Gemalto

Gemalto First Half 2006 Results

    Amsterdam (ots/PRNewswire) -

    - Revenue[1] Up 2% at Constant Exchange Rates (-1% at Current Exchange Rates)

    - Operating Margin1 at 3.7%, Reflecting Fierce Competition in Mobile Communication

    - Cash and Cash Equivalents at USD 478 Million

    - Continuing Challenging Industry Environment

    - Synergies and Long-Term Objectives Confirmed

    Gemalto (Euronext NL0000400653 - GTO), a leader in digital security, today announced its results for the half year ended June 30, 2006.

    Highlights of the adjusted pro forma income statement1 (all figures below are at current exchange rates):

@@start.t1@@      In millions of USD                              H1 2005  H1 2006        Year-on-year
                                                                                                        change
      Net sales                                            1,047.0  1,035.9            -1.1%
      Gross profit                                         342.2      313.7              -8.3%
      Gross margin (%)                                  32.7%      30.3%          -2.4 ppts
      Operating expenses                                266.1      275.0              +3.4%
      Operating income                                    76.1        38.7              -49.1%
      Operating margin (%)                              7.3%        3.7%          -3.6 ppts
      Profit for the period                            65.3        34.4              -47.3%
      Basic earnings per share (USD)              0.67        0.27              -59.5%@@end@@

    The above mentioned adjusted measures exclude business combination accounting entries, and one-off expenses incurred in connection with the combination with Gemplus (Nasdaq: GEMP). Gemalto believes these measures are helpful in understanding its past financial performance and  its future results. Adjusted financial measures are not meant to be  considered in isolation or as a substitute for comparable IFRS measures,  and should be read only in conjunction with the condensed consolidated  interim financial statements prepared in accordance with IFRS provided  in appendix.

    Olivier Piou, Chief Executive Officer, commented: "I would like to thank our shareholders for the outstanding success of the public exchange offer: it demonstrates their endorsement of our vision to create a global leader in digital security.

    The integration is progressing smoothly and Gemalto is fully focused on capturing growth opportunities and on realizing the planned synergies that will both materialize progressively. Our work since execution of the combination allows us to confirm the synergies and long term financial objectives previously outlined.

    Since the beginning of this year competitive pressure has been intense. We expect that our market environment will remain challenging in the coming months and we are adjusting to these demanding circumstances.

    Yet, the simultaneous global spread of communications systems, mobile personal devices, and the internet, all requiring higher levels of security, plays well for fully realizing our digital security vision."

    The Company's condensed consolidated interim financial statements (unaudited) are prepared in accordance with International Financial Reporting Standard (IFRS).

    The pro forma income statement for the first half 2006 has been prepared assuming that the combination with Gemplus had taken place as of January 1, 2005, allowing the Group to present it in comparison with the first half of 2005. The one-off, combination related items are therefore charged to the first half 2005 pro forma income statement, so that the first half 2006 income statement only reflects the recurring intangible asset amortization charges resulting from the accounting treatment of the transaction, as well as the additional stock compensation charge arising from it.

    Additional financial information on an adjusted pro forma basis is presented that is not in conformity with IFRS, in particular the presentation of cost of sales, operating expenses and operating income, operating margin and earnings per share which exclude charges arising from the accounting treatment of the combination and one-off combination related expenses. Charges resulting from the accounting treatment of the transaction consist of amortization of inventory step-up, additional stock-based compensation due to the revaluation of Gemplus' stock options as of combination date, amortization and impairment of intangible assets. One-off combination related expenses consist of professional advisory services incurred in connection with the integration, new Gemalto brand and logo creation and worldwide registration, as well as impairment charges related to capitalized development costs on projects which are redundant with existing products or technologies available in Gemplus. The Company believes that this information, which is not in conformity with IFRS, is helpful supplemental information in order to better understand its past and future performance. In addition, the Company's management uses this information in its own planning. This information provided by the Company may not be comparable to similarly titled measures employed by other companies.

    The Company provides reconciliation between pro forma and adjusted pro forma income statements which is displayed in tables at the end of this press release. The IFRS consolidated income statement for the first half 2006 shows operating loss of USD 9.7 million and net loss of USD 6.4 million, and the pro forma income statement shows operating income of USD 11.8 million and profit for the period of USD 13.4 million.

    For a more detailed description of adjustments made to the IFRS consolidated income statement, please refer to EXPLANATION OF ADJUSTED AND PRO FORMA MEASURES at the end of this press release.

    All comparisons in this document are at current exchange rates, unless stated otherwise, and describe the evolution of the adjusted pro forma first half 2006 information compared to that of the first half 2005.

    As of the third quarter 2006, the Company will adopt the euro as its reporting currency.

    As of the first quarter 2007, the Company will report full financial results on a quarterly basis.

    Adjusted pro forma income statement2 analysis

    Extract of the adjusted pro forma income statement[2]:

@@start.t2@@                         Six months ended June 30,  Six months ended June 30,
                                          2005                                    2006
                          USD millions    As a % of    USD millions    As a % of % change
                                                        sales                                  sales
      Revenue[3]         1,047.0                                1,035.9                          -1.1%
      Gross                  342.2              32.7%            313.7              30.3%      -8.3%
      profit
      EBITDA[4]            125.1              11.9%              86.8              8.4%        -30.6%
      Operating            266.1              25.4%            275.0              26.6%      +3.4%
      expenses
      Operating              76.1              7.3%                38.7              3.7%        -49.1%
      income
      Profit for            65.3              6.2%                34.4              3.3%        -47.3%
      the period@@end@@

    At constant exchange rates, revenue was up 2%, reflecting varying performance between market segments. Solid revenue growth in Identity & Security and Secure Transactions was fully offset by the effect of strong price pressure on Mobile Communication revenue. After adjusting for the acquisition of Setec and currency fluctuations, revenue was down 2 %.

    On a geographic basis, revenue was up 3% in Asia, driven by Identity & Security and Secure Transactions. In EMEA[5], revenue was almost stable, while in the Americas revenue was down 6%.

    Microprocessor card shipments grew 39% to 561 million units, sustained by strong demand in all core segments.

    Gross margin was 30.3% compared to 32.7% a year ago, due to the lower performance in Mobile Communication.

    Overall, operating expenses were up 3.4% including Setec. Research & engineering and general & administrative expenses were stable, while sales & marketing expenses were up 5.6%, due to increased field marketing and customer support resources in the regions.

    Consequently, operating income was USD 38.7 million and operating margin was 3.7%.

    Financial income was USD 7.0 million. The effective tax rate for the period was 25%. As a result, profit for the period was USD 34.4 million.

    Balance sheet and pro forma cash flow

    Pro forma free cash flow[6] of the period was an outflow USD 90 million. Capital expenditure amounted to USD 50 million and USD 100 million were used by an increase in working capital requirement. Payments of costs incurred in connection with the preparation and execution of the combination amounted to approximately USD 14 million.

    After the distribution of reserves (USD 212 million) to the Gemplus shareholders prior to the execution of the first step of the combination (EUR 0.26 per share), cash and cash equivalents remain strong at USD 478 million as of June 30, 2006.

    Segment information[7]

    Mobile Communication performance impacted by strong price pressure

@@start.t3@@                        Six months ended June 30,    Six months ended June 30,
                                        2005                                      2006
                      USD millions    As a % of      USD millions    As a % of    % change
                                                 revenue                                 revenue
      Revenue          672.8                                    600.8                                -10.7%
      Gross              259.7              38.6%              200.4              33.3%         -22.8%
      profit
      Operating        164.7              24.5%              162.4              27.0%         -1.4%
      expenses
      Operating         95.0              14.1%                38.0                6.3%         -60.0%
      income@@end@@

    At constant exchange rates, Mobile Communication revenue was down 9%: the strong volume growth was not sufficient to fully compensate for extreme price pressure.

    SIM cards shipments for the first half 2006 were up 38% to 430 million units, driven by strong demand in Asia and in EMEA. Shipments in the Americas show limited growth compared with a strong first half 2005.

    The average SIM card selling price for the first half 2006 was down 35% compared to the first half 2005, reflecting the intensified competitive environment this year. In the first half 2006, the market was characterized by very strong volume growth in emerging countries which use a higher proportion of low-end cards, and by delays in migration to high-end products in other countries.

    The average SIM card selling price for the second quarter 2006 was down 1% at current exchange rates, compared with the first quarter 2006.

    Compared with the strong performance of the first half 2005, gross margin decreased, reflecting the intensified competitive environment since the beginning of the year.

    Secure Transactions (Financial Services and pay-TV)

@@start.t4@@                          Six months ended June 30,    Six months ended June 30,
                                          2005                                      2006
                          USD millions    As a % of      USD millions    As a % of        %
                                                  revenue                                 revenue      change
      Revenue[8]        213.9                                    234.4                              +9.6%
      Gross                 45.4              21.2%                47.7              20.4%        +5.1%
      profit
      Operating          46.4              21.7%                52.6              22.5%        +13.4%
      expenses
      Operating          (1.0)              -0.5%              (4.9)              -2.1%          NM
      income@@end@@

    At constant exchange rates, revenue was up 14%. After adjusting for the acquisition of Setec and currency fluctuations, revenue was up 9%.

    Microprocessor card shipments for the first half 2006 were up 37% to 109 million units, driven by on-going EMV[9] deployment, particularly in Turkey, Latin America, North Asia and Southern Europe.

    Average selling prices decreased reflecting price pressure in certain markets, as well as a change in the regional mix and a greater share of modules in the total volume sold.

    ID & Security

@@start.t5@@                        Six months ended June 30,    Six months ended June 30,
                                        2005                                      2006
                      USD millions    As a % of      USD millions    As a % of    % change
                                                 revenue                                 revenue
      Revenue[8]        77.0                                    130.3                                +69.2%
      Gross                26.4              34.3%                55.4              42.5%        +109.8%
      profit
      Operating         41.3              53.6%                47.9              36.8%         +16.0%
      expenses
      Operating        (14.9)            -19.3%              7.5                 5.7%            NM
      income@@end@@

    At constant exchange rates, revenue was up 73%, driven by strong sales of microprocessor card solutions for e-passports, healthcare and transportation management, as well as by increased IP licensing activity. After adjusting for the acquisition of Setec and currency fluctuations, revenue was up 44%.

    Microprocessor cards shipments for the first half 2006 were up 58% to 22 million units, fuelled by initial deployments of large scale e-passports programs in France and Portugal and by strong Transportation activity.

    During the first half 2006, the Group won several meaningful and highly visible contracts for e-passport projects in France, the Czech Republic, Portugal and Slovenia, and healthcare management in France and Mexico.

    Gross margin was up 8.2 percentage points compared with a strong first half 2005, reflecting high revenue derived from patent licensing contracts: these are fully offsetting lower margin in the ID business as the rollout of e-passports in Europe is still in its early stages.

    Public Telephony

@@start.t6@@                        Six months ended June 30,    Six months ended June 30,
                                        2005                                      2006
                      USD millions    As a % of      USD millions    As a % of    % change
                                                 revenue                                 revenue
      Revenue          44.7                                      40.1                                -10.3%
      Gross                1.0                 2.2%                2.5                 6.3%        +164.0%
      profit
      Operating         6.6                14.7%                4.3                10.8%         -33.7%
      expenses
      Operating        (5.6)              -12.5%            (1.8)              -4.5%            NM
      income@@end@@

    Memory cards for Public Telephony now contribute for less than 4% of Group revenue.

    Point-of-Sale Terminals

@@start.t7@@                        Six months ended June 30,    Six months ended June 30,
                                        2005                                      2006
                        USD millions      As a % of    USD millions      As a % of % change
                                                    sales                                    sales
      Revenue              38.6                                      30.2                              -21.6%
      Gross                  9.7                25.2%                7.7                25.5%      -20.6%
      profit
      Operating            7.1                18.5%                7.8                25.8%      +9.2%
      expenses
      Operating            2.6                6.7%                (0.1)              -0.3%         NM
      income@@end@@

    The activity in this segment reflects a transition period in advance of the introduction of a new range of products later this year.

    Outlook

    Market conditions have been difficult since the beginning of this year, and the Company expects it will remain challenging, particularly in light of the uncertainties in the global economic environment. With synergies from the combination materializing progressively, in line with plans, and the significant resources required this year to converge product roadmaps and processes, Gemalto expects operating performance in the second half 2006 to be similar to that of the first half.

    The deployment of the electronic passport and ID projects won in recent months will produce their full effect in 2007.

    The Group has taken cost reduction measures beyond the initially identified synergies, and continues to review the adequacy of its current configuration in light of these circumstances. On August 31, 2006, Gemalto announced consolidation of its two production centres in Owing Mills and Montgomeryville in the United States into the latter's facility, which better meets the future needs of its business strategy and customers.

    Given its technology and market leadership, Gemalto is uniquely positioned to address the increasing need for security in the digital world. The Company is confident in its ability to play a leading role in the digital security industry as it expands on a global scale and to realize its objective for 2009 of a low teens operating margin.

                                                          GEMALTO
                                      FIRST HALF 2006 FINANCIAL RESULTS
                          EXPLANATION OF ADJUSTED AND PRO FORMA MEASURES

    Due to the combination with Gemplus, Gemalto's financial statements have undergone significant change, due in particular to the accounting treatment of this transaction in accordance with IFRS 3 "Business Combination". To supplement the financial statements presented on an IFRS basis, the Group presents the pro forma and adjusted pro forma information described in the table below.

    Pro forma measures

    The pro forma income statement for the first half 2006 has been prepared assuming that the combination had taken place as of January 1, 2005, allowing the Group to present it in comparison with the first half 2005. The one-off, combination related items are therefore charged to the first half 2005 pro forma income statement, so that the first half 2006 income statement only reflects the recurring intangible asset amortization charge resulting from the Purchase Price Allocation and the additional stock-based compensation charge.

    Adjusted measures

    Adjusted measures exclude certain business combination accounting entries, and expenses directly incurred in connection with the combination with Gemplus, that the Group believes are helpful in understanding its past financial performance and its future results. Adjusted financial measures are not meant to be considered in isolation or as a substitute for comparable IFRS measures, and should be read only in conjunction with condensed consolidated interim financial statements prepared in accordance with IFRS. Management regularly uses these supplemental adjusted financial measures internally to understand, manage and evaluate the business and take operating decisions. These adjusted measures are among the primary factors management uses in planning for and forecasting future periods. Compensation of executives is based in part on the performance of the business based on these adjusted measures. Adjusted financial measures reflect adjustments based on the following items, as well as the related income tax effect:

    - Amortization of inventory step-up: IFRS 3 "Business Combination" requires Gemalto to value work-in progress and finished goods assumed in connection with the combination at net realizable value (the estimated revenue derived from the future sale of these goods less expected selling cost). Therefore, the value of this inventory in the books of Gemplus on combination date was adjusted accordingly (step-up). Thus, subsequent sales of the work-in-progress and finished products carried in Gemplus' inventory at the time of the combination generate a lower margin than if they were manufactured after the acquisition, all other factors being equal. The amortization expense related to this step up is therefore disclosed in the income statement under a separate line below Cost of Sales. The adjustment, eliminating amortization of inventory step-up, is intended to restore the normal margin of such sales. The Group believes this adjustment is useful to investors as a measure of the ongoing performance of its business.

    - Additional stock-based compensation charge: As prescribed by IFRS 2 "Share-based payment" and IFRS 3 "Business Combination", vested and unvested stock options or awards granted by an acquirer in exchange for stock options or awards held by employees of the purchased company, or any substantially equivalent commitment by the acquirer to assume the obligations of the acquirer with regards to stock options granted to the latter's employees, as is the case for Gemalto under the Combination Agreement, shall be considered to be part of the purchase price for the acquirer, and the fair value (at the effective date of the acquisition or merger) of the new (acquirer) awards shall be included in the purchase price. It leads to increase the compensation charge related to stock-options granted by Gemplus prior to the acquisition. The adjustment, eliminating the additional stock-based compensation charge, is intended to reflect the compensation charge that Gemplus would expense if the company continued to operate on a standalone basis. The Group believes this adjustment is useful to investors as a measure of the ongoing performance of its business.

    - Amortization and impairment of intangible assets: amortization and impairment of intangible assets created as a result of the combination with Gemplus have been excluded from the adjusted profit for the period. The Group believes this is useful because, prior to this combination in the second quarter of fiscal 2006, it did not incur significant charges of this nature, and the exclusion of this amount helps investors understand the evolution of IFRS operating expenses in periods subsequent to the combination with Gemplus. Investors should note that the use of intangible assets contributed to revenue earned during the period and will contribute to future revenue generation and that these amortization expenses will be recurring.

    - Combination related charges: In the last months, Gemalto incurred material expenses in connection with the combination with Gemplus, which it would not have otherwise incurred. Combination related charges consist of professional advisory services incurred in connection with the integration, new Gemalto brand and logo creation and worldwide registration, as well as impairment charges related to capitalized development costs on projects which are redundant with existing products or technologies available in Gemplus. The Group expects to continue to incur integration-related professional services in the coming months. Gemalto also determined that its investment in a listed company was impaired as a consequence of the combination with Gemplus. The related impairment charge was recorded in Financial income (loss) in the period. Gemalto believes it is useful for investors to understand the effect of these expenses on its cost structure.

    Summary

    Gemalto provides three sets of income statements:

    - IFRS consolidated income statement, pursuant to its regulatory obligations

    - Pro forma income statement

    - Adjusted pro forma income statement

@@start.t8@@      Gemalto IFRS              - Includes Gemplus income statement consolidated as
      consolidated income  from June 2, 2006, date on which the first step of
      statement                  the combination between Gemalto and Gemplus was
                                        executed.
                                        - Includes all charges resulting from the accounting
                                        treatment of the combination (amortization and
                                        impairment of intangible assets, additional
                                        stock-based compensation), and one-off charges
                                        incurred in connection with the combination with
                                        Gemplus (combination related charges), as described
                                        in notes 4 and 5 to the condensed consolidated
                                        interim financial statements attached to this press
                                        release.
      Gemalto pro forma      - Includes Gemplus income statement for the full
      income statement        reported period (6 months).
      Basis of presentation - Combination assumed to have taken place as of
      and assumptions for    January 1, 2005.
      preparation are
      described in note 6    - Consequently, one-off charges incurred in
      to the condensed         connection with the combination with Gemplus
      consolidated interim  (combination related charges), as described in note
      financial statements, 5 to the condensed consolidated interim financial
      which also includes    statements, are booked in fiscal year 2005.
      the reconciliation of
      the pro forma income  - Recurring charges resulting from the accounting
      statement with the      treatment of the combination with Gemplus
      consolidated income    (amortization of intangible assets, additional
      statement                    stock-based compensation) are booked in fiscal year
                                        2005 and 2006 according to the amortization schedule
                                        set as if the combination had taken place on January
                                        1, 2005.
      Gemalto adjusted pro  - Includes Gemplus income statement for the full
      forma income                reported period (6 months).
      statement
                                         - Combination assumed to have taken place as of
                                        January 1, 2005.
                                         - Excludes one-off expenses incurred in connection
                                        with the combination with Gemplus (combination
                                        related charges), as described in note 5 to the
                                        condensed consolidated interim financial statements,
                                        and all charges resulting from the accounting
                                        treatment of the transaction.@@end@@

    The first half 2005 and 2006 pro forma income statements established in accordance with IFRS are included in the condensed consolidated interim financial statements attached to this press release.

    Conference call

    The company has scheduled a conference call for Wednesday, September 13, 2006 at 3:00 pm CET (2:00 pm GMT and 9:00 am New-York time). Callers may participate in the live conference call by dialling:

    +44(0)207-138-0816 or +1-718-354-1171 or +33-1-55-17-41-49.

    The slide show will be available on the web site at 10:00 CET (9:00 GMT).

    Replays of the conference call will be available approximately 3 hours after the conclusion of the conference call until September 19, 2006 midnight by dialling:

    +44(0)207-806-1970 or +1-718-354-11-12 or +33-1-71-23-02-48, access code: 8442332.

    Earnings calendar

    Third quarter 2006 revenue is scheduled to be reported on October 26, 2006, before the opening of Euronext Paris.

      Corporate Media Relations                         Corporate Communication
      Emmanuelle SABY                                         Rémi CALVET
      M.: +33(0)6-09-10-76-10                            M.: +33(0)6-22-72-81-58
      emmanuelle.saby@gemalto.com                      remi.calvet@gemalto.com
      Investors Relations                                  FINEO
      Stéphane BISSEUIL
      T.: +33(0)1-55-01-50-97                            T.: +33(0)1-56-33-32-31
      stephane.bisseuil@gemalto.com

    About Gemalto

    Gemalto (Euronext NL 0000400653 GTO) is a leader in digital security with pro forma 2005 annual revenues of US$2.2 billion (EUR1.7 billion), operations in 120 countries and 11,000 employees including 1,500 R&D engineers. The company's solutions make personal digital interactions secure and easy in a world where everything of value -from money to identities - is represented as information communicated over networks.

    Gemalto thrives on creating and deploying secure platforms, portable and secure forms of software in highly personal objects like smart cards, SIMs, e-passports, readers and tokens. More than a billion people worldwide use the company's products and services for telecommunications, banking, e-government, identity management, multimedia digital right management, IT security and other applications. Gemalto was formed in June 2006 by the combination of Axalto and Gemplus.

    For more information please visit www.gemalto.com

    DISCLAIMER

    The Gemalto N.V. securities referred to herein issued in connection with the exchange offer of Gemalto N.V. for the securities of Gemplus International S.A., and the Gemalto N.V. shares issued in connection with the reopening of such exchange offer, have not been (and are not intended to be) registered under the United States Securities Act of 1933, as amended, (the "Securities Act") and may not be offered or sold, directly or indirectly, into the United States except pursuant to an applicable exemption. The Gemalto securities have been and will be made available within the United States in connection with the exchange offer pursuant to an exemption from the registration requirements of the Securities Act.

    The exchange offer and its reopening relate to the securities of a non-US company and are subject to disclosure requirements of a foreign country that are different from those of the United States. Financial statements presented have been prepared in accordance with foreign accounting standards that may not be comparable to the financial statements of United States companies.

    It may be difficult for an investor to enforce its rights and any claim it may have arising under U.S. federal securities laws, since Gemalto N.V. and Gemplus International S.A. have their corporate headquarters outside of the United States, and some or all of their officers and directors may be residents of foreign countries. An investor may not be able to sue a foreign company or its officers or directors in a foreign court for violations of the U.S. securities laws. It may be difficult to compel a foreign company and its affiliates to subject themselves to a U.S. court's judgment.

    This release does not constitute an offer to purchase or exchange or the solicitation of an offer to sell or exchange any securities of Gemalto N.V. or an offer to sell or exchange or the solicitation of an offer to buy or exchange any securities of Gemplus International S.A.

    Gemplus security holders are strongly advised to read the offering circular relating to the exchange offer and related exchange offer materials regarding the transaction (see below), as well as any amendments and supplements to those documents because they contain important information.

    The exchange offer and its reopening described herein are not (and are note intended to be) made, directly or indirectly, in or into the United Kingdom, Italy, the Netherlands, Canada or Japan or in or into any other jurisdiction in which such offer would be unlawful prior to the registration or qualification under the laws of such jurisdiction. Accordingly, persons who come into possession of this release should inform themselves of and observe these restrictions.

    Copies of the free English translation of the joint French language offering document which has received visa No. 06-252 of July 6, 2006 from the French Autorité des marchés financiers and of the documents incorporated by reference thereto are available from the Internet websites of Gemalto N.V. (www.gemalto.com) and of Gemplus International S.A. (www.gemplus.com) as well as free of charge upon request to the following: Gemalto N.V.: Koningsgracht Gebouw 1, Joop Geesinkweg 541-542, 1096 AX Amsterdam, the Netherlands; Gemplus International S.A.: 46A, avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg; Mellon Investor Services LLC, U.S. Exchange Agent: 480 Washington Boulevard, Attn: Information Agent Group,AIM # 074-2800, Jersey City, New Jersey 07310, Call Toll Free: 1-866-768-4951.

    [1] Prepared on an adjusted pro forma basis, reflecting the combined activity of Gemalto and Gemplus over the whole first half year, excluding one-off expenses incurred in connection with the combination with Gemplus and charges resulting from the accounting treatment of the transaction, and assuming that the combination had taken place as of January 1, 2005

    [2] Prepared on an adjusted pro forma basis, reflecting the combined activity of Gemalto and Gemplus over the whole first half year, excluding one-off expenses incurred in connection with the combination with Gemplus and charges resulting from the accounting treatment of the transaction, and assuming that the combination had taken place as of January 1, 2005.

    [3] Setec consolidated as of June 1, 2005.

    [4] EBITDA is defined as operating income plus depreciation (USD 36.6 million in H1 2006 vs. USD 36.5 million in H1 2005) and amortization expenses (USD 11.5 million in H1 2006 vs. USD 12.5 million in H1 2005). These amounts exclude amortization and impairment charges related to the intangibles assets identified pursuant to IFRS 3 "Business Combination".

    [5] Europe, Middle East, Africa

    [6] 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). The pro forma free cash flow is the combination of Axalto and Gemplus free cash flow for the full six months ended June 30, 2006.

    [7] All segment information provided in this press release is on an adjusted pro forma basis, reflecting the combined activity of Gemalto and Gemplus over the whole first half year, excluding one-off expenses incurred in connection with the combination with Gemplus and charges resulting from the accounting treatment of the transaction, and assuming that the combination had taken place as of January 1, 2005.

    [8] Compared with the pro forma segment revenue information reported on July 27, 2006, USD 1.9 million was reclassified from Secure Transactions to ID & Security.

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

@@start.t9@@      Gemalto IFRS Consolidated income statement
      All amounts in USD thousands (except where otherwise stated)
                                                              Six months ended June 30
                                                                    2005                 2006    % change
      Sales                                                  498,200            578,446      +16.1%
      Cost of sales                                    (329,995)         (408,372)    +23.8%
      Amortization of
      inventory step-up                                                         (5,153)         N/M
      Gross profit                                        168,205            164,921      -2.0%
      Gross margin                                        33.8%                28.5%
      Operating expenses:
      Research and engineering                    (35,432)          (37,397)      +5.5%
      Sales and marketing                            (56,554)          (70,584)    +24.8%
      General and administrative                 (31,070)          (38,106)    +22.6%
      Other income, net                                  1,914            (2,328)         N/M
      Combination related
      expenses(x)                                                                 (8,671)         N/M
      Amortization and
      impairment
      of intangible assets(xx)                                          (17,521)         N/M
      Operating income (loss)                        47,063            (9,686)         N/M
      Operating margin                                  9.4%                -1.7%
      Financial income
      (expenses), net                                         401                1,320         N/M
      Share of profit (losses)
      of associates                                          (196)                 157         N/M
      Profit (loss) before
      income tax                                            47,268            (8,209)         N/M
      Income tax expense                              (14,018)            1,848          N/M
      Profit (loss) for
      the period                                            33,250            (6,361)         N/M
      Attributable to:
      Equity holders of
      the company                                          31,914            (5,620)         N/M
      Minority interest                                  1,336                (741)         N/M
      Basic earnings (loss)
      per share (in USD)                                  0.79              (0.13)         N/M
      Diluted earnings (loss)
      per share (in USD)                                  0.77              (0.13)         N/M
      In thousands :
      Basic average number of
      shares outstanding                                40,440              43,917      +8.6%
      Diluted average number
      of shares outstanding                          41,558              44,796      +7.8%
      (x) Combination related expenses:                                (8,671)
      - Integration consultant fees                                      (3,376)
      - Gemalto brand and logo creation
         and registration                                                        (1,111)
      - Capitalized costs related to
         redundant devlpt. projects                                        (4,184)
      (xx) Amortization and impairment
      of intangible assets:                                                 (17,521)
      - Gemplus brand name impairment                                 (12,596)
      - Gemplus Customer Relationships                                    (595)
      - Gemplus existing Technology                                      (4,330)@@end@@

@@start.t10@@      Gemalto pro forma income statement
      (assuming the combination was executed on January 1, 2005)
      All amounts in USD thousands (except where otherwise stated)
                                                            Six months ended June 30
                                                                    2005                 2006    % change
      Sales                                                 1,046,983      1,035,881      -1.1%
      Cost of sales                                    (705,514)      (720,383)      +2.1%
      Amortization of inventory step-up      (18,492)                 0    -100.0%
      Gross profit                                        322,977         315,498        -2.3%
      Gross margin                                          30.8%            30.5%
      Operating expenses:
      Research and engineering                    (72,920)        (71,469)      -2.0%
      Sales and marketing                          (127,554)      (132,360)      +3.8%
      General and administrative                 (72,373)        (71,596)      -1.1%
      Other income, net                                  2,193              (189)        N/M
      Combination related expenses(x)         (10,805)                 0    -100.0%
      Amortization and impairment of
      intangible assets(xx)                         (43,305)        (28,040)    -35.2%
      Operating income (loss)                        (1,787)         11,844         N/M
      Operating margin                                    -0.2%              1.1%
      Financial income (expenses), net          2,680            6,973    +160.2%
      Share of profit (losses)
      of associates                                        (1,306)              327         N/M
      Profit before income tax                         (413)         19,144         N/M
      Income tax expense                                 6,801          (3,970)        N/M
      Profit for the period                            6,388          15,174         N/M
      Attributable to:
      Equity holders of the company              10,358            8,739    -15.6%
      Minority interest                                 (3,970)          6,435         N/M
      Basic earnings per share (in USD)          0.17              0.14    -15.6%
      In thousands:
      Basic average number of shares
      outstanding ('000)                                62,425          62,399      -0.0%
      (x) Combination related expenses:      (10,805)                 0
      - Integration consultant fees              (3,408)                 0
      - Gemalto brand and logo
         creation and registration                 (1,111)                 0
      - Capitalized costs related to
         redundant devlpt. projects                (6,286)                 0
      (xx) Amortization and impairment
      of intangible assets:                         (43,305)        (28,040)
      - Gemplus brand name impairment         (13,333)                 0
      - Gemplus Customer Relationships         (3,618)         (3,385)
      - Gemplus existing Technology            (26,354)        (24,655)@@end@@

@@start.t11@@      Gemalto adjusted(x) pro forma income statement
      (assuming the combination was executed on January 1, 2005)
      All amounts in USD thousands (except where otherwise stated)
                                                         Six months ended June 30
                                                         2005                        2006                % change
      Sales                                  1,046,983                1,035,881                    -1.1%
      Cost of sales                        (704,794)                (722,154)                  +2.5%
      Gross profit                          342,189                  313,727                    -8.3%
      Gross margin                              32.7%                      30.3%
      Operating expenses:
      Research and engineering      (72,623)                 (72,417)                    -0.3%
      Sales and marketing            (124,934)                (131,873)                    +5.6%
      General and administrative    70,763)                 (70,566)                    -0.3%
      Other income, net                    2,193                        (189)                      N/M
      Operating income                    76,062                    38,682                    -49.1%
      Operating margin                        7.3%                        3.7%
      Financial income
      (expenses), net                        5,102                      6,973                    +36.7%
      Share of profit (losses)
      of associates                         (1,306)                        327                        N/M
      Profit before income tax        79,858                    45,982                    -42.4%
      Income tax expense                (14,524)                 (11,540)                  -20.5%
      Profit for the period            65,334                    34,442                    -47.3%
      Attributable :
      Equity holders of
      the company                            41,803                    16,903                    -59.6%
      Minority interest                  23,531                    17,539                    -25.5%
      Basic earnings per
      share (in USD)                          0.67                        0.27                    -59.5%
      In thousands:
      Basic average number of
      shares outstanding                 62,425                    62,399                      -0.0%
      (x) excluding one-off expenses incurred in connection with the
      combination with Gemplus and charges resulting from the
      accounting treatment of the transaction@@end@@

@@start.t12@@      Gemalto adjusted pro forma income statement
      (assuming the combination was executed on January 1, 2005)
      Reconciliation from pro forma to adjusted pro forma
      Six months ended June 30, 2006
      All amounts in            IFRS        Amortization of    Additional  Combination
      US$ thousands                              inventory          stock based         related
                                                            step-up         compensation        expenses
      Sales                          1,035,881
      Cost of sales              (720,383)                                        277
      Gross profit                  315,498                 0                    277                 0
      Operating
      expenses:
      Research and
      engineering                  (71,469)                                         38            -662
      Sales and
      marketing                    (132,360)                                        487
      General and
      administrative              (71,596)                                      1030
      Other income,
      net                                    (189)
      Combination
      related (x)                              0
      Amortization
      and impairment
      of intangible
      assets (xx)                  (28,040)
      Operating
      income                              11,844                  0                1,832          (662)
      Financial
      income
      (expenses), net                 6,973
      Share of profit
      (losses) of
      associates                            327
      Profit before
      income tax                        19,144                  0                1,832          (662)
      Income tax
      expense                          (3,970)                                                         228
      Profit (loss)
      for the period                 15,174                  0                1,832          (434)
      Attributable
      to:
      Equity holders
      of the company                  8,739                                        800          (434)
      Minority
      interest                            6,435                                    1,032@@end@@

      All amounts in US$                  Amort. or impairment      Adjusted
      thousands                                 of intangible assets
      Sales                                                                                1,035,881
      Cost of sales                                            -2048                (722,154)
      Gross profit                                            (2,048)                313,727
      Operating expenses:
      Research and engineering                            -324                (72,417)
      Sales and marketing                                                         (131,873)
      General and administrative                                                (70,566)
      Other income, net                                                                  (189)
      Combination related (x)                                                                0
      Amortization and impairment of
      intangible assets (xx)                            28,040                          0
      Operating income                                      25,668                  38,682
      Financial income (expenses), net                                          6,973
      Share of profit (losses) of
      associates                                                                                 327
      Profit before income tax                         25,668                  45,982
      Income tax expense                                    -7798                (11,540)
      Profit (loss) for the period                  17,870                  34,442
      Attributable to:
      Equity holders of the company                  7,798                  16,903
      Minority interest                                    10,072                  17,539

@@start.t13@@      (assuming the combination was executed on January 1, 2005)
      Six months ended June 30, 2005
      All amounts in US$              Pro forma      Amortization of    Additional
      thousands                                                      inventory         stock based
                                                                            step-up         compensation
      Sales                                  1,046,983
      Cost of sales                        (705,514)                                         1,401
      Amortization of
      inventory step-up                  (18,492)              18,492
      Gross profit                          322,977                18,492                 1,401
      Operating expenses:
      Research and
      engineering                            (72,920)                                            536
      Sales and marketing              (127,554)                                         2,620
      General and
      administrative                        (72,373)                                         1,610
      Other income, net                      2,193
      Combination related(x)          (10,805)
      Amortization and
      impairment of
      intangible assets
      (xx)                                        (43,305)
      Operating income                      (1,787)              18,492                 6,167
      Financial income
      (expenses), net                         2,680
      Share of profit
      (losses) of
      associates                                (1,306)
      Profit before income
      tax                                              (413)              18,492                 6,167
      Income tax expense                    6,801                (5,566)
      Profit (loss) for
      the period                                 6,388                12,926                 6,167
      Attributable to:
      Equity holders of
      the company                              10,358                 5,641                 2,691
      Minority interest                    (3,970)                7,285                 3,476
      (x) Combination related costs include integration consultant fees and
        write-off of capitalized development costs
      (xx) Intangible assets identified and recognized in accordance with IFRS
      3 Business Combination@@end@@

@@start.t14@@      All amounts in US$ thousands        Combination      Amort. or      Adjusted pro
                                                              related      impairment of              forma
                                                              expenses        intangible
                                                                                      assets
      Sales                                                                                          1,046,983
      Cost of sales                                                                (681)        (704,794)
      Amortization of inventory
      step-up                                                                                                    0
      Gross profit                                                 0              (681)         342,189
      Operating expenses:
      Research and engineering                         (182)              (57)         (72,623)
      Sales and marketing                                                                      (124,934)
      General and administrative                                                            (70,763)
      Other income, net                                                                              2,193
      Combination related (x)                        10,805                                         0
      Amortization and impairment of
      intangible assets (xx)                                              43,305                    0
      Operating income                                  10,623          42,567            76,062
      Financial income (expenses),
      net                                                         2,422                                  5,102
      Share of profit (losses) of
      associates                                                                                        (1,306)
      Profit before income tax                      13,045          42,567            79,858
      Income tax expense                              (2,894)         (12,865)          (14,524)
      Profit (loss) for the period              10,151            29,702              65,334
      Attributable to:
      Equity holders of the company            10,151            12,962              41,803
      Minority interest                                                      16,740              23,531
      (x) Combination related costs include integration consultant fees and
      write-off of capitalized development costs
      (xx) Intangible assets identified and recognized in accordance with
      IFRS 3 Business Combination@@end@@

AMSTERDAM, September 13 /PRNewswire/ --

    Pro forma cash position variation schedule

@@start.t15@@      In USD millions                                                      H1 2005        H1 2006
      Beginning net cash(x) as of January 1.                      713              745
      Cash generated by (used in) operating activities      111              (33)
      including decrease of (increase) in working                 4            (100)
      capital requirement
      Capital expenditure and acquisition of                      (29)            (50)
      intangibles
      Setec acquisition                                                        (75)
      Other cash generated by investing activities              26                 7
      Cash used in connection with the combination                                (14)
      Cash generated by (used in) operating and                  33              (90)
      investing activities
      June 2, 2006, distribution to Gemplus                                         (212)
      shareholders
      Other cash used in financing activities,                    (9)              (5)
      excluding proceeds & repayments of borrowings
      Other (translation adjustment mainly)                        (67)              29
      Ending net cash(x) as of June 30.                              670              467
      Current and non-current borrowings, excluding                                11
      finance lease
      Cash & Cash equivalents as of June 30, 2006                                 478@@end@@

@@start.t16@@      Pro forma revenue
      In USD
      millions
                              Q2      Q2        %          %                                      %          %
                            2005  2006 change  change  H1 2005 H1 2006  change  change
                                                 at         at                                    at         at
                                              current constant                         current constant
                                            exchange exchange                        exchange exchange
                                              rates      rates                            rates      rates
      Mobile          358.8 326.0  -9.1%        -9%        672.8    600.8    -10.7%    -9%
      Communication
      Secure          118.4 125.0  +5.6%        +8%        213.9    234.4    +9.6%    +14%
      Transactions
      ID & Security 47.0  66.9  +42.4%      +43%      77.0      130.3    +69.2%  +73%
      Public            21.1  18.6    -11.4%    -12%      44.7      40.1    -10.3%      -9%
      Telephony
      POS Terminals 17.7  13.8    -22.4%    -22%      38.6      30.2    -21.6%    -17%
      Total            562.9 550.3    -2.2%        -2% 1,047.0 1,035.9      -1.1%      +2%@@end@@

AMSTERDAM, September 13 /PRNewswire/ --

    Compared with the pro forma segment revenue information reported on July 27, 2006, USD 1.9 million was reclassified from Secure Transactions to ID & Security

    Recurring charges resulting from the accounting treatment of the combination with Gemplus

@@start.t17@@                                      In the pro forma
                                    income statements
                                 H1 2005              H1 2006
                            in USD  in EUR  in USD  in EUR
                            million million million million
      Additional         6.2        4.7        1.8        1.5
      stock-based
      compensation
      resulting
      from the
      combination
      COGS                  1.4        1.1        0.3        0.2
      R&E                    0.5        0.4        0.0        0.0
      S&M                    2.6        2.0        0.5        0.4
      G&A                    1.6        1.2        1.0        0.8
      Amortization    43.3      32.8      28.0      23.0
      and
      impairment
      of
      identified
      intangible
      assets
      recognized
      as a
      consequence
      of the
      combination@@end@@

@@start.t18@@                                                                  Forecast
                      H2 2006 H1 2007 H2 2007 H1 2008 H2 2008 H1 2009 H2 2009 H1 2010
      Additional      2.8        1.6        0.6        0.3      (0.0)    (0.1)    (0.0)
      stock-based
      compensation
      resulting
      from the
      combination
      COGS                0.4        0.2        0.1        0.0      (0.0)    (0.0)    (0.0)
      R&E                 0.1        0.0        0.0        0.0      (0.0)    (0.0)    (0.0)
      S&M                 0.7        0.4        0.1        0.1      (0.0)    (0.0)    (0.0)
      G&A                 1.6        0.9        0.3        0.2      (0.0)    (0.0)    (0.0)
      Amortization 23.0      23.0      23.0        6.5        6.5        6.5        6.5        5.4
      and
      impairment
      of
      identified
      intangible
      assets
      recognized
      as a
      consequence
      of the
      combination@@end@@

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

Contact:
Corporate Media Relations, Emmanuelle SABY, M.: +33(0)6-09-10-76-10,
emmanuelle.saby@gemalto.com; Corporate Communication, Rémi CALVET,
M.: +33(0)6-22-72-81-58,remi.calvet@gemalto.com; Investors Relations,
Stéphane BISSEUIL, T.: +33(0)1-55-01-50-97,
stephane.bisseuil@gemalto.com; FINEO, T.: +33(0)1-56-33-32-31



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