English Version
All variations in this press release are stated at constant exchange rates, unless otherwise noted, and are comparing the adjusted first half 2008 figures (unaudited) to the adjusted first half 2007 (unaudited) results. The reconciliation of the first half 2008 IFRS and adjusted income statements (unaudited) is presented in Appendix 6.
AMSTERDAM, Netherlands--(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 statement1:
| First half 2008 | ||||||||||
| € in millions | As a % of revenue | € in millions | As a % of revenue | Year-on-year variation at 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 (EBIT) | 15 | 2.0% | 69 | 8.8% | x 4.6 | |||||
| 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 Communication | Secure Transactions | Security | Public Telephony | Point-of-Sales Terminals | Total Gemalto | |||||
| 443 M€ | 215 M€ | 101 M€ | 17 M€ | 16 M€ | 791 M€ | |||||
| + 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 €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 € 50.9 million and a net profit for the period of € 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 € 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 € 6.5 million; and combination-related expenses of € 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 € 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 € 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 | |||||||||
| € in millions | As a % of sales | € in millions | As a % of sales | Year-on-year variation at historical exchange rates | ||||||
| Revenue | 759.9 | 791.2 | + 4.1% * | |||||||
| Gross profit | 222.1 | 29.2% | 274.9 | 34.7% | + 5.5 ppt | |||||
|
Operating expenses5 |
209.5 | 27.6% | 205.3 | 26.0% | (1.6 ppt) | |||||
|
EBITDA6 |
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 (€ per share)7: |
||||||||||
| - basic
- diluted |
0.26
0.25 |
0.74
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 € 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 € 3.4 million. It mainly comprised net interest income of € 4.6 million and net foreign exchange hedging costs of € 1.4 million.
Adjusted pre-tax income came in at € 73.9 million. Net income tax expenses amounted to € 10.6 million, resulting in an adjusted net profit for the period of € 63.3 million, a multiple of 2.6 times the € 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 € 12 million in first half 2008: factory under-absorption for plant being closed amounted to € 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 € 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 flow8 of € 13 million. Cash flow from operations before outflow related to restructuring actions was € 64 million positive, payments in connection with restructuring actions were € 29 million, and capital expenditures amounted to € 22 million, of which € 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 € 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 € 11 million.
Consequently, Gemalto’s net cash position was € 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 | |||||||||
| € in millions | As a % of revenue | € in millions | As a % of revenue | Year-on-year variation at 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 € 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. 6.2percentage 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 € 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 | |||||||||
| € in millions | As a % of revenue | € in millions | As a % of revenue | Year-on-year variation at 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 € 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, Crédit Agricole-LCL, Crédit 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 | |||||||||
| € in millions | As a % of revenue | € in millions | As a % of revenue | Year-on-year variation at 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 € 6.2 million recorded during the semester versus € 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 € 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 300000 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 León. 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 | |||||||||
| € in millions | As a % of revenue | € in millions | As a % of revenue | Year-on-year variation at 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 € 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 | |||||||||
| € in millions | As a % of revenue | € in millions | As a % of revenue | Year-on-year variation at 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 € 2.3 million in first half 2008.
Outlook
Gemaltohas 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 €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 € 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:
| Gemalto IFRS consolidated income statement | - Includes all charges resulting from the 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 statement | - Excludes one-off expenses and reorganization charges incurred in connection with the combination with Gemplus (reorganization and combination related charges) and all charges resulting from the accounting treatment of the combination. |
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 €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.
Thiscommunicationdoes 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.
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Appendix 1 First half 2008 adjusted income statement by business segment (unaudited) (At historical exchange rates) |
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| € in millions | Six months ended June 30, 2008 | |||||||||||
| Mobile Communication | Secure Transactions | Security | Public Telephony | Point-of-Sale Terminals | Total | |||||||
| Revenue | 442.9 | 214.9 | 101.2 | 16.5 | 15.7 | 791.2 | ||||||
| Gross profit | 180.1 | 60.3 | 28.1 | 3.7 | 2.7 | 274.9 | ||||||
| Operating expenses | 114.0 | 42.1 | 40.9 | 1.5 | 6.9 | 205.3 | ||||||
| Operating income (loss) | 66.0 | 18.3 | (12.8) | 2.3 | (4.2) | 69.5 |
|
First half 2007 adjusted income statement by business segment (unaudited) (At historical exchange rates) |
||||||||||||
| € in millions | Six months ended June 30, 2007 | |||||||||||
| Mobile Communication | Secure Transactions | Security | Public Telephony | Point-of-Sale Terminals | Total | |||||||
| Revenue | 417.8 | 203.6 | 87.3 | 22.0 | 29.2 | 759.9 | ||||||
| Gross profit | 144.1 | 34.8 | 33.0 | 4.6 | 5.6 | 222.1 | ||||||
| Operating expenses | 109.8 | 46.0 | 43.8 | 2.2 | 7.8 | 209.5 | ||||||
| Operating income (loss) | 35.7 | (10.6) | (10.4) | 2.6 | (2.1) | 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) |
||||||||
| € in millions | Q2 2007 | Q2 2008 | Year-on-year change at historical exchange rates | Year-on-year change at constant 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) |
||||||||
|
€ in millions |
Q2 2007 | Q2 2008 | % change at historical exchange rates | % change at constant 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) |
||||||||
| € in millions | H1 2007 | H1 2008 | Year-on-year change at historical exchange rates | Year-on-year change at constant 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) |
||||||||
|
€ in millions |
H1 2007 | H1 2008 | % change at historical exchange rates | % change at constant 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) |
||||||||||||
| € in millions | IFRS financial information | Adjustment relating to combination related expenses | Adjustment relating to reorganization charges | Adjustment relating to amortization of intangible assets | Adjustment relating to stock based compensation | Adjusted financial information | ||||||
| Sales | 791.2 | 0.0 | 791.2 | |||||||||
| Cost of sales | (521.9) | 5.6 | 0.0 | (516.3) | ||||||||
| Gross Profit | 269.3 | 5.6 | 274.9 | |||||||||
| Research & Engineering expenses | (46.8) | 0.0 | (46.8) | |||||||||
| Sales & Marketing expenses | (109.4) | 0.1 | (109.3) | |||||||||
| G&A expenses | (49.3) | 0.0 | (49.2) | |||||||||
| Other Operating expenses | (0.1) | (0.1) | ||||||||||
| Combination related expenses | 0.2 | (0.2) | - | |||||||||
| Reorganization expenses | (6.5) | 6.5 | - | |||||||||
| Amortization of intangible assets | (6.5) | 6.5 | - | |||||||||
| Operating Income (EBIT) | 50.9 | (0.2) | 12.1 | 6.5 | 0.1 | 69.5 | ||||||
| Financial Income | 3.4 | 3.4 | ||||||||||
| Share of profit (loss) of associates | 1.0 | 1.0 | ||||||||||
| Profit before taxes | 55.3 | (0.2) | 12.1 | 6.5 | 0.1 | 73.9 | ||||||
| Income tax | (8.3) | (0.4) | (1.9) | (10.6) | ||||||||
| Profit (loss) for the period | 47.0 | (0.2) | 11.7 | 4.6 | 0.1 | 63.3 | ||||||
| Attributable to shareholders | 45.0 | 61.3 | ||||||||||
| Attributable to minority interest | 2.0 | 2.0 |
|
Appendix 7 Cash position variation schedule (unaudited) |
||||
| € 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 balance sheet as of December 31, 2007 |
Consolidated balance sheet as of June 30, 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 share) |
Notes | Six-month period 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 Euro |
Number of Shares (*) |
Attributable to equity holders of the Company |
Minority Interest |
Total equity |
|||||||||||||||
|
Issued |
Outstanding |
Share Capital |
Share Premium |
Treasury Shares |
Fair value and other reserves |
Cumulative translation adj. |
Retained Earnings |
||||||||||||
| Balance as of January 1, 2007 |
90,082,535 |
89,854,954 |
90,083 |
1,241,326 |
(5,240) |
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 |
74,396 |
3,572 |
3,572 |
||||||||||||||||
| Purchase of Treasury shares |
(5,386,365) |
(97,884) |
(97,884) |
||||||||||||||||
| Capital increase further to acquisition of minority interests in Gemplus International |
933,309 |
933,309 |
933 |
17,763 |
18,696 |
||||||||||||||
| Excess of purchase price on subsequent minority interest acquisitions |
(10,244) |
(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 |
91,015,844 |
85,476,294 |
91,016 |
1,248,845 |
(103,124) |
72,503 |
(5,970) |
(27,656) |
11,201 |
1,286,815 |
|||||||||
| Balance as of January 1, 2008 |
91,015,844 |
83,491,578 |
91,016 |
1,247,140 |
(139,932) |
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 |
870,202 |
(661) |
(661) |
||||||||||||||||
| Purchase of Treasury shares |
(876,224) |
2,312 |
2,312 |
||||||||||||||||
| Dividend paid/payable to minority interests |
(1,252) |
(1,252) |
|||||||||||||||||
| Balance as of June 30, 2008 |
91,015,844 |
83,485,556 |
91,016 |
1,247,140 |
(137,620) |
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 | Notes | Six-month period 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 (€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 (€ 0.9 million in first half 2008) and interest received (€ 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€4million
Notes to the condensed consolidated interim financial statements as of June 30, 2008
All amounts are stated in thousands of Euro unless otherwise stated.
Note1 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.
Note3 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 €162 (€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 €6,533 as of June 30, 2008 (€55,128 as of June 30, 2007). This amount consisted of severance and associated costs for €2,681 (€42,908 in as of June 30, 2007) and of other costs for €3,852 (€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 €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 €3,681 and €2,818, respectively (€20,213 and €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:
|
December 31, 2007 |
Loans and receivables |
Assets at fair value through profit and loss | Derivatives used for hedging |
Available-for-sale |
Total |
||||
| 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 | - |
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