Gemplus

Gemplus Reports Strong First Quarter 2005 Results

    Luxembourg (ots/PRNewswire) -

    - First Quarter 2005 Highlights:

    - Net sales down 2.1% year-on-year, impacted by extraordinarily strong sales in the quarter a year ago.

    - Further improvement in gross margin to 32.1%: up 1.1 percentage points.

    - Operating income more than doubled, to 7.5 million euros.

    - Strong progress in attributable net income[1], at 7.2 million euros.

    Gemplus International S.A. (Euronext: LU0121706294 - GEM and NASDAQ: GEMP), the world's leading provider of smart card solutions, today  reported results for the first quarter ended March 31, 2005.

@@start.t1@@      In millions of euros                                    Q1 2005 Q1 2004 Year-on-year
                                                                                                         change
      Net sales                                                        193.1    197.3      -2.1%
      Adjusted for currency fluctuations,
      disposals and acquisitions                                                        -2.6%
      Gross profit                                                 61.9      61.2         +1.1%
      Gross margin                                                 32.1%    31.0%        +1.1 ppt
      Operating expenses                                        54.4      57.7         -5.7%
      Operating income                                            7.5        3.5      +111.8%
      Operating margin                                            3.9%      1.8%        +2.1 ppts
      Attributable net income                                 7.2        0.3            NM
      Free cash flow excluding non-recurring        11.9      29.6        -60.0%
      items[2]
      Cash and cash equivalents                          395.1    384.6         +2.7%
                                            Per share data (in euros)
      Earnings per share (fully diluted)              0.01      0.00            NM@@end@@

    Note: The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS).

    Commenting on the performance for the first quarter 2005, Alex Mandl, President and Chief Executive Officer, said: "This was another quarter of good progress for Gemplus, highlighted by substantial improvement in net income. The slight decrease in sales, reflecting good underlying performance, is caused by the extraordinarily strong sales we had in the quarter a year ago, and does not, in any way, change the positive view we have for the outlook of the year. Demonstrating our commitment to drive innovation for the benefit of our customers, we introduced this quarter GemXplore Generations, which is a quantum leap over current SIM technology."

    First quarter 2005 financial review

    - Income statement

    First quarter 2005 highlights:

    - Net sales down 2.1% year-on-year, impacted by extraordinarily strong sales in the quarter a year ago.

    - Gross margin up 1.1 percentage points, reflecting a favorable business mix.

    - Operating income more than doubled, to 7.5 million euros.

    - Strong progress in attributable net income, at 7.2 million euros.

    Extremely strong sales in the first quarter 2004, which were up 38.8% year-on-year, currency adjusted, led to a slight comparative decrease in sales. Nevertheless, all core businesses saw favorable revenue momentum in the first quarter 2005. This was however mitigated by declines in our mature and peripheral activities.

    On a geographical basis, currency adjusted revenue in the Americas rose 2.6% and in EMEA[3] by 1.0%, year-on-year, both driven by Wireless. Asia revenue was down 13.6%, currency adjusted, mainly due to China.

    Gross margin was up 1.1 percentage points year-on-year, to 32.1%, driven by improvement in product mix, lower chip purchasing prices and volume growth offsetting selling price pressure. The Group also benefited from the results of earlier restructuring and further improvements in the manufacturing cost structure.

    Operating expenses[4] decreased 5.7% year-on-year, to 54.4 million euros.  This decrease was mostly driven by a temporary reduction in research and  development expenses and no further goodwill amortisation. The decrease  was despite the cost of stock options and implementation of the  Sarbanes-Oxley Act. Operating expenses represented 28.2% of sales during  the first quarter, compared to 29.3% a year ago.

    As a result, operating income more than doubled, to 7.5 million euros.

    Consequently, attributable net income for the first quarter showed strong improvement to 7.2 million euros.

    - Balance sheet and cash flow statement

    First quarter 2005 highlights:

    - Substantial free cash flow before non-recurring items of 11.9 million euros.

    - Continuous strong cash position, at 395.1 million euros.

    The Group's cash position remains strong and is up 6.7 million euros  compared to December 31, 2004, despite restructuring outflows of 3.1 million  euros.

    Segment analysis

    - Telecom

    First quarter 2005 highlights:

    - Good underlying performance in wireless: moderate revenue growth reflects extraordinary sales a year ago.

    - Strong improvement in operating profit: +38.5%.

@@start.t2@@      In millions of euros                         Q1 2005 Q1 2004 % change  Adjusted[5]
                                                                                                          change (%)
      Wireless products & services net         132.7    127.1      +4.3%         +3.3%
      sales
      Wireless gross profit                          51.1      48.8        +4.9%
      Wireless gross margin                          38.6%    38.4%  +0.2 ppt
      Prepaid phone cards & scratchcards      11.6      19.5      -40.5%          N/A
      net sales
      Prepaid phone cards & scratchcards        1.2        0.9      +23.9%
      gross profit
      Prepaid phone cards & scratchcards      9.9%      4.8%    +5.1 ppts
      gross margin
      Telecom net sales                                 144.3    146.6      -1.6%         -2.4%
      Telecom gross profit                            52.3      49.7        +5.2%
      Telecom gross margin                            36.3%    33.9%  +2.4 ppts
      Telecom operating expenses                  35.8      37.8        -5.2%
      As a % of sales                                    24.8%    25.8%  -1.0 ppt
      Telecom operating profit                      16.5      11.9      +38.5%
      Operating margin                                  11.4%    8.1%    +3.3 ppts@@end@@

    Wireless revenue continues to show favorable momentum. Extraordinarily strong sales in the first quarter 2004, which were up 70.8% year-on-year, currency adjusted, led to a moderate increase in sales this quarter.

    Wireless shipments grew 14% year-on-year, to 68.2 million units. Growth was driven by strong sales in EMEA and Latin America, compensating for lower sales in China.

    Wireless product mix continued to improve:

    - The share of high-end card shipments more than doubled year-on-year, accounting for 44.3% of the total in the first quarter 2005.

    - In comparison with the fourth quarter 2004, the share of high-end cards decreased slightly, reflecting a usual shift in the regional mix for the first quarter. Nevertheless, the product mix improved sequentially in EMEA and South-East Asia.

    - 3G cards continued to make good progress, already representing close to 10% of total first quarter shipments.

    Wireless average selling price (ASP) was down 9.2% year-on-year and 11.0% quarter-on-quarter, both currency adjusted. Substantial mix improvement did not fully offset strong price pressure, year-on-year.

    Wireless gross margin was stable year-on-year, due to lower chip purchasing prices and good progress in manufacturing efficiency, offsetting price pressure.

    Telecom gross margin improved 2.4 percentage points year-on-year, due to a more favorable business mix.

    Operating expenses decreased 5.2% year-on-year. Correspondingly, operating profit rose 38.5% and the operating margin was up 3.3 percentage points, to 11.4%.

    - Financial Services

    First quarter 2005 highlights:

    - The EMV[6] deployment continues: roll-out and initiatives in new countries.

@@start.t3@@      In millions of euros                                        Q1 2005 Q1 2004 % change
      Net sales                                                          37.9      40.4        -6.0%
      Adjusted for currency fluctuations,                                            -3.4%
      disposals & acquisitions
      Gross profit                                                        5.8        9.1      -36.4%
      Gross margin as a % of sales                            15.3%    22.7%  -7.4 ppts
      Operating expenses                                            10.4      11.9      -12.6%
      As a % of sales                                                 27.4%    29.5%  -2.1 ppts
      Operating profit                                                -4.6      -2.8         NM
      Operating margin as a % of sales                    -12.1%    -6.8%  -5.3 ppts@@end@@

    Despite significant EMV growth, revenue was down, due to lower sales in Pay-TV and Metering, and the cannibalisation of other payment and conventional cards. Gemplus shipped 12.8 million units of payment microprocessor cards, up 20.0% year-on-year. Payment microprocessor card revenue rose 14.9% year-on-year.

    Gross margin was influenced by one-time costs related to reorganisation of European manufacturing operations as well as product mix.

    - Identity and Security

    First quarter 2005 highlights:

    - Continued progress in Enterprise Security projects.

@@start.t4@@      In millions of euros                                    Q1 2005  Q1 2004  % change
      Net sales                                                         10.9      10.3        +5.8%
      Adjusted for currency fluctuations,                                          +5.4%
      disposals & acquisitions
      Gross profit                                                    3.8         2.4        +57.6%
      Gross margin as a % of sales                         34.6%      23.2%      +11.4 ppts
      Operating expenses                                          8.2         8.0        +2.2%
      As a % of sales                                              74.7%      77.3%      -2.6 ppts
      Operating profit                                              -4.4      -5.6          NM
      Operating margin as a % of sales                  -40.1%  -54.1%      +14.0 ppts@@end@@

    Revenue was up 5.8% year-on-year, with a strong increase in Enterprise Security projects. In addition, the customer base significantly broadened over the quarter a year ago which was heavily weighted with a single national ID project.

    Gemplus' strategy to focus on selling subsystems based on software components, value-added services and high-end cards led to a significant shift in the sales mix and a large improvement in gross margin.

    Outlook

    The Group continues to see strong momentum in its core markets. Notwithstanding the apparent slow start in the first quarter, Gemplus expects to increase revenue, excluding acquisitions, by around 10% in 2005, despite continuous selling price pressure.

    The Company continues to focus on cost efficiency and is confident of being able to show a very strong improvement of operating income in 2005.

    The Group also expects the Financial Services and ID & Security business units to become profitable in 2006.

    With all of this, the Group is well on track to realise its mid-term objective of a 10% operating margin in 2007.

    Change in accounting policies

    Beginning this quarter, foreign exchange gains or losses arising from the Company's business activities and qualified hedges under IAS 39 are no longer exclusively recorded in cost of sales. Instead, the gains or losses are allocated to the portion of the income statement relating to the underlying currency exposure.

    Starting January 1, 2005, the Company adopted IFRS 2 (issued 2004) "Share-based Payment" and IFRS 3 (issued 2004) "Business Combinations". Please refer to Note 2.4 "Change in accounting policies" of our 2004 Annual Report for further details.

    Business Highlights

    - Telecom

    Gemplus is supporting operators in overcoming the challenges they face in entering the mobile multimedia age by introducing at this year's 3GSM World Congress a new extended storage capacity SIM card platform, GemXplore Generations. Since that time, a number of operators have shown great interest in the card, including the French operator, Bouygues Telecom.

    This platform, which offers gigabyte storage capacity, flexibility and performance, allows operators to reinforce brand, uniformity of service and subscriber convenience by encouraging new uses for the mobile phone, from Mobile TV, as presented with Nagra and Thales, to storing html web servers, as demonstrated with Orange World.

    - Identity and Security

    This quarter saw the involvement of Gemplus in one of the world's first commercial e-passport deployments: Singapore's new biometric passport. Gemplus' contactless e-passport solution, GemBorder, which will be embedded in the passport, will contain biometric information about the passport holder such as fingerprint and facial details. The passport holder can be authenticated against the information on the chip at immigration checkpoints. Gemplus will also supply chip personalisation solution and integration service bricks.

    In addition, Gemplus delivered over 100,000 GemSCOSTA optical smart cards to the first phase of India's vehicle registration and drivers' license program. This program is expected to be the world's largest of its kind, with a market potential of more than 100 million cards over the next five years.

    Earnings calendar

    Second quarter 2005 results are scheduled to be reported on July 27, 2005, before the opening of Euronext Paris.

    Conference Call:

    The company has scheduled a conference call for Monday, 25 April 2005 at 2:00 pm CET (1:00 pm GMT and 8:00 am New-York time). Callers may participate in the live conference call by dialing:

    +44(0)207-784-1018 or +1-718-354-1171, access code 9245589.

    The slide show will be available on the web site at 12:30 CET (11:30 GMT). The webcast will also be available on the IR section of www.gemplus.com.

    Replays of the conference call will be available approximately 5 hours after the conclusion of the conference call until May 9th, 2005 midnight by dialing:

    +44(0)207-784-1024 or +1-718-354-11-12, access Code: 9245589.

    About Gemplus

    Gemplus International S.A. (Euronext: LU0121706294 - GEM and NASDAQ: GEMP) is the world's leading player in the smart card industry in both revenue and total shipments (source: Gartner-Dataquest (2004), Frost & Sullivan, Datamonitor.). It has sold over 5 billion smart cards.

    With security at its core, and 2400 patents produced by its innovative R&D team, Gemplus delivers a wide range of portable, personalised solutions in areas including Identity, Mobile Telecommunications, Public Telephony, Banking, Retail, Transport, Healthcare, WLAN, Pay-TV, e-government, and access control.

    Gemplus' revenue in 2004 was 865 million euros.

    www.gemplus.com

    (c)2005 Gemplus. All rights reserved. Gemplus, the Gemplus logo, are trademarks and service marks of Gemplus S.A. and are registered in certain countries. All other trademarks and service marks, whether registered or not in specific countries, are the property of their respective owners.

    Some of the statements contained in this release constitute forward-looking statements. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activities, performance, or achievements expressed or implied by such forward-looking statements. Actual events or results may differ materially. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we 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 release include, but are not limited to: trends in wireless communication and mobile commerce markets; our ability to develop new technology, and the effects of competing technologies developed and expected intense competition generally in our main markets; profitability of our expansion strategy; challenges to or loss of our intellectual property rights; our ability to establish and maintain strategic relationships in our major businesses; our ability to develop and take advantage of new software and services; and the effect of future acquisitions and investments on our share price. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such forward-looking statements. The forward-looking statements contained in this release speak only as of this release. We are under no duty to update any of the forward-looking statements after this date to conform such statements to actual results or to reflect the occurrence of anticipated results.

@@start.t5@@      Gemplus International SA
      Financial statements
      For the quarterly period ended March 31, 2005
          Consolidated Statements of Income
                                                                                                          (in
                                                                                                          thousands
                                                                                                          of euros,
                                                                                                          except
                                                                                                          shares and
                                                                                                          per share
                                                                                                          amounts)
                                                                                        Three months ended
                                                                                              March 31,
                                                                                    2005                    2004
                                                                                            (unaudited)
      Net sales                                                            193,102                197,289
      Cost of sales                                                    (131,210)            (136,041)
      Gross Profit                                                         61,892                 61,248
      Research and development expenses                      (12,981)              (16,105)
      Selling and marketing expenses                          (25,707)              (24,230)
      General and administrative expenses                  (16,101)              (15,662)
      Restructuring expenses                                              438                      188
      Other operating income (expense), net                      (52)                        -
      Goodwill amortisation and impairment                          -                 (1,903)
      Operating income                                                    7,489                  3,536
      Financial income (expense), net                            1,795                  1,333
      Share of profit (loss) of associates                      (824)                (2,767)
      Other non-operating income (expense),                      362                      286
      net
      Income before taxes                                                8,822                  2,388
      Income tax expense                                                (1,704)                (1,475)
      NET INCOME                                                              7,118                      913
      Attributable to:
      Equity holders of the Company                                7,242                      330
      Minority interest                                                    (124)                    583
      Net income per share attributable
      to equity holders of the Company (in euros)
      Basic                                                                         0.01                  0.00
      Diluted                                                                      0.01                  0.00
      Shares used in net income per share
      calculation:
      Basic                                                              607,039,538         606,009,196
      Diluted                                                          622,407,315         622,552,102
      Due to the adoption of IAS 1 (revised 2003) Presentation of Financial
      Statements, the Company
      has modified its Consolidated Balance Sheet and its Consolidated
      Statement of Income.
      Please refer to Note 2.23 "Comparatives" of our 2004 Annual Report for
      further details.@@end@@

@@start.t6@@      Consolidated Balance Sheets
                                                                                    (in thousands of euros)
                                                                                        March 31,    December
                                                                                          2005         31, 2004
                                                                                      (unaudited)
      ASSETS
      Current assets:
      Cash and cash equivalents                                        395,098         388,430
      Trade accounts receivable, net                                141,647         148,512
      Inventory, net                                                         108,297         115,610
      Derivative financial instruments                                8,701          33,387
      Other current receivables                                         65,841          66,160
      Total current assets                                                719,584         752,099
      Non-current assets:
      Property, plant and equipment, net                         145,393         148,916
      Goodwill, net                                                            28,837          28,197
      Deferred development costs, net                                19,931          19,222
      Other intangible assets, net                                      7,767            8,965
      Deferred tax assets                                                    6,424            6,264
      Investments in associates                                         12,168          12,864
      Available-for-sale financial assets, net                  4,873            4,752
      Other non-current receivables, net                          46,356          43,900
      Total non-current assets                                         271,749         273,080
      TOTAL ASSETS                                                            991,333      1,025,179
      LIABILITIES
      Current liabilities:
      Accounts payable                                                      79,029          94,025
      Salaries, wages and related items                          42,134          55,199
      Current portion of provisions and other                 52,077          50,217
      liabilities
      Current income tax liabilities                                28,907          25,708
      Current obligations under finance leases                 5,970            6,005
      Total current liabilities                                      208,117         231,154
      Non-current liabilities:
      Non-current obligations under finance                    30,460          33,663
      leases
      Non-current portion of provisions                          22,979          25,696
      Other non-current liabilities                                 12,649          13,353
      Total non-current liabilities                                 66,088          72,712
      Shareholders' equity:
      Ordinary shares                                                      128,643         128,643
      Additional paid-in capital                                 1,031,558      1,031,558
      Employees stock options                                            5,019                  -
      Retained earnings                                                 (456,532)      (459,560)
      Other comprehensive income                                         (570)          11,956
      Less, cost of treasury shares                                 (1,985)         (1,985)
      Equity attributable to equity holders of              706,133         710,612
      the Company
      Minority interest                                                    10,995          10,701
      Total shareholders' equity                                    717,128         721,313
      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY          991,333      1,025,179
      Due to the adoption of IAS 1 (revised 2003)
      Presentation of Financial Statements, the
      Company
      has modified its Consolidated Balance Sheet and its
      Consolidated Statement of Income.
      Please refer to Note 2.23 "Comparatives" of our 2004 Annual
      Report for further details.@@end@@

@@start.t7@@      Consolidated Statements of Cash Flows
                                                                                    (in thousands of euros)
                                                                                         Three months ended
                                                                                                March 31,
                                                                                        2005                  2004
                                                                                              (unaudited)
      Cash flows from operating activities:
      Net income                                                                 7,118                  913
      Adjustments to reconcile net income to
      net cash from operating activities:
      Depreciation, amortisation and                                 9,326              15,182
      impairment
      Changes in non-current portion of provisions            (446)                (571)
      and other liabilities, excluding restructuring
      Deferred income taxes                                                 (339)                 419
      (Gain) / loss on sale and disposal of                         132                  510
      assets
      Share of (profit) loss of associates                          824                2,717
      Other, net                                                                  (937)            (2,389)
      Changes in operating assets and
      liabilities:
      Trade accounts receivable and related                    14,084              14,128
      current liabilities
      Trade accounts payable and related                        (15,735)              5,560
      current assets
      Inventories                                                                8,946            (10,129)
      Value-added and income taxes                                    1,354                8,231
      Salaries, wages and other                                        (8,124)              1,069
      Restricted cash                                                                -            (21,952)
      Restructuring reserve payable                                 (3,611)          (13,218)
      Net cash (used for) from operating                         12,592                  470
      activities
      Cash flows from investing activities:
      Sale / (Purchase) of activities net of
      cash disposed / acquired
      Other investments                                                            -              (1,692)
      Purchase of property, plant and                              (4,439)            (3,963)
      equipment
      Purchase of other assets                                            (197)                (536)
      Proceeds from sale of property                                        -                      -
      Change in non-trade accounts payable                          846              (1,086)
      and other
      Net cash used for investing activities                  (3,790)            (7,277)
      Cash flows from financing activities:
      Proceeds from exercise of share options                         -                1,287
      Proceeds from sales-leaseback                                         -                  957
      operations
      Principal payments on obligations under                 (1,472)            (1,458)
      finance leases
      Increase (decrease) in bank overdrafts                  (1,555)                 (98)
      Changes in non-trade accounts payables                        779                      -
      on financing activities
      Net cash (used for) from financing                         (2,248)                 688
      activites
      Effect of exchange rate changes on cash                      114                      6
      Net increase (decrease) in cash and                         6,554              (6,119)
      cash equivalents
      Cash and cash equivalents, beginning of                388,430            390,684
      the period
      Cash and cash equivalents, end of the                  395,098            384,571
      period@@end@@

    1) Accounting principles:

    The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS).

    2) Segment information

    First Quarter 2005 compared with First Quarter 2004

@@start.t8@@      2.1) Operating Segments
                                                                                    (in millions of euros)
                                                         March                March
                                                            31,                  31,                    % change
      Net sales                                      2005                 2004 % change      currency
                                                                                                              adjusted
      Telecommunications                      144.3                146.6         -2%          -2%
      Financial Services                        37.9                 40.4         -6%          -3%
      Identity and Security                  10.9                 10.3          6%            5%
      Total                                          193.1                197.3         -2%          -3%
                                                                                    (in millions of euros)
                                                         March  (% of    March      (% of
                                                            31,      net        31,         net
      Gross profit                                 2005 sales)      2004    sales)    % change
      Telecommunications                        52.3  36.3%      49.7      33.9%            5%
      Financial Services                         5.8  15.3%        9.1      22.7%         -36%
      Identity and Security                    3.8  34.6%        2.4      23.2%          58%
      Total                                            61.9  32.1%      61.2      31.0%            1%
                                                                                    (in millions of euros)
                                                         March  (% of    March      (% of
                                                            31,      net        31,         net
      Operating expenses                        2005 sales)      2004    sales)    % change
      Telecommunications                    (35.8)  24.8%  (37.8)      25.8%         -5%
      Financial Services                    (10.4)  27.4%  (11.9)      29.5%        -13%
      Identity and Security                 (8.2)  74.7%    (8.0)      77.3%          2%
      Total                                         (54.4)  28.2%  (57.7)      29.2%         -6%
                                                                                    (in millions of euros)
                                                         March                March
                                                            31,                  31,                    Change
      Operating income (loss)                2005                 2004              in Operating
                                                                                                      income (loss)
      Telecommunications                        16.5                 11.9                      4.6
      Financial Services                      (4.6)                (2.8)                    (1.8)
      Identity and Security                 (4.4)                (5.6)                      1.2
      Total                                              7.5                  3.5                      4.0
      2.2) Geographical Segments
                                                                                    (in millions of euros)
                                                         March                March
                                                            31,                  31,                 % change
      Net sales                                      2005                 2004 % change      currency
                                                                                                              adjusted
      Europe, Middle East and Africa    99.3                 96.4          3%          1%
      Asia                                              46.4                 53.1        -13%        -14%
      Americas                                        47.4                 47.8         -1%          3%
      Total                                          193.1                197.3         -2%         -3%@@end@@

    [1] Net income attributable to equity holders of the Company.

    [2] Free cash flow excluding non recurring items is defined as net cash flow from operating activities less the purchase of property, plant and equipment and other investments related to the operating cycle (excluding acquisitions and financial investments).

    [3] Europe, Middle East and Africa

    [4] Includes 1.7 million euros of goodwill amortisation and restructuring expenses in the first quarter 2004, and the expensing of stock options from the first quarter 2005.

    [5] Adjusted for currency fluctuations, disposals & acquisitions

    [6] EMV is a jointly defined set of specifications adopted by Europay, MasterCard and Visa for the migration of bank cards to smart card technology.

ots Originaltext: Gemplus
Im Internet recherchierbar: http://www.presseportal.ch

Contact:
Press Gemplus, Jane Strachey, Tel: +33(0)4-42-36-46-61, Mob:
+33(0)6-76-49-35-93, Email: jane.strachey@gemplus.com; Edelman,
Stephen Benzikie, Tel: +44(0)207-344-1325, Mob: +44(0)774-003-8929,
Email: stephen.benzikie@edelman.com; Investor Relations Gemplus,
Celine Berthier, Tel: +41(0)22-544-5054,  Email:
celine.berthier@gemplus.com, Fineo, Tel: +33-(0)1-56-33-32-31, Email:
investors@gemplus.com



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