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.

@@start.t1@@      In millions of euros                                        Q1 2006 Q1 2005 Year-on-year
      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@@end@@

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

    Commenting on the performance for the first quarter 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.

@@start.t2@@      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%
      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@@end@@

    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.

@@start.t3@@      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@@end@@

    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.

@@start.t4@@      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@@end@@

    [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.


    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

    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.

    For more information:

@@start.t5@@      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:      Email:
      Frédéric Boullard                              Fineo
      Tel: +33-(0)1-56-69-73-95                 Tel: +33-(0)1-56-33-32-31
      Email:          Email:

    (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.

@@start.t6@@                                            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
      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
      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@@end@@

    Consolidated Balance Sheets

@@start.t7@@                                                                                  (in thousands of euros)
                                                                        Mars 31, 2006  December 31, 2005
      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
      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
      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
      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

    Consolidated Statements of Cash Flows

@@start.t8@@                                                                                      (in thousands of euros)
                                                                                              Three months ended
                                                                                                      March 31,
                                                                                                      2006        2005
      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
      Changes in non-current portion of                                      (2,612)      (446)
      provisions and other liabilities,
      excluding restructuring
      Deferred income taxes (benefit)                                            1,887      (339)
      (Gain) / loss on sale and disposal                                              -         132
      of assets
      Share of (profit) loss of                                                        (50)         824
      Share-based compensation                                                          914         805
      Other, net                                                                                 198      (937)
      Changes in operating assets and
      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
      Cash flows from investing
      (Purchase)/Sale of activites net                                          4,632            -
      of cash (acquired)/disposed
      Purchase of property, plant and                                         (8,597)  (4,439)
      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)
      Cash flows from financing
      Proceeds from exercise of stock                                            1,358            -
      Payments on borrowings                                                            (30)            -
      Principal payments on obligations                                      (1,529)  (1,472)
      under finance leases
      Increase (decrease) in bank                                                  (683)  (1,555)
      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)
      Effect of exchange rate changes on                                        (227)         114
      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@@end@@

    1) Accounting principles:

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

    2) Segment information

    First Quarter 2006 compared with First Quarter 2005

    2.1) Operating Segments

@@start.t9@@      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
      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%
      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@@end@@

ots Originaltext: Gemplus
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