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Gemplus

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        NM
Note: The consolidated financial statements of the Company have
been prepared in accordance with International Financial Reporting
Standards (IFRS).
Commenting on the performance for the first quarter 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 ppts
Wireless 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 ppts
Despite 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 ppts
Revenue 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
    period
1) Accounting principles:
The consolidated financial statements of the Company have been
prepared in accordance with International Financial Reporting
Standards (IFRS).
2) Segment information
First Quarter 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

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