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Over One Million Barclays Customers Bank Online with Gemalto's Solution in the UK
www.smartcardalliance.org | Jul 9, 2008
The Smart Card Alliance, a non-profit association, works to stimulate the understanding, adoption, and widespread application of smart card technology. Through specific projects such as education programs, market research, advocacy, industry relations and open forums, the Alliance keeps its members
Gemalto and McAfee, Inc. Introduce Simple Two-Factor Authentication for Full Disk Encryption
www.prnewswire.com
AUSTIN, Texas and SANTA CLARA, Calif., May 12 /PRNewswire-FirstCall/ -- Gemalto and McAfee (NYSE: MFE) announced today a new integrated solution that enables PC and laptop users secure and convenient access to fully encrypted disks through strong, secure, hardware-based, two factor authentication.
http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=109&STORY=/www/story/05-12-2008/0004810962&EDATE=
Gemalto and McAfee, Inc. Introduce Simple Two-Factor Authentication for Full Disk Encryption (PR Newswire)
biz.yahoo.com
Gemalto and McAfee, Inc. Introduce Simple Two-Factor Authentication for Full Disk Encryption. - AUSTIN, Texas and SANTA CLARA, Calif., May 12 /PRNewswire-FirstCall/ -- Gemalto and McAfee (NYSE: MFE - News) announced today a new integrated solution that enables PC and laptop users secure and
Gemalto and McAfee offer two factor authentication
www.techworld.com | May 12, 2008
Smart card vendor Gemalto has teamed up with McAfee to offer an authentication and encryption package designed to secure sensitive data,...
Web Sites
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HP xw4300 Workstation
www.nts-international.com
See HP White Paper at: http://www.hp.com/workstations/white_papers/docs/xw4300_win2k_whitepaper_sept2005.pdf ) Form factor Minitower Color Carbonite/Alloy metallic Convertibility Yes. 5 ...
http://www.nts-international.com/site/html/modules/pdf/Workstation/HP_Workstation_XW4300.pdf
Welcome to the Reflexreader site!
Reflex 72 v2 The Reflex 72 V2 reader is part of a new family of Smart Card Readers that include support for multiple interfaces, multiple reader devices and relevant security standards.
Strong Authentication For Secure VPNs
www.etcdistribution.nl
Strong User Authentication For Secure VPNs 2 Executive Summary Virtual Private Networks (VPNs) are the de facto standard for providing remote access to mobile employees, partners ...
The Digital ID World Newsletter - July 28, 2005 Issue :: Digital Identity World :: Digital
Provided by Digital Identity World, Inc. FORWARDING THIS NEWSLETTER TO YOUR COLLEAGUES IS ENCOURAGED. If they would like their own subscription, send them to the Digital ID World web site to sign up at: http://www.digitalidworld.
http://www.digitalidworld.com/modules.php?op=modload&name=News&file=article&sid=288
News from Zibb.com
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Gemalto Reports First Half 2008 Results (1) - Zibb.com
AMSTERDAM, Netherlands, Aug 21, 2008 (BUSINESS WIRE) --
Regulatory News:
Gemalto (Euronext NL0000400653 - GTO), the world leader in digital security today announced its results for the first half 2008.
Key figures of the adjusted income statement(1):
First half 2007 First half 2008
----------------------------------------------------------------------
Year-on-
year
EUR in As a % EUR in As a % variation
millions of millions of at
revenue revenue historical
exchange
rates
----------------------------------------------------------------------
Revenue 760 791 + 4% (2)
Gross profit 222 29.2% 275 34.7% + 5.5 ppt
Operating expenses
(3) 210 27.6% 205 26.0% (1.6 ppt)
Operating income x 4.6
(EBIT) 15 2.0% 69 8.8%
Net profit 25 3.2% 63 8.0% x 2.6
----------------------------------------------------------------------
First half 2008 revenue and year-on-year revenue variation at constant exchange rates, by segment:
Mobile Secure Public Point-of- Total
Communication Transactions Security Telephony Sales Gemalto
Terminals
----------------------------------------------------------------------
443 MEUR 215 MEUR 101 MEUR 17 MEUR 16 MEUR 791 MEUR
+ 13% + 10% + 20% (19%) (43%) + 10.0%
======================================================================
Olivier Piou, Chief Executive Officer, commented: "Gemalto delivered a strong performance for the first half of 2008. Our three main business segments together grew by 13%. The four-fold expansion in operating income demonstrates the benefits of our merger. In particular, our efforts in Secure Transactions produced a turnaround which was realized faster than planned. Based on these first semester results the adjusted operating income for the full year is now anticipated to be around EUR 160 million."
Basis of preparation of financial information
The Company's unaudited condensed consolidated interim financial statements presented in Appendix 8 were prepared in accordance with IAS 34, Interim financial reporting.
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 linked to the 2006 combination between Axalto and Gemplus, and reorganization charges and charges resulting from the accounting treatment of the transaction. Charges resulting from the accounting treatment of the transaction consist of 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 not have 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 costs 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 impairments, 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.
All variations in this document are at constant exchange rates, unless otherwise mentioned, and are by reference comparing the Adjusted first half 2008 figures (unaudited) to that of Adjusted first half 2007. 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 IFRS consolidated income statement (unaudited) for the first half of 2008 shows an operating income of EUR 50.9 million and a net profit for the period of EUR 47.0 million.
The Company provides in Appendix 6 the reconciliation between the IFRS and adjusted income statements (unaudited) for the first half of 2008. Reconciling items include: amortization and depreciation of some intangible assets of EUR 6.5 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 of EUR 6.5 million; and combination-related expenses of EUR 0.2 million. For a more detailed description of adjustments made to the IFRS consolidated interim income statement, please refer to "Description of Adjusted measures" at the end of this press release.
As required by IAS 16 the Company re-assessed on January 1, 2008 the useful life of its tangible assets; as a result, tangible asset depreciation expense for the first half of 2008 was reduced; the net impact on the operating income was EUR 4.9 million for the first half of 2008. As required by IAS 38, the Company re-assessed the future economic benefits of its intangible assets; as a result an accelerated depreciation of a part of the patent portfolio was performed, and intangible assets depreciation expense for first half 2008 was increased by EUR 2.7 million compared to the first half of 2007.
Adjusted income statement(4) analysis
Extract of the adjusted income statement:
First half 2007 First half 2008
----------------------------------------------------------------------
Year-on-
year
EUR in As a % EUR in As a % variation
millions of millions of at
sales sales historical
exchange
rates
----------------------------------------------------------------------
Revenue 759.9 791.2 + 4.1% *
Gross profit 222.1 29.2% 274.9 34.7% + 5.5 ppt
Operating expenses(5) 209.5 27.6% 205.3 26.0% (1.6 ppt)
EBITDA(6) 50.5 6.6% 98.0 12.4% + 94%
Operating income (EBIT) 15.2 2.0% 69.5 8.8% x 4.6
Net profit 24.5 3.2% 63.3 8.0% x 2.6
======================================================================
Adjusted earnings per share (EUR per share)(7):
- basic 0.26 0.74
- diluted 0.25 0.73
======================================================================
* At constant exchange rates, first half 2008 revenue is up 10.0% from the previous year.
Gemalto reported a strong performance in the first half of 2008, with revenue growth of 10% and operating margin at 8.8%, reflecting the benefits of its strategy, of its merger' synergies and restructuring.
Revenue growth was driven by a balanced contribution from the main segments, in particular a strong first quarter in Mobile Communication, a strong second quarter in Secure Transactions, and a consistently good performance in Security throughout the period. In Security, the 20% growth includes the anticipated lower revenue from the patent licensing activity, while Government Programs and Identity & Access Management (IAM) continued to expand rapidly, posting revenue growth of 38% and 26% respectively. The three main segments (Mobile Communication, Secure Transactions and Security) together posted 13% revenue growth for the first half of 2008, with a first quarter growth of 16% and a second quarter growth of 11%.
Fall-through to operating income was strong thanks to the continuous efforts to improve operational efficiency in all segments. Gross margin at 34.7% was up by more than 5 full percentage points compared with the first half of 2007, benefiting significantly from production rationalization and scale effects.
Operating expenses decreased by 2.0% at historical exchange rates, and were down by 160 basis points as a percentage of total revenue, reflecting continuous efforts to streamline support functions, without affecting the Company's commitment to innovation or its customers.
As a result, the adjusted operating income for the semester was multiplied by more than four, to EUR 69.5 million, with a balanced contribution to this increase from Mobile Communications and Secure Transactions. This excellent profitability improvement was built on further productivity gains in Mobile Communication, and on an impressive turnaround in Secure Transactions, that came faster than initially expected.
Financial income was EUR 3.4 million. It mainly comprised net interest income of EUR 4.6 million and net foreign exchange hedging costs of EUR 1.4 million.
Adjusted pre-tax income came in at EUR 73.9 million. Net income tax expenses amounted to EUR 10.6 million, resulting in an adjusted net profit for the period of EUR 63.3 million, a multiple of 2.6 times the EUR 24.5 million reported in the first half of 2007.
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 12 million in first half 2008: factory under-absorption for plant being closed amounted to EUR 5.5 million and is reported in the IFRS income statement under the line "Cost of Sales"; costs related to IT integration and other various items amounted to EUR 6.5 million and are reported under the line "Reorganization expenses".
Balance sheet and cash flow (IFRS measures) statements
Gemalto generated in first half 2008 positive free cash flow(8) of EUR 13 million. Cash flow from operations before outflow related to restructuring actions was EUR 64 million positive, payments in connection with restructuring actions were EUR 29 million, and capital expenditures amounted to EUR 22 million, of which EUR 18 million were incurred for plant, property and equipment purchases net of proceeds from sales. Working capital requirement represented 13.7% of the first half 2008 annualized revenue.
The Gemalto share buy-back program used EUR 16 million in cash in the first half of 2008 to purchase 886,054 shares representing 0.97% of Gemalto's share capital. As of June 30, 2008, the Company owned 7,530,288, i.e. 8.27% of its own shares in treasury. This volume of shares covers in particular all exercisable stock options. These treasury shares as of June 30, 2008 have been repurchased on the market at an average price of 18.55 euros per share. 83,485,556 Gemalto shares were outstanding as of June 30, 2008.
The proceeds from exercise of stock options by employees amounted to EUR 11 million.
Consequently, Gemalto's net cash position was EUR 322 million at the end of June 2008.
The cancellation of three million treasury shares approved by the general meeting of shareholders of May 14, 2008, and corresponding to 3.3% of the then issued share capital, became effective on July 24, 2008. As a result, the total number of Gemalto shares issued is now 88,015,844.
At August 18 2008, Gemalto's holding of its own shares in treasury was 4,561,428 shares, corresponding to 5.18% of the Company's issued share capital. The number of Gemalto shares that were outstanding on that date was hence 83,454,416.
Segment information (9)
Mobile Communication
First half 2007 First half 2008
----------------------------------------------------------------------
Year-on-
year
EUR in As a % EUR in As a % variation
millions of millions of at
revenue revenue historical
exchange
rates
----------------------------------------------------------------------
Revenue 417.8 442.9 + 6.0%
Gross profit 144.1 34.5% 180.1 40.7% + 6.2 ppt
Operating expenses 109.8 26.3% 114.0 25.7% (0.6 ppt)
Operating income 35.7 8.5% 66.0 14.9% + 6.4 ppt
======================================================================
At constant exchange rates, first half 2008 Mobile Communication revenue is up 13.1% from the previous year.
Mobile Communication reported a very good performance during the first half of 2008, increasing revenue by 13% at constant rates, and significantly improving both gross and operating margins. The focus on value-based segmentation continues to stimulate product mix upgrades in all regions. Equally important, the current operating structure allows Gemalto to address the emerging markets volume competitively, leading to profitable contributions across all market segments. Furthermore, advances in software and services continued to be substantive, with strong sales in Europe, Middle East and Africa and the Americas, leading to a growth in turnover of more than 60%, to EUR 28 million.
Year-on-year decrease in SIM card average selling price (ASP) was 3.7% compared with the first half of 2007. Further improvements in the product mix combined with persistent price discipline continue to have a positive impact on the ASP. At the same time, the increasing ability to address entry-range markets competitively has led to an increasing turnover from that segment range, which in turn leads to a consequent lowering of the average selling price. These elements, together with the growing contribution from software and services, that is not included in the card selling price, mean the ASP has now become less meaningful as an indicator of business performance for the Mobile Communication segment.
Gross margin benefited from strong productivity gains in manufacturing and from supply chain efficiencies, notably the product portfolio rationalization, to reach 40.7%, i.e. 6.2 percentage points above that of first half 2007 at historical exchange rates.
With operating expenses improving by 60 basis points as a percentage of the segment total revenue, the operating profit came in at EUR 66 million, corresponding to an operating margin of 14.9%.
During the semester, Gemalto made a number of significant advances with its digital security solutions for major mobile operators in various regions around the world. In June, a successful OTA (over the air) campaign was completed for a major Chinese operator which involved updating the handsets of over 53 million subscribers in eight provinces across China. The efficiency and scalability of this remote updating of SIM cards in the field is a testament to the value of Gemalto's OTA platforms as a cost-effective asset for mobile operators to better manage their subscribers' user experience.
As mobile phones increasingly take centre stage in the digital lifestyle of consumers on the move, Gemalto's diverse solutions continue to attract keen interest. In Italy, Gemalto was recently selected by TIM to deploy the country's first Near Field Communication (NFC) pilot, initially targeted at mass transit applications. Gemalto's portal management software solution also enabled the Italian Mobile Virtual Network Operator (MVNO) PosteMobile to leverage its BancoPosta affiliation and provide its subscribers convenient secure payment and other mobile transaction services. Over 200,000 BancoPosta customers used these services this past semester.
Secure Transactions
First half 2007 First half 2008
----------------------------------------------------------------------
Year-on-
year
EUR in As a % EUR in As a % variation
millions of millions of at
revenue revenue historical
exchange
rates
----------------------------------------------------------------------
Revenue 203.6 214.9 + 5.5%
Gross profit 34.8 17.1% 60.3 28.1% + 11.0 ppt
Operating expenses 46.0 22.6% 42.1 19.6% (3.0 ppt)
Operating income (10.6) (5.2)% 18.3 8.5% + 13.7 ppt
======================================================================
At constant exchange rates, first half 2008 Secure Transactions revenue is up 10.2% from the previous year.
Secure Transactions returned to operating profit this semester, posting a positive operating margin of 8.5% for the period. The restructuring plans have been completed, and turnaround was achieved faster than planned.
The strong revenue growth was driven by continuing roll out of EMV and contactless payment systems mainly in Europe, Asia and Latin America. This good performance more than compensated for lower Pay TV and Transport revenue, a consequence of Gemalto selective approach to tenders. Personalization services also reported a strong growth of 34%, driven by EMV deployments and associated services in existing and emerging markets.
Gross margin was up by 11 percentage points at historical exchange rates, to 28.1%, reflecting the very positive evolution in product and regional mix, and the benefits of the restructuring program.
Operating expenses were reduced by 8.5% at historical exchange rates, and by 3.0 percentage points when compared to the segment total revenue.
As a result Secure Transactions reported an operating profit of EUR 18.3 million for the semester.
Beyond the steady developments in global EMV adoption, Gemalto continues to develop its innovative solutions to assist banks in better serving their customers. Gemalto's CardLikeMe solution was recently selected by PlasticNow, Canada's leading provider of prepaid, stored value and reloadable payment cards. The web-based solution for end-users to upload card body images and order new cards offers strong opportunities to greatly enhance PlasticNow's offers.
In France, the Pegasus group of five major banks (BNP-Paribas, Credit Agricole-LCL, Credit Mutuel-CIC, Caisse d'Epargne, and La Banque Postale Group) renewed their collaboration contract with Gemalto in the "Payez Mobile" program, aimed at developing a set of cohesive contactless mobile payment services. By leveraging its twin Mobile Communications and Secure Transactions know-how in NFC, banking applications, secure data handling and operated services, Gemalto has proven to be best positioned to develop and deploy the required technology and services.
Security
First half 2007 First half 2008
----------------------------------------------------------------------
Year-on-
year
EUR in As a % EUR in As a % variation
millions of millions of at
revenue revenue historical
exchange
rates
----------------------------------------------------------------------
Revenue 87.3 101.2 + 16.0%
Gross profit 33.0 37.8% 28.1 27.7% (10.1 ppt)
Operating expenses 43.8 50.2% 40.9 40.4% (9.8 ppt)
Operating income (10.4) (11.9%) (12.8) (12.7%) (0.8 ppt)
======================================================================
At constant exchange rates, first half 2008 Security revenue was up 19.7% from the previous year.
The Sales & Marketing investments made in Government Programs and in Identity and Access Management (IAM) continue to deliver robust growth. As previously communicated, patent licensing revenue returned to a level comparable to its pre-merger run-rates, with EUR 6.2 million recorded during the semester versus EUR 14.1 million for the first semester of 2007. Excluding patent licensing, Security revenue (i.e. from Government Programs and IAM together) grew by 34%.
Government Programs revenue was up by 38%, with strong increases in deliveries in the US and EMEA. A significant portion of growth during this semester was related to deployment of new contracts previously won, demonstrating the importance of the backlog in supporting a steady revenue base. Identity and Access Management (IAM) revenue also grew nicely, expanding by 26%, on the back of major deployments of e-banking authentication solutions, especially in Europe.
Security gross profit was reduced by 10.1 percentage points at historical exchange rates due to the reduced patents contribution. Excluding patents, gross profit was up 29.5% at historical exchange rates. This improvement reflects our ability to leverage scale effects and gradually move from a per-project cost base to increasingly industrialized operations.
Combined with improving efficiency that saw operating expenses reduced by 6.6% at historical exchange rates, and by 9.8 percentage points when compared to the segment total revenue, Security reported an operating loss of EUR 12.8 million in first half 2008. Excluding patents, this operating loss was divided by two when compared to the same period of last year.
During the semester Gemalto extended its lead in Government Programs with numerous successes. In Taiwan Gemalto was selected by the National Immigration Agency to provide electronic Alien Residence Certificate (ARC) cards and the associated personalization system. This ICAO-compliant electronic ID document is built on e-passport technology and drastically enhances the resistance to counterfeiting when compared to ARC documents previously in circulation. To date Gemalto has delivered over 300 000 ARC cards. In Mexico, Gemalto extended its contract to supply electronic driver licenses to three additional Mexican states, building on the success of the first deployment in Nueva Leon. Partnering with Cosmocolor, a major Mexican integrator, the solution will be deployed in the states of Mexico, Veracruz and Sonora, covering a population of some 50 million drivers.
In Identity and Access Management, Gemalto also continued to extend on existing successes and continued to develop new ones. In Poland the delivery of electronic student cards reached the one million cards mark, with 100 universities and high schools actively issuing cards, and 300 more expected to join: the program enables students to have a single card for identification, physical access, public transport e-ticketing, e-purse and other value-added applications. In the USA, Gemalto's Protiva .NET strong authentication solution was also selected by major accounting firm Virchow Krause & Company LLC, highlighting both the value of enhanced security for sensitivity-critical businesses as well as the attractiveness of Gemalto's solutions that are readily compatible with Microsoft Windows Vista and XP platforms.
Point-of-Sale Terminals
First half 2007 First half 2008
----------------------------------------------------------------------
Year-on-
year
EUR in As a % EUR in As a % variation
millions of millions of at
revenue revenue historical
exchange
rates
----------------------------------------------------------------------
Revenue 29.2 15.7 (46.2%)
Gross profit 5.6 19.2% 2.7 17.2% (2 ppt)
Operating expenses 7.8 26.8% 6.9 43.8% (11.5%)
Operating income (2.1) (7.3)% (4.2) (26.7%) (19.4 ppt)
======================================================================
Missed commercial opportunities and deliveries due to a faulty component detected in Gemalto contract-manufacturer's supply chain drastically impacted first half 2008 sales and resulting operating performance. As a result, this segment reported an operating loss of EUR 4.2 million. The issue has been solved and the segment is progressively returning to normal activity level.
Public Telephony
First half 2007 First half 2008
----------------------------------------------------------------------
Year-on-
year
EUR in As a % EUR in As a % variation
millions of millions of at
revenue revenue historical
exchange
rates
----------------------------------------------------------------------
Revenue 22.0 16.5 (24.8%)
Gross profit 4.6 20.8% 3.7 22.7% + 1.9 ppt
Operating expenses 2.2 9.8% 1.5 8.8% (1.0 ppt)
Operating income 2.6 11.6% 2.3 13.8% + 2.2 ppt
======================================================================
At constant exchange rates, revenue shrank by 19%. Worldwide demand for memory cards for Public Telephony continues to contract, reflecting the increasingly widespread usage of mobile telephony worldwide. Gemalto's manufacturing and support structure cost base have been adjusted accordingly. As a result, gross margin was up by 1.9 percentage points at historical exchange rates to 22.7% and operating margin increased by 2.2 percentage points at historical exchange rates to 13.8%. Consequently, the segment reported an operating profit of EUR 2.3 million in first half 2008.
Outlook
Gemalto has set for itself an objective of achieving exchange-rate-adjusted revenue growth in the range of 8% to 12% over the long run. Revenue growth for 2008 is anticipated to be within this range. 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 significantly impacting our activities, aside from the evolution in the average exchange rates between the Euro and other currencies.
With the delivery of this considerably improved operating result for the first half of 2008, Gemalto is well on track to achieve significant profit expansion in the full year 2008. The adjusted operating income for the full year is now anticipated to be around EUR 160 million.
Our 2009 objective of 10% adjusted operating margin remains unchanged.
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:
-- 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 first half of 2008:
-- IFRS consolidated income statement, pursuant to its regulatory obligations
-- Adjusted income statement
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 - Excludes one-off expenses and
statement 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.
----------------------------------------------------------------------
Reporting calendar
Third quarter 2008 revenue will be reported on October 23, 2008, before the opening of Euronext Paris.
Conference call
Gemalto will hold an analysts and investors conference call in English
today at 3:00 pm Paris time (2:00 pm London time and 9:00 am New York
time). Callers may participate in the live conference call by
dialling:
+44 207 806 1968 or +1 718 354 1391 or +33 1 70 99 42 99.
The presentation slide show will be available for download on our
Investor Relations web site (www.gemalto.com/investors) at 1:00 pm
Paris time (12:00 am London time, 7:00 am New York time).
Replays of the conference call will be available from approximately 3
hours after the conclusion of the conference call until August 27,
2008 midnight Paris time by dialling:
+44 207 806 1970 or +1 718 354 11 12 or +33 1 71 23 02 48, access
code: 2478414#.
About Gemalto
Gemalto (Euronext NL 0000400653 GTO) is the leader in digital security with 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 digital security solutions, from the development of software applications through design and production of secure personal devices such as smart cards, subscribers' identification modules (SIM's), e-passports and tokens to the deployment of managed services for its customers. More than a billion people worldwide use the company's products and services for telecommunications, financial services, e-government, identity management, multimedia content, digital rights management, IT security, mass transit and many other applications.
As the use of Gemalto's software and secure devices increases with the number of people interacting in the digital and wireless world, the company is poised to thrive over the coming years. 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 company, 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 company 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 its 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 company's share prices; and changes in global, political, economic, business, competitive, market and regulatory forces. Moreover, neither the company 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 company 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.
Appendix 1
First half 2008 adjusted income statement by business segment
(unaudited)
(At historical exchange rates)
----------------------------------------------------------------------
EUR in Six months ended June 30, 2008
millions
----------------------------------------------------------------------
Mobile Secure Public Point-of-
Communication Transactions Security Telephony Sale
Terminals
----------------------------------------------------------------------
Revenue 442.9 214.9 101.2 16.5 15.7
----------------------------------------------------------------------
Gross
profit 180.1 60.3 28.1 3.7 2.7
----------------------------------------------------------------------
Operating
expenses 114.0 42.1 40.9 1.5 6.9
----------------------------------------------------------------------
Operating
income
(loss) 66.0 18.3 (12.8) 2.3 (4.2)
----------------------------------------------------------------------
Total
----------------
Revenue 791.2
----------------
Gross
profit 274.9
----------------
Operating
expenses 205.3
----------------
Operating
income
(loss) 69.5
----------------
First half 2007 adjusted income statement by business segment
(unaudited)
(At historical exchange rates)
EUR in millions Six months ended June 30, 2007
----------------------------------------------------------------------
Point-
Mobile Secure Security Public of-
Communication Transactions Telephony Sale
Terminals
----------------------------------------------------------------------
Revenue 417.8 203.6 87.3 22.0 29.2
----------------------------------------------------------------------
Gross
profit 144.1 34.8 33.0 4.6 5.6
----------------------------------------------------------------------
Operating
expenses 109.8 46.0 43.8 2.2 7.8
----------------------------------------------------------------------
Operating
income
(loss) 35.7 (10.6) (10.4) 2.6 (2.1)
----------------------------------------------------------------------
Total
----------------------------------------------------------------------
Revenue 759.9
----------------------------------------------------------------------
Gross profit 222.1
----------------------------------------------------------------------
Operating expenses 209.5
----------------------------------------------------------------------
Operating income (loss) 15.2
----------------------------------------------------------------------
Appendix 2
Deliveries of secure personal devices (unaudited)
------------------------------------------------------
In millions of units Q2'2007 Q2'2008 % growth
------------------------------------------------------
SIM cards 230 257 +11.9%
------------------------------------------------------
Secure Transactions 58 78 +33.7%
------------------------------------------------------
Security 8 13 +78.7%
------------------------------------------------------
Total 296 349 +18.0%
------------------------------------------------------
------------------------------------------------------
In millions of units H1 2007 H1 2008 % growth
------------------------------------------------------
SIM cards 445 511 +14.7%
------------------------------------------------------
Secure Transactions 112 147 +31.8%
------------------------------------------------------
Security 13 22 +64.9%
------------------------------------------------------
Total 570 680 +19.2%
------------------------------------------------------
Appendix 3
Second quarter 2008 revenue by region (unaudited)
----------------------------------------------------------------------
EUR in millions Year-on- Year-on-
year year
Q2 Q2 change at change
2007 2008 historical at
exchange constant
rates exchange
rates
----------------------------------------------------------------------
EMEA 219.3 228.2 +4.1% +6.9%
----------------------------------------------------------------------
North & South America 91.4 89.3 (2.3%) +8.5%
----------------------------------------------------------------------
Asia 87.1 86.2 (1.1%) +10.5%
----------------------------------------------------------------------
Total revenue 397.8 403.6 +1.5% +8.0%
----------------------------------------------------------------------
Second quarter 2008 revenue by business segment (unaudited)
EUR in millions % change at % change
Q2 Q2 historical at
2007 2008 exchange constant
rates exchange
rates
----------------------------------------------------------------------
Mobile Communication 223.7 219.4 (1.9%) +5.5%
----------------------------------------------------------------------
Secure Transactions 103.3 114.0 +10.3% +15.7%
----------------------------------------------------------------------
Security 44.7 53.9 +20.6% +25.6%
----------------------------------------------------------------------
Public Telephony 11.6 8.2 (29.4%) (23.9%)
----------------------------------------------------------------------
Point-of-Sale Terminals 14.3 8.1 (43.8%) (40.2%)
----------------------------------------------------------------------
Total revenue 397.8 403.6 +1.5% +8.0%
----------------------------------------------------------------------
Appendix 4
First half 2008 revenue by region (unaudited)
----------------------------------------------------------------------
EUR in millions Year-on- Year-on-
year year
H1 H1 change at change
2007 2008 historical at
exchange constant
rates exchange
rates
----------------------------------------------------------------------
EMEA 428.0 442.6 +3.4% +6.3%
----------------------------------------------------------------------
North & South America 167.3 177.1 +5.8% +16.3%
----------------------------------------------------------------------
Asia 164.6 171.6 +4.2% +14.0%
----------------------------------------------------------------------
Total revenue 759.9 791.2 +4.1% +10.0%
----------------------------------------------------------------------
First half 2008 revenue by business segment (unaudited)
EUR in millions % change at % change
H1 H1 historical at
2007 2008 exchange constant
rates exchange
rates
----------------------------------------------------------------------
Mobile Communication 417.8 442.9 +6.0% +13.1%
----------------------------------------------------------------------
Secure Transactions 203.6 214.9 +5.5% +10.2%
----------------------------------------------------------------------
Security 87.3 101.2 +16.0% +19.7%
----------------------------------------------------------------------
Public Telephony 22.0 16.5 (24.8%) (19.4%)
----------------------------------------------------------------------
Point-of-Sale Terminals 29.2 15.7 (46.2%) (43.2%)
----------------------------------------------------------------------
Total revenue 759.9 791.2 +4.1% +10.0%
----------------------------------------------------------------------
Appendix 5
Average exchange rates between the Euro and the US dollar
----------------------------------------------------------------------
EUR/USD
----------------------------------------------------------------------
First quarter 2007 1.31
----------------------------------------------------------------------
Second quarter 2007 1.35
----------------------------------------------------------------------
First half 2007 1.33
----------------------------------------------------------------------
First quarter 2008 1.48
----------------------------------------------------------------------
Second quarter 2008 1.56
----------------------------------------------------------------------
First half 2008 1.52
----------------------------------------------------------------------
Appendix 6
Consolidated Income Statement for the six month period ended June 30,
2008
Reconciliation from IFRS to Adjusted financial information (unaudited)
----------------------------------------------------------------------
Adjustment
relating to Adjustment
IFRS combination relating to
EUR in financial related reorganization
millions information expenses charges
Sales 791.2 0.0
Cost of sales (521.9) 5.6
Gross Profit 269.3 5.6
Research &
Engineering
expenses (46.8)
Sales &
Marketing
expenses (109.4)
G&A expenses (49.3)
Other
Operating
expenses (0.1)
Combination
related
expenses 0.2 (0.2)
Reorganization
expenses (6.5) 6.5
Amortization
of intangible
assets (6.5)
------------------------------------------
Operating
Income (EBIT) 50.9 (0.2) 12.1
------------------------------------------
Financial
Income 3.4
Share of
profit (loss)
of associates 1.0
Profit before
taxes 55.3 (0.2) 12.1
Income tax (8.3) (0.4)
------------------------------------------
Profit (loss)
for the
period 47.0 (0.2) 11.7
------------------------------------------
Attributable
to
shareholders 45.0
Attributable
to minority
interest 2.0
Adjustment
relating to
amortization Adjustment
of relating to Adjusted
EUR in intangible stock based financial
millions assets compensation information
Sales 791.2
Cost of sales 0.0 (516.3)
Gross Profit 274.9
Research &
Engineering
expenses 0.0 (46.8)
Sales &
Marketing
expenses 0.1 (109.3)
G&A expenses 0.0 (49.2)
Other
Operating
expenses (0.1)
Combination
related
expenses -
Reorganization
expenses -
Amortization
of intangible
assets 6.5 -
----------------------------------------
Operating
Income (EBIT) 6.5 0.1 69.5
----------------------------------------
Financial
Income 3.4
Share of
profit (loss)
of associates 1.0
Profit before
taxes 6.5 0.1 73.9
Income tax (1.9) (10.6)
----------------------------------------
Profit (loss)
for the
period 4.6 0.1 63.3
----------------------------------------
Attributable
to
shareholders 61.3
Attributable
to minority
interest 2.0
Appendix 7
Cash position variation schedule (unaudited)
----------------------------------------------------------------------
EUR in millions H1 2007 H1 2008
----------------------------------------------------------------------
Cash and cash equivalent, beginning of period 430 337
----------------------------------------------------------------------
Cash generated by operating activities, before cash
outflows related to restructuring actions (10) 21 64
Including cash provided by (used in)
decrease (increase) of working
capital 1 (40)
Cash used in restructuring actions (16) (29)
Capital expenditure and acquisitions of intangibles (29) (22)
----------------------------------------------------------------------
Free cash flow (24) 13
----------------------------------------------------------------------
Interest received, net (10) 5 5
Cash generated by disposal of investments 21 0
Other cash used in investing activities (0) (0)
Cash used in connection with the Combination with
Gemplus (11) (4) 0
----------------------------------------------------------------------
Cash generated by (used in) operating and investing
activities (3) 18
----------------------------------------------------------------------
Cash used by the share buy-back program (100) (16)
Other cash provided by (used in) financing activities (8) 5
Other (translation adjustment mainly) (1) (5)
----------------------------------------------------------------------
Cash and cash equivalent, end of period 319 340
----------------------------------------------------------------------
Current and non-current borrowings including finance
lease, end of period (27) (18)
----------------------------------------------------------------------
Net cash, end of period 291 322
Appendix 8
Gemalto
Condensed consolidated interim financial statements
as of June 30, 2008
(Unaudited)
The accompanying notes are an integral part of these condensed
consolidated interim financial statements
Consolidated balance sheets (unaudited)
----------------------------------------------------------------------
In thousands of Euro Notes Consolidated Consolidated
balance balance
sheet as of sheet as of
December June 30,
31, 2007 2008
------------ ------------
ASSETS
Non-current assets
Property, plant and equipment, net 7 217,095 213,597
Goodwill, net 8 543,831 542,229
Intangible assets, net 8 73,715 58,136
Investments in associates 8,294 9,296
Deferred income tax assets 21,891 19,913
Available-for-sale financial
assets, net 1,445 1,321
Assets held for sale 3,479 3,384
Other non-current assets 22,774 26,843
------------ ------------
Total non-current assets 892,524 874,719
------------ ------------
Current assets
Inventories, net 9 173,737 184,425
Trade and other receivables, net 10 439,505 433,154
Derivative financial instruments 11 15,750 12,711
Cash and cash equivalents 12 337,441 340,102
------------ ------------
Total current assets 966,433 970,392
------------ ------------
Total assets 1,858,957 1,845,111
============ ============
EQUITY
Capital and reserves attributable to
the Company's equity holders
Share capital 91,016 91,016
Share premium 1,247,140 1,247,140
Treasury shares (139,932) (137,620)
Fair value and other reserves 82,674 83,003
Cumulative translation adjustment (22,475) (34,781)
Retained earnings (27,746) 17,255
------------ ------------
1,230,677 1,266,013
Minority interest 11,568 12,262
------------ ------------
Total equity 1,242,245 1,278,275
============ ============
LIABILITIES
Non-current liabilities
Borrowings 16,710 13,594
Deferred income tax liabilities 14,816 13,070
Retirement benefit obligation 25,959 24,773
Provisions and other liabilities 13 79,722 77,039
------------ ------------
Total non-current liabilities 137,207 128,476
------------ ------------
Current liabilities
Trade and other payables 14 392,459 374,562
Current income tax liabilities 7,089 6,627
Borrowings 6,918 4,765
Derivative financial instruments 11 468 204
Provisions and other liabilities 15 72,571 52,203
------------ ------------
Total current liabilities 479,505 438,361
------------ ------------
Total liabilities 616,712 566,837
------------ ------------
Total equity and
liabilities 1,858,957 1,845,111
============ ============
The accompanying notes are an integral part of these condensed consolidated interim financial statements
Consolidated income statements (unaudited)
In thousands of Euro (except earnings per Notes Six-month period
share) ended June 30,
-------------------
2007 2008
--------- ---------
Revenue 759,863 791,173
Cost of sales (537,965) (521,873)
--------- ---------
Gross profit 221,898 269,300
Operating expenses
Research and engineering (50,823) (46,778)
Sales and marketing (109,596) (109,380)
General and administrative (50,680) (49,273)
Other income (expense), net 2,624 (98)
Combination related expenses 4 (1,181) 162
Reorganization expenses 4 (55,128) (6,533)
Amortization of intangible assets 4 (23,031) (6,499)
--------- ---------
Operating result (65,917) 50,901
--------- ---------
Finance income (expense), net 16 10,097 3,405
Share of profit (loss) of associates (898) 1,032
Gain on sale of investment in associate 9,393 -
--------- ---------
Profit (Loss) before income tax (47,325) 55,338
Income tax expense (1,066) (8,313)
--------- ---------
Profit (Loss) for the period (48,391) 47,025
--------- ---------
Attributable to
Equity holders of the Company (50,100) 45,001
Minority interest 1,709 2,024
Basic earnings (loss) per share (in Euro) 17 (0.57) 0.54
Diluted earnings (loss) per share (in Euro) 17 (0.57) 0.53
In thousands
Average number of shares outstanding 17 88,371 83,123
Average number of shares outstanding
assuming dilution 17 88,371 84,362
The accompanying notes are an integral part of these condensed consolidated interim financial statements
Consolidated statements of changes in equity (unaudited)
In thousands on Number of Shares (*) Attributable to equity
Euro holders of the Company
----------------------------------------------------------------------
Issued Outstanding Share Share Treasury
Capital Premium Shares
----------------------------------------------------------------------
Balance as of
January 1, 2007 90,082,535 89,854,954 90,083 1,241,326 (5,240)
Movements in fair
value & other
reserves:
Currency
translation
adjustments
Gains/(losses) on
Treasury shares
(liquidity
program)
Fair value
gains/(losses),
net of tax:
financial
assets
available-for-
sale
variation of
actuarial
gains and
losses in
benefit
obligation
cash flow
hedges
revaluation
further to
acquisition of
LM Gemplus Pty
Ltd minority
interest
------------------------------
Net
income/(expense)
recognized
directly in
equity
Profit/(Loss) for
the period
------------------------------
Total recognized
income for the
period
Employee share
option scheme 74,396
Purchase of
Treasury shares (5,386,365) (97,884)
Capital increase
further to
acquisition of
minority
interests in
Gemplus
International 933,309 933,309 933 17,763
Excess of
purchase price
on subsequent
minority
interest
acquisitions (10,244)
Minority interest
on Gemplus
acquisition
Dividend
paid/payable to
minority
interests
----------------------------------------------------------------------
Balance as of
June 30, 2007 91,015,844 85,476,294 91,016 1,248,845 (103,124)
----------------------------------------------------------------------
Balance as of
January 1, 2008 91,015,844 83,491,578 91,016 1,247,140 (139,932)
----------------------------------------------------------------------
Movements in fair
value & other
reserves:
Currency
translation
adjustments
Gains/(losses) on
Treasury shares
(liquidity
program)
Fair value
gains/(losses),
net of tax:
financial
assets
available-for-
sale
variation of
actuarial
gains and
losses in
benefit
obligation
cash flow
hedges
------------------------------
Net
income/(expense)
recognized
directly in
equity
Profit/(Loss) for
the period
-----------------------------
Total recognized
income for the
period
-
Employee share
option scheme 870,202
Purchase of
Treasury shares (876,224) 2,312
Dividend
paid/payable to
minority
interests
----------------------------------------------------------------------
Balance as of
June 30, 2008 91,015,844 83,485,556 91,016 1,247,140 (137,620)
----------------------------------------------------------------------
In thousands on Attributable to equity holders Minority Total
Euro of the Company Interest equity
----------------------------------------------------------------------
Fair
value Cumulative Retained
and translation Earnings
other adj.
reserves
----------------------------------------------------------------------
Balance as of
January 1, 2007 73,151 (4,158) 22,319 26,884 1,444,365
Movements in fair
value & other
reserves:
Currency
translation
adjustments (1,812) (16) (1,828)
Gains/(losses) on
Treasury shares
(liquidity
program) 27 27
Fair value
gains/(losses),
net of tax:
financial
assets
available-for-
sale (4,253) (4,253)
variation of
actuarial
gains and
losses in
benefit
obligation (592) (592)
cash flow
hedges 598 (22) 576
revaluation
further to
acquisition of
LM Gemplus Pty
Ltd minority
interest 125 125
-----------------------------------------------------
Net
income/(expense)
recognized
directly in
equity (4,220) (1,812) 125 (38) (5,945)
Profit/(Loss) for
the period (50,100) 1,709 (48,391)
-----------------------------------------------------
Total recognized
income for the
period (4,220) (1,812) (49,975) 1,671 (54,336)
Employee share
option scheme 3,572 3,572
Purchase of
Treasury shares (97,884)
Capital increase
further to
acquisition of
minority
interests in
Gemplus
International 18,696
Excess of
purchase price
on subsequent
minority
interest
acquisitions (10,244)
Minority interest
on Gemplus
acquisition (13,748) (13,748)
Dividend
paid/payable to
minority
interests (3,606) (3,606)
----------------- ----------------------------------------------------
Balance as of
June 30, 2007 72,503 (5,970) (27,656) 11,201 1,286,815
----------------------------------------------------------------------
Balance as of
January 1, 2008 82,674 (22,475) (27,746) 11,568 1,242,245
----------------------------------------------------------------------
Movements in fair
value & other
reserves:
Currency
translation
adjustments (12,306) (78) (12,384)
Gains/(losses) on
Treasury shares
(liquidity
program) 93 93
Fair value
gains/(losses),
net of tax:
financial
assets
available-for-
sale (124) (124)
variation of
actuarial
gains and
losses in
benefit
obligation 485 485
cash flow
hedges 536 536
----------------------------------------------------
Net
income/(expense)
recognized
directly in
equity 990 (12,306) (78) (11,394)
-
Profit/(Loss) for
the period 45,001 2,024 47,025
----------------------------------------------------
Total recognized
income for the
period 990 (12,306) 45,001 1,946 35,631
-
Employee share
option scheme (661) (661)
Purchase of
Treasury shares 2,312
Dividend
paid/payable to
minority
interests (1,252) (1,252)
----------------------------------------------------------------------
Balance as of
June 30, 2008 83,003 (34,781) 17,255 12,262 1,278,275
----------------------------------------------------------------------
(*) As of June 30, 2008, the difference between the number of shares
issued and the number of shares outstanding correspond to the
7,530,288 shares held in treasury.
The accompanying notes are an integral part of these condensed consolidated interim financial statements
Consolidated statements of cash flows (unaudited)
In thousands of Euro Six-month period
Notes ended June 30,
------------------
2007 2008
--------- --------
Cash flows from (used in) operating
activities
Cash generated from operations 18 11,243 42,792
Interest paid (1,126) (852)
Income tax paid (6,306) (7,970)
--------- --------
Net cash provided by operating activities 3,811 33,970
--------- --------
Cash flows from (used in) investing
activities
Acquisition of subsidiary, cash acquired
net of costs 25 -
Purchase of Gemplus minority interests (4,068) -
Purchase of property, plant and equipment (17,719) (19,140)
Proceeds from sale of property, plant and
equipment 577 1,086
Purchase of intangible assets (11,762) (3,563)
Purchase of non-current assets (282) (287)
Proceeds from sale of an available-for-sale
asset 4,912 -
Proceeds from sale of investments in
associates 15,603 202
Purchase of investments in associated
companies (289) -
Interest received 6,302 5,584
--------- --------
Net cash used in investing activities (6,701) (16,118)
--------- --------
Cash flows from (used in) financing
activities
Proceeds from exercise of stock options 1,026 11,000
Purchase of shares held in Treasury (net) (99,652) (15,595)
Gains/(losses) on treasury stocks
transactions (4) -
Proceeds from borrowings 1,228 203
Repayments of borrowings (7,534) (4,878)
Dividends paid to minority interest (2,552) (662)
--------- --------
Net cash used in financing activities (107,488) (9,932)
--------- --------
Net increase (decrease) in cash and bank
overdrafts (110,378) 7,920
Cash and bank overdrafts, beginning of
period 12 429,596 336,815
Currency translation effect on cash and
bank overdrafts (1,000) (4,647)
--------- --------
Cash and bank overdrafts, end of period 12 318,218 340,088
========= ========
The accompanying notes are an integral part of these condensed consolidated interim financial statements
(1) Prepared on an adjusted basis, unaudited (see page 2 "basis of preparation of financial information").
(2) Year on year variation at constant exchange rates is +10%
(3) Operating expenses include Research & Engineering expenses, Sales & Marketing expenses and General & Administrative expenses and exclude Other income (expense), net.
(4) See page 2 "Basis of preparation of financial information" for a detailed description of the adjusted financial information.
(5) Operating expenses include Research & Engineering expenses, Sales & Marketing expenses and General & Administrative expenses; they do not include Other operating income & expenses, net.
(6) EBITDA is defined as operating income plus depreciation and amortization expenses. In accordance with the adjusted basis of preparation, these amounts exclude amortization and impairment charges related to the intangible assets of Gemplus identified upon Combination pursuant to IFRS 3 "Business Combination".
(7) The first half 2008 adjusted basic earnings per share were determined on the basis of the weighted average number of Gemalto common shares outstanding during the six-month period ended June 30, 2008 (83,122,788 shares) taking into account the effect of the share buy-back on the average number of shares outstanding during the period; i.e. on the basis of the weighted average number of Gemalto shares issued during the six-month period ended June 30, 2008 (91,015,844 shares) less the weighted average number of treasury shares held by the Company during the six-month period ended June 30, 2008 (7,893,056 shares). The first half 2008 adjusted diluted earnings per share were determined using the IFRS treasury stock method, i.e. on the basis of the same weighted average number of Gemalto shares outstanding during the six-month period ended June 30, 2008 (83,122,788 shares) and considering that all outstanding "in the money" stock options were exercised (4,661,005 options) and the proceeds received from the options exercise were used to buy-back shares at the average share price of the semester (EUR 19.85). The first half 2007 adjusted basic earnings per share were determined on the basis of the weighted average number of Gemalto shares issued during the six-month period ended June 30, 2007 (90,882,515 shares) less the weighted average number of treasury shares held by the Company during the six-month period ended June 30, 2007 (2,511,638 shares). The number of dilutive shares along the IFRS treasury stock method was 1,239,565 in the first semester of 2008. The number of Gemalto shares issued as of June 30, 2008 was 91,015,844, and the number of shares held in treasury by Gemalto on that same date was 7,530,288.
(8) Free cash flow is defined as net cash flow from operating activities minus the purchase of property, plant and equipment, minus other investments related to the operating cycle, minus restructuring expenses, and excluding acquisitions and financial investments and shares buy-back.
(9) All segment information provided in this press release is on an adjusted basis (unaudited) as described in page 2 "Basis of preparation of financial information".
(10) In this cash position variation schedule, interest paid (EUR 0.9 million in first half 2008) and interest received (EUR 5.6 million in first half 2008) are netted and reported as "Interest received, net" as part of cash flows from investing activities. In the cash flow statement presented in Appendix 8 "Condensed consolidated interim financial statements", interest paid is reported as cash flows used in operating activities, and interest received as cash flows from investing activities.
(11) Including acquisition cost of the remaining share of Gemplus during the squeeze-out process in January 2007, for EUR 4 million
Notes to the condensed consolidated interim financial statements as of June 30, 2008
All amounts are stated in thousands of Euro unless otherwise stated.
Note 1 General information
On December 6, 2005, the two companies Gemalto N.V. (formerly Axalto Holding N.V.) (the "Company") and Gemplus International S.A. ("Gemplus") signed an agreement to combine and create Gemalto. Following regulatory reviews and approvals, the transaction took place on June 2, 2006.
Gemalto N.V. ("the Company") and its subsidiaries (together "Gemalto" or "the Group") design, manufacture and sell Smart Cards ("Cards") and Point-of-Sales Terminals ("POS Terminals"). Cards include microprocessor, magnetic stripe, memory, public telephony and other cards. The Group also provides related services for mobile communication, secure transactions (in the financial and pay TV sectors), identity and security applications, including licensing of intellectual property rights. POS Terminals include point-of-sales terminals, systems and related services. The Group has assembly plants and sells around the world.
The Company is a limited liability company incorporated and domiciled in the Netherlands. The address of its registered office is Koningsgracht Gebouw 1, Joop Geesinkweg 541-542, 1096 AX Amsterdam, the Netherlands.
The Company was first listed on Eurolist by Euronext Paris on May 18, 2004.
These condensed consolidated interim financial statements for the six-month period ended June 30, 2008 have been authorized for issue by the Board of Directors of the Company on August 20, 2008.
The activity of Gemalto is subject to seasonal fluctuations, which may result in significant variations in its business and results from operations between the first and the second halves of the fiscal year. Therefore, the financial performance of the first half of 2008 reported in these condensed consolidated interim financial statements is not necessarily indicative of the results of Gemalto for the full year 2008.
Note 2 Basis of preparation
The condensed consolidated interim financial statements for the six-month period ended June 30, 2008 have been prepared in accordance with IAS 34, "Interim financial reporting".
These condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended December 31, 2007, which were prepared in accordance with IFRS's as adopted by the European Union.
Note 3 Accounting policies
The accounting policies adopted to prepare these condensed consolidated interim financial statements are consistent with those adopted for the preparation of the annual consolidated financial statements for the year ended December 31, 2007, as described in the notes to the annual financial statements.
(a) The following interpretations are mandatory for the first time for the fiscal year beginning January 1, 2008:
IFRIC 11 IFRS 2 - Group and Treasury Share Transactions
IFRIC Interpretation 11 was issued in November 2006 and has become effective for financial years beginning on or after March 1, 2007. The interpretation requires arrangements whereby an employee is granted rights to an entity's equity instruments to be accounted for as an equity-settled scheme, even if the entity buys the instruments from another party, or the shareholders provide the equity instruments needed.
This Interpretation has no impact on the Group's reported financial statements.
IFRIC 12 Service Concession Arrangements
IFRIC Interpretation 12 was issued in November 2006 and has become effective for annual periods beginning on or after January 1, 2008. This Interpretation applies to service concession operators and explains how to account for the obligations undertaken and rights received in service concession arrangements.
No member of the Group is an operator and hence this Interpretation has no impact on the Group's reported financial statements.
IFRIC 14 IAS 19 - The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
IFRIC Interpretation 14 was issued in July 2007 and has become effective for annual periods beginning on or after January 1, 2008. This Interpretation provides guidance on how to assess the limit on the amount of surplus in a defined benefit scheme that can be recognized as an asset under IAS 19. This Interpretation has no impact on the Group's reported financial statements.
(b) The following new standard and interpretation have been issued but are not mandatory for the fiscal year beginning January 1, 2008 and have not been adopted early by the Group:
IFRS 8 Operating Segments
IFRS 8 was issued in November 2006 and will become effective for financial years beginning on or after January 1, 2009. The Standard requires presentation of information regarding operating segments and management approach as segment information must be presented on the same basis as that used for internal reporting purposes. The Group will apply this Standard for the financial year beginning on January 1, 2009. The impact, if any, of the application of this Standard has not been finally assessed at this stage.
IFRIC 13 Customer loyalty programs
IFRIC Interpretation 13 was issued in June 2007 and is effective for annual periods beginning on or after July 1, 2008. This Interpretation will have no impact on the Group's reporting financial statements as no such loyalty scheme currently exists.
(c) The following new standards and amendments to standards have been issued but are not applicable as at June 30, 2008:
IAS 1 (revised 2007) Presentation of Financial Statements
IAS 1 (revised 2007) is applicable for financial years beginning on or after January 1, 2009. This revision changes the structure of the financial statements mostly because changes in the shareholders' equity will be booked only as a consequence of transactions between shareholders (owner changes). Other components currently booked in changes in shareholders' equity would be included in a comprehensive income statement.
IAS 23 Borrowing costs
A revised IAS 23 Borrowing costs was issued in March 2007 and becomes effective for financial years beginning on or after January 1, 2009. The Standard has been revised to require capitalization of borrowing costs when such costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale.
In accordance with the transitional requirements in the Standard, the Group will adopt this as a prospective change. Accordingly, borrowing costs will be capitalized on qualifying assets with a commencement date after January 1, 2009. No change will be made for borrowing costs incurred to this date that have been expensed.
IFRS 2 Share-based payment
The amendment to IFRS 2 Share-based payment, applicable for financial years beginning on or after January 1, 2009, clarifies the definition of vesting conditions, introduces the concept of non-vesting conditions and provides guidance on the accounting treatment for non-vesting conditions and cancellations. This amendment is not expected to have any impact on the Group's reported financial statements.
IFRS 3 (revised 2008) Business combinations and consequential amendment to IAS 27 Consolidated and separate financial statements
IFRS 3 (revised 2008) and consequential amendment to IAS 27 Consolidated and separate financial statements will be effective prospectively to business combinations for which the acquisition date is within the first annual reporting period after July 1, 2009. Management is currently assessing the impact of the new requirements.
IAS 32 Financial instruments: presentation and consequential amendment to IAS 1 Presentation of financial statements
This amendment to IAS 32 Financial instruments: presentation, applicable for financial years beginning on or after January 1, 2009, changes the classification of certain qualifying instruments from financial liabilities to equity. This amendment is not expected to have any impact on the Group's reported financial statements as no such qualifying financial instruments currently exist.
Note 4 Additional disclosures on the effect of the combination with Gemplus on our financial statements
Due to the combination with Gemplus, the Company's financial statements have undergone significant change, due in particular to the accounting treatment of the transaction in accordance with IFRS 3.
The Group incurred in 2008 expenses in connection with the combination, which would not have been otherwise incurred. Combination related charges are disclosed on a separate expense line in the income statement for the six month period ended June 30, 2008, for a credit amount of EUR 162 (EUR 1,181 expense as of June 30, 2007).
Charges incurred in connection with headcount reductions in the support functions, with the consolidation of manufacturing and office sites, as well as the rationalization and harmonization of the product and service portfolio, are disclosed under a line named "Reorganization expenses" in the IFRS income statement for an amount of EUR 6,533 as of June 30, 2008 (EUR 55,128 as of June 30, 2007). This amount consisted of severance and associated costs for EUR 2,681 (EUR 42,908 in as of June 30, 2007) and of other costs for EUR 3,852 (EUR 1,252 as of June 30, 2007) mainly related to IT integration costs. The Group also incurred property, plant and equipment, intangible asset and inventory write-offs and impairments for EUR 10,968 as of June 30, 2007.
The Group discloses under the line named "Amortization of intangible assets" the amortization expense for the six-month period ended June 30, 2008 related to the acquired Existing Technology and Customer Relationships for EUR 3,681 and EUR 2,818, respectively (EUR 20,213 and EUR 2,818 respectively as of June 30, 2007).
Note 5 Financial assets / liabilities by category
In accordance with IFRS 7 provisions, financial assets and liabilities would be allocated as follows:
Loans and Assets at Derivatives Available-
December 31, receivables fair value used for for-sale Total
2007 through hedging
profit and
loss
---------------------------------------------------------
Assets
Available-
for-sale
financial
assets, net - - - 1,445 1,445
Other non-
current
assets 22,774 - - - 22,774
Trade and
other
receivables,
net 439,505 - - - 439,505
Derivative
financial
instruments - - 15,750 - 15,750
Cash and cash
equivalents 146,641 190,800 - - 337,441
---------------------------------------------------------
Total 608,920 190,800 15,750 1,445 816,915
Liabilities Derivatives Other
at fair used for financial
value hedging liabilities Total
through
profit and
loss
---------------------------------------------------------
Liabilities
Borrowings - - 23,628 23,628
Derivative
financial
instruments - 468 - 468
---------------------------------------------------------
Total - 468 23,628 24,096
Loans and Assets at Derivatives Available-
June 30, 2008 receivables fair value used for for-sale Total
through hedging
profit and
loss
---------------------------------------------------------
Assets
Available-
for-sale
financial
assets, net 1,321 1,321
Other non-
current
assets 26,843 26,843
Trade and
other
receivables,
net 433,154 433,154
Derivative
financial
instruments 12,711 12,711
Cash and cash
equivalents 118,496 221,606 340,102
---------------------------------------------------------
Total 578,493 221,606 12,711 1,321 814,131
Liabilities Derivatives Other
at fair used for financial Total
value hedging liabilities
through
profit and
loss
---------------------------------------------------------
Liabilities
Borrowings 18,359 18,359
Derivative
financial
instruments 204 204
---------------------------------------------------------
Total 204 18,359 18,563
Note 6 Segment information
Primary reporting format - Business segment
Gemalto operations are organized into five business segments: Mobile Communication, Secure Transactions, Security, Public Telephony and Point-of-Sales Terminals (POS Terminals). The five segments are organized in accordance with how Gemalto management reviews business performance and allocates resources. The following tables present Gemalto revenue, gross profit, and operating expenses by segment.
Security's income statement includes the revenue, gross and operating margins derived from the licensing of the Group's patent portfolio.
Six-month period ended June 30, 2007
-------------------------------------------------------
Mobile Secure Security Public
Communication Transactions Telephony
Revenue 417,775 203,639 87,324 21,957
Cost of sales (273,830) (168,860) (54,308) (17,397)
-------------------------------------------------
Gross profit 143,945 34,779 33,016 4,560
Operating
expenses
excl. Other
income, net (110,727) (46,363) (44,056) (2,156)
Other income,
net 1,452 573 369 150
Combination
related
expenses - - - -
Reorganization
expenses - - - -
Amortization
of intangible
assets (14,326) (4,585) (4,120) -
-------------------------------------------------
Operating
income (loss) 20,344 (15,596) (14,791) 2,554
Point-of- Unallocated Gemalto
Sales
Terminals
Revenue 29,168 - 759,863
Cost of sales (23,570) - (537,965)
--------------------------------
Gross profit 5,598 - 221,898
Operating
expenses
excl. Other
income, net (7,798) - (211,100)
Other income,
net 81 - 2,625
Combination
related
expenses - (1,181) (1,181)
Reorganization
expenses - (55,128) (55,128)
Amortization
of intangible
assets - - (23,031)
--------------------------------
Operating
income (loss) (2,119) (56,309) (65,917)
Six-month period ended June 30, 2008
-------------------------------------------------------
Mobile Secure Security Public
Communication Transactions Telephony
Revenue 442,899 214,847 101,239 16,509
Cost of sales (262,863) (159,024) (74,240) (12,764)
-------------------------------------------------
Gross profit 180,036 55,823 26,999 3,745
Operating
expenses
excl. Other
income, net (114,226) (42,212) (40,984) (1,126)
Other income,
net (126) (7) 45 (3)
Combination
related
expenses - - - -
Reorganization
expenses - - - -
Amortization
of intangible
assets (4,536) (1,000) (963) -
-------------------------------------------------
Operating
income (loss) 61,148 12,604 (14,903) 2,616
Point-of- Unallocated Gemalto
Sales
Terminals
Revenue 15,679 - 791,173
Cost of sales (12,982) - (521,873)
--------------------------------
Gross profit 2,697 - 269,300
Operating
expenses
excl. Other
income, net (6,883) - (205,431)
Other income,
net (7) - (98)
Combination
related
expenses - 162 162
Reorganization
expenses - (6,533) (6,533)
Amortization
of intangible
assets - - (6,499)
--------------------------------
Operating
income (loss) (4,193) (6,371) 50,901
Reorganization expenses incurred in the period relate to production sites that manufacture products and components for several segments, and to support departments that provide services across the Group. Therefore, these expenses were not allocated to the reported segments.
To align external reporting with the new operational organization, the Transport business has been reported under the Secure Transaction segment starting July 1, 2007. Previously, it was reported as part of the Security segment. The six-month period ended June 2007 has been aligned to reflect this change.
Secondary reporting format - Geographical segments
The table below shows revenue attributed to geographic areas, on the basis of the location of the customer:
Six-month
period ended
June 30,
---------------
2007 2008
------- -------
North and South America 167,241 176,632
Europe, Middle East & Africa 427,940 442,970
Asia 164,682 171,571
------- -------
Total revenues 759,863 791,173
======= =======
Note 7 Property, plant and equipment
Property, plant and equipment (net) consist of the following:
December June 30,
31, 2007 2008
--------- ---------
Land 6,039 6,137
Buildings and improvements 215,589 213,848
Machinery and equipment 509,082 503,678
--------- ---------
Total cost 730,710 723,663
Less: Accumulated depreciation (513,615) (510,066)
--------- ---------
Total 217,095 213,597
========= =========
As required by IAS16, the Company re-assessed on January 1, 2008 the useful life of its tangible assets. As a result, tangible asset depreciation expense for the first half 2008 was reduced by EUR 6.5 million. The net impact on the operating income was EUR 4.9 million for the first half of 2008.
Note 8 Goodwill and intangible assets
Goodwill and intangible assets consist of the following:
December June 30,
31, 2007 2008
--------- ---------
Goodwill 556,142 554,344
Less: accumulated amortization (12,311) (12,115)
--------- ---------
Goodwill, net 543,831 542 229
Technology and patents 255,509 241,439
Deferred development costs 68,120 65,172
Other intangible assets 97,869 104,052
--------- ---------
Intangible assets, gross 421,498 410,663
Less: accumulated amortization (347,783) (352,527)
--------- ---------
Intangible assets, net 73,715 58,136
========= =========
A gross book value amount of EUR 4,254 was reclassified from Technology and patents into Other intangible assets.
As required by IAS 38, the Company re-assessed the future economic benefits of its intangible assets. As a result, an accelerated depreciation of a part of the patent portfolio was performed, and the patent portfolio depreciation expense for the first half of 2008 was increased by EUR 2.7 million compared to the first half of 2007.
Note 9 Inventories
Inventories consist of the following:
December June 30,
31, 2008
2007
-------- --------
Gross book value
Raw materials and spares 57,458 69,843
Work in progress 88,802 81,352
Finished goods 50,648 55,162
-------- --------
Total 196,908 206,357
-------- --------
Obsolescence reserve (23,171) (21,932)
-------- --------
Total 173,737 184,425
======== ========
Note 10 Trade and other receivables
Trade and other receivables consist of the following:
December June
31, 30,
2007 2008
-------- -------
Trade receivables 361,665 344,695
Provision for impairment of receivables (10,609) (9,821)
-------- -------
Trade receivables, net 351,056 334,874
Prepaid expenses 15,373 16,073
VAT recoverable and tax receivable 45,745 40,416
Advances to suppliers and related 8,604 12,356
Unbilled customers 7,401 17,046
Other 11,326 12,389
-------- -------
Total 439,505 433,154
======== =======
There is no concentration of credit risk with respect to trade receivables, as the Group has a large number of customers, internationally dispersed.
Note 11 Derivative financial instruments
Derivative financial instruments consist of the following:
December 31, 2007 June 30, 2008
---------------------------- ---------------------------
USD GBP JPY SGD PLN USD GBP JPY SGD PLN
---------------------------- ---------------------------
Cash Flow
hedges
Forward
contracts (122) 87 57 355
Option
contracts 8,059 1,346 1,652 6,037 1,400 1,648
Fair value
hedges
Forward
contracts (27) 317 750 (6) (21) 8 20 (122) 212
Option
contracts 2,996 229 1,986 306 620
---------------------------- ---------------------------
Total 11,028 1,663 2,631 (122) 81 8,002 1,714 2,288 (65) 567
============================ ===========================
Note 12 Cash and cash equivalents
Cash and cash equivalents consist of the following:
December June
31, 30,
2007 2008
-------- -------
Cash at bank and in hand 146,641 118,496
Short-term bank deposits and investment funds 190,800 221,606
-------- -------
Total 337,441 340,102
======== =======
The amount of cash and bank overdrafts shown in the cash flow statement is net of bank overdrafts as reconciled below:
December June
31, 30,
2007 2008
-------- -------
Cash and cash equivalents 337,441 340,102
Bank overdrafts (626) (14)
-------- -------
Total 336,815 340,088
======== =======
Note 13 Non-current provisions and other liabilities
Non-current provisions and other liabilities consist of the following:
December June
31, 30,
2007 2008
-------- ------
Warranty non-current 3,669 3,496
Restructuring provisions 6,033 5,476
Tax claims 13,272 13,168
Provision for other risks 7,519 7,750
-------- ------
Total non-current provisions 30,493 29,890
Management compensation 8,371 7,894
Unrecognized government grants 2,883 1,790
Long term payables 37,975 37,465
-------- ------
Total non-current other liabilities 49,229 47,149
-------- ------
Total non-current provisions and other liabilities 79,722 77,039
======== ======
Note 14 Trade and other payables
Trade and other payables consist of the following:
December June
31, 30,
2007 2008
-------- -------
Trade payables 133,733 144,352
Employee related payables 111,190 101,943
Accrued expenses 62,700 42,497
Accrued VAT 34,600 32,495
Deferred revenue 40,212 45,897
Other 10,024 7,378
-------- -------
Total 392,459 374,562
======== =======
The Accrued expense balance as at December 31, 2007 included EU