Oberthur Card Systems (OCS) and Francois-Charles Oberthur Fiduciaire (FCOF) announce their plan to regroup their businesses under OCS with a view to creating a world leader in secure technologies, to be named Oberthur Technologies.
Their businesses are complementary both in terms of geographic location and activity. By combining them, OCS will be able to:
- Boost growth in its Identity businesses,
- Expand in the mobile phone Scratch Card market,
- Exploit significant growth potential in Value Protection
The Identity segment is a significant part of the group's future growth. Oberthur Card Systems is a leading world provider of smart card solutions, and FCOF supplies over 50 countries with secure identity documents (traditional passports, visas, identity cards, etc.) and electronic passports. The new group would provide a complete and unique range of high value-added services and products for the identity sector: secure printing on plastic and paper, smart card technologies, inlays, document personalization using the CPS proprietary software which already has a proven track record in the banking sector. In addition, with the combined sales and marketing teams from both companies the new entity would instantly be active in over 50 countries.
The Scratch Card business would be integrated into the Mobile product line and benefit from Oberthur Card System's business with mobile operators in 80 countries worldwide. This way, the group would bolster its product portfolio as well as its position in the mobile sector by offering a larger array of products, ranging from SIM cards to recharge cards. Given that the group sold 330 million cards in 2006 and that the world Total Accessible Market represents 15 billion units, there is still huge potential for growth in this business.
There is also significant room for growth in Cash Protection, the secure cash-in-transit equipment and ATM protection business, which is currently very successful in France and Belgium. It would benefit from OCS' substantial presence in the banking sector, serving 5000 financial institutions in 65 countries.
Figures and Description
The transaction would take the form of a business contribution. The asssets transferred to OCS will comprise FCOF's Fiduciary Printing (banknotes, Identity documents), the Scratch Card businesses (an OSC(1) activity), the Cash Protection businesses (activities of Axytrans, which is 91% owned by FCOF and Mr Jean-Pierre Savare).
The new group would report pro-forma 2006 revenue of EUR645M, including 80% contributed by the Card business (EUR350.5M of pro-forma sales for H1 2007), and improved margins with a pro-forma 2006 EBITDA of EUR67.5M, or 10.5% of sales (pro-forma EBITDA of EUR50.7M for H1 2007 or 14.5% of sales)
After the merger, the new group should have a debt to equity ratio based on pro-forma figures at June 30th, 2007, of 0.43 and a debt to EBITDA(2) ratio of 1.1.
Employee representatives have been informed and shall be consulted on the project. This project will be submitted for approval by OCS shareholders at an Extraordinary General Meeting on December 27th, 2007. An earlier Extraordinary General Meeting will be held on December 5th, 2007, with the purpose of reducing the nominal value of OCS shares to enable the contributions to be made at book value, which is the method recommended for this type of transaction.
To pay for the assets contributed to the new entity, 31M to 38M new OCS shares, representing between 28 and 33% of the capital, will be issued, subject to verification of the spin-off by the auditors. The OCS Management Board (members representing FCO and the Savare family abstained) has nominated Mr Dominique Ledouble (Cabinet CDL) as an independent auditor to express a fairness opinion on the share exchange ratio.
Based on this, after the transaction, FCOF would hold between 69% and 71% of capital, while the volume of the float would remain unchanged.
With a stable main shareholder and stronger financial fundamentals, the company would be in a better position for profitable growth in each of its activities, and for seizing opportunities for expansion.
Separately, Today Oberthur Card Systems reported third quarter 2007 revenue of EUR148.2M or a year-on-year increase of 19.2%.
During the third quarter, Oberthur Card Systems delivered 97.7 million microprocessor cards, a 47.3% increase compared to Q3 2006.
Mobile Communications segment:
Demand in the SIM market is still sustained with more than 64 million SIM cards delivered during the quarter, or a 49% increase compared to the same period a year ago. Sales in the SIM sub-segment amounted to EUR57.6M, up 26.6% year-on-year. This is the best performance ever for the company, above the record performances in Q4 2006 and Q2 2007.
Oberthur Card Systems registered significant commercial gains in Europe especially in France and Italy. In the Middle East and Africa, the company confirms its progression with major business wins in North Africa and in the Gulf countries.
The company also posted a good performance in Americas, with almost 50% growth in volumes but also in sales and ASP stabilization year-on-year. Both the US and South America contributed to this momentum. The latter is still demonstrating excellent growth, reflecting buoyant demand in the region.
Asia has once again experienced strong year-on-year volume growth. The striking performance was ASP growth both year-on-year and sequentially. Firstly, the product mix is changing positively with 16K cards progressively migrating towards 32K and 64K in the region. Secondly, ASP in the lower end segment has increased year-on-year.
For the whole company, the average selling price was roughly stable sequentially, with improved mix offsetting price pressure. Year-on-year, prices declined in line with expected trends.
16K volumes have decreased compared to Q3 2006 both relatively and in absolute terms. Oberthur Card Systems has once again confirmed its strong position in the high-end segment with 73% of SIM revenues. 22% of sales were coming from 128K deliveries.
The scratch card activity recorded a strong performance with sales of EUR4.0M, or 20% growth compared to Q3 2006, and 92 million units delivered. With a TAM of around 15 billion units, the potential for growth is still huge.
In the end, sales in Mobile Communications amounted to EUR62.4M, contributing 42% of Oberthur Card Systems Q3 2007 sales.
Payment segment[1]:
Oberthur Card Systems recorded 28.1% year-on-year growth in value in the payment smart card segment to EUR31.6M, thanks to a 42.4% increase in volume compared to Q3 2006. During the quarter, the company still benefited from a favorable comparison basis with last year. 25 million smart card units were sold. The UK, French, Iberian, US and Asian markets contributed to this momentum. In Europe, the company experienced good market conditions for EMV. In the US, contactless demand is still sustained.
Year-on-year, the ASP decreased by 10% essentially due to the geographical mix. In Europe, the ASP was roughly stable year-on-year.
In conventional cards, activity was stable compared to the same period a year ago. This is mainly due to the expected impact of EMV migration.
Personalization services were roughly stable year-on-year. Strong European activity was offset by the reduction in the US.
The payment segment as a whole represented 47% of Oberthur Card Systems Q3 2007 sales, with sales of EUR68.8 M, up 11.7% compared to Q3 2006.
Identity & Security[2] segment:
Quarterly revenue for this product line was up 30.7% at EUR16.8M. Volumes for the Identity and Security segment reached 8.2 million units, a 49% increase boosted by strong demand in the Pay TV sector. The projects the company won during the nine first months in the US, UK, Kuwait, France should pay off in the near future. The decrease in the ASP amounted to 13% year-on-year due to product mix.
Economic results
The improvement trend of H1 2007 continued in Q3 2007.
Outlook
The company anticipates two digit growth in H2 2007 sales. Actually, the rebound in the payment market started in Q4 2006 and SIM demand should benefit from expected sustained growth at the end of the year.
2007 will be more front-loaded in H2. The seasonal peak started earlier and the company has anticipated the Q4 manufacturing contraints.
View the figures here:
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