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Gemplus

Gemplus Reports Earnings for the Third Quarter 2006

Luxembourg (ots/PRNewswire)

Third quarter 2006 highlights:
  • Gemalto combination ongoing: tender offer reopened after the successful first round.
  • Gemalto integration process well on-track.
  • Net sales down 11.5% mainly due to strong price pressure in wireless.
  • Gross margin at 26.7%, with lower margins in all business segments.
  • Operating loss at 2.7 million euros, including 4.3 million euros of combination related costs.
Gemplus International S.A. (Euronext: LU0121706294 - GEM and
NASDAQ: GEMP), a world leading provider of secure card solutions,
today reported results for the third quarter ended September 30,
2006.
    In millions of euros                  Q3 2006 Q3 2005   Year-on-year
                                                               change
    Net sales                              219.3   247.9       -11.5%
    Adjusted for currency fluctuations,                         -8.9%
    disposals and acquisitions
    Gross profit                           58.5    82.8        -29.4%
    Gross margin                           26.7%   33.4%      - 6.7 pts
    Operating expenses                     61.2    61.5         -0.5%
    Operating income (loss)                -2.7    21.3          NM
    Operating margin                       -1.2%   8.6%       -9.8 pts
    Attributable net income (loss)[1]      -8.0    20.9          NM
    Free cash flow[2]                      28.0    -20.1         NM
    Cash and cash equivalents              234.6   400.8       -41.5%
                           Per share data (in euros)
    Earnings per share (fully diluted)     -0.01   0.03          NM
The combination creating Gemalto, a world leader in digital
security, is progressing well: Gemalto owns 94.56% of the share
capital of Gemplus (and 94.68% of the voting rights) since the close
of the first round of the public exchange tender offer filed by
Gemalto for the securities issued by Gemplus. Following this success,
the exchange offer was reopened at the same exchange ratio. It
remains open to allow for an independent expert to assess the
evaluation methodology and price of the sell-out procedure[3].
Gemalto has also indicated its intention to reserve its right to
conduct a squeeze-out, either after the close of the reopened offer
or during the sell-out period which follows the close of the reopened
offer, assuming that more than 95% of the voting rights of Gemplus
are held by Gemalto.
Third quarter 2006 financial review
- Income statement
Third quarter 2006 highlights:
  • Net sales down 11.5% (-8.9% currency adjusted) mainly due to Telecom.
  • Gross margin at 26.7%, with lower margins in all business segments.
  • Operating loss at 2.7 million euros, including 4.3 million euros of combination related costs.
  • Attributable net loss at 8.0 million euros.
Revenue in all regions was strongly impacted by the overall weak
performance in Telecom. However, in Asia, strong growth in ID &
Security and Financial Services drove a 5.6% year-on-year adjusted[4]
revenue growth, even with some decrease in Telecom. In EMEA[5],
adjusted[4] net sales were  down 10.8% year-on-year, due to lower
sales in Financial Services and in  Telecom. In the Americas,
adjusted[4] net sales were down 13.3% year-on-year, notwithstanding
good growth in Financial Services.
Revenue by region
    In millions of euros           Q3 2006 Q3 2005 % change  Adjusted[4]
                                                            change (%)
    EMEA                            118.5   133.3   -11.1%    -10.8%
    Asia                            39.8    39.2    +1.4%      +5.6%
    Americas                        61.0    75.4    -19.1%    -13.3%
    Total                           219.3   247.9   -11.5%     -8.9%
As a result, Asia accounted for 18.1% of Group revenue compared
with 15.8% for the third quarter 2005, despite adverse currency
fluctuations. Conversely, the share of the Americas decreased to
27.8%, compared with 30.4%, a year ago.
Despite 3.6 million euros of combination related costs,
operating expenses were flat.
Operating loss was 2.7 million euros, due to lower sales and low
gross  margin, in spite of good control of operating expenses.
Each quarter, the Company reassesses the recognition of its
deferred tax assets, which led to an additional income tax charge of
3.2 million euros this quarter.
- Balance sheet and cash flow statement
Third quarter 2006 highlights:
- Free cash flow of 28.0 million euros.
The Group's cash position remains strong at 234.6 million euros,
up 26.3  million euros compared to June 30, 2006. Free cash flow of
28.0 million euros mainly reflects an improvement in working capital
requirement.
Compared to December 31, 2005, cash is down 183.8 million euros,
largely  due to a 164.4 million euros outflow related to the
distribution in June  2006 of reserves (share premium) to
shareholders.
Segment analysis
- Telecom
Third quarter 2006 highlights:
  • Continued strong demand in wireless: shipments up 32% year-on-year, to 116 million units, driven by emerging markets.
  • Wireless ASP down 35% year-on-year, currency adjusted, reflecting heavy price pressure.
    In millions of euros                      Q3     Q3       %   Adjusted[4]
                                             2006   2005    change     change
                                                                        (%)
    Wireless products & services net sales  128.6   154.0   -16.5%    -13.8%
    Wireless gross profit                   42.7    62.3    -31.4%
    Wireless gross margin                   33.2%   40.4%  -7.2 pts
    Prepaid phone cards & scratchcards net  11.4    13.5    -16.8%
    sales
    Prepaid phone cards & scratchcards       1.4     0.9    +53.0%
    gross profit
    Prepaid phone cards & scratchcards      12.3%   6.7%   +5.6 pts
    gross margin
    Telecom net sales                       139.9   167.5   -16.5%    -13.6%
    Telecom gross profit                    44.1    63.2    -30.2%
    Telecom gross margin                    31.5%   37.7%  -6.2 pts
    Telecom operating expenses              37.0    37.9     -2.4%
    As a % of sales                         26.4%   22.6%  +3.8 pts
    Telecom operating income                 7.1    25.3      NM
    Operating margin                        5.1%    15.1%  -10.0 pts
Wireless revenue:
  • Wireless products & services revenue[6] was down 16.5% year-on-year (down 13.8%, currency adjusted), to 128.6 million euros.
  • Wireless shipments grew 32% year-on-year, to 116 million units, largely driven by emerging countries. Volumes were below the Group expectations due to weaker demand in developed economies.
  • High-end card shipments (3G and above) grew 108%. They accounted for 13% of the third quarter total, compared to 8% a year ago, despite delays in migration to high-end products at several customers.
  • Wireless average selling price (ASP) was down 10% quarter-on-quarter and 35% year-on-year, both currency adjusted, due to heavy price pressure and delays in product mix improvement, as well as a shift in the regional mix.
The decline in Wireless gross margin mainly reflects strong
price pressure and delays in product mix improvement.
- Financial Services
Third quarter 2006 highlights:
- This quarter shows a pause in EMV[7] deliveries.
    In millions of euros             Q3 2006 Q3 2005 % change  Adjusted[4]
                                                                change (%)
    Net sales                         52.2    58.9    -11.3%     -9.6%
    Gross profit                       8.6    13.7    -37.2%
    Gross margin as a % of sales      16.5%   23.3%  -6.8 pts
    Operating expenses                12.7    13.1    -2.7%
    As a % of sales                   24.4%   22.2%  +2.2 pts
    Operating income (loss)           -4.1     0.6      NM
    Operating margin as a % of sales  -7.9%   1.1%   -9.0 pts
EMV deliveries show a pause despite accelerating rollouts in Latin
America and in Asia. In total, Gemplus shipped 20.8 million units of
payment microprocessor cards during the third quarter, down 6%
year-on-year, reflecting maturity of certain markets (UK, France,
Turkey) and delays in EMV rollout in Southern Europe and in some
emerging countries. However, shipments are up 24% year-to-date at
63.9 million units.
Payment microprocessor card revenue was down 17% year-on-year and
up 8% year-to-date. Revenue for the third quarter reflects price
pressure in mature markets and a greater share of modules in emerging
countries.
Gross margin was down 6.8 percentage points mainly due to lower
volumes and an unfavourable regional mix in smart payment.
- Identity and Security
Third quarter 2006 highlights:
- Strong growth led by deployment of e-passports.
    In millions of euros             Q3 2006 Q3 2005 % change  Adjusted[4]
                                                               change (%)
    Net sales                         27.2    21.5    +26.4%    +29.0%
    Gross profit                       5.8     5.9    -1.9%
    Gross margin as a % of sales      21.3%   27.4%  -6.1 pts
    Operating expenses                11.4    10.5    +8.5%
    As a % of sales                   41.9%   48.8%  -6.9 pts
    Operating income (loss)           -5.6    -4.6      NM
    Operating margin as a % of sales -20.6%  -21.3%  +0.7 pt
Growth was driven by Government ID projects, notably the ongoing
deployment of e-passports, including the first deliveries in Poland.
However, revenue does not meet the Group expectations due to
Government ID and Corporate Security projects which did not
materialize as quickly as expected.
Gross margin was down 6.1 percentage points reflecting
industrialization ramp-up and some start-up quality issues.
Year-to-date 2006 financial review (9-months period)
  • Net sales up 2.9%, driven by strong growth in ID and Security.
  • Gross margin at 29.8% reflecting strong price pressure in wireless.
  • Operating margin at 3.1%.
    In millions of euros           YTD 2006 YTD 2005 % change  Adjusted[4]
                                                               change (%)
    Net sales                       696.9    677.2    +2.9%      -2.2%
    Of which Telecom                450.5    474.9    -5.2%      -6.4%
    Of which Financial Services     163.7    147.1    +11.3%     +4.5%
    Of which ID & Security           82.8     55.2    +50.0%    +16.0%
    Gross profit                    207.7    224.7    -7.6%       NA
    Gross margin                    29.8%    33.2%   -3.4 pts     NA
    Operating expenses              186.2    173.5    +7.3%       NA
    As a % of sales                 26.7%    25.6%   +1.1 pt      NA
    Operating income                 21.5     51.1    -58.0%
    Operating margin                 3.1%     7.6%   -4.5 pts     NA
    Attributable net income          13.4     49.9    -73.1%
Sales in the first nine months 2006 was down 2.2% adjusted[4], due
to Telecom, despite strong growth in ID and Security and sustained
demand in Financial Services.
On a geographical basis, ID and Security and Financial Services
drove a 4.6% adjusted[4] revenue growth in the Americas. Adjusted[4]
revenue was down 4.3% in Asia, and 5.2% in EMEA, due to Telecom.
Gross margin decrease was due to strong price pressure in
wireless, a shift in the business mix, and Setec purchase accounting,
in spite of the reversal of a provision for a patent claim for a
total amount of 9 million euros.
Operating expenses were stable excluding the 3.6 million euros
combination related costs booked this year, the reversal of a 5.2
million  euros litigation provision booked last year, and the impact
of the Setec  acquisition.
Due to the lower gross margin and notwithstanding good control of
operating expenses, operating margin was 3.1%.
Creation of Gemalto
On June 2, 2006, Axalto and Gemplus announced a major step of
their combination project to create Gemalto. The contribution in
kind, by Texas Pacific Group and the Quandt family entities, of their
interests in Gemplus International S.A. (in aggregate 43.6% of
Gemplus share capital) to Axalto Holding N.V. was completed on the
basis of 2 Axalto shares for every 25 Gemplus shares. On the same
day, Axalto Holding N.V., renamed Gemalto N.V., filed a public
exchange tender offer for the remaining shares and warrants issued by
Gemplus. Prior to the contribution in kind, Gemplus had initiated the
distribution of reserves (share premium) of EUR0.26 per share to all
of its shareholders on record upon market close of the same day.
On July 6, 2006, the offering document filed by Gemalto received
the visa No. 06-252 from the "Autorité des Marchés Financiers" (AMF)
in Paris, the French stock market authority.
Gemalto owns 94.56% of the share capital and 94.68% of the voting
rights of Gemplus since the close of the first round of the public
exchange tender offer initiated by Gemalto for the shares and
warrants issued by Gemplus.
The exchange offer was reopened on September 12, 2006, at the same
exchange ratio of 2 Gemalto shares for every 25 Gemplus shares. It
remains open to allow for an independent expert to assess the
evaluation methodology and price of the sell-out procedure. Such
sell-out price will be communicated to the market immediately after
completion of the independent expert's assessment.
Gemalto has also indicated its intention to reserve its right to
conduct a squeeze-out, either after the close of the reopened offer
or during the sell-out period which follows the close of the reopened
offer, assuming that Gemalto holds more than 95% of the voting rights
of Gemplus.
More information is available at: www.gemalto.com.
This communication does not constitute an offer to purchase or
exchange or the solicitation of an offer to sell or exchange any
securities of Gemalto or an offer to sell or exchange or the
solicitation of an offer to buy or exchange any securities of
Gemplus.
The exchange offer described above will not be made, directly or
indirectly, in or into the United Kingdom, Italy, Netherlands,
Canada, Australia, or Japan or in or into any other jurisdiction in
which such offer, solicitation, sale or exchange would be unlawful
prior to the registration or qualification under the laws of such
jurisdiction. Accordingly, persons who come into possession of this
communication should inform themselves of and observe these
restrictions.
You are strongly advised to read the offering circular relating to
the exchange offer and related exchange offer materials regarding the
transaction, as well as any amendments and supplements to those
documents because they will contain important information. The
prospectus/offer to exchange and the other documents are available
are available from the Internet websites of the AMF
(www.amf-france.org), of Gemalto N.V. (www.gemalto.com) and of
Gemplus International S.A. (www.gemplus.com). You can obtain a free
paper copy of the prospectus/offer to exchange and other related
documents filed by Gemalto (ex-Axalto) upon request to the following:
  • Gemalto N.V.: Koningsgracht Gebouw 1, Joop Geesinkweg 541-542, 1096 AX Amsterdam, the Netherlands.
  • Axalto International S.A.S: 6 rue de la Verrerie, 92190, Meudon, France.
  • Deutsche Bank: 3 avenue de Friedland, 75008, Paris, France.
  • Gemplus International S.A.: 46A, avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg.
US investors can obtain a copy of the US prospectus/offer to
exchange and related offer materials from Mellon Investors Services
LLC by telephoning to: +1-866-768-4951 (Call Toll Free) or:
+1-201-680-6590 (Call Collect).
Notice to US investors
Any solicitation of offers to buy any Gemplus shares in the United
States in the exchange offer will only be made pursuant to a
prospectus/offer to exchange and related offer materials that Gemalto
will make available to holders of Gemplus securities. Investors and
security holders are strongly advised to read the prospectus/offer to
exchange and related exchange offer materials, as well as any
amendments and supplements to those documents because they will
contain important information.
The Gemalto securities referred to herein that will be issued in
connection with the exchange offer have not been, and are not
intended to be, registered under the U.S. Securities Act of 1933 (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 are intended to 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 will relate to the securities of a non-U.S.
company and will be subject to disclosure requirements of a foreign
country that are different from those of the United States. Financial
statements included in the prospectus/offer to exchange will be
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 you to enforce your rights and any claim
you may have arising under U.S. federal securities laws, since
Gemalto and Gemplus have their corporate headquarters outside of the
United States, and some or all of their officers and directors may be
residents of foreign countries. You 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.
Earnings calendar
Fourth quarter 2006 revenues are scheduled to be reported on
February 1st, 2007, before the opening of Euronext Paris.
The schedule for the announcement of fourth quarter 2006
results will be communicated on February 1st, 2007.
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, Frost
& Sullivan, Datamonitor).
Gemplus delivers a wide range of portable, personalized solutions
in areas including Identity, Mobile Telecommunications, Public
Telephony, Banking, Retail, Transport, Healthcare, WiFi, Pay-TV,
e-government, and access control.
Gemplus's revenue in 2005 was 939 million euros.
In June 2006, Gemplus and Axalto initiated their combination to
form Gemalto, a leader in digital security. Gemalto owns 94.56% of
the share capital of Gemplus (and 94.68% of the voting rights) since
close of the first round of the public exchange tender offer filed by
Gemalto for the securities issued by Gemplus.
www.gemplus.com www.gemalto.com
For more information:
Press Gemplus                  Investor Relations
    Remi Calvet                    Gemplus
    Tel: +33-6-22-72-81-58         Céline Berthier
    Email: remi.calvet@gemplus.com Tel: +41-(0)-22-544-5054
                                   Email: celine.berthier@gemplus.com
                                   Fineo
                                   Tel: +33-(0)-1-56-33-32-31
                                   Email: gemplus@fineo.com
(c)2006 Gemplus. All rights reserved. Gemplus, the Gemplus logo,
are trademarks and service marks of Gemplus S.A. and are registered
in certain countries. All other trademarks and service marks, whether
registered or not in specific countries, are the property of their
respective owners.
Some of the statements contained in this release constitute
forward-looking statements. These statements relate to future events
or our future financial performance and involve known and unknown
risks, uncertainties, and other factors that may cause our or our
industry's actual results, levels of activity, performance or
achievements to be materially different from any future results,
levels of activities, performance, or achievements expressed or
implied by such forward-looking statements. Actual events or results
may differ materially. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot
guarantee future results, levels of activity, performance or
achievements. Factors that could cause actual results to differ
materially from those estimated by the forward-looking statements
contained in this release include, but are not limited to: trends in
wireless communication and mobile commerce sectors; our ability to
develop new technology, and the effects of competing technologies
developed and expected intense competition generally in our main
segments; profitability of our expansion strategy; challenges to or
loss of our intellectual property rights; our ability to establish
and maintain strategic relationships in our major businesses; our
ability to develop and take advantage of new software and services;
changes in our operations and the market for our products arising
from our business combination with Gemalto N.V.; 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.
References:
[1] Net income (loss) attributable to equity holders
[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 (excluding
acquisitions and financial investments).
[3] Right of then remaining Gemplus shareholders to sell their
Gemplus shares to Gemalto for three months after the end of the
current re-opended exchange offer period.
[4] After adjusting for currency fluctuations, acquisitions and
disposals.
[5] Europe, Middle East, Africa
[6] 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).
[7] EMV is a jointly defined set of specifications adopted by
Europay, MasterCard and Visa for the migration of bank cards to smart
card technology.
                            Gemplus International SA
                    Press Release - Financial statements
                For the quarterly period ended September 30, 2006
    Consolidated Statements of Income
                            (in thousands of euros, except shares and per
                                            share amounts)
                              Three months ended           Nine months ended
                                  September 30,                September 30,
                               2006            2005        2006          2005
                                   (unaudited)                 (unaudited)
    Net sales               219,321         247,912      696,919      677,172
    Cost of sales         (160,853)       (165,153)    (489,219)    (452,492)
    Gross Profit             58,468          82,759      207,700      224,680
    Research and           (16,440)        (14,984)     (48,584)     (44,387)
    development
    expenses
    Selling and            (27,756)        (30,455)     (90,048)     (84,377)
    marketing
    expenses*
    General and            (17,119)        (16,943)     (49,505)     (45,860)
    administrative
    expenses*
    Restructuring                 3             606          474         1522
    expenses
    Other                       123             279         1450        (439)
    operating
    income
    (expense), net
    Goodwill                      -               -            -            -
    amortization
    and impairment
    Operating               (2,721)          21,262       21,487       51,139
    income
    Financial                 1,057           1,894        5,608        5,370
    income
    (expense), net
    Share of                    425           (360)          488       (1193)
    profit (loss)
    of associates
    Other                   (1,280)            (27)      (1,427)           71
    non-operating
    income
    (expense), net
    Income before           (2,519)          22,769       26,156       55,387
    taxes
    Income tax              (5,240)         (1,457)     (11,978)      (4,403)
    expense
    NET INCOME              (7,759)          21,312       14,178       50,984
    Attributable
    to:
    Equity holders          (7,970)          20,873       13,375       49,876
    of the Company
    Minority                    211             439          803         1108
    interest
    Net income per share
    attributable to equity
    holders of the Company (in
    euros)
    Basic                    (0.01)            0.03         0.03         0.08
    Diluted                  (0.01)            0.03         0.03         0.08
    Shares used in
    net income per
    share
    calculation:
    Basic               632,708,693     627,085,562  631,391,381  615,046,595
    Diluted             632,708,693     645,019,286  647,447,922  630,519,467
    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 2005 Annual Report for
    further details.
    * Provisions for bad debt have been reclassified from general &
    administrative expenses to selling & marketing expenses as of
    January 1, 2006
    The 2005 operating expenses displayed in the table above have been
    restated in order to be fully comparable to those of 2006.
    This restatement does not change the operating income
Consolidated Balance Sheets
                                                      (in thousands of euros)
                                                      September   December 31,
                                                       30, 2006       2005
                                                      (unaudited)
    ASSETS
    Current assets:
    Cash and cash equivalents                             234,572     418,365
    Trade accounts receivable, net                        179,946     183,022
    Inventory, net                                        126,985     107,673
    Derivative financial instruments                        4,202       4,187
    Other current receivables                              47,587      82,128
    Total current assets                                  593,292     795,375
    Non-current assets:
    Property, plant and equipment, net                    165,843     158,284
    Goodwill, net                                          92,079      90,826
    Deferred development costs, net                        21,419      21,227
    Other intangible assets, net                           16,178      23,600
    Deferred income tax assets                             22,578      32,788
    Investments in associates                              14,008      16,309
    Available-for-sale financial assets, net                2,273       2,469
    Other non-current receivables, net                     45,196      40,846
    Total non-current assets                              379,574     386,349
    TOTAL ASSETS                                          972,866   1,181,724
    LIABILITIES
    Current liabilities:
    Accounts payable                                      110,433     106,085
    Derivative financial instruments                            -       2,592
    Salaries, wages and related items                      46,635      62,641
    Current portion of provisions and other                44,713      73,434
    liabilities
    Current income tax liabilities                          3,544       5,228
    Other current tax liabilities                          19,968      20,821
    Current obligations under finance leases                5,416       5,539
    Total current liabilities                             230,709     276,340
    Non-current liabilities:
    Non-current obligations under finance leases           22,333      26,425
    Non-current portion of provisions                      15,859      23,482
    Other non-current liabilities                          12,133      13,417
    Deferred income tax liabilities                         1,986       4,354
    Total non-current liabilities                          52,311      67,678
    Shareholders' equity:
    Ordinary shares                                       134,181     133,466
    Additional paid-in capital                            904,185   1,063,145
    Retained earnings                                   (349,816)   (365,940)
    Other comprehensive income                            (9,796)     (4,407)
    Less, cost of treasury shares                         (1,395)     (1,395)
    Equity attributable to equity holders of the          677,359     824,869
    Company
    Minority interest                                      12,487      12,837
    Total shareholders' equity                            689,846     837,706
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY            972,866   1,181,724
    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 2005 Annual Report for
    further details.
Consolidated Statements of Cash Flows
                                                      (in thousands of euros)
                                                           Nine months ended
                                                              September 30,
                                                              2006       2005
                                                             (unaudited)
    Cash flows from operating activities:
    Net income                                              14,178     50,984
    Adjustments to reconcile net income to net cash
    from operating activities:
    Depreciation, amortization and impairment               31,514     30,035
    Changes in non-current portion of provisions and       (7,499)      (292)
    other liabilities, excluding restructuring
    Deferred income taxes                                    6,947    (1,559)
    (Gain) / loss on sale and disposal of assets                 -    (3,648)
    Share of (profit) loss of associates                     (195)       ,877
    Share-based compensation                                 2,750      2,498
    Other, net                                               (220)    (4,516)
    Changes in operating assets and liabilities:
    Trade accounts receivable and related current          (2,413)    (2,626)
    liabilities
    Trade accounts payable and related current assets      (2,282)      8,619
    Inventories                                           (21,177)      9,390
    Value-added and income taxes                             (845)        145
    Salaries, wages and other                              (9,968)    (9,335)
    Restricted cash                                          5,775     23,277
    Restructuring reserve payable                          (2,606)   (12,206)
    Litigation expense payable
    Management severance expense
    Provision for a loan to a former director and
    executive
    Net cash (used for) from operating activities           13,959     91,643
    Cash flows from investing activities:
    Sale / (Purchase) of activities net of cash              4,632   (63,401)
    disposed / acquired
    Other investments                                      (2,570)    (1,463)
    Purchase of property, plant and equipment             (34,068)   (17,754)
    Purchase of other assets                               (1,257)    (1,125)
    Proceeds from sale of non-current assets                     -      4,803
    Change in non-trade accounts payable and other           1,238      3,299
    Net cash used for investing activities                (32,025)   (75,641)
    Cash flows from financing activities:
    Proceeds from exercise of share options                  6,152      1,817
    Payments on long-term borrowings                          (90)      (176)
    Proceeds from sales-leaseback operations                     -
    Principal payments on obligations under finance        (4,215)    (4,441)
    leases
    Increase (decrease) in bank overdrafts                   (979)      (551)
    Dividends paid by subsidiaries to minority             (1,881)    (1,307)
    shareholders
    Changes in non-trade accounts payables on                  286        347
    financing activities
    Change in treasury shares                                    -
    Interests receivable on loans to senior management           -
    Cash paid to Shareholders                            (164,396)
    Net cash (used for) from financing activites         (165,123)    (4,311)
    Effect of exchange rate changes on cash                  (604)        705
    Net increase (decrease) in cash and cash             (183,189)     11,691
    equivalents
    Cash and cash equivalents, beginning of the period     418,365    388,430
    Cash and cash equivalents, end of the period           234,572    400,826
1) Accounting principles:
The consolidated financial statements of the Company have been
prepared in accordance with International Financial Reporting
Standards (IFRS).
2) Segment information
2.1) Third Quarter 2006 compared with Third Quarter 2005
2.1.1) Operating Segments
    Three months ended                   (in millions of euros)
    Net sales                 September 30,  September     %    Adjusted
                                  2006       30, 2005   change    change
                                                                  (%) (*)
    Telecommunications           139.9          167.5    -16%      -14%
    Financial Services            52.2           58.9    -11%      -10%
    Identity and Security         27.2           21.5     26%       29%
    Total                        219.3          247.9    -12%       -9%
                                         (in millions of euros)
    Gross profit             September  (% of net  September  (% of  % change
                              30, 2006     sales)   30, 2005    net
                                                             sales)
    Telecommunications            44.1    32%           63.2    38%      -30%
    Financial Services             8.6    16%           13.7    23%      -37%
    Identity and Security          5.8    21%            5.9    27%       -2%
    Total                         58.5    27%           82.8    33%      -29%
                                         (in millions of euros)
    Operating expenses       September  (% of net  September  (% of  % change
                              30, 2006     sales)   30, 2005    net
                                                              sales)
    Telecommunications          (37.0)    26%         (37.9)    23%       -2%
    Financial Services          (12.7)    24%         (13.1)    22%       -3%
    Identity and Security       (11.4)    42%         (10.5)    49%        8%
    Total                       (61.2)    28%         (61.5)    25%        0%
                                         (in millions of euros)
    Operating income (loss)     September 30,       September 30,   Change in
                                  2006                  2005        Operating
                                                                       income
                                                                       (loss)
    Telecommunications             7.1                  25.3           (18.2)
    Financial Services           (4.1)                   0.6            (4.7)
    Identity and Security        (5.6)                 (4.6)            (1.0)
    Total                         -2.7                  21.3            -23.9
    (*) Adjusted for currency fluctuations, disposals & acquisitions
2.1.2) Geographical Segments
    Three months ended                   (in millions of euros)
    Net sales                September 30, 2006  September % change Adjusted
                                                  30, 2005            change
                                                                     (%) (*)
    Europe, Middle East and     118.5                133.3     -11%     -11%
    Africa
    Asia                         39.8                 39.2       1%       6%
    Americas                     61.0                 75.4     -19%     -13%
    Total                       219.3                247.9     -12%      -9%
2.2) Nine months 2006 compared with nine months 2005
2.2.1) Operating Segments
    9 months ended                        (in millions of euros)
    Net sales                   September 30,     September     %   Adjusted
                                  2006            30, 2005   change   change
                                                                      (%) (*)
    Telecommunications           450.5               474.9    -5%       -6%
    Financial Services           163.7               147.1    11%        5%
    Identity and Security         82.8                55.2    50%       16%
    Total                        696.9               677.2     3%       -2%
                                          (in millions of euros)
    Gross profit             September  (% of net  September  (% of  % change
                              30, 2006     sales)   30, 2005    net
                                                             sales)
    Telecommunications           155.1    34%          176.9    37%      -12%
    Financial Services            31.1    19%           29.7    20%        5%
    Identity and Security         21.5    26%           18.1    33%       19%
    Total                        207.7    30%          224.7    33%       -8%
                                          (in millions of euros)
    Operating expenses       September  (% of net  September  (% of  % change
                              30, 2006     sales)   30, 2005    net
                                                             sales)
    Telecommunications         (113.9)    25%        (114.1)    24%        0%
    Financial Services          (36.4)    22%         (30.7)    21%       19%
    Identity and Security       (35.8)    43%         (28.7)    52%       25%
    Total                      (186.2)    27%        (173.5)    26%        7%
                                          (in millions of euros)
    Operating income (loss)    September 30,      September 30,    Change in
                                  2006                2005         Operating
                                                                      income
                                                                      (loss)
    Telecommunications            41.2                62.8           (21.6)
    Financial Services           (5.3)               (1.1)            (4.2)
    Identity and Security       (14.3)              (10.6)            (3.7)
    Total                         21.5                51.1            -29.5
    (*) Adjusted for currency fluctuations, disposals & acquisitions
2.2.2) Geographical Segments
    9 months ended                        (in millions of euros)
    Net sales                September 30,    September  % change   Adjusted
                                2006           30, 2005              change
                                                                     (%) (*)
    Europe, Middle East and     363.2             353.6       3%      -5%
    Africa
    Asia                        124.0             127.2      -2%      -4%
    Americas                    209.7             196.4       7%       5%
    Total                       696.9             677.2       3%      -2%

Contact:

Press Gemplus: Remi Calvet, Tel: +33-6-22-72-81-58, Email:
remi.calvet@gemplus.com

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