Gemplus

Gemplus Reports Strong Improvement in Results for Fiscal Year 2005

    Luxembourg (ots/PRNewswire) -

    Full year 2005 highlights:

    - Revenue increased by 8.5% to 939 million euros: growth sustained in all core businesses.

    - Operating income at 67 million euros: a 2.5 fold increase, driven by good overall Company performance.

    - Very strong net income1, at 90 million euros.

    - Robust free cash flow, at 85 million euros, excluding non-recurring items.

    Fourth quarter 2005 highlights:

    - Operating margin at 6.0%, despite impact related to a quality issue with a specific chip.

    - Strong net income1, at 40 million euros, boosted by recognition of deferred tax assets of 25.6 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 fourth quarter and full year ended December 31, 2005.

@@start.t1@@      In millions of         Q4        Q4 2004    Year-on-year  FY      FY  Year-on-year
      euros                      2005                          change      2005  2004        change
      Net sales              261.7        242.5          +7.9%        938.9 865.0      +8.5%
      Adjusted for currency                              -1.5%                                +3.6%
      fluctuations, discontinued
      operations and acquisitions
      Gross profit          85.2        77.3            +10.3%      309.9 270.5      +14.6%
      Gross margin as a 32.6%        31.9%         +0.7 ppt    33.0% 31.3%    +1.7 ppt
      % of sales
      Operating income    15.6        16.1            -3.0%        66.8  26.3      +153.7%
      Operating margin    6.0%        6.6%          -0.6 ppt    7.1%  3.0%    +4.1 ppts
      Net income[1]         40.0        11.8            +239%        89.9    4.7          NM
      Free cash flow        21.5        11.3              +90%        85.3  58.8         +45%
      excluding non
      recurring items
      Free cash flow[2]  19.6         1.7                NM         95.7    5.5          NM
      Cash and cash        418.4        388.4          +7.7%        418.4 388.4      +7.7%
      equivalents
                                            Per share data (in euros)
      Earnings per          0.06    0.02            +224%          0.14  0.01          NM
      share (fully
      diluted)@@end@@

    Commenting on the performance for the fiscal year 2005, Alex Mandl, President and Chief Executive Officer, said: "2005 was another year of substantial achievements for Gemplus: we reinforced the Group's leadership, notably in high-end wireless and financial services, and strongly improved our financial performance, especially in terms of margin and cash flow. At the same time, we undertook two very important strategic moves: the Setec acquisition, which strengthens our position in the Government ID space, and the proposed Gemalto merger which will create a world-class leader in digital security. We feel very excited about this project which will take the Company to new horizons."

    Full Year 2005 financial review

    Highlights:

    - Revenue up 8.5%: growth sustained in all core businesses.

    - Operating income at 67 million euros: a 2.5 fold increase, driven by good overall Company performance:

    - Gross margin up 1.7 percentage points.

    - Operating expenses flat.

    - Very strong net income1, at 90 million euros.

    - Robust free cash flow, at 85 million euros, excluding non-recurring items.

@@start.t2@@      In millions of euros                         FY 2005 FY 2004 Year-on-year Adjusted
                                                                                              change    change[3]
      Group revenue                                      938.9    865.0        +8.5%          +3.6%
      Telecom                                                654.5    641.8        +2.0%          +0.5%
      of which Wireless products &              600.4    558.5        +7.5%            NA
      services
      of which Prepaid phone cards &          54.1      83.3         -35.1%          NA
      scratchcards
      Financial Services                              202.9    182.2        +11.3%         +4.9%
      ID and Security                                  81.5      41.0         +98.7%        +46.6%@@end@@

    On a segment and geographical basis for the full year:

    - Telecom revenue was driven by Wireless. Wireless revenue was up 7.5% (up 7.2% currency adjusted), to 600.4 million euros, confirming the Group's leading position in this sub-segment. Wireless card shipments rose 34% to 342 million units, due to strong growth in EMEA[4] and the Americas. The Group's focus on value creation drove a substantial shift toward high-end cards, now considered only 3G and above, with their share increasing from 6.0% in 2004 of total shipments to 10% in 2005. The share of 64Kb, 128Kb, 3G cards and above rose from 34% in 2004 to 47% in 2005. The average selling price declined 20%, currency adjusted.

    - Financial Services revenue was driven by the EMV migration, with substantial rollouts in many European countries and ramp-up in Latin America and Japan. Gemplus shipped 70 million payment microprocessor cards (up 36%), with revenue up 25%.

    - ID and Security revenue was driven by the Setec acquisition, Government ID projects, particularly, in the Middle East, and Corporate Security projects, notably in the Americas.

    - On a geographical basis, revenue from the Americas was up 21.0%, currency and acquisition adjusted, driven by Wireless. The EMEA4 region was up 1.8%, led by Financial Services. Asia was down 12.5% reflecting Wireless price pressure.

@@start.t3@@      In millions of euros                              FY 2005 As a % of  FY 2004  As a %
                                                                                  revenue                      of
                                                                                                                revenue
      Group gross profit                                  309.9      33.0%        270.5    31.3%
      Telecom                                                    241.5      36.9%        220.8    34.4%
      of which Wireless products & services    236.6      39.4%        215.6    38.6%
      of which Prepaid phone cards &                 4.9         9.1%         5.2        6.2%
      scratchcards
      Financial Services                                  41.9        20.6%        37.7      20.7%
      ID and Security                                        26.5        32.5%        12.0      29.4%@@end@@

    Gross margin increased by 1.7 percentage points, mainly driven by a favourable business mix as well as improvement in Telecom and ID & Security.

@@start.t4@@      In millions of euros                              FY 2005 As a % of  FY 2004  As a %
                                                                                  revenue                      of
                                                                                                                revenue
      Operating expenses                                  243.2      25.9%        244.2    28.2%
      Operating income                                      66.8         7.1%        26.3        3.0%
      Financial income & expenses                      7.7                         5.7
      Share of profit (loss) of associates      -0.5                        -6.0
      Other non operating income (expenses),  -2.3                        -6.8
      net
      Income tax                                                19.8                        -13.0
      Minority interests                                  -1.5                        -1.6
      Net income1                                              89.9                         4.7@@end@@

    Operating expenses were stable, despite the overall growth in the business and the Setec acquisition. Operating expenses represented 25.9% of sales, compared to 28.2% the previous year, reflecting good cost control and a reduction in restructuring expenses. Consequently, operating income rose substantially, to 66.8 million euros,  taking the operating margin to 7.1%.

    Income tax reflects the recognition of deferred tax assets of 26.9 million euros. This contributed to the Company reporting net income1 of 89.9 million euros, an increase of 85.2 million euros over last year, mainly due to improved operating income.

    The Company generated free cash flow of 85.3 million euros, up 45% compared with last year, excluding non-recurring items. Net cash flow was 30 million euros, which included the cash outlay of 63 million euros related to the Setec acquisition.

    Fourth quarter 2005 financial review

    - Income statement

    Fourth quarter 2005 highlights:

    - Revenue up 7.9% year-on-year (down 1.5% adjusted3).

    - Operating margin at 6.0%, despite impact related to a quality issue with a specific chip.

    - Strong net income1, at 40.0 million euros, boosted by recognition of deferred tax assets of 25.6 million euros.

@@start.t5@@      In millions of euros              Q4 2005 Q4 2004 % change  Adjusted(3)
                                                                                            change (%)
      Net sales                                 261.7    242.5    +7.9%         -1.5%
      Gross profit                            85.2      77.3      +10.3%
      Gross margin as a % of sales  32.6%    31.9%  +0.7 ppt
      Operating income                      15.6      16.1      -3.0%
      Net income1                              40.0      11.8      +239%@@end@@

    Revenue was up 7.9%, driven by the Setec acquisition. Price pressure in Wireless, combined with some softness in this sub-segment and the quality issue in Telecom, translated into a 1.5% decline in revenue, after restating for acquisitions and currency fluctuations. On a geographical basis, adjusted3 revenue was up 0.8% in the Americas and down 0.9% in EMEA4. In both regions, strong growth in ID & Security and Financial Services was offset by a decline in Telecom revenue. In Asia, revenue was down 6.6%.

    Gross profit was up 10.3%, despite the Telecom quality issue. Gross margin was up 0.7 percentage point year-on-year, due to improved business mix and manufacturing efficiency in Telecom. Operating expenses increased 13.8% year-on-year, to 69.6 million euros,  mainly due to the Setec acquisition and severance packages.

    Consequently, operating income for the fourth quarter was down 3%, at  15.6 million euros.

    Net income1 rose to 40.0 million euros, including the recognition of deferred tax assets of 25.6 million euros.

    - Balance sheet and cash flow statement

    Fourth quarter 2005 highlights:

    - Robust free cash flow of 21.5 million euros, excluding non-recurring items.

    - Strong cash position, at 418.4 million euros.  The Group's cash position is up 17.6 million euros compared to September  30, 2005.

    Segment analysis

    - Telecom

    Fourth quarter 2005 highlights:

    - Record wireless shipments, at 101 million units, mainly driven by emerging countries.

    - Wireless ASP down 28.4% year-on-year, currency adjusted, reflecting an unfavorable regional mix and price pressure.

@@start.t6@@      In millions of euros                                Q4 2005 Q4 2004 % change Adjusted
                                                                                                            change(3)
                                                                                                                  (%)
      Wireless products & services net sales    163.6    165.3      -1.0%
      Wireless gross profit                                62.6      62.4        +0.3%
      Wireless gross margin                                38.2%    37.7%  +0.5 ppt
      Prepaid phone cards & scratchcards net    15.9      22.6      -29.6%
      sales
      Prepaid phone cards & scratchcards            2.0        1.9        +5.0%
      gross profit
      Prepaid phone cards & scratchcards          12.8%    8.6%    +4.2 ppts
      gross margin
      Telecom net sales                                      179.5    187.9  -4.5%         -7.9%
      Telecom gross profit                                 64.6      64.3        +0.3%
      Telecom gross margin                                 36.0%    34.2%  +1.8 ppt
      Telecom operating expenses                        44.5      39.1      +14.0%
      As a % of sales                                         24.8%    20.8%  +4.0 ppts
      Telecom operating income                          20.1      25.2      -20.4%
      Operating margin                                        11.2%    13.4%  -2.2 ppts@@end@@

    Wireless revenue:

    - Wireless products & services revenue[5] was down 1.0% year-on-year (down 4.6%, currency adjusted), to 163.6 million euros.

    - Fourth quarter Wireless shipments grew 35% year-on-year, to 101 million units, mostly driven by emerging countries in all regions: Latin America, Eastern Europe, China, South-East Asia, Middle East and Africa.

    - The Wireless mix notably improved in EMEA4 and North America, driven by momentum in 3G cards. High-end card shipments (3G and above) accounted for 15% of the fourth quarter total, compared to 8% a year ago.

    - Wireless average selling price (ASP) was down 7.7% quarter-on-quarter and 28.4% year-on-year, both currency adjusted, reflecting ongoing price pressure and a substantial unfavorable change in the regional mix.

    Wireless gross margin rose 0.5 percentage point, despite a quality issue with a specific chip. This issue should have minimal impact on financial statements of fiscal year 2006.

    - Financial Services

    Fourth quarter 2005 highlights:

    - Very strong growth in payment microprocessor cards: shipments up 70%, to 18.1 million units.

    - EMV[6] roll-out gained further momentum in Eastern Europe and Latin America.

@@start.t7@@      In millions of euros                    Q4 2005 Q4 2004 % change    Adjusted(3)
                                                                                                    change (%)
      Net sales                                        55.8      44.2      +26.3%        +10.8%
      Gross profit                                  12.2        9.7      +26.0%
      Gross margin as a % of sales         21.8%    21.9%  -0.1 ppt
      Operating expenses                         12.5      13.7        -9.0%
      As a % of sales                              22.3%    31.0%  -8.7 ppts
      Operating income                            -0.3      -4.0         NM
      Operating margin as a % of sales  -0.5%    -9.1%        NM@@end@@

    Revenue reflects very strong growth in payment microprocessor cards as well as the Setec acquisition.

    Payment microprocessor card revenue rose 45% year-on-year. Shipments of payment microprocessor cards grew 70% to 18.1 million units. ASP decline reflects a greater share of modules in the sales mix.

    The strong performance in payment cards was mainly driven by the EMV roll-out, which gained momentum in Eastern Europe and Latin America, and sales growth in the United Kingdom and Continental Europe. In addition, this quarter saw the first shipments of EMV cards to China.

    - Identity and Security

    Fourth quarter 2005 highlights:

    - Very strong growth, driven by Government ID and Corporate Security projects.

    - On-going roll-out of e-passports in Singapore, Sweden and Norway.

@@start.t8@@      In millions of euros                    Q4 2005 Q4 2004  % change    Adjusted(3)
                                                                                                      change (%)
      Net sales                                        26.4      10.4      +152.5%        +61.3%
      Gross profit                                    8.4        3.3      +157.1%
      Gross margin as a % of sales         32.0%    31.5%    +0.5 ppt
      Operating expenses                         12.6        8.4        +50.3%
      As a % of sales                              47.9%    80.5%  -32.6 ppts
      Operating income                            -4.2      -5.1          NM
      Operating margin as a % of sales -15.9%  -49.0%  +33.1 ppts@@end@@

    Strong growth was driven by a substantial increase in Government ID projects, notably in the Middle East, and Corporate Security projects, particularly in the United States, in addition to those from Setec.

    Outlook

    The Group continues to see strong momentum in its core segments and will maintain its focus on cost efficiency.

    Gemplus confirms that it is firmly on track to realize its mid-term objective to achieve a 10% operating margin in 2007.

    The Group remains confident in its ability to further strongly improve its operating income in 2006 taking into account the usual seasonality effect of stronger organic growth in the second half than in the first half.

    Gemplus also continues to expect the Financial Services and ID & Security segments to turn profitable in 2006.

    Fourth Quarter 2005 Business Highlights

    - Telecom

    During the fourth quarter 2005, Orange included in its Orange Intense campaign a bundle of multimedia services for the youth segment with SIM+. This was the first commercial launch of Gemplus's multimedia SIMs and endorsed its strategy to bring SIM cards into the multimedia era.

    Within a record time of nine months, Gemplus went from proof of concept to commercial deployment for a range of SIMs, with one of the most advanced mobile operators.

    Gemplus was also selected by Optimus Portugal for its device management solution, GemConnect Device Manager, to improve customer care and boost data traffic.

    - Financial Services

    In China, Gemplus was the first smart card manufacturer to deliver chip banking cards for ICBC's EMV migration. The cards were produced locally by Gemplus's joint venture with Goldpac and complied with MasterCard specifications, MCHIP/4.0.

    Gemplus also announced the launch of a new range of products designed to help card issuers differentiate their service offerings and attract new clients. The Caisse d'Epargne was one of the first banks to deploy this marketing strategy in France, with the roll-out of mandarin-tinted transparent cards targeted at young customers.

    Within the contactless segment, Gemplus moved forward with the delivery in the USA of GemInstant cards for MasterCard(R) PayPass(TM) contactless payment to one of the top ten leading banks in North America.

    Gemplus was also the first smart card manufacturer to achieve the certification for the MasterCard OneSMART(TM) Chip Authentication Program for its GemAuthenticate(TM) server, which enables financial institutions to secure customer access to online banking services and online purchases using two-factor authentication.

    - Identity and Security

    For the enterprise security sector, Gemplus was selected by Pfizer to deploy Gemplus's SafesITe solution for network access and digital signature. Gemplus has shipped over 100,000 cards to Pfizer as part of its Global Identity Services program.

    Lastly, in a recent report by Frost & Sullivan, Gemplus came out top in the smart card readers and chipsets segment, with a 34.8% share in 2004, up from 20.8% in 2003 (Source Frost & Sullivan, January 2006).

    - Research and Development

    Gemplus R&D teams were rewarded for their innovation with the win
of the Sesames 2005 award for Best Software at the Cartes 2005
Conference and Exhibition. Gemplus innovated with the most compact
implementation of the .NET platform for networked secure devices,
such as USB dongles, secure MMC and smart cards.        Financial
calendar

    The ordinary shareholders meeting relating to the proposed Gemalto merger is scheduled to take place on February 28, 2006.

    First quarter 2006 results are scheduled to be reported on April 24, 2006, before the opening of Euronext Paris.

    Conference Call:

    The Company has scheduled a conference call for Thursday, February 9, 2006 at 2:30 pm CET (1:30 pm London time and 8:30 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 5438605.

    The slide show will be available on the web site at 12:30 p.m. CET (11:30 a.m. London time). 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 February 24, 2006 midnight by dialing:

    +44-(0)207-784-1024 or +1-718-354-11-12, access Code: 5438605#.

    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 2005, Frost & Sullivan, Datamonitor.). It has sold over 5.5 billion smart cards.

    Gemplus delivers a wide range of portable, personalized solutions in areas including Identity, Mobile Telecommunications, Public Telephony, Banking, Retail, Transport, Healthcare, WLAN, Pay-TV, e-government, and access control.

    Gemplus' revenue in 2005 was 939 million euros.

    www.gemplus.com

    For more information:

@@start.t9@@      Press Gemplus                                    Investor Relations
      Jane Strachey                                    Gemplus
      Tel: +33-(0)-4-42-36-46-61                Celine Berthier
      Mob: +33-(0)-6-79-46-35-93                Tel: +41-(0)-22-544-5054
      Email: jane.strachey@gemplus.com      Email: celine.berthier@gemplus.com
      Edelman                                              Fineo
      Frederic Boullard
      Tel: +33-(0)-1-56-69-73-95                Tel: +33-(0)-1-56-33-32-31
      Email:                                                Email: investors@gemplus.com
      frederic.boullard@edelman.com@@end@@

    (c)2004 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 sectors; our ability to develop new technology, and the effects of competing technologies developed and expected intense competition generally in our main segments; 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.

                                            Gemplus International SA
                                Press Release - Financial statements
                         For the quarterly period ended December 31, 2005

    Consolidated Statements of Income

@@start.t10@@                         (in thousands of euros, except shares and per share amounts)
                              Three months ended                          Twelve months ended
                                  December 31,                                    December 31,
                            2005                         2004                 2005                  2004
                                  (unaudited)
      Net sales                261,703              242,542            938,875              865,034
      Cost of sales        176,475)          (165,278)         (628,967)          (594,533)
      Gross Profit            85,228                77,264            309,908              270,501
      Research and         (17,882)            (14,893)          (62,269)            (62,592)
      development
      expenses
      Selling and          (31,851)            (27,129)         (116,088)          (101,493)
      marketing
      expenses
      General and          (21,982)            (17,298)          (67,983)            (63,895)
      administrative
      expenses
      Restructuring            1,713                    227                3,235              (8,384)
      expenses
      Other                            391                 (101)                 (48)                 (101)
      operating
      income
      (expense), net
      Goodwill                          -              (1,970)                      -              (7,718)
      amortization
      and impairment
      Operating                 15,617                16,100              66,755                26,318
      income
      Financial                  2,289                 1,364                7,659                 5,653
      income
      (expense), net
      Share of                        662                 (947)                (531)              (5,970)
      profit (loss)
      of associates
      Other                      (2,373)              (2,158)            (2,301)              (6,757)
      non-operating
      income
      (expense), net
      Income before          16,195                14,359              71,582                19,244
      taxes
      Income tax                24,219              (2,676)              19,816            (12,953)
      expense
      NET INCOME                40,414                11,683              91,398                 6,291
      Attributable
      to:
      Equity holders         40,013                11,806              89,890                 4,674
      of the Company
      Minority                        401                 (123)                 1508                 1,617
      interest
      Net income per share attributable
      to equity holders of the Company
      (in euros)
      Basic                          0.06                  0.02                 0.15                  0.01
      Diluted                        0.06                  0.02                 0.14                  0.01
      Shares used in net
      income per share
      calculation:
      Basic                628,003,671        606,933,869      618,285,864        606,672,060
      Diluted            647,413,175        618,170,575      634,742,894        619,022,472
      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.

      Consolidated Balance Sheets
                                                                                                                    (in
                                                                                                      thousands of
                                                                                                                euros)
                                                                         December 31,         December 31,
                                                                                2005                      2004
      ASSETS
      Current assets:
      Cash and cash equivalents                                  418,365                 388,430
      Trade accounts receivable, net                          183,022                 148,512
      Inventory, net                                                    107,673                 115,610
      Derivative financial instruments                          4,187                  33,387
      Other current receivables                                    82,128                  66,160
      Total current assets                                          795,375                 752,099
      Non-current assets:
      Property, plant and equipment,                          158,284                 148,916
      net
      Goodwill, net                                                        90,826                  28,197
      Deferred development costs, net                          21,227                  19,222
      Other intangible assets, net                                23,600                    8,965
      Deferred income tax assets                                  32,788                    6,264
      Investments in associates                                    16,309                  12,864
      Available-for-sale financial                                 2,469                    4,752
      assets, net
      Other non-current receivables,                            40,846                  43,900
      net
      Total non-current assets                                    386,349                 273,080
      TOTAL ASSETS                                                    1,181,724              1,025,179
      LIABILITIES
      Current liabilities:
      Accounts payable                                                 106,085                  94,025
      Derivative financial instruments                          2,592                          -
      Salaries, wages and related items                        62,641                  55,199
      Current portion of provisions and                        73,434                  50,217
      other liabilities
      Current income tax liabilities                              5,228                    6,581
      Other current tax liabilities                              20,821                  19,127
      Current obligations under finance                         5,539                    6,005
      leases
      Total current liabilities                                  276,340                 231,154
      Non-current liabilities:
      Non-current obligations under                              26,425                  33,663
      finance leases
      Non-current portion of provisions                        23,482                  25,696
      Other non-current liabilities                              13,417                  13,353
      Deferred income tax liabilities                            4,354                          -
      Total non-current liabilities                              67,678                  72,712
      Shareholders' equity:
      Ordinary shares                                                  133,466                 128,643
      Additional paid-in capital                              1,071,388              1,031,558
      Retained earnings                                            (374,183)              (459,560)
      Other comprehensive income                                 (4,407)                  11,956
      Less, cost of treasury shares                            (1,395)                 (1,985)
      Equity attributable to equity holders of          824,869                 710,612
      the Company
      Minority interest                                                 12,837                  10,701
      Total shareholders' equity                                 837,706                 721,313
      TOTAL LIABILITIES AND SHAREHOLDERS'                1,181,724              1,025,179
      EQUITY
      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.
      Consolidated Statements of Cash Flows
                                                                                                      (in thousands
                                                                                                            of euros)
                                                                                        Twelve months ended
                                                                                              December 31,
                                                                                         2005            2004
      Cash flow from operating activities :
      Net income (loss)                                                         91,398              6,291
      Adjustments to reconcile net income (loss) to net cash from
      operating activities:
      Depreciation, amortization and impairment                  41,369            56,691
      Changes in non-current portion of provisions and      (3,367)         (32,930)
      other liabilities, excluding restructuring
      Deferred income taxes                                                (28,372)              3,661
      (Gain) / loss on sale and disposal of assets            (4,612)              2,582
      Share of (profit) loss of associates                                571              5,970
      Share-based compensation                                                4,320                    -
      Other, net                                                                  (2,130)          (2,700)
      Changes in operating assets and liabilities:
      Trade accounts receivable and related current         (12,133)          (2,962)
      liabilities
      Trade accounts payable and related current assets          822            20,774
      Inventories                                                                  22,661         (19,466)
      Value-added and income taxes                                      (1,021)            21,288
      Salaries, wages and other                                              4,429            14,161
      Restricted cash                                                            23,277         (28,018)
      Restructuring reserve payable                                  (15,847)         (18,307)
      Net cash from operating activities                            121,365            27,035
      Cash flows from investing activities:
      Sale / (purchase) of activites net of cash              (63,457)          (2,898)
      (disposed) / acquired
      Other investments                                                        (1,674)          (2,982)
      Purchase of property, plant and equipment                (25,078)         (22,888)
      Purchase of other assets                                            (2,693)          (1,725)
      Proceeds from sale of non-current assets                      7,025              1,300
      Change in non-trade accounts payable and other            2,074              3,064
      Net cash used for investing activities                    (83,803)         (26,129)
      Cash flows from financing activities:
      Proceeds from exercise of share options                        2,790              1,479
      Payments on long-term borrowings                                (1,231)                    -
      Proceeds from sales-leaseback operations                            -                 956
      Principal payments on obligations under finance        (5,938)          (5,827)
      leases
      Increase (decrease) in bank overdrafts                      (2,657)              1,660
      Dividends paid by subsidiaries to minority                (1,307)          (1,724)
      shareholders
      Change in treasury shares                                                    -                  90
      Changes in non-trade acounts payables on                          19                    -
      financing activities
      Net cash used for financing activites                        (8,324)          (3,366)
      Effect of exchange rate changes on cash                          697                 207
      Net increase (decrease) in cash and cash                    29,238          (2,461)
      equivalents
      Cash and cash equivalents, beginning of the              388,430          390,684
      period
      Cash and cash equivalents, end of the period            418,365          388,430
      1) Accounting principles:
      2) Segment information
      2.1) Fourth Quarter 2005 compared with Fourth Quarter 2004
      2.1.1) Operating Segments
      Three months ended                                                                              (in
                                                                                                         millions
                                                                                                        of euros)
      Net sales                            December 31, 2005 December         %  Adjusted
                                                                              31, 2004 change      change
                                                                                                          (%) (i)
      Telecommunications        179.5                                187.9      -4%          -8%
      Financial Services         55.8                                 44.2      26%          11%
      Identity and                  26.4                                 10.4    153%          61%
      Security
      Total                            261.7                                242.5        8%          -2%
                                                                                                                 (in
                                                                                                         millions
                                                                                                        of euros)
      Gross profit            December          (% of net December  (% of  % change
                                      31, 2005                sales) 31, 2004      net
                                                                                            sales)
      Telecommunications         64.6        36%                    64.3      34%            0%
      Financial Services         12.2        22%                      9.7      22%          26%
      Identity and                    8.4        32%                      3.3      31%         157%
      Security
      Total                              85.2        33%                    77.3      32%          10%
                                                                                                                 (in
                                                                                                         millions
                                                                                                        of euros)
      Operating expenses  December          (% of net December  (% of  % change
                                      31, 2005                sales) 31, 2004      net
                                                                                            sales)
      Telecommunications      (44.5)        25%                 (39.1)      21%          14%
      Financial Services      (12.5)        22%                 (13.7)      31%          -9%
      Identity and                (12.6)        48%                  (8.4)      81%          50%
      Security
      Total                          (69.6)        27%                 (61.2)      25%          14%
                                                                                                                 (in
                                                                                                         millions
                                                                                                        of euros)
      Operating income                 December 31, 2005      December 31, Change in
      (loss)                                                                                2004 Operating
                                                                                                            income
                                                                                                            (loss)
      Telecommunications         20.1                                 25.2                    -5.1
      Financial Services        (0.3)                                (4.0)                      3.7
      Identity and                 (4.2)                                (5.1)                      0.9
      Security
      Total                              15.6                                 16.1                    -0.5
      (i) Adjusted for currency fluctuations, disposals & acquisitions
      2.1.2) Geographical Segments
      Three months ended                                                                              (in
                                                                                                         millions
                                                                                                        of euros)
      Net sales                            December 31, 2005 December         %  Adjusted
                                                                              31, 2004 change      change
                                                                                                          (%) (i)
      Europe, Middle              137.4                                122.2      12%          -1%
      East and Africa
      Asia                                45.5                                 46.5      -2%          -7%
      Americas                         78.8                                 73.8        7%            1%
      Total                            261.7                                242.5        8%          -2%
      (i) Adjusted for currency fluctuations, disposals & acquisitions
      The consolidated financial statements of the Company have been prepared
in accordance with International Financial Reporting Standards (IFRS).
      2.2) Twelve months 2005 compared with Twelve months 2004
      2.2.1) Operating Segments
      Twelve months                                                                                      (in
      ended                                                                                          millions
                                                                                                        of euros)
      Net sales                    December 31, 2005         December         %  Adjusted
                                                                              31, 2004 change      change
                                                                                                          (%) (i)
      Telecommunications        654.5                                641.8        2%            1%
      Financial Services        202.9                                182.2      11%            5%
      Identity and                  81.5                                 41.0      99%          47%
      Security
      Total                            938.9                                865.0        9%            4%
                                                                                                                 (in
                                                                                                         millions
                                                                                                        of euros)
      Gross profit            December         (% of net  December  (% of  % change
                                      31, 2005              sales)  31, 2004      net
                                                                                            sales)
      Telecommunications        241.5            37%              220.8      34%            9%
      Financial Services         41.9            21%                37.7      21%          11%
      Identity and                  26.5            33%                12.0      29%         120%
      Security
      Total                            309.9            33%              270.5      31%          15%
                                                                                                                 (in
                                                                                                         millions
                                                                                                        of euros)
      Operating expenses  December         (% of net  December  (% of  % change
                                      31, 2005              sales)  31, 2004      net
                                                                                            sales)
      Telecommunications    (158.7)            24%          (149.0)      23%            6%
      Financial Services      (43.2)            21%            (63.9)      35%         -32%
      Identity and                (41.3)            51%            (31.3)      76%          32%
      Security
      Total                         (243.2)            26%          (244.2)      28%            0%
                                                                                                                 (in
                                                                                                         millions
                                                                                                        of euros)
      Operating income         December 31, 2005              December 31, Change in
      (loss)                                                                                2004 Operating
                                                                                                            income
                                                                                                            (loss)
      Telecommunications         82.9                                 71.8                    11.1
      Financial Services        (1.3)                              (26.3)                    25.0
      Identity and                (14.8)                              (19.2)                      4.4
      Security
      Total                              66.8                                 26.3                    40.4
      (i) Adjusted for currency fluctuations, disposals &
      acquisitions
      2.2.2) Geographical Segments
      Twelve months                                                                                      (in
      ended                                                                                          millions
                                                                                                        of euros)
      Net sales                    December 31, 2005         December         %  Adjusted
                                                                              31, 2004 change      change
                                                                                                          (%) (i)
      Europe, Middle              491.0                                443.1      11%            2%
      East and Africa
      Asia                              172.7                                194.3    -11%         -13%
      Americas                        275.2                                227.6      21%          21%
      Total                            938.9                                865.0        9%            4%
      (i) Adjusted for currency fluctuations, disposals &
      acquisitions
      [1] Net Income attributable to Equity Holders
      [2] Free cash flow 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] Adjusted for currency fluctuations, discontinued operations &
acquisitions.
      [4] Europe, Middle East and Africa
      [5] Wireless products & services revenue comprises wireless
microprocessor cards and related applications (embedded software and Over The
Air platforms) and services (system integration and operated services).
      [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.@@end@@

ots Originaltext: Gemplus
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