Gemalto publishes first half 2010 results
27/08/10
Gemalto has announced its results for the first half of 2010.
Olivier Piou, Chief Executive Officer, commented: "Gemalto's first half performance is in line with our plan to increase profit from operations for the full year 2010. We made good progress in our underlying business and made significant investments in the development of the new growth areas of our business. We took advantage of favorable conditions to make acquisitions early in our development plan, supporting our confidence in our ability to deliver on our 2013 objective. On this solid footing and with the gradual economic recovery in developed countries we now aim to record, for the first time in our Company’s history, more than1 billion euros in revenue over the second semester of 2010.”
The International Financial Reporting Standards (IFRS) consolidated income statement for the first half 2010 shows an operating income of € 46 million and a profit for the period of € 45 million (respectively € 56 million and € 46 million for the first half 2009).
Basic earnings per share rose to € 0.54 for the reported period, and diluted earnings per share to € 0.53, compared to respectively € 0.53 and € 0.52 in the first semester of 2009.
In the first half 2010 restructuring and acquisition-related expenses amounted to € 2 million (€ 4 million in the first half 2009); equity-based compensation charges to € 9 million (€ 5 million in H1 2009); and amortization and depreciation of intangibles resulting from acquisitions, net of income tax expense, to € 7 million (€ 12 million in H1 2009).
In the first half 2010, operating activities generated a cash flow of € 24 million.
Capital expenditure and acquisition of intangibles amounted to € 29 million, or 3.4% of revenue, of which € 20 million were incurred for Plant, Property and Equipment purchases net of proceeds from sales. Working capital was up by € 10 million on December 31, 2009, in preparation for the seasonal ramp-up.
Acquisition of subsidiaries and businesses, net of cash acquired, used € 20 million in cash.
Gemalto’s share buy-back program used € 23 million in cash for the purchase of 746,790 shares during the first semester. As at June 30, 2010, the Company owned 4,725,179 shares, i.e. 5.37% of its own shares in treasury. The average acquisition price of the shares repurchased on the market and held in treasury as of June 30, 2010 was € 25.84. The total number of Gemalto shares issued is unchanged, at 88,015,844 shares. Net of the 4,725,179 shares held in treasury, 83,290,665 shares were outstanding June 30, 2010.
The proceeds received by the Company from the exercise of stock options by employees amounted to € 8 million. On May 31, 2010, Gemalto paid a cash dividend of € 0.25 per share in respect of the fiscal year 2009. This distribution, the first ever in Gemalto’s history, used € 21 million in cash. As a result of these elements Gemalto’s net cash position as at June 30, 2010 was € 330 million, a reduction of € 51 million when compared with December 31, 2009, and an increase of € 8 million when compared to June 30, 2009.
Gemalto has finalised on July 28th the acquisition of a leading provider of industrial Machine-to-Machine (M2M) wireless communication modules, and on August 19th the acquisition of a software technology company. The related post semester closing total cash outflow amounts to € 189 million.
Revenue for the first semester was up by 5% at historical rates to € 840 million, driven by growth in the Security and Mobile Communication segments. Revenue from software and services expanded by 48%, to € 110 million, strongly contributing to the Company’s overall growth, and representing 13% of the total semester revenue.
Business conditions in the second quarter were generally comparable to those observed during the first quarter. Seasonality is well aligned with traditional quarterly patterns with revenue increasing by 15% sequentially from the first to the second quarter at historical rates.
Gross profit for the Company is up € 9 million or 3% at € 299 million. This represents gross margin of 35.6%, lower by 0.7% from the previous year. Profitability expansion in the Security segment was offset by lower gross margin in Mobile Communication.
The increase in operating expenses reflects the consolidation of recently acquired businesses and organic investments made in software & services and new growth areas.
The activity of a joint venture that accounted for € 22 million in revenue and € 6 million in profit from operations in the first semester of 2009 is consolidated in the first half 2009 numbers reported above and is not reported in the first half 2010 numbers above due to a legal dispute with the partner.
Businesses acquired in the first half of 2010 contributed € 38 million to revenue and a loss of € 2 million to profit from operations in the first semester of 2010.
First semester 2010 profit from operations came in at € 67 million, i.e. 8% of revenue. The year-on-year variation benefited from the positive developments in the underlying business, driven by growth in Security and by the migration to EMV and contactless in Secure Transactions, offset by the acquisitions and joint venture effects and by the investments made in organic development of new growth areas and in integrating the acquired technologies.
The impact of one-off profits and expenses on the year-on-year variation of the profit from operations was not significant.
Net interest income was non material this semester, compared with € 1 million reported the prior year, mainly due to lower yields on short-term investments. Foreign exchange transactions resulted in a gain of € 1 million, compared with a loss of € 4 million in the first half of 2009. As a result, Gemalto financial income for the first half of 2010 increased by € 4 million to € 1 million.
Profit before income tax was € 68 million. Net income tax expenses were € 5 million.
Consequently the adjusted net profit was € 63 million, compared with € 67 million for the same period last year. Basic adjusted earnings per share came at € 0.76 and fully diluted adjusted earnings per share at €0.74.
Revenue from the joint venture whose financial reporting is not available for the first semester 2010 due to a legal dispute with the partner was € 14.5 million in Secure Transactions and € 7.4 million in Security in the first half of 2009. Profit from operations from this joint venture in H1 2009 was € 2.7 million in Secure Transactions and € 2.9 million in Security.
Excluding the revenue from the JV in 2009, Gemalto’s revenue growth in the first semester was 8% at historical rates, and 5% at constant exchange rates. At constant exchange rates, first half 2010 Mobile Communication revenue was up by 5% year on year.
Mobile Communication posted revenue of € 452 million, higher by 5% at constant exchange rates from the previous year. This growth was driven by the success in software and services whose revenue more than doubled year on year. Increased investment in this activity, with new service offerings from both bolt-on acquisitions and organic developments led to this strong performance. When compared to a 2009 first semester that included a particularly strong second quarter, revenue from the traditional SIM card business was slightly lower year on year. This decline was partially offset by the growth in new connected devices such as e-tablets, mobile TV and machine-to-machine communication secure identification modules (MIM).
Volume growth in developing countries was strong. The return of large-scale innovative project deployments in developed markets remained limited during the semester, temporarily restricting product mix improvement and contributing to the reduction in gross margin. As a result, gross profit remained stable at € 174 million. As a sign of the gradual recovery of these developed markets, the end of the second quarter was marked by a strong level of activity in software & services and by a solid pipeline of contracts to be delivered by the end of the year.
Operating expenses increased by € 17 million to € 133 million as a result of the consolidation of acquired companies’ operating expenses and investment in software & services. Profit from operations was hence lower by € 18 million year on year, at € 40 million, representing a profit margin of 8.9%.
At constant exchange rates, first half 2010 Secure Transactions revenue was lower by 2% year on year. In line with the first quarter trend, the first semester was marked by strong revenue growth in countries migrating to EMV, notably in the Americas, while upgrades to contactless dual interface payment cards continued to ramp up in Europe. This strong growth in revenue more than offset both the triennial payment card renewal trough in the United Kingdom and the effect of last year’s shift from registered mail to standard mail for card deliveries. As a result the 2010 first semester revenue progressed to € 207 million.
During the semester, the favorable contribution from high-end contactless cards more than compensated the effect of lower activity in the United Kingdom. Consequently gross margin and gross profit increased to 26% and € 54 million respectively. The end of the quarter was marked by a return to growing demand from the UK financial institutions as they prepare the return to normal card renewal levels by year end.
Operating expenses were up by € 5 million as a result of the integration of acquired companies and investment to develop Gemalto’s Trusted Service Management offers.
As a result, profit from operations came in at € 6 million, representing a profit margin of 2.7% of revenue. At constant exchange rates, first half 2010 Security revenue was up by 19% year on year
Security posted another semester of strong growth with a 19% year-on-year revenue increase at constant exchange rates. This first semester saw strong levels of growth in Identity and Access Management (IAM) with a 49% increase in revenue on the previous year. Renewed demand from enterprise on-lineauthentication, solid activity in e-Banking solutions and the integration of recent acquisitions produced this outstanding performance. Government Programs grew by 8% over the period, with the second quarter of 2010 setting another quarterly revenue record. Patent licensing revenue increased also in the first half of 2010, by € 3 million, to € 16.1 million. A figure that is expected to represent the vast majority of the full year’s patent licensing activity.
Gross margin improved to 43% as a result of a greater proportion of IAM activity, productivity gains in Government Programs and the slightly higher patent licensing revenue recorded during the semester. The gross margin improvement combined with the segment’s double-digit revenue growth resulted in a strong € 13 million increase in gross profit.
The semester operating expenses were stable at € 42 million. Several one-off profits and expenses were recorded during the second quarter, in particular a compensation resulting from the final judgment in a lawsuit, for a total net gain of € 4 million. Otherwise, operating expenses increased by €3 million to manage the growth.
Profit from operations reached € 21 million, i.e. 14% of revenue. Excluding the contribution of patent licensing and the effect of non-recurring items, the combined activities of Government Programs and Identity and Access Management increased their profit margin from operations by more than 3 percentage points when compared with the first half of 2009.
At constant exchange rates, first half 2010 revenue for Public Telephony and POS Terminals combined in Others was lower by 7% year on year.
The double digit growth in POS Terminals revenue was more than offset by the rapid decline in Public Telephony, which continues to be substituted by mobile telephony. Gross margin increased on the back of the good performance in POS Terminals. Operating expenses increased by € 1 million as investments were made towards a new range of POS Terminals, leading to a slight decrease in profit from operations.
Gemalto says its business has strong fundamentals and prospects. “We continue our mission to provide trust and convenience to the wireless and digital world. In 2010 we are focused on growth, actively promoting our expanded product portfolio and delivering more software and services to our customers, in order to further increase our profit, on our way to achieving the objective we have set for ourselves of € 300 million profit from operations in 2013.
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