Regulatory News:
Gemalto (Euronext NL0000400653 - GTO), the world leader in digital security today announces its results for the first semester of 2012.
Key figures of the adjusted income statement | ||||||||||||||||
Year-on-year variations | ||||||||||||||||
Ongoing operations | First semester | First semester | at historical exchange | at constant exchange | ||||||||||||
Revenue | 1,016 | 921 | +10% | +7% | ||||||||||||
Gross profit | 386 | 320 | +21% | |||||||||||||
Operating expenses | (271) | (247) | +10% | |||||||||||||
Profit from operations | 115 | 74 | +56% | |||||||||||||
Profit margin | 11.3% | 8.0% | +3.3 ppt |
Olivier Piou, Chief Executive Officer, commented: "During this semester our teams delivered milestone projects in the digital identity and mobile payment sectors around the world. Gemalto achieved strong results that illustrate its transformation and the benefits of its strategy of innovation in the rapidly-expanding digital security market. We are determined to continue growing our revenue as planned, leveraging our improved business mix and continuing to invest in our new offers. Gemalto will now strive to reach its long-standing 2013 ambition of delivering €300 million in yearly profit from operations one year in advance."
Basis of preparation of financial information
Adjusted income statement and profit from operations (PFO) non-GAAP measure
The interim condensed consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS).
To better assess its past and future performance, the Company also prepares an adjusted income statement since the key metric used to evaluate the business and make operating decisions over the period 2010 to 2013 is profit from operations (PFO).
Profit from operations is a non-GAAP measure defined as the IFRS operating result adjusted for the amortization and depreciation of intangibles resulting from acquisitions, for share-based compensation charges, and for restructuring and acquisition-related expenses. These items are further explained as follows:
- Amortization and depreciation of intangibles resulting from acquisitions are defined as the amortization and depreciation expenses related to the intangibles recognized as part of the allocation of the excess purchase consideration over the share of net assets acquired.
- Share-based compensation charges are defined as (i) the discount granted to employees acquiring Gemalto shares under the Employee Stock Purchase plans; and (ii) the amortization of the fair value of the stock options and restricted share units granted by the Board of Directors to employees, and the related costs.
- Restructuring and acquisitions-related expenses are defined as (i) restructuring expenses which are the costs incurred in connection with a restructuring as defined in accordance with the provisions of IAS 37 (e.g. sale or termination of a business, closure of a plant,"¦), and consequent costs; (ii) reorganization expenses defined as the costs incurred in connection with headcount reductions, consolidation of manufacturing and offices sites, as well as the rationalization and harmonization of the product and service portfolio and the integration of IT systems consequent to a business combination; and (iii) transaction costs (such as fees paid as part of the acquisition process).
These non-GAAP 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 Company´s interim condensed consolidated financial statements prepared in accordance with IFRS.
In the adjusted income statement, Operating Expenses are defined as the sum of Research and Engineering, Sales and Marketing and General and Administrative expenses, and other income (expense) net. For the first semester 2011, it also includes the gain on re-measurement to fair value of an investment in associate, not part of the ongoing operations as defined below.
EBITDA is defined as PFO plus depreciation and amortization expenses, excluding the above described amortization and depreciation of intangibles resulting from acquisitions.
The Appendix 2 bridges the adjusted income statement to the IFRS income statement.
Ongoing operations
For a better understanding of the current and future year-on-year evolution of the business, the Company provides an adjusted income statement for ongoing operations for both the 2012 and 2011 reporting periods.
The adjusted income statement for ongoing operations excludes, as per the IFRS income statement, the contribution from discontinued operations to the income statement, and also the contribution from assets classified as held for sale and from other items not related to ongoing operations.
In this publication reported figures for ongoing operations only differ from figures for all operations by the contribution from assets held for sale.
Compared to figures reported on the first semester of 2011, figures for ongoing operations for the first semester 2011 reported in this publication were represented to also exclude the contribution from assets classified as held for sale in 2012.
The Appendix 1 bridges the adjusted income statement for ongoing operations to the adjusted income statement for all operations.
Historical exchange rates and constant currency figures
Revenue variations are at constant exchange rates, except where otherwise noted.
All other figures in this press release are at historical exchange rates, except where otherwise noted.
The Company sells its products and services in a very large number of countries and is commonly remunerated in other currencies than the Euro. Fluctuations in these other currencies exchange rates against the Euro have in particular a translation impact on the reported Euro value of the Company revenues. Comparisons at constant exchange rates aim at eliminating the effect of currencies translation movements on the analysis of the Group revenue by translating prior year revenues at the same average exchange rate as applied in the current year.
IFRS results
The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). To better assess its past and future performance, the Company also prepares an adjusted income statement. Appendix 2 provides the reconciliation between IFRS and adjusted income statements.
Gemalto´s IFRS income statement for the first semester 2012 shows an operating profit (EBIT) of €75 million. This figure is up +16% on the first semester of 2011.
Restructuring and acquisition-related expenses amounted to €2.4 million (€4.0 million in the first semester of 2011). Equity-based compensation charge was €25 million (€16 million in the first semester of 2011), which included a new long-term incentive plan put in place for all employees worldwide and the impact of Gemalto´s share price increase. Amortization and depreciation of intangibles resulting from acquisitions remained stable at €10 million.
The IFRS net profit showed a strong increase, up +30% over the first semester of 2011 to €59 million.
IFRS basic earnings per share and diluted earnings per share showed the same strong year-on-year increase. At €0.71 and €0.67 respectively for the reported period, IFRS basic earnings per share were higher by +32% and IFRS diluted earnings per share were higher by +30% when compared to the corresponding figures from the first semester of 2011.
Adjusted financial information for all operations
In this section, the financial information is presented for all operations. In comparison to the adjusted income statement for ongoing operations, the adjusted income statement for all operations also includes:
- for 2011, the gain recognized further to the change in shareholding structure of a joint venture held for sale,
- for 2011 and 2012, the contribution from assets held for sale, comprising those that will be contributed to the joint venture announced on April 3, 2012 and other non-strategic assets currently being disposed.
First semester 2012 | First semester 2011 | |||||||||||||||||||
Extract of the adjusted income | € in millions | As a % of | € in millions | As a % of | Year-on-year | |||||||||||||||
Revenue | 1,020 | 928 | +10% | |||||||||||||||||
Gross profit | 387 | 38.0% | 321 | 34.6% | +3.4 ppt | |||||||||||||||
Operating expenses | (275) | (27.0%) | (249) | (26.9%) | (0.1 ppt) | |||||||||||||||
JV deconsolidation gain | - | 21 | ||||||||||||||||||
EBITDA | 146 | 14.3% | 124 | 13.3% | +1.0 ppt | |||||||||||||||
Profit from operations | 112 | 11.0% | 93 | 10.0% | +1.0 ppt | |||||||||||||||
of which ongoing operations | 115 | 11.3% | 74 | 8.0% | +3.3 ppt | |||||||||||||||
and other operations | (3) | 19 | ||||||||||||||||||
Net profit | 95 | 9.3% | 74 | 7.9% | +1.3 ppt | |||||||||||||||
Basic Earnings per share (€) | 1.14 | 0.89 | +28% | |||||||||||||||||
Diluted Earnings per share (€) | 1.09 | 0.86 | +26% |
Revenue for the first semester was up by +10% at historical rates and +7% at constant rates to €1,020 million with all main segments posting growth. The Security segment performed particularly well with revenue growth of +19% at constant exchange rates. Platforms & Services 1 revenue expanded across the Company by +12% to reach €140 million for the semester, representing 14% of total Company revenue.
Gross profit was up +21%, or +€66 million, to €387 million. This represents a gross margin of 38%, higher by +3.4 percentage points on the previous year´s figure. The improvement was driven by gross margin increases in the Mobile Communication and Secure Transactions segments as well as by the revenue growth in Security. Better revenue mix, economies of scale and operational improvements underpinned the favorable trends observed in these activities.
Operating expenses for all operations, at €275 million, increased by +10 basis points as a percentage of revenue in comparison to the first semester 2011, which benefitted from a one-time positive contribution from non-ongoing operations. The ratio of recurring operating expenses over revenue was stable at 27%, with a decrease in SG&A expenses and an increase in R&D spending.
First semester 2012 profit from operations for all operations came in at €112 million or 11.0% of revenue, up +21%. This expansion was essentially due to the sharp increase in the contribution from ongoing operations, up +56% to €115 million versus €74 million in the first semester of 2011. This increase in the profit for all operations is remarkable as the contribution from ongoing operations more than offset a €22 million adverse comparison impact resulting from a year-on-year variation in the contribution from items not related to ongoing operations (essentially linked to the €19 million one-time gain generated by the change in shareholding structure of the assets held for sale during the first semester of 2011).
Net interest income was not material this semester, similarly to the same period of the previous year. Foreign exchange transactions resulted in a charge of €3.1 million, compared with a charge of €4.3 million in the first semester of 2011 and the other financial expenses represented a €3.0 million charge. As a result, Gemalto´s financial income for all operations was a charge of €6.0 million for the first semester of 2012, higher by €3.3 million year-on-year. Share of profit in associates was stable at slightly above €1 million.
Adjusted profit before income tax for all operations came in at €108 million, up 18% on the previous year.
Adjusted income tax expense was €13 million, with an estimated IFRS annual income tax rate of 16% for the year 2012.
Consequently, the adjusted net profit for all the operations of the Company was €95 million, a 29% increase when compared to last year´s figure of €74 million.
Adjusted basic earnings per share for all operations came in at €1.14, and adjusted diluted earnings per share for all operations at €1.09, increasing by 28% and 26% respectively when compared to the first semester 2011 adjusted basic earnings per share for all operations of €0.89 and adjusted diluted earnings per share for all operations of €0.86.
1 "Platforms & Services" was formerly referred to as "Software & Services", with the same scope.
2 The assets that will be contributed to the joint venture announced on April 3, 2012 with ARM and G&D and other non-strategic
Statement of financial position and cash position variation schedule
In the first semester 2012, operating activities generated a cash flow before restructuring actions of €95 million, up 122% on the €43 million generated in the first semester 2011. This increase includes the higher working capital requirements resulting from favorable business trends, up by €19 million when compared to the beginning of the semester. Cash used in restructuring actions was slightly up at €5 million.
Capital expenditure and acquisition of intangibles amounted to €48 million, or 4.7 % of revenue, of which €28 million was incurred for Property, Plant and Equipment assets with, in particular, investments in datacenters, personalization centers and other facilities to support future growth in financial services activities. Capitalization of development costs remained stable as a percentage of revenue, at 1.5%, and expenditure of €12m was incurred on the acquisition of intangible assets for long-term usage with the corresponding cash outflow expected in the next semester.
Acquisition and divestiture of subsidiaries and businesses, net of cash acquired, used €7 million in cash.
Gemalto´s share buy-back program used €31 million in cash in the first semester of 2012, for the purchase of 641,855 shares, net of the liquidity program. As at June 30, 2012, the Company held 4,790,830 shares, or 5.44% of its own shares in treasury. The total number of Gemalto shares issued was unchanged, at 88,015,844 shares. Net of the 4,790,830 shares held in treasury, 83,225,014 shares were outstanding as at June 30, 2012. The average acquisition price of the shares repurchased on the market by the Company as part of its buy-back program and held in treasury as at June 30, 2012 was €34.28.
On May 24, 2012, Gemalto paid a cash dividend of €0.31 per share in respect of the fiscal year 2011, up 11% on the dividend paid in 2011 (€0.28 per share). This distribution used €26 million in cash. Other financing activities generated €4 million in cash, including €17 million of proceeds received by the Company from the exercise of stock options by employees and a €10 million payment to acquire the minority interest of one of the Company´s affiliates.
As a result of these elements, cash and cash equivalents represented €317 million, as at June 30, 2012. They were €214 million as at June 30, 2011 and €330 million as at December 31, 2011, the beginning of the current period.
Gemalto´s net cash position was €300 million as at June 30, 2012, including €16 million of borrowings, down by €5 million compared to €21 million as at the beginning of the current period. Net cash position was up by +62% compared to €186 million as at June 30, 2011, and did not change significantly from the €309 million net cash held at the beginning of the current period.
Segment information
In this section, for a better understanding of Gemalto´s business evolution, comments and comparisons refer to ongoing operations. Revenue variations are expressed at constant currency exchange rates unless otherwise noted.
The basis of preparation of this document describes the evolutions that occurred in the segments´ ongoing operations for the year 2012, i.e. excluding the assets that will be contributed to the joint venture announced on April 3, 2012 and non-strategic assets currently being disposed. Revenue and contribution of these assets are detailed in Appendix 1.
The segments financial information for 2011 is presented pro-forma on the 2012 basis of preparation.
Segment contribution | Mobile | Machine-to- | Secure | Security | Patents | Total | ||||||||||||||||||
As a percentage of revenue | 47% | 9% | 26% | 18% | 0% | 100% | ||||||||||||||||||
As a percentage of ongoing PFO | 60% | 4% | 23% | 17% | -4% | 100% |
The four main segments, Mobile Communication, Machine-to-Machine, Secure Transactions and Security, represented nearly all of Gemalto´s revenue and profit from operations.
The contribution to revenue from Secure Transactions, Security and Machine-to-Machine continued to grow. They accounted for 53% of Gemalto´s total revenue. The contribution of these three segments to the Company´s profit from ongoing operations increased by 16% in value. Their share of the total was reduced to 44% this semester due to the outstanding performance of the Mobile Communication segment.
Year-on-year variations | Mobile | Machine-to- | Secure | Security | Patents | Total | ||||||||||||||||||
Second quarter | ||||||||||||||||||||||||
Revenue | 241 | 47 | 138 | 105 | 1 | 532 | ||||||||||||||||||
At constant rates | +2% | +9% | +3% | +24% | (70%) | +6% | ||||||||||||||||||
At historical rates | +7% | +15% | +6% | +29% | (69%) | +11% | ||||||||||||||||||
First semester | ||||||||||||||||||||||||
Revenue | 476 | 91 | 267 | 180 | 1 | 1,016 | ||||||||||||||||||
At constant rates | +6% | +5% | +4% | +19% | (59%) | +7% | ||||||||||||||||||
At historical rates | +9% | +8% | +6% | +23% | (58%) | +10% | ||||||||||||||||||
Profit from operations | 69 | 5 | 27 | 19 | (5) | 115 | ||||||||||||||||||
At historical rates | +114% | (20%) | +1% | +69% | (120%) | +56% |
The evolution of foreign currency translation in Euro had a favorable impact on second quarter revenue, after a limited impact in the first quarter. For the first semester 2012, Gemalto´s revenue growth from its ongoing operations was +10% at historical rates and +7% at constant rates. Profit from operations, although consistently hedged, also benefitted from the favorable impact related to foreign currency translations in Euro during the semester.
Mobile Communication | ||||||||||||||||||||||||
First semester 2012 | First semester 2011 2 | Year-on-year variation | ||||||||||||||||||||||
€ in millions | As a % of | € in millions | As a % of | at historical | at constant | |||||||||||||||||||
Revenue | 476.5 | 436.2 | +9% | +6% | ||||||||||||||||||||
Gross profit | 200.3 | 42.0% | 158.9 | 36.4% | +5.6 ppt | |||||||||||||||||||
Operating expenses | (130.9) | (27.5%) | (126.5) | (29.0%) | +1.5 ppt | |||||||||||||||||||
Profit from operations | 69.4 | 14.6% | 32.5 | 7.4% | +7.1 ppt |
In Mobile Communication, the impact of customers deploying our next generation technologies drove growth in both the "Embedded software & Products" 3 activity as well as in the "Platforms & Services" 3 activity, with revenue growing by +5% and +13% respectively.
This performance extends the segment´s positive business evolution that surged during the strong fourth quarter of 2011. Growth was partly driven by the continued rise of 4G-LTE in North America and by deployments of several mobile contactless services offered by mobile operators in the Americas, Asia and Europe. In mobile financial services business, key deliveries in mobile contactless and mobile money demonstrated the technological advantage and diversity of Gemalto´s LinqUsTM portfolio of solutions and its ability to serve clients in both the banked and the financial inclusion markets. The fluctuations observed this semester in quarterly revenue growth rates came from the anticipated change in seasonality patterns that took place between 2011 and 2012.
The increase in gross margin at 42% reflects the same improved revenue mix observed since the second semester of last year, and was achieved while continuing Gemalto´s investment strategy in the deployment of mobile financial solutions. Both sets of activities contributed to the gross margin improvement, benefitting from the deployment of new generations of products, scale effects and improved resource allocation. As the launches of advanced customer programs began in the second semester of 2011, the year-on-year improvement of +5.6 percentage points in 2012´s first semester gross profit margin was particularly pronounced when compared to the first semester of 2011 that did not benefit from these programs.
Disciplined control of operating expenses, changes in the seasonality pattern and foreign exchange effects contributed to reduce operating expenses as a percentage of revenue from 29% to 27%.
A strong improvement in profitability resulted from revenue growth, mix improvement and control of expenses. The segment´s profit margin from operations rose considerably from 7.4% to 14.6%, and more than doubled in absolute terms, from €33 million to €69 million, illustrating the Company´s ability to generate value with its strategy of early investment in promising adjacent opportunities.
Machine-to-Machine | ||||||||||||||||||||||||
First semester 2012 | First semester 2011 | Year-on-year variation | ||||||||||||||||||||||
€ in millions | As a % of | € in millions | As a % of | at historical | at constant | |||||||||||||||||||
Revenue | 91.0 | 84.2 | +8% | +5% | ||||||||||||||||||||
Gross profit | 29.8 | 32.7% | 28.9 | 34.3% | (1.6 ppt) | |||||||||||||||||||
Operating expenses | (25.2) | (27.7%) | (23.1) | (27.5%) | (0.2 ppt) | |||||||||||||||||||
Profit from operations | 4.6 | 5.0% | 5.8 | 6.9% | (1.8 ppt) |
Machine-to-Machine revenue grew to €91 million. The sources of demand spanned various sectors and devices, notably security systems, smart meters, and handheld terminals. This revenue expansion, which reflects the longer design-in cycle characterizing the Machine-to-Machine activity, shows that new commercial offerings have begun to bear fruit.
Gross profit increased in value by €0.9 million to €30 million with gross margin settling at 33%. This evolution stems from several factors including a higher level of sales, unfavorable foreign exchange effects and higher impact of amortization of capitalized developments related to