Commenting on the performance for the first quarter 2006, Alex Mandl, President and Chief Executive Officer, said: "Gemplus improved its position in all of its core businesses. Beside buoyant shipments in Wireless, we are very satisfied to report robust revenue growth in Financial Services and ID & Security. These results validate our strategy and confirm the strong potential of these segments. Finally, we are optimistic about the outcome of the proposed Gemalto transaction to create a world-class leader in digital security."

First quarter 2006 financial review

Income statement

First quarter 2006 highlights:

• Net sales up 19.3% year-on-year driven by Financial Services and ID & Security.
• Gross margin 30.5%, down 1.6 percentage point year-on-year.
• Operating income up 12.3%, at 8.4 million euros.

Net sales were up 19.3% driven by Setec and strong organic growth in Financial Services and ID & Security.

On a geographical basis, strong demand in all segments led to adjusted revenue growth of 27.8% in the Americas. Adjusted revenue in EMEA was up 5.8%, year-on-year, driven by Financial Services and down 17.5% in Asia, reflecting price pressure in Wireless.

Gross margin was down 1.6 percentage point year-on-year, to 30.5%, reflecting the change in the business mix, Wireless price pressure and purchase accounting.

As a percentage of sales, operating expenses decreased to 26.8%, compared to 28.2% a year ago, although in value, they increased 13.6% year-on-year, to 61.8 million euros, mainly due to Setec.

Consequently, operating income was up 12.3%, at 8.4 million euros.

Attributable net income for the first quarter was slightly down 1.0 million euros to 6.3 million euros, mainly due to minority interests and income tax.

Balance sheet and cash flow statement

First quarter 2006 highlights:

• Free cash outflow of 13.8 million euros reflecting increase in working capital.
• Continuous strong cash position, at 409.9 million euros.

Working capital was up 18.6 million euros quarter-on-quarter, but decreased, as a percentage of sales, to 14% at March 31, 2006, compared with 16% a year ago.

The Group's cash position remains strong and is down 8.4 million euros compared to December 31, 2005.

Segment analysis

Telecom

First quarter 2006 highlights:

• Record wireless shipments, at 100.6 million units.
• Wireless ASP down 33% year-on-year, currency adjusted.
• Rebound in prepaid phonecards.

Wireless revenue:

• Wireless products & services revenue was up 1.2% year-on-year (down 3.3%, currency adjusted), to 134.3 million euros.
• Wireless shipments grew 48% year-on-year, to 100.6 million units, largely driven by emerging countries.
• High-end card shipments (3G and above) accounted for 14% of the first quarter total, compared to 10% a year ago.
• Wireless average selling price (ASP) was down 16% quarter-on-quarter and 33% year-on-year, both currency adjusted, reflecting ongoing price pressure.

The slight decline in Wireless gross margin was due to product and regional mix, as well as strong price pressure.

Wireless products & services revenue comprises wireless microprocessor cards and related applications (embedded software and Over The Air platforms) and services (system integration and operated services).

Financial Services

First quarter 2006 highlights:

• Very strong growth in payment microprocessor cards: shipments up 75%, to 22.3 million units.
• EMV roll-out gained further momentum in Latin America, Southern Europe and Japan.

Revenue reflects strong growth in all sub-segments.

Payment microprocessor card revenue rose 55% year-on-year. Shipments of payment microprocessor cards grew 75% to 22.3 million units.

The strong performance in payment cards was mainly driven by the EMV roll-out, which gained momentum in Latin America (Mexico, Brazil), Southern Europe (Italy, Portugal, Greece) and Japan.

As a result, operating income came close to breakeven.


Identity and Security

First quarter 2006 highlights:

• Very strong growth, driven by Government ID and Corporate Security projects.

EMV is a jointly defined set of specifications adopted by Europay, MasterCard and Visa for the migration of bank cards to smart card technology.

Strong growth was driven by a substantial increase in Government ID projects, notably e-passports and healthcare solutions, and Corporate Security projects, particularly in Americas, in addition to those from Setec.

Outlook

The Group continues to see strong momentum in its core segments and will maintain its focus on cost efficiency.

Gemplus confirms that it is firmly on track to realize its mid-term objective to achieve a 10% operating margin in 2007.

The Group remains confident in its ability to further strongly improve its operating income in 2006 taking into account the usual seasonality effect of stronger organic growth in the second half than in the first half.

Gemplus also continues to expect the Financial Services and ID & Security segments to turn profitable in 2006.

Business Highlights

Telecom

At the 3GSM World Congress, Gemplus launched its new software and SIM platform, bridging telecom and PC/internet communications. Called .sim (DOTSIM), it extends the traditional SIM roles of authentication and security from mobile networks to the PC/Internet world and offers advanced multimedia services across both channels. This is a solution already generating significant interest from mobile operators such as Orange, as a way of reinforcing brand, unifying services across the board and supporting their digital convergence strategy.


Gemplus's OTA over IP platform, GemConnect OTA, was selected by Telefonica Moviles Expaña for the high speed delivery of multimedia services and applications for 3G mobile subscribers.


Financial Services


Gemplus launched its range of innovative card bodies, Plastic Fantastic, which is designed to help banks and financial institutions set themselves apart from the competition. The cards range from unusual shapes, perfumed, tactile and even glow in the dark, and will support customers in their branding and customer segmentation.

Gemplus' product, GemSense Instant Issuance, also won an award from the ECPA/ ECR (European Payments Consulting Association/European Card Review) Payment Innovation Awards in the category for the most innovative and advanced payment software/hardware product. This is a personalization and card issuance solution which allows banks and retailers to deploy or replace cards on the spot. Each cardholder walks away with a fully personalized smart payment card within a matter of minutes.

Continuing to support banks in their migration to EMV, Gemplus was selected by Indonesian Bank, Bank Buana, to provide the highest level of secure smart payment cards. The cards use random data for the generation of each signature for transactions which makes them difficult to duplicate. They also offer off-line transaction processing capabilities which reduce the cost of network communication.

Identity and Security

Gemplus was selected by BearingPoint to supply an additional 1 million cards to the US Department of Defense for their Common Access Card program. This is the US Federal Government's biggest roll-out to date with more 4 million smart ID cards issued to bring strong authentication for its employees. The cards supplied in the contract are FIPS 140-2 validated - a security pre-requisite for the CAC program.

Gemplus launched its first product aimed at Small and Medium-sized enterprises. GemEvidence is a One Time Password token-based solution which improves the security of remote connections in a cost-effective manner.

Gemplus, with the full integration of Setec, passed the significant milestone of half a million e-passports delivered in the last six months. This makes Gemplus the leading e-passport supplier in the world.

Gemplus's contactless reader technology, GemProx, was selected and integrated into Saflink's SureAccess biometric smart card reader, designed to comply with the US Government Federal Information Processing Standard (FIPS) 201 requirements. As such, Gemplus provides the technology for reading the contactless ID cards carried by authorized personnel in secure facilities such as seaports and airports.Download the document now 41.6 kb (Adobe Acrobat Document)