AMSTERDAM, Aug 28, 2014 - (ACN Newswire) - Gemalto (Euronext NL0000400653 - GTO), the world leader in digital security today announces its results for the first semester 2014.
-- First semester revenue of EUR 1.13 billion and profit from ongoing operations at EUR 120 million
-- Platforms & Services revenue up +10% and Embedded software & Products up +5%
-- Strong performance in Mobile Financial Services (+24%) and EMV payment cards (+22%) was dampened by lower revenue from eGovernment documents and Netsize
-- Excluding the recently announced acquisition of SafeNet, Gemalto anticipates a double-digit expansion in its profit from operations in 2014 and an acceleration of its year-on-year revenue growth at constant exchange rates in the second semester, and with SafeNet, Gemalto expects its 2017 profit from operations objective of EUR 600 million to increase by around +10%.
Key figures of the adjusted income statement
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Ongoing operations[1]
(EUR in millions) Year-on-year variations
First semester First semester at historical at constant
2014 2013 exchange rates exchange rates
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Revenue 1,133 1,129 +0% +5%
Gross profit 418 428 (2%)
Operating expenses (298) (297) +0%
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Profit from operations 120 131 (8%)
Profit margin 10.6% 11.6% (1.0 ppt)
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Olivier Piou, Chief Executive Officer, commented: "The first semester was particularly busy in preparation for a year with pronounced seasonality. We extended our commercial momentum as revenue growth accelerated in the Mobile segment and new contracts were signed in the Payment & Identity segment that will generate significant revenue going forward. The ramp-up of EMV, the acceleration in the Government sector - fueled by the contracts we recently won, the launch of the previously delayed mobile contactless services and our expansion in the Identity & Access Management business all support our expectation for an accelerated revenue growth in the second part of the year. With strong operating leverage in place, we confirm our objective of double-digit increase in profit from operations for the full year 2014."
Basis of preparation of financial information
In this press release, the information for the first semester of both 2014 and 2013 is presented for "ongoing operations" and under the 2014 format of segment reporting unless otherwise specified
Adjusted income statement and profit from operation (PFO) non-GAAP measure
The interim condensed consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS).
To better assess its past and future performance, the Company also prepares an adjusted income statement where the key metric used to evaluate the business and take operating decisions over the period 2010 to 2017 is the profit from operations.
Profit from operations (PFO) is a non-GAAP measure defined as the IFRS operating result adjusted for the amortization and depreciation of intangibles resulting from acquisitions, for share-based compensation charges, and for restructuring and acquisition-related expenses. These items are further explained as follows:
-- Amortization and depreciation of intangibles resulting from acquisitions are defined as the amortization and depreciation expenses related to the intangibles recognized as part of the allocation of the excess purchase consideration over the share of net assets acquired.
-- Share-based compensation charges are defined as (i) the discount granted to employees acquiring Gemalto shares under Gemalto Employee Stock Purchase plans; and (ii) the amortization of the fair value of stock options and restricted share units granted by the Board of Directors to employees, and other related costs.
-- Restructuring and acquisitions-related expenses are defined as (i) restructuring expenses which are the costs incurred in connection with a restructuring as defined in accordance with the provisions of IAS 37 (e.g. sale or termination of a business, closure of a plant,.), and consequent costs; (ii) reorganization expenses defined as the costs incurred in connection with headcount reductions, consolidation of manufacturing and offices sites, as well as the rationalization and harmonization of the product and service portfolio, and the integration of IT systems, consequent to a business combination; and (iii) transaction costs (such as fees paid as part of the acquisition process).
These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable IFRS measures and should be read only in conjunction with our interim condensed consolidated financial statements prepared in accordance with IFRS.
In the adjusted income statement, Operating Expenses are defined as the sum of Research and Engineering, Sales and Marketing, General and Administrative expenses, and Other income (expense) net.
EBITDA is defined as PFO plus depreciation and amortization expenses, excluding the above amortization and depreciation of intangibles resulting from acquisitions.
The Appendix 2 bridges the adjusted income statement to the IFRS income statement.
Ongoing operations
For a better understanding of the current and future year-on-year evolution of the business, the Company provides revenue from "ongoing operations" for both the 2014 and 2013 reporting periods.
The adjusted income statement for ongoing operations excludes, as per the IFRS income statement, the contribution from discontinued operations, and also the contribution from assets classified as held for sale and from other items not related to ongoing operations.
In this publication reported figures for ongoing operations only differ from figures for all operations by the contribution from assets held for sale for the year 2013. There is no difference for the year 2014.
Appendix 1 bridges the adjusted income statement for ongoing operations to the adjusted income statement for all operations.
Segment information
From January 1, 2014, segment information is modified to report on progress towards the objectives set as part of the Company's new development plan covering the years 2014 to 2017, publicly announced on September 5, 2013.
The Mobile segment reports on businesses associated with mobile cellular technologies. The former Mobile Communication and Machine-to-Machine segments are part of Mobile. The security evaluation business for third parties, whose contribution to Mobile Communication was minor, is now managed together with the Patents business and is as of 2014 reported in the Patents & Others segment.
The Payment & Identity segment reports on businesses associated with secure personal interactions. The former Secure Transactions and Security segments are part of Payment & Identity.
In addition to this segment information, the Company also reports as of 2014 revenue of Mobile and Payment & Identity by type of activity: Embedded software & Products (E&P) and Platforms & Services (P&S).
Appendix 6 presents revenue information in 2014 and 2013 formats.
Historical exchange rates and constant currency figures
Revenue variations are at constant exchange rates, except where otherwise noted.
All other figures in this press release are at historical exchange rates, except where otherwise noted.
The Company sells its products and services in a very large number of countries and is commonly remunerated in other currencies than the Euro. Fluctuations in these other currencies exchange rates against the Euro have in particular a translation impact on the reported Euro value of the Company revenues. Comparisons at constant exchange rates aim at eliminating the effect of currencies translation movements on the analysis of the Group revenue by translating prior-year revenues at the same average exchange rate as applied in the current year.
IFRS results
The interim condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. To better assess its past and future performance, the Company also prepares an adjusted income statement. Appendix 2 provides the reconciliation between IFRS and adjusted income statements.
Restructuring and acquisition-related expenses grew to EUR 21 million (EUR 1 million in the first semester of 2013) due mainly to the re-balancing of certain industrial and engineering capabilities across worldwide sites to optimize future productivity. The equity-based compensation charge accounted for EUR 27 million (EUR 13 million in the first semester of 2013) as the Company introduced a new long-term incentive plan aligned with its 2014-2017 multi-year development plan objectives and is conditional on overall cumulative progress over the plan period. Amortization and depreciation of intangibles resulting from acquisitions amounted to EUR 11 million (EUR 13 million in the same period of 2013).
As a result of these additional expenses, Gemalto recorded an IFRS operating profit (EBIT) of EUR 61 million for the first semester of 2014 (EUR 104 million in the first semester of 2013).The IFRS net profit decreased to EUR 46 million for the first semester 2014 from EUR 81 million in 2013.
IFRS basic earnings per share and diluted earnings per share reduced to EUR 0.53 and EUR 0.52 respectively for the reported period compared EUR 0.96 and EUR 0.94 in the first semester of 2013.
Adjusted financial information for all operations
In this section, the financial information is presented for all operations. In comparison to the adjusted income statement for ongoing operations, the adjusted income statement for all operations also includes the contribution from assets held for sale.
For 2013, assets held for sale were minor non-strategic assets that were disposed during 2013 and there are no assets classified as held for sale for 2014.
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First semester 2014 First semester 2013
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A B C D E F
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Revenue 1,133.1 1,134.0 (0%)
Gross profit 418.3 36.9% 427.0 37.7% (0.7 ppt)
Operating expenses (298.1) (26.3%) (296.9) (26.2%) (0.1 ppt)
EBITDA 165.7 14.6% 172.4 15.2% (0.6 ppt)
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Profit from operations 120.3 10.6% 130.1 11.5% (0.9 ppt)
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Net profit 95.4 8.4% 105.0 9.3% (0.8 ppt)
Basic Earnings per share (EUR)
1.11 1.24 (11%)
Diluted Earnings per share (EUR)
1.08 1.21 (11%)
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A. Extract of the adjusted income statement for all operations
B. EUR in millions
C. As a % of revenue
D. EUR in millions
E. As a % of revenue
F. Year-on-year variation at historical exchange rates
Revenue for all operations for the first semester was EUR 1,133 million, up by +5% at constant exchange rates and stable at historical rates, with growth coming from both main segments. Most of the unfavorable foreign currency translation impact of 5 percentage points came from the lower US Dollar and Chinese Renminbi versus the Euro compared to the same period in 2013. There were notable areas of strong performance in each of the segments and activities. The payment cards business within Payment & Identity continued to develop well over the semester with revenue growth of +22% and double-digit growth in every region as EMV deployments continue worldwide. The Mobile segment grew by +4% year-on-year in the second quarter, accelerating on the stable performance of the first quarter. In the Government business, lower documents sales due to challenging regional circumstances, in the Middle East in particular, reduced the overall expansion of the Payment & Identity segment, which however grew by +10% in the first semester. Commercial activity was high, with significant new contracts won, and Gemalto's market share was unchanged. Platforms & Services revenue expanded across the Company by +10%, generating 40% of total Company revenue growth, to reach EUR 219 million for the semester with a particularly good performance in the mobile payment and government sectors, partially offset by reduced revenue in Netsize.
Gross profit was lower by EUR 9 million to EUR 418 million, representing a gross margin of 37%. The increase in gross margin in Payment & Identity did not fully offset the lower contribution from the Mobile and the Patents & Others segments. The delays reported in the first quarter in the Mobile segment's high-end projects and additional amortization expense in the Machine-to-Machine business weighed on the gross margin, resulting in a seasonally lower contribution.
Operating expenses for all operations, at EUR 298 million, were essentially unchanged year-on-year, with carefully evaluated operational investments balancing the positive impact of the currency translation effect.
As a result, first semester 2014 profit from operations for all operations was EUR 120 million, i.e. 10.6% of revenue. This represents a reduction of (0.9) percentage points compared to the same period of 2013. This result was driven by the aforementioned decrease in the contribution from ongoing operations in the Mobile and the Patents & Others segments as well as by the negative impact from net exposure to various unhedged currency variations.
Gemalto's financial income for all operations was (EUR 3.9) million compared to (EUR 3.1) million for the first semester of 2013 with a negligible net interest income and foreign exchange transactions and other financial items of (EUR 3.8) million.
Including a share of profit in associate of EUR 0.6 million, adjusted profit before income tax for all operations came in at EUR 117 million compared to EUR 125 million the previous year.
Adjusted income tax expense was (EUR 22) million, with an estimated IFRS annual income tax rate of 21% for the year.
Consequently, the adjusted net profit for all the operations of the Company was EUR 95 million, a 9% reduction when compared to last year's figure of EUR 105 million.
Adjusted basic earnings per share for all operations came in at EUR 1.11, and adjusted diluted earnings per share for all operations at EUR 1.08, compared to the first semester 2013 adjusted basic earnings per share for all operations of EUR 1.24 and adjusted diluted earnings per share for all operations of EUR 1.21.
Statement of financial position and cash position variation schedule
In the first semester of 2014, operating activities generated a cash flow of EUR 128 million before changes in working capital, essentially stable year-on-year compared to the EUR 127 million generated in the same period last year. Changes in working capital reduced cash flow by EUR 75 million compared to EUR 83 million in the first semester of 2013. Trade and other receivables increased year-on-year while unbilled customers and trade and other payables reduced.
Capital expenditure and acquisition of intangibles amounted to EUR 50 million, or 4.4% of revenue. Property, Plant, and Equipment assets accounted for EUR 30 million of investment, slightly lower than the EUR 35 million recorded in first semester of 2013. Capitalization of development expenses represented 1.5% as a percentage of revenue and total expenditure incurred for intangible assets came in at 1.8% of revenue, both at similar levels compared to 2013.
Acquisitions, net of cash acquired, used EUR 43 million in cash. This includes the acquisitions made in preparation for the migration to EMV payment cards in the United States that is expected to ramp up in the second part of 2014.
Gemalto's share buy-back program used EUR 14 million in cash in the first semester of 2014, for the purchase of 136,780 shares, net of the liquidity program. As at June 30, 2014, the Company held 1,522,549 shares, or 1.73% of its own shares in treasury. The total number of Gemalto shares issued was unchanged, at 88,015,844 shares. Net of the 1,522,549 shares held in treasury, 86,493,295 shares were outstanding as at June 30, 2014. The average acquisition price of the shares repurchased on the market by the Company as part of its buy-back program and held in treasury as at June 30, 2014 was EUR 52.01.
On May 24, 2014, Gemalto paid a cash dividend of EUR 0.38 per share in respect of the fiscal year 2013, up 12% on the dividend paid in 2013 (EUR 0.34 per share). This distribution used EUR 33 million in cash. Other financing activities generated EUR 6 million in cash, including EUR 7 million of proceeds received by the Company from the exercise of stock options by employees and (EUR 1) million used for repayment of borrowings.
As a result of these elements, cash and bank overdrafts represented EUR 372 million, as at June 30, 2014
Considering the EUR 9 million of borrowings, Gemalto's net cash position was EUR 363 million as at June 30, 2014, up +32% compared to June 30, 2013.
Segment information
In this section, for a better understanding of Gemalto's business evolution, comments and comparisons refer to ongoing operations, i.e. excluding assets held for sale. Revenue variations are expressed at constant currency exchange rates unless otherwise noted.
Revenue contributions by segment
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First semester 2014
(EUR in millions, ongoing operations)
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Mobile Payment & Total two main Patents &
Identity segments Others
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Revenue 586 537 1,123 10
As a percentage of ongoing revenue
52% 47% 99% 1%
As a percentage of ongoing PFO
53% 44% 97% 3%
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Revenue contributions by activity
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First semester 2014
(EUR in millions, ongoing operations)
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Embedded software & Platforms & Total two main segments
Products Services
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Revenue 903 219 1,123
As a percentage of total revenue
80% 19% 99%
As a percentage of total revenue growth at constant exchange rates
74% 37% 110%
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Year-on-year variations and
currencies impact
(EUR in millions)
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A B C D E
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Second quarter
Revenue 315 284 599 2 601
At constant rates +4% +7% +6% (88%) +3%
At historical rates (1%) +2% +0% (88%) (2%)
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First semester
Revenue 586 537 1,123 10 1,133
At constant rates +2% +10% +6% (36%) +5%
At historical rates (3%) +5% +1% (36%) +0%
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Profit from operations 64 53 117 3 120
At historical rates (19%) +16% (6%) (44%) (8%)
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A. Mobile
B. Payment & Identity
C. Total two main segments
D. Patents & Others
E. Total ongoing operations
For the first semester 2014, Gemalto's revenue growth from its ongoing operations was +5% at constant rates and stable at historical rates, with growth in both Mobile and Payment & Identity. The further expansion of the Payment & Identity segment continues to improve the balance of contributions from Gemalto's various businesses. Payment & Identity represented 47% of Gemalto's revenue and 44% of profit from operations in the first semester of 2014 compared to 45% and 35% in the same period the year before. Continuing the long-term trend of profitable growth, its profit from operations grew by +16% while revenue grew at +10% in the first semester of 2014 thanks notably to strong sales of solutions for electronic payments in every region.
Activities within Embedded software & Products and Platforms & Service both contributed to the growth of Gemalto in the first semester of 2014 up by +5% and +10% respectively. Growth in Embedded software & Products came mostly from EMV payment cards, which were up +22% in the period, more than offsetting the impact of the project and delivery delays present in other businesses. Platforms & Services contributed 37% of the total revenue growth during the period and their double-digit increase in revenue was driven by solid performance in Mobile Financial Services as well as Enterprise, eBanking, and Government Programs.
As in the first quarter, adverse effects of currency translation movements during the second quarter were very significant, with revenue in the two main segments expanding by +6% at constant rates and remaining stable at historical exchange rates.
Mobile
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First semester 2014 First semester 2013 Year-on-year variation
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A B C D E F
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Revenue 586.1 601.2 (3%) +2%
Gross profit
237.3 40.5% 250.1 41.6% (1.1 ppt)
Operating expenses
(173.3) (29.6%) (170.7) (28.4%) (1.2 ppt)
Profit from operations
64.0 10.9% 79.4 13.2% (2.3 ppt)
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A. EUR in millions
B. As a % of revenue
C. EUR in millions
D. As a % of revenue
E. at historical exchange rates
F. at constant exchange rates
The Mobile segment posted revenue of EUR 586 million, up +2% year-on-year at constant exchange rates. After the flat revenue variation recorded during the first quarter, performance improved sequentially with +4% recorded during the second quarter, on top of the strong +12% year-on-year growth posted for the second quarter of 2013. Both Embedded software & Products and Platforms & Services activities contributed to revenue growth.
Revenue from Embedded software & Products (E&P) increased by +4% for the second quarter after (1%) for the first quarter, resulting in +2% growth for the first semester 2014. Deployment of Upteq multitenant SIMs continued in the United States and the roll-out progressed in Europe and Asia as more countries prepare for launches. In Europe, where most operators with plans to enable multitenant SIM-based protection of contactless services have been aligning their roadmaps with a greater penetration of contactless payment terminals, Gemalto finalized agreements for multi-country commercial deployments for the second semester. Overall the greater proportion of multitenant SIM cards in conjunction with a greater proportion of LTE products compensated for lower revenue from legacy products sold in countries with high mobile penetration. The mix in connectivity modules sold for the Machine-to-Machine business improved and the sales of MIM secure elements carrying machine subscriptions and protecting data exchange posted a sharp increase.
Platforms & Services (P&S) grew by +6%, a solid increase over the +44% revenue growth recorded for the first semester of 2013, with uneven performances within the portfolio of offers. The two largest contributors to the growth were Mobile Financial Services (MFS), which include trusted service managers and mobile payment platforms, and Mobile Subscriber Services (MSS), which include network-related data, subscription, and customer relationship management activities. These businesses posted +24% and +13% growth respectively compared to the first semester of 2013. The number of new TSM projects awarded continued to increase during the first semester, and with Gemalto winning most of the tenders, the Company is the clear market leader in these platforms for both mobile network operators and service providers. Now that a large part of the first wave of tenders has been awarded, revenue from licensing, support and maintenance has started to increase due to the greater number of systems operating commercially. MSS's performance was driven by a greater activity in developing regions. In contrast, revenue from Netsize's messaging and billing activities reduced by 12% for the first semester due to the required adaptation of the IPX business acquired in 2013 to new European regulations in the payment and opt-in messaging space.
Gross profit reduced by EUR 13 million compared to the first semester 2013, primarily due to the reduced revenue in the cards business in the first quarter and the reduced Netsize sales over the semester. During the second quarter, gross profit generated by card sales was stable and its gross margin improved both sequentially and year-on-year. The other activities composing the Mobile segment had only limited variations year-on-year in terms of gross profit evolution.
Operating expenses increased slightly, by +3 million or +2%, with additional focused investments in specific Platforms & Services activities and tight control over expenses in the other businesses of the segment.
Profit from operations was EUR 64 million or 11% profit margin from operations.
Payment & Identity
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First semester 2014 First semester 2013 Year-on-year variation
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A B C D E F
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Revenue 536.7 512.1 +5% +10%
Gross profit
171.9 32.0% 163.0 31.8% +0.2 ppt
Operating expenses
(118.9) (22.1%) (117.3) (22.9%) +0.8 ppt
Profit from operations
53.1 9.9% 45.7 8.9% +1.0 ppt
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A. EUR in millions
B. As a % of revenue
C. EUR in millions
D. As a % of revenue
E. at historical exchange rates
F. at constant exchange rates
Payment & Identity's first semester revenue came in at EUR 537 million, increasing by +10% compared to the same period in 2013. Sales were up by +8% in Embedded software & Products and +16% in Platforms & Services.
Commercial momentum for EMV continued to build around the world as all regions contributed double-digit growth to the +18% performance recorded in payment activities. The migration in China continued to expand, encompassing additional regional financial institutions beyond the tier 1 issuers that started their deployments last year. The first semester also saw strong commercial activity within the United States as banks prepare for the ramp-up of EMV during the second part of the year. In this region, Gemalto reinforced its organic investments made over the last two years with the acquisitions of Shoreline and SourceOne Direct, both of which provide personalization and card services to US financial institutions. In Europe, further growth came as a result of the ongoing shift to dual-interface and DDA cards featuring more sophisticated software and products, and in the first semester half of Gemalto's deliveries offered dual-interface capability to consumers.
The Identity businesses were lower by (3%) overall in the first semester of 2014 with a strongly positive +13% performance in internet and mobile banking activities offset by lower performance in Government Programs. The Government business slowed down in a similar pattern in both the first and second quarter due to lower deliveries of identity documents, especially in the Middle East. In this adverse environment, Gemalto maintained its leading market share as measured by contract value awarded during the semester, and with the backlog of contracts won, the Government Programs business is expected to drive high single to low double-digit growth for the second semester. Platforms & Services activities for governments were among the fastest growing businesses within the Company, led by the deployment of Coesys automated border control solutions and other services.
In the Identity & Access Management business, Gemalto entered into a definitive agreement to acquire SafeNet, further establishing its leadership position on the online access security market from edge to core. In 2013, SafeNet recorded revenues of US$337 million and profit from operations of US$35 million and expects revenues of US$370 million and profit from operations of US$51 million for 2014. The closing of the transaction, subject to anti-trust and regulatory authority approvals, is expected in Q4 2014.
Gross margin improved in the Payment & Identity segment to 32% up +0.2 percentage points compared to the first semester of 2013. The segment improvement was dampened by the effect of lower revenue recorded in the Government Programs business for the first semester, which should improve throughout the second semester as growth accelerates. In Payment, year-on-year margin evolution was favorably influenced by the continuing shift to dual-interface and DDA products, balancing the impact of the proliferation of relatively entry-range products in newly adopting countries.
Operating expenses grew slightly year-over-year in the first semester in absolute terms but fell by (0.8) percentage points as a percentage of
Topic: Earnings
Source: Gemalto NV
Sectors: Cloud & Enterprise, CyberSecurity, IT Individual
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