Gemplus

Gemplus Reports Strong Sales Growth for the First Quarter 2006

Luxembourg (ots/PRNewswire) - First quarter 2006 highlights: - Net sales up 19.3% year-on-year driven by Financial Services and ID & Security. - Gross margin at 30.5%, down 1.6 percentage point year-on-year. - Operating income up 12.3%, at 8.4 million euros. - Attributable net income[1] at 6.3 million euros. Gemplus International S.A. (Euronext: LU0121706294 - GEM and NASDAQ: GEMP), a world leading provider of secure card solutions, today reported results for the first quarter ended March 31, 2006. In millions of euros Q1 2006 Q1 2005 Year-on-year change Net sales 230.3 193.1 +19.3% Adjusted for currency fluctuations, disposals +5.3% and acquisitions Gross profit 70.2 61.9 +13.5% Gross margin 30.5% 32.1% -1.6 ppt Operating expenses 61.8 54.4 +13.6% Operating income 8.4 7.5 +12.3% Operating margin 3.7% 3.9% -0.2 ppt Attributable net income 6.3 7.2 -13.7% Free cash flow[2] -13.8 8.8 NM Cash and cash equivalents 409.9 395.1 +3.7% Per share data (in euros) Earnings per share (fully diluted) 0.01 0.01 NM 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 2006, Alex Mandl, President and Chief Executive Officer, said: "Gemplus improved its position in all of its core businesses. Beside buoyant shipments in Wireless, we are very satisfied to report robust revenue growth in Financial Services and ID & Security. These results validate our strategy and confirm the strong potential of these segments. Finally, we are optimistic about the outcome of the proposed Gemalto transaction to create a world-class leader in digital security." [1] Net income attributable to equity holders of the Company. [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 (and excluding acquisitions and financial investments). First quarter 2006 financial review - Income statement First quarter 2006 highlights: - Net sales up 19.3% year-on-year driven by Financial Services and ID & Security. - Gross margin 30.5%, down 1.6 percentage point year-on-year. - Operating income up 12.3%, at 8.4 million euros. Net sales were up 19.3% driven by Setec and strong organic growth in Financial Services and ID & Security. On a geographical basis, strong demand in all segments led to adjusted[3] revenue growth of 27.8% in the Americas. Adjusted[3] revenue in EMEA[4] was up 5.8%, year-on-year, driven by Financial Services and down 17.5% in Asia, reflecting price pressure in Wireless. Gross margin was down 1.6 percentage point year-on-year, to 30.5%, reflecting the change in the business mix, Wireless price pressure and purchase accounting. As a percentage of sales, operating expenses decreased to 26.8%, compared to 28.2% a year ago, although in value, they increased 13.6% year-on-year, to 61.8 million euros, mainly due to Setec. Consequently, operating income was up 12.3%, at 8.4 million euros. Attributable net income for the first quarter was slightly down 1.0 million euros to 6.3 million euros, mainly due to minority interests and income tax. - Balance sheet and cash flow statement First quarter 2006 highlights: - Free cash outflow of 13.8 million euros reflecting increase in working capital. - Continuous strong cash position, at 409.9 million euros. Working capital was up 18.6 million euros quarter-on-quarter, but decreased, as a percentage of sales, to 14% at March 31, 2006, compared with 16% a year ago. The Group's cash position remains strong and is down 8.4 million euros compared to December 31, 2005. [3] Adjusted for currency fluctuations, disposals & acquisitions [4] Europe, Middle East and Africa Segment analysis - Telecom First quarter 2006 highlights: - Record wireless shipments, at 100.6 million units. - Wireless ASP down 33% year-on-year, currency adjusted. - Rebound in prepaid phonecards. In millions of euros Q1 Q1 % change Adjusted(3) 2006 2005 change (%) Wireless products & services net sales 134.3 132.7 +1.2% Wireless gross profit 50.2 51.1 -1.8% Wireless gross margin 37.4% 38.6% -1.2 ppt Prepaid phone cards & scratchcards net 14.0 11.6 +21.2% sales Prepaid phone cards & scratchcards 1.9 1.2 +60.7% gross profit Prepaid phone cards & scratchcards 13.2% 9.9% +3.3 ppts gross margin Telecom net sales 148.4 144.3 +2.9% -2.4% Telecom gross profit 52.1 52.3 -0.4% Telecom gross margin 35.1% 36.3% -1.2 ppt Telecom operating expenses 38.3 35.8 +7.0% As a % of sales 25.8% 24.8% +1.0 ppt Telecom operating profit 13.7 16.5 -16.4% Operating margin 9.3% 11.4% -2.1 ppts Wireless revenue: - Wireless products & services revenue[5] was up 1.2% year-on-year (down 3.3%, currency adjusted), to 134.3 million euros. - Wireless shipments grew 48% year-on-year, to 100.6 million units, largely driven by emerging countries. - High-end card shipments (3G and above) accounted for 14% of the first quarter total, compared to 10% a year ago. - Wireless average selling price (ASP) was down 16% quarter-on-quarter and 33% year-on-year, both currency adjusted, reflecting ongoing price pressure. The slight decline in Wireless gross margin was due to product and regional mix, as well as strong price pressure. [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). - Financial Services First quarter 2006 highlights: - Very strong growth in payment microprocessor cards: shipments up 75%, to 22.3 million units. - EMV[6] roll-out gained further momentum in Latin America, Southern Europe and Japan. In millions of euros Q1 2006 Q1 2005 % change Adjusted(3) change (%) Net sales 56.4 37.9 +48.6% +30.0% Gross profit 10.5 5.8 +80.6% Gross margin as a % of sales 18.6% 15.3% +3.3 ppts Operating expenses 11.4 10.4 +9.8% As a % of sales 20.3% 27.4% -7.1 ppts Operating income -0.9 -4.6 NM Operating margin as a % of sales -1.6% -12.1% +10.5 ppts Revenue reflects strong growth in all sub-segments. Payment microprocessor card revenue rose 55% year-on-year. Shipments of payment microprocessor cards grew 75% to 22.3 million units. The strong performance in payment cards was mainly driven by the EMV roll-out, which gained momentum in Latin America (Mexico, Brazil), Southern Europe (Italy, Portugal, Greece) and Japan. As a result, operating income came close to breakeven. - Identity and Security First quarter 2006 highlights: - Very strong growth, driven by Government ID and Corporate Security projects. In millions of euros Q1 2006 Q1 2005 % change Adjusted(3) change (%) Net sales 25.6 10.9 +134.3% +26.0% Gross profit 7.6 3.8 +102.1% Gross margin as a % of sales 29.8% 34.6% -4.8 ppts Operating expenses 12.1 8.2 +47.8% As a % of sales 47.1% 74.7% -27.6 ppts Operating income -4.4 -4.4 NM Operating margin as a % of sales -17.3% -40.1% +22.8 ppts [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. Strong growth was driven by a substantial increase in Government ID projects, notably e-passports and healthcare solutions, and Corporate Security projects, particularly in Americas, 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. Business Highlights - Telecom At the 3GSM World Congress, Gemplus launched its new software and SIM platform, bridging telecom and PC/internet communications. Called .sim (DOTSIM), it extends the traditional SIM roles of authentication and security from mobile networks to the PC/Internet world and offers advanced multimedia services across both channels. This is a solution already generating significant interest from mobile operators such as Orange, as a way of reinforcing brand, unifying services across the board and supporting their digital convergence strategy. Gemplus's OTA over IP platform, GemConnect OTA, was selected by Telefonica Moviles Expaña for the high speed delivery of multimedia services and applications for 3G mobile subscribers. - Financial Services Gemplus launched its range of innovative card bodies, Plastic Fantastic, which is designed to help banks and financial institutions set themselves apart from the competition. The cards range from unusual shapes, perfumed, tactile and even glow in the dark, and will support customers in their branding and customer segmentation. Gemplus' product, GemSense Instant Issuance, also won an award from the ECPA/ ECR (European Payments Consulting Association / European Card Review) Payment Innovation Awards in the category for the most innovative and advanced payment software/hardware product. This is a personalization and card issuance solution which allows banks and retailers to deploy or replace cards on the spot. Each cardholder walks away with a fully personalized smart payment card within a matter of minutes. Continuing to support banks in their migration to EMV, Gemplus was selected by Indonesian Bank, Bank Buana, to provide the highest level of secure smart payment cards. The cards use random data for the generation of each signature for transactions which makes them difficult to duplicate. They also offer off-line transaction processing capabilities which reduce the cost of network communication. - Identity and Security Gemplus was selected by BearingPoint to supply an additional 1 million cards to the US Department of Defense for their Common Access Card program. This is the US Federal Government's biggest roll-out to date with more 4 million smart ID cards issued to bring strong authentication for its employees. The cards supplied in the contract are FIPS 140-2 validated - a security pre-requisite for the CAC program. Gemplus launched its first product aimed at Small and Medium-sized enterprises. GemEvidence is a One Time Password token-based solution which improves the security of remote connections in a cost-effective manner. Gemplus, with the full integration of Setec, passed the significant milestone of half a million e-passports delivered in the last six months. This makes Gemplus the leading e-passport supplier in the world. Gemplus's contactless reader technology, GemProx, was selected and integrated into Saflink's SureAccess(TM) biometric smart card reader, designed to comply with the US Government Federal Information Processing Standard (FIPS) 201 requirements. As such, Gemplus provides the technology for reading the contactless ID cards carried by authorized personnel in secure facilities such as seaports and airports. Earnings calendar Second quarter 2006 results are scheduled to be reported on July 26, 2006, before the opening of Euronext Paris. Conference Call: The company has scheduled a conference call for Monday, 24 April 2006 at 2:30 pm CET (1:30 pm GMT and 8:30 am New-York time). Callers may participate in the live conference call by dialing: +44-(0)207-138-0813 or +1-718-354-1157 or +33-1-55-17-41-44, access code 2815143. 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 3 hours after the conclusion of the conference call until May 8th, 2006 midnight by dialing: +44-(0)207-806-1970 or +1-718-354-11-12 or +33-1-71-23-02-48, access Code: 2815143#. About Gemplus Gemplus International S.A. (Euronext: LU0121706294 - GEM and NASDAQ: GEMP) is a world leading player in the secure 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: 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 Frédéric Boullard Fineo Tel: +33-(0)1-56-69-73-95 Tel: +33-(0)1-56-33-32-31 Email: frederic.boullard@edelman.com Email: investors@gemplus.com (c)2006 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 March 31, 2006 Consolidated Statements of Income (in thousands of euros, except shares and per share amounts) Three months ended March 31, 2006 2005 (unaudited) Net sales 230,332 193,102 Cost of sales (160,104) (131,210) Gross profit 70,228 61,892 Research and development expenses (15,958) (12,981) Selling and marketing expenses (31,008) (25,707) General and administrative expenses (15,611) (16,101) Restructuring reversals 67 438 Other operating income (expense), net 691 (52) Goodwill amortization and impairment - - Operating income 8,409 7,489 Financial income (expense), net 2,251 1,795 Share of profit (loss) of associates 120 (824) Other non-operating income (expense), net (578) 362 Income before taxes 10,202 8,822 Income tax expense (3,119) (1,704) NET INCOME 7,083 7,118 Attributable to: Equity holders of the Company 6,252 7,242 Minority interest 831 (124) Net income per share attributable to equity holders of the Company (in euros) Basic 0.01 0.01 Diluted 0.01 0.01 Shares used in net income per share calculation: Basic 630,137,679 607,039,538 Diluted 649,357,638 622,407,315 Consolidated Balance Sheets (in thousands of euros) Mars 31, 2006 December 31, 2005 (unaudited) ASSETS Current assets: Cash and cash equivalents 409,927 418,365 Trade accounts receivable, net 167,115 183,022 Inventory, net 121,394 107,673 Derivative financial instruments 6,296 4,187 Other current receivables 53,759 82,128 Total current assets 758,491 795,375 Non-current assets: Property, plant and equipment, net 158,237 158,284 Goodwill, net 90,789 90,826 Deferred development costs, net 20,948 21,227 Other intangible assets, net 21,497 23,600 Deferred income tax assets 29,756 32,788 Investments in associates 14,089 16,309 Available-for-sale financial assets, net 2,477 2,469 Other non-current receivables, net 41,360 40,846 Total non-current assets 379,153 386,349 TOTAL ASSETS 1,137,644 1,181,724 LIABILITIES Current liabilities: Accounts payable 105,187 106,085 Derivative financial instruments 4,525 2,592 Salaries, wages and related items 45,812 62,641 Current portion of provisions and other 42,528 73,434 liabilities Current income tax liabilities 4,680 5,228 Other current tax liabilities 20,328 20,821 Current obligations under finance leases 5,383 5,539 Total current liabilities 228,443 276,340 Non-current liabilities: Non-current obligations under finance 25,052 26,425 leases Non-current portion of provisions 20,654 23,482 Other non-current liabilities 13,176 13,417 Deferred income tax liabilities 3,520 4,354 Total non-current liabilities 62,402 67,678 Shareholders' equity: Ordinary shares 133,733 133,466 Additional paid-in capital 1,064,235 1,063,145 Retained earnings (358,775) (365,940) Other comprehensive income (4,622) (4,407) Less, cost of treasury shares (1,395) (1,395) Equity attributable to equity holders of 833,176 824,869 the Company Minority interest 13,623 12,837 Total shareholders' equity 846,799 837,706 TOTAL LIABILITIES AND SHAREHOLDERS' 1,137,644 1,181,724 EQUITY Consolidated Statements of Cash Flows (in thousands of euros) Three months ended March 31, 2006 2005 (unaudited) Cash flow from operating activities : Net income (loss) 7,083 7,118 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation, amortization and 10,550 9,326 impairment Changes in non-current portion of (2,612) (446) provisions and other liabilities, excluding restructuring Deferred income taxes (benefit) 1,887 (339) expense (Gain) / loss on sale and disposal - 132 of assets Share of (profit) loss of (50) 824 associates Share-based compensation 914 805 Other, net 198 (937) Changes in operating assets and liabilities: Trade accounts receivable and 13,706 14,084 related current liabilities Trade accounts payable and related (2,592) (15,735) current assets Inventories (13,970) 8,946 Value-added and income taxes (2,395) 1,354 Salaries, wages and other (17,199) (8,929) Restructuring reserve payable (1,587) (3,611) Net cash (used for) from operating (6,067) 12,592 activities Cash flows from investing activities: (Purchase)/Sale of activites net 4,632 - of cash (acquired)/disposed Purchase of property, plant and (8,597) (4,439) equipment Purchase of other assets (538) (197) Change in non-trade accounts 1,414 846 payable and other Net cash used for investing (3,089) (3,790) activities Cash flows from financing activities: Proceeds from exercise of stock 1,358 - options Payments on borrowings (30) - Principal payments on obligations (1,529) (1,472) under finance leases Increase (decrease) in bank (683) (1,555) overdrafts Dividends paid by subsidiaries to (270) - minority shareholders Changes in non-trade accounts 2,099 779 payables on financing activities Net cash (used for) from financing 945 (2,248) activites Effect of exchange rate changes on (227) 114 cash Net increase (decrease) in cash (8,211) 6,554 Cash and cash equivalents, 418,365 388,430 beginning of the period Cash and cash equivalents, end of 409,927 395,098 the period 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 2006 compared with First Quarter 2005 2.1) Operating Segments Three months ended (in millions of euros) Net sales March 31, 2006 March 31, % change Adjusted 2005 change (%)(x) Telecommunications 148.4 144.3 3% -2% Financial Services 56.4 37.9 49% 30% Identity and Security 25.6 10.9 134% 26% Total 230.3 193.1 19% 5% (in millions of euros) Gross profit March (% of net March (% of % change 31, sales) 31, net 2006 2005 sales) Telecommunications 52.1 35% 52.3 36% 0% Financial Services 10.5 19% 5.8 15% 81% Identity and Security 7.6 30% 3.8 35% 102% Total 70.2 30% 61.9 32% 13% (in millions of euros) Operating expenses March (% of net March (% of % change 31, sales) 31, net 2006 2005 sales) Telecommunications (38.3) 26% (35.8) 25% 7% Financial Services (11.4) 20% (10.4) 27% 10% Identity and Security (12.1) 47% (8.2) 75% 48% Total (61.8) 27% (54.4) 28% 14% (in millions of euros) Operating income (loss) March 31, 2006 March 31, 2005 Change in Operating income (loss) Telecommunications 13.7 16.5 (2.7) Financial Services (0.9) (4.6) 3.7 Identity and Security (4.4) (4.4) (0.0) Total 8.4 7.5 0.9 (x) Adjusted for currency fluctuations, disposals & acquisitions 2.2) Geographical Segments Three months ended (in millions of euros) Net sales March 31, 2006 March % Adjusted 31, change change 2005 (%) (x) Europe, Middle East and 121.9 99.3 23% 6% Africa Asia 41.3 46.4 -11% -18% Americas 67.1 47.4 42% 28% Total 230.3 193.1 19% 5% (x) Adjusted for currency fluctuations, disposals & acquisitions ots Originaltext: Gemplus Im Internet recherchierbar: http://www.presseportal.ch Contact: Press Gemplus - Jane Strachey, Tel: +33-(0)4-42-36-46-61, Email: jane.strachey@gemplus.com. Investor Relations, Gemplus - Celine Berthier, Tel: +41-(0)-22-544-5054, Email: celine.berthier@gemplus.com

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