 2,193
Combination related(x) (10,805)
Amortization and
impairment of
intangible assets
(xx) (43,305)
Operating income (1,787) 18,492 6,167
Financial income
(expenses), net 2,680
Share of profit
(losses) of
associates (1,306)
Profit before income
tax (413) 18,492 6,167
Income tax expense 6,801 (5,566)
Profit (loss) for
the period 6,388 12,926 6,167
Attributable to:
Equity holders of
the company 10,358 5,641 2,691
Minority interest (3,970) 7,285 3,476
(x) Combination related costs include integration consultant fees and
write-off of capitalized development costs
(xx) Intangible assets identified and recognized in accordance with IFRS
3 Business Combination All amounts in US$ thousands Combination Amort. or Adjusted pro
related impairment of forma
expenses intangible
assets
Sales 1,046,983
Cost of sales (681) (704,794)
Amortization of inventory
step-up 0
Gross profit 0 (681) 342,189
Operating expenses:
Research and engineering (182) (57) (72,623)
Sales and marketing (124,934)
General and administrative (70,763)
Other income, net 2,193
Combination related (x) 10,805 0
Amortization and impairment of
intangible assets (xx) 43,305 0
Operating income 10,623 42,567 76,062
Financial income (expenses),
net 2,422 5,102
Share of profit (losses) of
associates (1,306)
Profit before income tax 13,045 42,567 79,858
Income tax expense (2,894) (12,865) (14,524)
Profit (loss) for the period 10,151 29,702 65,334
Attributable to:
Equity holders of the company 10,151 12,962 41,803
Minority interest 16,740 23,531
(x) Combination related costs include integration consultant fees and
write-off of capitalized development costs
(xx) Intangible assets identified and recognized in accordance with
IFRS 3 Business CombinationAMSTERDAM, September 13 /PRNewswire/ --
Pro forma cash position variation schedule
In USD millions H1 2005 H1 2006
Beginning net cash(x) as of January 1. 713 745
Cash generated by (used in) operating activities 111 (33)
including decrease of (increase) in working 4 (100)
capital requirement
Capital expenditure and acquisition of (29) (50)
intangibles
Setec acquisition (75)
Other cash generated by investing activities 26 7
Cash used in connection with the combination (14)
Cash generated by (used in) operating and 33 (90)
investing activities
June 2, 2006, distribution to Gemplus (212)
shareholders
Other cash used in financing activities, (9) (5)
excluding proceeds & repayments of borrowings
Other (translation adjustment mainly) (67) 29
Ending net cash(x) as of June 30. 670 467
Current and non-current borrowings, excluding 11
finance lease
Cash & Cash equivalents as of June 30, 2006 478 Pro forma revenue
In USD
millions
Q2 Q2 % % % %
2005 2006 change change H1 2005 H1 2006 change change
at at at at
current constant current constant
exchange exchange exchange exchange
rates rates rates rates
Mobile 358.8 326.0 -9.1% -9% 672.8 600.8 -10.7% -9%
Communication
Secure 118.4 125.0 +5.6% +8% 213.9 234.4 +9.6% +14%
Transactions
ID & Security 47.0 66.9 +42.4% +43% 77.0 130.3 +69.2% +73%
Public 21.1 18.6 -11.4% -12% 44.7 40.1 -10.3% -9%
Telephony
POS Terminals 17.7 13.8 -22.4% -22% 38.6 30.2 -21.6% -17%
Total 562.9 550.3 -2.2% -2% 1,047.0 1,035.9 -1.1% +2%AMSTERDAM, September 13 /PRNewswire/ --
Compared with the pro forma segment revenue information reported on July 27, 2006, USD 1.9 million was reclassified from Secure Transactions to ID & Security
Recurring charges resulting from the accounting treatment of the combination with Gemplus
In the pro forma
income statements
H1 2005 H1 2006
in USD in EUR in USD in EUR
million million million million
Additional 6.2 4.7 1.8 1.5
stock-based
compensation
resulting
from the
combination
COGS 1.4 1.1 0.3 0.2
R&E 0.5 0.4 0.0 0.0
S&M 2.6 2.0 0.5 0.4
G&A 1.6 1.2 1.0 0.8
Amortization 43.3 32.8 28.0 23.0
and
impairment
of
identified
intangible
assets
recognized
as a
consequence
of the
combination Forecast
H2 2006 H1 2007 H2 2007 H1 2008 H2 2008 H1 2009 H2 2009 H1 2010
Additional 2.8 1.6 0.6 0.3 (0.0) (0.1) (0.0)
stock-based
compensation
resulting
from the
combination
COGS 0.4 0.2 0.1 0.0 (0.0) (0.0) (0.0)
R&E 0.1 0.0 0.0 0.0 (0.0) (0.0) (0.0)
S&M 0.7 0.4 0.1 0.1 (0.0) (0.0) (0.0)
G&A 1.6 0.9 0.3 0.2 (0.0) (0.0) (0.0)
Amortization 23.0 23.0 23.0 6.5 6.5 6.5 6.5 5.4
and
impairment
of
identified
intangible
assets
recognized
as a
consequence
of the
combinationContact:
Corporate Media Relations, Emmanuelle SABY, M.: +33(0)6-09-10-76-10,
emmanuelle.saby@gemalto.com; Corporate Communication, Rémi CALVET,
M.: +33(0)6-22-72-81-58,remi.calvet@gemalto.com; Investors Relations,
Stéphane BISSEUIL, T.: +33(0)1-55-01-50-97,
stephane.bisseuil@gemalto.com; FINEO, T.: +33(0)1-56-33-32-31