Gemplus Reports Strong First Quarter 2005 Results
Luxembourg (ots/PRNewswire)
- First Quarter 2005 Highlights:
- Net sales down 2.1% year-on-year, impacted by extraordinarily strong sales in the quarter a year ago.
- Further improvement in gross margin to 32.1%: up 1.1 percentage points.
- Operating income more than doubled, to 7.5 million euros.
- Strong progress in attributable net income[1], at 7.2 million euros.
Gemplus International S.A. (Euronext: LU0121706294 - GEM and NASDAQ: GEMP), the world's leading provider of smart card solutions, today reported results for the first quarter ended March 31, 2005.
In millions of euros Q1 2005 Q1 2004 Year-on-year
change
Net sales 193.1 197.3 -2.1%
Adjusted for currency fluctuations,
disposals and acquisitions -2.6%
Gross profit 61.9 61.2 +1.1%
Gross margin 32.1% 31.0% +1.1 ppt
Operating expenses 54.4 57.7 -5.7%
Operating income 7.5 3.5 +111.8%
Operating margin 3.9% 1.8% +2.1 ppts
Attributable net income 7.2 0.3 NM
Free cash flow excluding non-recurring 11.9 29.6 -60.0%
items[2]
Cash and cash equivalents 395.1 384.6 +2.7%
Per share data (in euros)
Earnings per share (fully diluted) 0.01 0.00 NMNote: The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS).
Commenting on the performance for the first quarter 2005, Alex Mandl, President and Chief Executive Officer, said: "This was another quarter of good progress for Gemplus, highlighted by substantial improvement in net income. The slight decrease in sales, reflecting good underlying performance, is caused by the extraordinarily strong sales we had in the quarter a year ago, and does not, in any way, change the positive view we have for the outlook of the year. Demonstrating our commitment to drive innovation for the benefit of our customers, we introduced this quarter GemXplore Generations, which is a quantum leap over current SIM technology."
First quarter 2005 financial review
- Income statement
First quarter 2005 highlights:
- Net sales down 2.1% year-on-year, impacted by extraordinarily strong sales in the quarter a year ago.
- Gross margin up 1.1 percentage points, reflecting a favorable business mix.
- Operating income more than doubled, to 7.5 million euros.
- Strong progress in attributable net income, at 7.2 million euros.
Extremely strong sales in the first quarter 2004, which were up 38.8% year-on-year, currency adjusted, led to a slight comparative decrease in sales. Nevertheless, all core businesses saw favorable revenue momentum in the first quarter 2005. This was however mitigated by declines in our mature and peripheral activities.
On a geographical basis, currency adjusted revenue in the Americas rose 2.6% and in EMEA[3] by 1.0%, year-on-year, both driven by Wireless. Asia revenue was down 13.6%, currency adjusted, mainly due to China.
Gross margin was up 1.1 percentage points year-on-year, to 32.1%, driven by improvement in product mix, lower chip purchasing prices and volume growth offsetting selling price pressure. The Group also benefited from the results of earlier restructuring and further improvements in the manufacturing cost structure.
Operating expenses[4] decreased 5.7% year-on-year, to 54.4 million euros. This decrease was mostly driven by a temporary reduction in research and development expenses and no further goodwill amortisation. The decrease was despite the cost of stock options and implementation of the Sarbanes-Oxley Act. Operating expenses represented 28.2% of sales during the first quarter, compared to 29.3% a year ago.
As a result, operating income more than doubled, to 7.5 million euros.
Consequently, attributable net income for the first quarter showed strong improvement to 7.2 million euros.
- Balance sheet and cash flow statement
First quarter 2005 highlights:
- Substantial free cash flow before non-recurring items of 11.9 million euros.
- Continuous strong cash position, at 395.1 million euros.
The Group's cash position remains strong and is up 6.7 million euros compared to December 31, 2004, despite restructuring outflows of 3.1 million euros.
Segment analysis
- Telecom
First quarter 2005 highlights:
- Good underlying performance in wireless: moderate revenue growth reflects extraordinary sales a year ago.
- Strong improvement in operating profit: +38.5%.
In millions of euros Q1 2005 Q1 2004 % change Adjusted[5]
change (%)
Wireless products & services net 132.7 127.1 +4.3% +3.3%
sales
Wireless gross profit 51.1 48.8 +4.9%
Wireless gross margin 38.6% 38.4% +0.2 ppt
Prepaid phone cards & scratchcards 11.6 19.5 -40.5% N/A
net sales
Prepaid phone cards & scratchcards 1.2 0.9 +23.9%
gross profit
Prepaid phone cards & scratchcards 9.9% 4.8% +5.1 ppts
gross margin
Telecom net sales 144.3 146.6 -1.6% -2.4%
Telecom gross profit 52.3 49.7 +5.2%
Telecom gross margin 36.3% 33.9% +2.4 ppts
Telecom operating expenses 35.8 37.8 -5.2%
As a % of sales 24.8% 25.8% -1.0 ppt
Telecom operating profit 16.5 11.9 +38.5%
Operating margin 11.4% 8.1% +3.3 pptsWireless revenue continues to show favorable momentum. Extraordinarily strong sales in the first quarter 2004, which were up 70.8% year-on-year, currency adjusted, led to a moderate increase in sales this quarter.
Wireless shipments grew 14% year-on-year, to 68.2 million units. Growth was driven by strong sales in EMEA and Latin America, compensating for lower sales in China.
Wireless product mix continued to improve:
- The share of high-end card shipments more than doubled year-on-year, accounting for 44.3% of the total in the first quarter 2005.
- In comparison with the fourth quarter 2004, the share of high-end cards decreased slightly, reflecting a usual shift in the regional mix for the first quarter. Nevertheless, the product mix improved sequentially in EMEA and South-East Asia.
- 3G cards continued to make good progress, already representing close to 10% of total first quarter shipments.
Wireless average selling price (ASP) was down 9.2% year-on-year and 11.0% quarter-on-quarter, both currency adjusted. Substantial mix improvement did not fully offset strong price pressure, year-on-year.
Wireless gross margin was stable year-on-year, due to lower chip purchasing prices and good progress in manufacturing efficiency, offsetting price pressure.
Telecom gross margin improved 2.4 percentage points year-on-year, due to a more favorable business mix.
Operating expenses decreased 5.2% year-on-year. Correspondingly, operating profit rose 38.5% and the operating margin was up 3.3 percentage points, to 11.4%.
- Financial Services
First quarter 2005 highlights:
- The EMV[6] deployment continues: roll-out and initiatives in new countries.
In millions of euros Q1 2005 Q1 2004 % change
Net sales 37.9 40.4 -6.0%
Adjusted for currency fluctuations, -3.4%
disposals & acquisitions
Gross profit 5.8 9.1 -36.4%
Gross margin as a % of sales 15.3% 22.7% -7.4 ppts
Operating expenses 10.4 11.9 -12.6%
As a % of sales 27.4% 29.5% -2.1 ppts
Operating profit -4.6 -2.8 NM
Operating margin as a % of sales -12.1% -6.8% -5.3 pptsDespite significant EMV growth, revenue was down, due to lower sales in Pay-TV and Metering, and the cannibalisation of other payment and conventional cards. Gemplus shipped 12.8 million units of payment microprocessor cards, up 20.0% year-on-year. Payment microprocessor card revenue rose 14.9% year-on-year.
Gross margin was influenced by one-time costs related to reorganisation of European manufacturing operations as well as product mix.
- Identity and Security
First quarter 2005 highlights:
- Continued progress in Enterprise Security projects.
In millions of euros Q1 2005 Q1 2004 % change
Net sales 10.9 10.3 +5.8%
Adjusted for currency fluctuations, +5.4%
disposals & acquisitions
Gross profit 3.8 2.4 +57.6%
Gross margin as a % of sales 34.6% 23.2% +11.4 ppts
Operating expenses 8.2 8.0 +2.2%
As a % of sales 74.7% 77.3% -2.6 ppts
Operating profit -4.4 -5.6 NM
Operating margin as a % of sales -40.1% -54.1% +14.0 pptsRevenue was up 5.8% year-on-year, with a strong increase in Enterprise Security projects. In addition, the customer base significantly broadened over the quarter a year ago which was heavily weighted with a single national ID project.
Gemplus' strategy to focus on selling subsystems based on software components, value-added services and high-end cards led to a significant shift in the sales mix and a large improvement in gross margin.
Outlook
The Group continues to see strong momentum in its core markets. Notwithstanding the apparent slow start in the first quarter, Gemplus expects to increase revenue, excluding acquisitions, by around 10% in 2005, despite continuous selling price pressure.
The Company continues to focus on cost efficiency and is confident of being able to show a very strong improvement of operating income in 2005.
The Group also expects the Financial Services and ID & Security business units to become profitable in 2006.
With all of this, the Group is well on track to realise its mid-term objective of a 10% operating margin in 2007.
Change in accounting policies
Beginning this quarter, foreign exchange gains or losses arising from the Company's business activities and qualified hedges under IAS 39 are no longer exclusively recorded in cost of sales. Instead, the gains or losses are allocated to the portion of the income statement relating to the underlying currency exposure.
Starting January 1, 2005, the Company adopted IFRS 2 (issued 2004) "Share-based Payment" and IFRS 3 (issued 2004) "Business Combinations". Please refer to Note 2.4 "Change in accounting policies" of our 2004 Annual Report for further details.
Business Highlights
- Telecom
Gemplus is supporting operators in overcoming the challenges they face in entering the mobile multimedia age by introducing at this year's 3GSM World Congress a new extended storage capacity SIM card platform, GemXplore Generations. Since that time, a number of operators have shown great interest in the card, including the French operator, Bouygues Telecom.
This platform, which offers gigabyte storage capacity, flexibility and performance, allows operators to reinforce brand, uniformity of service and subscriber convenience by encouraging new uses for the mobile phone, from Mobile TV, as presented with Nagra and Thales, to storing html web servers, as demonstrated with Orange World.
- Identity and Security
This quarter saw the involvement of Gemplus in one of the world's first commercial e-passport deployments: Singapore's new biometric passport. Gemplus' contactless e-passport solution, GemBorder, which will be embedded in the passport, will contain biometric information about the passport holder such as fingerprint and facial details. The passport holder can be authenticated against the information on the chip at immigration checkpoints. Gemplus will also supply chip personalisation solution and integration service bricks.
In addition, Gemplus delivered over 100,000 GemSCOSTA optical smart cards to the first phase of India's vehicle registration and drivers' license program. This program is expected to be the world's largest of its kind, with a market potential of more than 100 million cards over the next five years.
Earnings calendar
Second quarter 2005 results are scheduled to be reported on July 27, 2005, before the opening of Euronext Paris.
Conference Call:
The company has scheduled a conference call for Monday, 25 April 2005 at 2:00 pm CET (1:00 pm GMT and 8:00 am New-York time). Callers may participate in the live conference call by dialing:
+44(0)207-784-1018 or +1-718-354-1171, access code 9245589.
The slide show will be available on the web site at 12:30 CET (11:30 GMT). The webcast will also be available on the IR section of www.gemplus.com.
Replays of the conference call will be available approximately 5 hours after the conclusion of the conference call until May 9th, 2005 midnight by dialing:
+44(0)207-784-1024 or +1-718-354-11-12, access Code: 9245589.
About Gemplus
Gemplus International S.A. (Euronext: LU0121706294 - GEM and NASDAQ: GEMP) is the world's leading player in the smart card industry in both revenue and total shipments (source: Gartner-Dataquest (2004), Frost & Sullivan, Datamonitor.). It has sold over 5 billion smart cards.
With security at its core, and 2400 patents produced by its innovative R&D team, Gemplus delivers a wide range of portable, personalised solutions in areas including Identity, Mobile Telecommunications, Public Telephony, Banking, Retail, Transport, Healthcare, WLAN, Pay-TV, e-government, and access control.
Gemplus' revenue in 2004 was 865 million euros.
www.gemplus.com
(c)2005 Gemplus. All rights reserved. Gemplus, the Gemplus logo, are trademarks and service marks of Gemplus S.A. and are registered in certain countries. All other trademarks and service marks, whether registered or not in specific countries, are the property of their respective owners.
Some of the statements contained in this release constitute forward-looking statements. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activities, performance, or achievements expressed or implied by such forward-looking statements. Actual events or results may differ materially. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this release include, but are not limited to: trends in wireless communication and mobile commerce markets; our ability to develop new technology, and the effects of competing technologies developed and expected intense competition generally in our main markets; profitability of our expansion strategy; challenges to or loss of our intellectual property rights; our ability to establish and maintain strategic relationships in our major businesses; our ability to develop and take advantage of new software and services; and the effect of future acquisitions and investments on our share price. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such forward-looking statements. The forward-looking statements contained in this release speak only as of this release. We are under no duty to update any of the forward-looking statements after this date to conform such statements to actual results or to reflect the occurrence of anticipated results.
Gemplus International SA
Financial statements
For the quarterly period ended March 31, 2005
Consolidated Statements of Income
(in
thousands
of euros,
except
shares and
per share
amounts)
Three months ended
March 31,
2005 2004
(unaudited)
Net sales 193,102 197,289
Cost of sales (131,210) (136,041)
Gross Profit 61,892 61,248
Research and development expenses (12,981) (16,105)
Selling and marketing expenses (25,707) (24,230)
General and administrative expenses (16,101) (15,662)
Restructuring expenses 438 188
Other operating income (expense), net (52) -
Goodwill amortisation and impairment - (1,903)
Operating income 7,489 3,536
Financial income (expense), net 1,795 1,333
Share of profit (loss) of associates (824) (2,767)
Other non-operating income (expense), 362 286
net
Income before taxes 8,822 2,388
Income tax expense (1,704) (1,475)
NET INCOME 7,118 913
Attributable to:
Equity holders of the Company 7,242 330
Minority interest (124) 583
Net income per share attributable
to equity holders of the Company (in euros)
Basic 0.01 0.00
Diluted 0.01 0.00
Shares used in net income per share
calculation:
Basic 607,039,538 606,009,196
Diluted 622,407,315 622,552,102
Due to the adoption of IAS 1 (revised 2003) Presentation of Financial
Statements, the Company
has modified its Consolidated Balance Sheet and its Consolidated
Statement of Income.
Please refer to Note 2.23 "Comparatives" of our 2004 Annual Report for
further details. Consolidated Balance Sheets
(in thousands of euros)
March 31, December
2005 31, 2004
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents 395,098 388,430
Trade accounts receivable, net 141,647 148,512
Inventory, net 108,297 115,610
Derivative financial instruments 8,701 33,387
Other current receivables 65,841 66,160
Total current assets 719,584 752,099
Non-current assets:
Property, plant and equipment, net 145,393 148,916
Goodwill, net 28,837 28,197
Deferred development costs, net 19,931 19,222
Other intangible assets, net 7,767 8,965
Deferred tax assets 6,424 6,264
Investments in associates 12,168 12,864
Available-for-sale financial assets, net 4,873 4,752
Other non-current receivables, net 46,356 43,900
Total non-current assets 271,749 273,080
TOTAL ASSETS 991,333 1,025,179
LIABILITIES
Current liabilities:
Accounts payable 79,029 94,025
Salaries, wages and related items 42,134 55,199
Current portion of provisions and other 52,077 50,217
liabilities
Current income tax liabilities 28,907 25,708
Current obligations under finance leases 5,970 6,005
Total current liabilities 208,117 231,154
Non-current liabilities:
Non-current obligations under finance 30,460 33,663
leases
Non-current portion of provisions 22,979 25,696
Other non-current liabilities 12,649 13,353
Total non-current liabilities 66,088 72,712
Shareholders' equity:
Ordinary shares 128,643 128,643
Additional paid-in capital 1,031,558 1,031,558
Employees stock options 5,019 -
Retained earnings (456,532) (459,560)
Other comprehensive income (570) 11,956
Less, cost of treasury shares (1,985) (1,985)
Equity attributable to equity holders of 706,133 710,612
the Company
Minority interest 10,995 10,701
Total shareholders' equity 717,128 721,313
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 991,333 1,025,179
Due to the adoption of IAS 1 (revised 2003)
Presentation of Financial Statements, the
Company
has modified its Consolidated Balance Sheet and its
Consolidated Statement of Income.
Please refer to Note 2.23 "Comparatives" of our 2004 Annual
Report for further details. Consolidated Statements of Cash Flows
(in thousands of euros)
Three months ended
March 31,
2005 2004
(unaudited)
Cash flows from operating activities:
Net income 7,118 913
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation, amortisation and 9,326 15,182
impairment
Changes in non-current portion of provisions (446) (571)
and other liabilities, excluding restructuring
Deferred income taxes (339) 419
(Gain) / loss on sale and disposal of 132 510
assets
Share of (profit) loss of associates 824 2,717
Other, net (937) (2,389)
Changes in operating assets and
liabilities:
Trade accounts receivable and related 14,084 14,128
current liabilities
Trade accounts payable and related (15,735) 5,560
current assets
Inventories 8,946 (10,129)
Value-added and income taxes 1,354 8,231
Salaries, wages and other (8,124) 1,069
Restricted cash - (21,952)
Restructuring reserve payable (3,611) (13,218)
Net cash (used for) from operating 12,592 470
activities
Cash flows from investing activities:
Sale / (Purchase) of activities net of
cash disposed / acquired
Other investments - (1,692)
Purchase of property, plant and (4,439) (3,963)
equipment
Purchase of other assets (197) (536)
Proceeds from sale of property - -
Change in non-trade accounts payable 846 (1,086)
and other
Net cash used for investing activities (3,790) (7,277)
Cash flows from financing activities:
Proceeds from exercise of share options - 1,287
Proceeds from sales-leaseback - 957
operations
Principal payments on obligations under (1,472) (1,458)
finance leases
Increase (decrease) in bank overdrafts (1,555) (98)
Changes in non-trade accounts payables 779 -
on financing activities
Net cash (used for) from financing (2,248) 688
activites
Effect of exchange rate changes on cash 114 6
Net increase (decrease) in cash and 6,554 (6,119)
cash equivalents
Cash and cash equivalents, beginning of 388,430 390,684
the period
Cash and cash equivalents, end of the 395,098 384,571
period1) Accounting principles:
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS).
2) Segment information
First Quarter 2005 compared with First Quarter 2004
2.1) Operating Segments
(in millions of euros)
March March
31, 31, % change
Net sales 2005 2004 % change currency
adjusted
Telecommunications 144.3 146.6 -2% -2%
Financial Services 37.9 40.4 -6% -3%
Identity and Security 10.9 10.3 6% 5%
Total 193.1 197.3 -2% -3%
(in millions of euros)
March (% of March (% of
31, net 31, net
Gross profit 2005 sales) 2004 sales) % change
Telecommunications 52.3 36.3% 49.7 33.9% 5%
Financial Services 5.8 15.3% 9.1 22.7% -36%
Identity and Security 3.8 34.6% 2.4 23.2% 58%
Total 61.9 32.1% 61.2 31.0% 1%
(in millions of euros)
March (% of March (% of
31, net 31, net
Operating expenses 2005 sales) 2004 sales) % change
Telecommunications (35.8) 24.8% (37.8) 25.8% -5%
Financial Services (10.4) 27.4% (11.9) 29.5% -13%
Identity and Security (8.2) 74.7% (8.0) 77.3% 2%
Total (54.4) 28.2% (57.7) 29.2% -6%
(in millions of euros)
March March
31, 31, Change
Operating income (loss) 2005 2004 in Operating
income (loss)
Telecommunications 16.5 11.9 4.6
Financial Services (4.6) (2.8) (1.8)
Identity and Security (4.4) (5.6) 1.2
Total 7.5 3.5 4.0
2.2) Geographical Segments
(in millions of euros)
March March
31, 31, % change
Net sales 2005 2004 % change currency
adjusted
Europe, Middle East and Africa 99.3 96.4 3% 1%
Asia 46.4 53.1 -13% -14%
Americas 47.4 47.8 -1% 3%
Total 193.1 197.3 -2% -3%[1] Net income attributable to equity holders of the Company.
[2] Free cash flow excluding non recurring items is defined as net cash flow from operating activities less the purchase of property, plant and equipment and other investments related to the operating cycle (excluding acquisitions and financial investments).
[3] Europe, Middle East and Africa
[4] Includes 1.7 million euros of goodwill amortisation and restructuring expenses in the first quarter 2004, and the expensing of stock options from the first quarter 2005.
[5] Adjusted for currency fluctuations, disposals & acquisitions
[6] EMV is a jointly defined set of specifications adopted by Europay, MasterCard and Visa for the migration of bank cards to smart card technology.
Contact:
Press Gemplus, Jane Strachey, Tel: +33(0)4-42-36-46-61, Mob:
+33(0)6-76-49-35-93, Email: jane.strachey@gemplus.com; Edelman,
Stephen Benzikie, Tel: +44(0)207-344-1325, Mob: +44(0)774-003-8929,
Email: stephen.benzikie@edelman.com; Investor Relations Gemplus,
Celine Berthier, Tel: +41(0)22-544-5054, Email:
celine.berthier@gemplus.com, Fineo, Tel: +33-(0)1-56-33-32-31, Email:
investors@gemplus.com