Gemalto Full Year 2007 Results(1)
-- Operating income up 40% at EUR 84 million
-- Performance enhanced by operational streamlining and scale benefits
-- Strong balance sheet with EUR 314 million net cash, after EUR 148 million in share repurchase
All figures in this press release are at historical exchange rates, except average selling price variations which are stated by reference to 2006 at constant exchange rates, or when otherwise stated, and describe the evolution of the Adjusted full year 2007 information (unaudited) compared to that of the full year 2006 prepared on an Adjusted pro forma basis. The reconciliation of 2007 IFRS and Adjusted income statements (unaudited) is presented in Appendix 4.
Regulatory News:
Gemalto (Euronext NL0000400653 - GTO), the world leader in digital
security today announced its results for the full year 2007:
Highlights of the adjusted income statement(1):
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Full year 2006 Full year 2007
---------------------------------------------------------------------
Year-on-year
EUR in As a % EUR in As a % change at
millions of sales millions of sales historical
exchange
rates
---------------------------------------------------------------------
Revenue 1,698 1,631 (4%)
Gross profit 503 29.6% 500 30.7% +1ppt
Operating
expenses(2) 442 26.0% 420 25.7% (5%)
Operating income
(EBIT) 60 3.5% 84 5.1% +40%
Net profit 1.6 0.1% 89 5.5% x 55
=====================================================================
*T
At constant exchange rates and compared with the previous year,
revenue was up 0.3% in 2007 full year, and up 6.9% in the second
semester (H2).
Olivier Piou, Chief Executive Officer, commented: "These good 2007
results are an important milestone towards our 2009 objective. In 2007
we implemented the first part of our synergy plan with results coming
ahead of schedule thanks to excellent execution and a return to growth
during H2. In 2008 we will complete the restructuring program and will
secure the full synergies, benefiting 2009, considerably expanding
again our operating income."
Basis of preparation of financial information
The Company´s unaudited consolidated income statements, balance
sheets, statements of changes in shareholders´ equity and cash flow
statements 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
adjustments to revenue and cost of sales, and the presentation of
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
depreciation of some 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 to headcount reductions in the support
functions, consolidation of manufacturing and office sites (including
property, plant and equipment, intangible asset and inventory
write-offs and impairment, asset transfer costs, severance and
associated costs, lease termination and building refurbishment costs
and under-absorption in the manufacturing plant being closed) as well
as 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 which is based on its best
estimate and judgment 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 full year 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.
All comparisons in this document are at historical (reported)
exchange rates, except revenue and average selling price variations
which are stated by reference to 2006 full year revenue at constant
exchange rates unless otherwise mentioned, and describe the evolution
of the adjusted full year 2007 information compared to that of the
full year 2006 prepared on an adjusted 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.
IFRS results and reconciliation between Adjusted and IFRS results
The Company provides reconciliations between the IFRS and adjusted
income statements (unaudited) for the full year 2007. This
reconciliation is presented in a table in appendix 4. The IFRS
consolidated income statement (unaudited) for the full year 2007 shows
an operating loss of EUR 71 million and a net loss for the period of
EUR 46 million including: amortization and depreciation of some
intangible assets for EUR 47 million; charges incurred in connection
with the headcount reductions in the support functions, the
consolidation of manufacturing and office sites, as well as the
rationalization and harmonization of the product and service portfolio
for EUR 106 million; and combination related expenses for EUR 1
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.
Adjusted income statement(3) analysis
Extract of the adjusted income statement (figures below are at
historical exchange rates):
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Full year 2006 Full year 2007
---------------------------------------------------------------------
Year-on-
As a % As a % year
EUR in of EUR in of change at
millions sales millions sales historical
exchange
rates
---------------------------------------------------------------------
Revenue 1,698.2 1,631.5 ( 3.9 %)
Gross profit 503.0 29.6% 500.2 30.7% + 1.1 ppt
Operating expenses(4) 442.2 26.0% 419.9 25.7% ( 5.0 %)
EBITDA(5) 130.6 7.7% 159.8 9.8% + 22 %
Operating income (EBIT) 59.9 3.5% 83.7 5.1% + 40 %
Net profit 1.6 0.1% 89.2 5.5% x 55
=====================================================================
Adjusted earnings per share (EUR per share)(6):
- basic 0.02 0.98
- diluted 0.97
=====================================================================
*T
At constant exchange rates and compared with the previous year,
revenue was up 0.3% in 2007 full year, and up 6.9% in the second
semester.
Gemalto reported a good 2007 performance, through initiatives for
profitable growth and cost reduction measures. In Mobile
Communication, the combined effects of the price recovery program and
return to growth in the second part of the year substantially improved
margins. The restructuring actions launched in Western Europe impacted
operational performance of Secure Transactions which nevertheless
reported stable revenue and improvements in the product mix; the
benefits of this program on Secure Transactions financial performance
will materialize in 2008. Investment to grow the Security business
began to pay off with numerous government contract wins, leading to
large-scale projects which were beginning to ramp-up in the latter
part of the year.
At constant exchange rates, revenue was up 0.3% compared with
2006. Growth in Secure Transactions and Security offset lower revenue
in Mobile Communication. Revenue was essentially stable in all
regions. In the first part of the year, our price recovery program led
to a very selective approach to tenders, at the expense of revenue
growth. With more stable pricing established in the market, the second
half of the year saw the return to top line growth, with a strong
fall-through to operating income.
Compared with 2006, gross margin was up by 1.1 percentage points
to 30.7%. Faster rationalization of production and product portfolio
in Mobile Communication more than compensated for slower adjustments
in Western Europe related to Secure Transactions and Security.
Operating expenses decreased by 5%, progressively reflecting the
effects of the cost reduction measures implemented in the support
functions after the combination.
As a consequence of all these actions, at EUR 83.6 million,
adjusted operating income increased by 40%.
Financial income was EUR 10.5 million. It comprised net interest
income of EUR 8.8 million, a gain of EUR 4.1 million on disposal of
investments available-for-sale, offset by net foreign exchange hedging
costs of EUR 2.4 million. The Company also recognized a gain of EUR
10.6 million on the sale of investments in Associates. Adjusted
pre-tax income was EUR 105.1 million, and net income tax expenses
amounted to EUR 15.9 million.
As a result, adjusted net profit for the period was EUR 89.2
million, compared to EUR 1.6 million in 2006.
Reorganization charges excluded from the Adjusted income
statements
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, amounted to EUR 106.4 million in 2007 and
consisted of severance and associated costs for EUR 71.5 million
(mainly related to the closure of production facilities in the
Americas, Asia and Europe), factory under-absorption for plant being
closed for EUR 4.4 million, property, plant and equipment, intangible
asset and inventory write-offs and impairment for EUR 20.0 million,
and other costs for EUR 10.5 million (mainly related to IT integration
costs). They are reported in the IFRS income statement under a line
named "Reorganization expenses" for EUR 100.0 million, and under
revenue and cost of sales for EUR 6.4 million.
The implementation of the reorganization plans will result in the
curtailment of certain pension obligations. A credit of EUR 2.1
million was recognized in the adjusted measures in 2007 in connection
with these curtailments, in reduction of cost of sales.
Balance sheet and cash flow (IFRS measures)
Gemalto generated in 2007 positive free cash flow(6) of EUR 39
million after cash-outs induced by restructuring actions. Capital
expenditure amounted to EUR 60 million, of which EUR 40 million was
incurred for plant, property and equipment purchases, net of proceeds
from sales. Working capital requirement represented 9% of the fourth
quarter annualized revenue. It was essentially stable compared to
2006. Free cash flow figure of EUR 39 million is net after the use of
EUR 31.2 million in cash in connection with restructuring actions in
2007.
On top of the EUR 39 million free cash flow, the disposal of
investments available-for-sale and of investments in Associates, and
the dissolution of an investment in an Associate provided EUR 24.8
million in cash.
EUR 144 million were used in cash in 2007 by the Gemalto share
buy-back program. 7.8 million shares were purchased over the period,
representing 8.5% of Gemalto´s share capital. This program authorizes
the Company to acquire up to 10% of its share capital. In addition EUR
4 million were used in cash for the acquisition of the remaining
Gemplus shares during the squeeze out program in January 2007.
Consequently, Gemalto´s net cash position was EUR 314 million at
the end of 2007. This reduction of EUR 82 million compared with
year-end 2006 evidences the good 2007 performance considering that it
includes the EUR 148 million of cash used during the period for our
share repurchase programs and the EUR 31.2 million spent in connection
with restructuring actions in 2007.
Our current share buy-back program is now essentially complete,
with 9.34% of shares held as treasury shares as of February 29, 2008,
repurchased at an average price of 18.56 euros per share. 82,762,111
Gemalto shares were outstanding as of February 29, 2008).
Segment information(8)
Extract of the adjusted pro forma income statements are at
historical exchange rates unless otherwise mentioned.
Mobile Communication
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Full year 2006 Full year 2007
---------------------------------------------------------------------
Year-on-
As a % As a % year
EUR in of EUR in of change at
millions revenue millions revenue historical
exchange
rates
---------------------------------------------------------------------
Revenue 993.8 925.5 (6.9%)
Gross profit 334.3 33.6% 345.5 37.3% +3.7ppt
Operating
expenses 256.1 25.8% 224.2 24.2% (12.5%)
Operating income 77.6 7.8% 122.7 13.3%
=====================================================================
*T
At constant exchange rates and compared with the previous year,
Mobile Communication revenue was down 2% in 2007 full year, and up 6%
in the second semester.
Mobile Communication reported better margins for the full year of
2007 on the back of a strong second semester that benefited from the
price recovery program, a strong positive evolution towards higher end
products in the product mix, growing contribution from the software
and services activities, as well as purchasing and production
synergies.
Year-on-year decrease in average SIM card selling price was
contained to 9% at constant exchange rates, with sequential increases
in the three latter quarters of the year, compared with the 31%
decline witnessed a year ago. Revenue growth in software and services
exceeded 30%, driven by keen mobile network operators´ interest in
EMEA and the Americas.
Gross margin was up by 3.7 percentage points to 37% of revenue
driven largely by purchasing synergies and production footprint
optimization, enabling the Company to fully capture in the second part
of the year the benefits of product mix improvements.
Operating expenses were down by 13%. General & Administrative
expenses were reduced, and Research & Engineering expenses benefited
from the rationalization of the combined products portfolio.
Operating income reached 17.2% in the second half of the year
through the combined effect of a clear segmentation and pricing
strategy, of the return to growth, and of the positive seasonality
effect. On a full year basis operating income improved by 58% to EUR
123 million, and operating margin improved by 5.5 percentage points to
13.3%.
The mobile communication market continued to expand during 2007,
with vigorous SIM renewals and, to a lesser extent, strong subscriber
net additions. In both highly-penetrated as well as emerging markets,
mobile operators are actively looking to deploy more data services,
and Gemalto´s leadership position in SIM-based solutions and service
offerings resonates strongly with its customers´ priorities.
Secure Transactions
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Full year 2006 Full year 2007
---------------------------------------------------------------------
Year-on-
As a % As a % year
EUR in of EUR in of change at
millions revenue millions revenue historical
exchange
rates
---------------------------------------------------------------------
Revenue 412.2 413.4 +0.3%
Gross profit 81.7 19.8% 75.1 18.2% (1.6ppt)
Operating
expenses 93.1 22.6% 89.7 21.7% (3.7%)
Operating income (11.6) (2.8%) (13.9) (3.4%)
=====================================================================
*T
At constant exchange rates and compared with the previous year,
Secure Transactions revenue was up 4% in 2007 full year, and up 3% in
the second semester.
2007 was a transition year for Secure Transactions, operating in a
constrained environment as the restructuring program in Western Europe
to return the segment to operating profitability gathered speed. The
segment´s financial performance was negatively impacted despite
product mix improvements driven by growth in contactless and
higher-end EMV cards. With the restructuring plans well underway and
key obstacles in the plant closure negotiations resolved, the cost
reduction measures should deliver a significant improvement to this
segment operating results during 2008.
Strong revenue growth in contactless payment (mainly in Asia), in
personalization services and in Pay TV activity did offset the
disturbances related to the restructuring program that affected the
Payment and Transport activities revenue in Europe.
Gross margin was down by 1.6 percentage points to 18.2%,
reflecting evolutions in regional mix and sales prices, and a larger
proportion of modules sold to third parties in lieu of finished cards.
Operating expenses were reduced by 4% through the ongoing
optimization of support resources.
As a result of the above, Secure Transactions reported in 2007 an
operating loss of EUR 13.9 million.
Robust EMV market growth and increased demand for higher-end
contactless payment cards will continue to drive the underlying
performance of Secure Transactions in 2008. At the same time, a number
of banks in large markets are actively considering an outsourcing
strategy for card personalization, supporting Gemalto´s strategy to
expand its personalization activities.
Security
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Full year 2006 Full year 2007
---------------------------------------------------------------------
Year-on-
As a % As a % year
EUR in of EUR in of change at
millions revenue millions revenue historical
exchange
rates
---------------------------------------------------------------------
Revenue 182.9 192.9 +5.5%
Gross profit 68.5 37.4% 59.4 30.8% (6.6ppt)
Operating
expenses 73.0 39.9% 86.5 44.8% +18.5%
Operating income (4.7) (2.6%) (26.7) (13.8%)
=====================================================================
*T
At constant exchange rates and compared with the previous year,
Security revenue was up 9% in 2007 full year, and up 26% in the second
semester.
The operating performance of Security in 2007 reflected the
investments made to support our growth and consolidate our leadership
in Government Programs. Profitability was also reduced by the lower
contribution from patent licensing in 2007. As with Secure
Transactions, industrial footprint rationalization actions, which
complicated operations in 2007, will take effect in the coming twelve
months and the benefits will begin to materialize in the second half
of 2008.
Government Programs revenue was up 23% reflecting the ramp up of
deliveries in e-passport, e-identity and e-health projects won during
previous years around the world.
Identity & Access Management, which addresses on-line security for
corporations, posted lower revenue by 3%. Lower deliveries of secure
microprocessor devices in the Americas were partly offset by
deliveries of online banking authentication solutions in the UK and by
shipments of secure USB tokens to Asian customers.
Patent licensing revenue was EUR 23 million, down by EUR 4 million
compared to 2006.
The lower gross profit and 6.6 percentage points decrease in gross
margin in this segment was largely due to the lower patent licensing
activity. In line with Gemalto´s strategy to grow the Security
business, Research & Engineering and Sales & Marketing expenses
increased by EUR 4.1 million and EUR 6.4 million respectively.
Allocation of technical and marketing resources to this growing
business played a key part in the winning of several large-scale
tenders. As a result of these investments, which were expensed, the
segment reported an operating loss of EUR 26.7 million for 2007.
Ramp-up of the many large Government Program contracts won in 2007
will drive Security growth in 2008. IAM solutions for enterprise
security and online banking authentication continue to gain customer
attention and generate market demand. Patents licensing is expected to
return to lower levels in the short term, following the 2006 and 2007
surge of activity.
Public Telephony
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Full year 2006 Full year 2007
---------------------------------------------------------------------
Year-on-
As a % As a % year
EUR in of EUR in of change at
millions revenue millions revenue historical
exchange
rates
---------------------------------------------------------------------
Revenue 58.8 43.7 (25.7%)
Gross profit 6.5 11.1% 10.6 24.3% +63.1
Operating
expenses 6.4 10.8% 4.0 9.1% (37.5%)
Operating income 0.1 0.1% 7.3 16.8%
=====================================================================
*T
Memory cards for Public Telephony contribute now less than 3% of
Group revenue, as worldwide demand continues to decrease, reflecting
the even more widespread usage of mobile telephony worldwide.
The increase in gross margin and the reduction 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 7.3
million in 2007.
Point-of-Sale Terminals
-0-
*T
Full year 2006 Full year 2007
---------------------------------------------------------------------
Year-on-
As a % As a % year
EUR in of EUR in of change at
millions revenue millions revenue historical
exchange
rates
---------------------------------------------------------------------
Revenue 50.4 56.0 +11.1%
Gross profit 12.1 23.9% 9.6 17.2% (20.7%)
Operating
expenses 13.5 26.9% 15.6 27.8% +15.6%
Operating income (1.4) (2.8%) (5.9) (10.4%)
=====================================================================
*T
The launch of a new range of products developed on a new
technology platform in the fourth quarter of 2006 generated much of
the revenue growth of 2007.
To accompany the launch of these new products we continued to
allocate resources in the development of derivative products,
customizations and high end applications for the new platform.
As a result, this segment reported an operating loss of EUR 5.9
million.
Outlook
Our 2009 objective of 10% adjusted operating income remains
unchanged.
In 2008 we will benefit from the robust market demand we currently
experience in our main segments.
Our leadership position is generating commercial and operational
advantages and we are encouraged by the progress in our performance.
We currently see no evidence of the global financial turmoil impacting
our activities, aside from the evolution in the average exchange rates
between the Euro and other currencies. Growth and increased
profitability will be driven, besides higher synergies, by the return
to growth in Mobile Communications, the return to profit in Secure
Transactions, and the ramp up of our recent contract wins in Security.
The successful completion of our 2006-2009 plan will create a
strong foundation for our next phase of development
Reporting calendar
First quarter 2008 revenue will be reported on April 24, 2008,
before the opening of Euronext Paris.
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 impact specifically due to
the accounting treatment of the combination: 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 depreciation of intangible assets:
amortization and depreciation 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
property, plant and equipment, intangible asset and inventory
write-offs and impairment, asset transfer costs,
under-absorption costs linked to plant closure, severance and
associated costs, 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 full year
of 2007:
-- IFRS consolidated income statement, pursuant to its regulatory
obligations
-- Adjusted income statement
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*T
Gemalto IFRS consolidated - Includes all charges resulting from the
income statement accounting treatment of the combination
with Gemplus (amortization and impairment
of intangible assets, additional stock-
based compensation), and one-off expenses
and reorganization charges incurred in
connection with the combination
(reorganization and combination related
charges).
----------------------------------------------------------------------
Gemalto adjusted income - Combination assumed to have taken place
statement as of January 1, 2005.
- Excludes one-off expenses and
reorganization charges incurred in
connection with the combination with
Gemplus (reorganization and combination
related charges) and all charges resulting
from the accounting treatment of the
combination.
----------------------------------------------------------------------
*T
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 full year of 2007. The meeting will take
place today at the Pavillon Gabriel, 8 Avenue Gabriel, 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 10:00 am New York
time). Callers may participate in the live conference call by
dialling:
+44 (0) 207 806 1966 or +1 718 354 1385 or +33 1 70 99 43 01.
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, 4:00 am New York time).
Replays of the conference call will be available from
approximately 2 hours after the conclusion of the conference call
until March 26, 2008 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: 5307734#.
About Gemalto
Gemalto (Euronext NL 0000400653 GTO) is the leader in digital
security with pro forma 2007 annual revenues of over EUR 1.6 billion,
more than 85 offices in 40 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 solutions for digital security, from
the development of software applications, through the 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 and access 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; and
changes in global, political, economic, business, competitive, market
and regulatory forces. 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 except as otherwise
required by applicable law or regulations.
(1) Prepared on an adjusted basis, excluding one-off expenses
incurred in connection with the combination with Gemplus,
reorganization charges and charges resulting from the accounting
treatment of the transaction, unaudited.
(2) Operating expenses include research & engineering expenses,
sales & marketing expenses and general & administrative expenses; they
do not include other operating income & expenses, net.
(3) Excluding one-off expenses incurred in connection with the
combination with Gemplus, reorganization charges and charges resulting
from the accounting treatment of the transaction, unaudited. Adjusted
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 consolidated financial statements prepared in
accordance with IFRS provided in appendix 6. Gemalto believes these
adjusted financial measures are helpful in assessing its past
financial performance and its future results.
(4) Operating expenses include research & engineering expenses,
sales & marketing expenses and general & administrative expenses; they
do not include other operating income & expenses, net.
(5) EBITDA is defined as operating income plus depreciation and
amortization expenses These amounts exclude amortization and
impairment charges related to the intangible assets of Gemplus
identified upon Combination pursuant to IFRS 3 " Business
Combination ".
(6) The FY 2007 Adjusted basic earnings per share were determined
on the basis of the average number of Gemalto shares outstanding
during the twelve-month period ended December 31, 2007 (86,171,755
shares) i.e. taking into account the effect of the share buy-back on
the average number of shares outstanding during the period. The FY
2007 Adjusted diluted earnings per share were determined on the basis
of the average number of Gemalto shares outstanding during the
twelve-month period ended December 31, 2007 considering outstanding
"in the money" stock options and warrants have been exercised
(87,425,298 shares). The FY 2006 Adjusted basic earnings per share
were determined on the basis of the average number of Gemalto shares
issued during the twelve-month period ended December 31, 2006 less the
average number of Treasury shares held by the Company during the
twelve-month period ended December 31, 2006 (89,872,801 shares). The
number of Gemalto shares outstanding as of December 31, 2007 was
83,491,578.
(7) Free cash flow is defined as net cash flow from operating
activities less the purchase of property, plant and equipment, less
other investments related to the operating cycle and less
restructuring expenses (excluding acquisitions and financial
investments and shares buy-back).
(8) 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 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.
-0-
*T
Appendix 1
Full year 2007 Adjusted income statement by business segment
(unaudited)
---------------------------------------------------------------------
EUR in millions
Twelve months ended December 31, 2007
----------------------------------------------------------------------
Mobile Secure Security
Communication Transactions
----------------------------------------------------------------------
Revenue 925.5 413.4 192.9
----------------------------------------------------------------------
Gross profit 345.5 75.1 59.4
----------------------------------------------------------------------
Operating expenses 224.2 89.7 86.5
----------------------------------------------------------------------
Operating income (loss) 122.7 (13.9) (26.7)
----------------------------------------------------------------------
Twelve months ended December 31, 2007
---------------------------------------------------------------------
Public Point-of-Sale Total
Telephony Terminals
---------------------------------------------------------------------
Revenue 43.7 56.0 1,631.5
---------------------------------------------------------------------
Gross profit 10.6 9.6 500.2
---------------------------------------------------------------------
Operating expenses 4.0 15.6 419.9
---------------------------------------------------------------------
Operating income (loss) 7.3 (5.9) 83.6
---------------------------------------------------------------------
*T
-0-
*T
Full year 2006 Adjusted pro forma income statement by business
segment (unaudited)
EUR in millions
Twelve months ended December 31, 2006
----------------------------------------------------------------------
Mobile Secure Security
Communication Transactions
----------------------------------------------------------------------
Revenue 993.8 412.2 182.9
----------------------------------------------------------------------
Gross profit 334.3 81.7 68.5
----------------------------------------------------------------------
Operating expenses 256.1 93.1 73.0
Operating income (loss) 77.6 (11.6) (4.7)
----------------------------------------------------------------------
Twelve months ended December 31, 2006
---------------------------------------------------------------------
Public Point-of-Sale Total
Telephony Terminals
---------------------------------------------------------------------
Revenue 58.8 50.4 1,698.2
---------------------------------------------------------------------
Gross profit 6.5 12.1 503.0
---------------------------------------------------------------------
Operating expenses 6.4 13.5 442.2
Operating income (loss) 0.1 (1.4) 59.9
---------------------------------------------------------------------
*T
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*T
Appendix 2
Deliveries of secure personal devices (unaudited)
----------------------------------------------------------------------
In millions of units FY 2006 FY 2007 % growth
Pro forma
----------------------------------------------------------------------
SIM cards 901 956 +6%
----------------------------------------------------------------------
Secure Transactions 218 231 +6%
----------------------------------------------------------------------
Security 29 38 +29%
----------------------------------------------------------------------
Total 1,148 1,225 +7%
----------------------------------------------------------------------
*T
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*T
Appendix 3
Full year revenue by region (unaudited)
----------------------------------------------------------------------
EUR in millions Year-on-year Year-on-year
FY 2006 change at change at
pro forma FY 2007 historical constant
exchange exchange
rates rates
----------------------------------------------------------------------
EMEA 923.6 913.0 (1%) 0%
----------------------------------------------------------------------
North & South America 416.4 387.0 (7%) 1%
----------------------------------------------------------------------
Asia 358.1 331.5 (7%) 0%
----------------------------------------------------------------------
Total revenue 1,698.2 1,631.5 (4%) 0%
----------------------------------------------------------------------
*T
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*T
Appendix 4
Consolidated Income Statement for the twelve month period ended
December 31, 2007
Reconciliation from IFRS to Adjusted financial information(unaudited)
----------------------------------------------------------------------
Adjustment
relating to
IFRS combination
financial related
EUR in millions information expenses
Sales 1,629.5
Cost of sales (1,135.5)
Inventory step-up amortization 0.0
----------- -----------
Gross Profit 493.9 0.0
Research & Engineering expenses (102.7)
Sales & Marketing expenses (217.3)
G&A expenses (99.7)
Other Operating expenses 3.3
Combination related expenses (1.2) 1.2
Reorganization expenses (100.0)
Amortization and impairment of intangible
assets (47.5)
----------- -----------
Operating Income (EBIT) (71.2) 1.2
----------- -----------
Financial Income 10.5
Share of profit (loss) of associates 0.4
Gain on sale of an Investment in Associate 11.2
-----------------------
Profit before taxes (49.1) 1.2
Income tax 3.5
----------- -----------
Profit (loss) for the period (45.6) 1.2
----------- -----------
Attributable to shareholders (50.2)
Attributable to minority interest (4.6)
Adjustment
Adjustment relating to
relating to amortization
reorganization of intangible
EUR in millions charges assets
Sales 2.0
Cost of sales 4.4
Inventory step-up amortization
------------------------------
Gross Profit 6.4 0.0
Research & Engineering expenses
Sales & Marketing expenses
G&A expenses
Other Operating expenses
Combination related expenses
Reorganization expenses 100.0
Amortization and impairment of
intangible assets 47.5
------------------------------
Operating Income (EBIT) 106.4 47.5
------------------------------
Financial Income
Share of profit (loss) of associates
Gain on sale of an Investment in
Associate
------------------------------
Profit before taxes 106.4 47.5
Income tax (5.5) (13.8)
------------------------------
Profit (loss) for the period 100.9 33.6
------------------------------
Attributable to shareholders
Attributable to minority interest
Adjustment Adjustment
relating to relating to Adjusted
stock based investment financial
EUR in millions compensation disposal information
Sales 1,631.5
Cost of sales (0.1) (1,131.3)
Inventory step-up amortization 0.0
-------------------------- -----------
Gross Profit (0.1) 0.0 500.2
Research & Engineering expenses (0.0) (102.8)
Sales & Marketing expenses (0.2) (217.6)
G&A expenses (0.5) 0.7 (99.5)
Other Operating expenses 3.3
Combination related expenses 0.0
Reorganization expenses 0.0
Amortization and impairment of
intangible assets 0.0
-------------------------- -----------
Operating Income (EBIT) (0.9) 0.7 83.7
-------------------------- -----------
Financial Income 10.5
Share of profit (loss) of
associates 0.4
Gain on sale of an Investment
in Associate (0.7) 10.5
-------------------------- -----------
Profit before taxes (0.9) 0.0 105.1
Income tax (15.9)
-------------------------- -----------
Profit (loss) for the period (0.9) 0.0 89.2
-------------------------- -----------
Attributable to shareholders 84.6
Attributable to minority
interest (4.6)
*T
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*T
Appendix 5
Cash position variation schedule (unaudited)
----------------------------------------------------------------------
EUR in millions FY 2006 * FY 2007
----------------------------------------------------------------------
Cash and cash equivalent, beginning of period 637 430
----------------------------------------------------------------------
Cash generated by (used in) operating activities ** 68 99
Including cash provided by (used in) decrease
(increase) of working capital (39) 21
Capital expenditure and acquisitions of intangibles (71) (60)
----------------------------------------------------------------------
Free cash flow (4) 39
----------------------------------------------------------------------
Interest received (paid), net 13 9
Cash generated by disposal of investments 0 25
Other cash generated by (used in) investing
activities (3) (3)
Cash used in connection with the Combination with
Gemplus*** (27) (4)
----------------------------------------------------------------------
Cash generated by (used in) operating and investing
activities (20) 66
----------------------------------------------------------------------
June 2, 2006 distribution to Gemplus shareholders (164) 0
Cash used by the share buy-back program 0 (144)
Other cash used in financing activities (6) (9)
Other (translation adjustment mainly) (16) (6)
----------------------------------------------------------------------
Cash and cash equivalent, end of period 430 337
----------------------------------------------------------------------
Current and non-current borrowings including
finance lease, end of period (34) (24)
----------------------------------------------------------------------
Net cash, end of period 396 314
* Prepared on a pro forma basis
** Cash generated by (used in) operating activities takes into account
the use of EUR 31.2 million in cash in connection with restructuring
actions in 2007 (estimate). Restructuring actions used EUR 15.0
million in cash in 2006 (estimate).
*** Including acquisition cost of the remaining share of Gemplus
during the squeeze-out process in January 2007, for 4 million
*T
-0-
*T
Appendix 6
Consolidated balance sheets for the periods ended December 31, 2006
and 2007 (unaudited)
----------------------------------------------------------------------
Year ended December 31,
In thousands of Euro
-----------------------
2006 (*) 2007
----------- ----------
ASSETS
Non-current assets
Property, plant and equipment, net 242,922 217,095
Goodwill, net 547,572 543,831
Intangible assets, net 115,633 73,715
Investments in associates 15,912 8,294
Deferred income tax assets 17,897 21,891
Available-for-sale financial assets, net 7,401 1,445
Assets held for sale - 3,479
Other non-current assets 25,910 22,774
----------- ----------
Total non-current assets 973,247 892,524
----------- ----------
Curr