Market Overview

Gemalto First Semester 2018 Results

Share:
  • Revenue at €1,387 million and profit from operations at €92 million
    in line with our expectations
  • 2018 full year outlook confirmed
  • Identity, IoT & Cybersecurity: double-digit revenue growth and
    strong investment to capture market opportunities
  • Smartcards & Issuance: operational performance and transition plan
    on track

Regulatory News:

Gemalto (Euronext NL0000400653 - GTO), the world leader in digital
security today announces its results for the first semester 2018.

Key figures of the adjusted income statement

      Year-on-year variations


(€ in millions)
  First semester 2018   First semester 2017  

at historical
exchange rates

 

at constant
exchange rates

Revenue 1,387 1,393 =   +6%
Gross profit 497 502 (1%)
Operating expenses   (406)   (409)   (1%)    
Profit from operations 92 93 (1%)
Profit margin   6.6%   6.7%   (0.1 pp)    
 

Philippe Vallée, Chief Executive Officer, commented: "Gemalto
first semester results reflect the teams' strong focus on implementing
the Company's strategic priorities.

The Company's revenue grew organically +2%, driven by its three growing
businesses in the Identity, IoT & Cybersecurity segment and as the US
EMV market demand normalizes. The IoT business continued to leverage
strong demand for Gemalto solutions in industrial sectors. We see good
momentum in Cybersecurity, emphasizing the growing role of Gemalto's
technology in securing cloud services. In addition, the Governments
business won its largest ever passport contract in the UK with Her
Majesty's Passport Office, highlighting Gemalto's strong offering in
helping governments better protect their citizens. In Smartcards &
Issuance, we continue to drive the segment's digital transformation as
strong pricing discipline in removable SIM and payment cards led to a
stabilizing of profit margin. We also delivered on significant
milestones of our transition plan and will see their benefits in the
coming quarters.

With similar trends expected in our markets in the second part of the
year, our strategic priorities remain unchanged. We will continue to
focus on growth opportunities in the Identity, IoT & Cybersecurity
segment, leading the digital transformation and rightsizing our
operations in the Smartcards & Issuance segment toward achieving our
2018 outlook."

Basis of preparation of financial information

Segment information

The Identity, IoT & Cybersecurity segment comprises businesses
associated with homeland security for governments ("Governments"), IoT
connectivity for industrial applications ("IoT") and cybersecurity for
enterprises ("Cybersecurity").

The Smartcards & Issuance segment comprises businesses mainly associated
with removable SIM cards ("SIM"), payment cards ("Payment") and their
issuance services. The segment includes as well businesses associated to
the digital transformation of smart cards ("Digital") such as digital
payment, digital banking, remote subscription management, embedded
SIM/MIM and embedded secure elements. Patents business is also included
in this segment.

Historical exchange rates and constant currency
figures

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. Revenue
variations are at constant exchange rates and include the impact of
currencies variation hedging program, except where otherwise noted. All
other figures in this press release are at historical exchange rates,
except where otherwise noted.

Adjusted income statement and profit from
operations (PFO) non-GAAP measure

The consolidated financial statements are prepared in accordance with
the International Financial Reporting Standards (IFRS) and with section
2:362(9) of the Netherlands Civil Code.

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 make operating decisions over the period 2010
to 2018 is the profit from operations (PFO).

PFO is a non-GAAP measure defined as IFRS operating profit adjusted for
(i) the amortization and impairment of intangibles resulting from
acquisitions, (ii) restructuring and acquisition-related expenses, (iii)
all equity-based compensation charges and associated costs; and (iv)
fair value adjustments upon business acquisitions. These items are
further explained as follows:

  • Amortization, and impairment of intangibles resulting from
    acquisitions are defined as the amortization, and impairment expenses
    related to intangibles assets and goodwill recognized as part of the
    allocation of the excess purchase consideration over the share of net
    assets acquired.
  • 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 an acquisition
    process).
  • Equity-based compensation charges are defined as (i) the discount
    granted to employees acquiring Gemalto shares under Gemalto Employee
    Stock Purchase plans; (ii) the amortization of the fair value of stock
    options and restricted share units granted by the Board of Directors
    to employees; and the related costs.
  • Fair value adjustments over net assets acquired are defined as the
    reversal, in the income statement, of the fair value adjustments
    recognized as a result of a business combination, as prescribed by
    IFRS3R. Those adjustments are mainly associated with (i) the
    amortization expense related to the step-up of the acquired
    work-in-progress and finished goods assumed at their realizable value
    and (ii) the amortization of the cancelled commercial margin related
    to deferred revenue balance acquired.

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 consolidated financial statements
prepared in accordance with IFRS.

In the adjusted income statement, Operating Expenses are defined as the
sum of Research and Engineering expenses, Sales and Marketing expenses,
General and Administrative expenses, and Other income (expense) net.

EBITDA is defined as PFO plus depreciation and amortization expenses,
excluding the above amortization and impairment of intangibles resulting
from acquisitions.

Net debt and net cash

Net debt is a non IFRS measure defined as total borrowings net of cash
and cash equivalents. Net cash is a non IFRS measure defined as cash and
cash equivalents net of total borrowings.

All figures presented in this press release are unaudited.

Adjusted financial information

The 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 and uses it for daily
management purposes.

    First semester 2018   First semester 2017        
Extract of the
adjusted income statement
 

€ in
millions

 

As a % of
revenue

  € in millions  

As a % of
revenue

  Year-on-year variations
         

at historical
exchange rates

 

at constant
exchange rates

Revenue 1,386.7 1,392.8 =   +6%
Gross profit 497.4 35.9% 501.9 36.0% (0.1 pp)
Operating expenses (405.6) (29.3%) (409.1) (29.4%) +0.1 pp
EBITDA   164.6   11.9%   163.3   11.7%   +0.2 pp    
Profit from operations   91.8   6.6%   92.8   6.7%   (0.1 pp)    
Financial income   (16.8)       (11.4)            
Share of profit/(loss) from associates   (0.8)       1.8            
Non-recurring profit relating to associates           10.1            
Income taxes   (7.7)       (54.3)            
Net profit (excl. non-controlling interests) 66.8 4.8% 39.4 2.8% +2.0 pp
Basic Earnings per share (€) 0.74 0.44 +68%
Diluted Earnings per share (€)   0.73       0.44       +66%    
 

Gemalto posted revenue of €1,387 million for the first semester,
increasing by +6% at constant exchange rates, flat at historical
exchange rates on the same period of last year. Excluding the
contribution from the Identity Management Business, Gemalto's revenue
grew organically +2% at constant exchange rates.

Gross profit came in at €497 million and gross profit margin was at
35.9%, at the same level when compared with the first semester of last
year. This evolution essentially reflected the Smartcards & Issuance
segment revenue decrease with margin erosion not being fully offset by
the revenue growth in the Identity, IoT & Cybersecurity segment.

Operating expenses were down (€4) million, at (€406) million through
tighter control of expenses in the Smartcards & issuance segment while
the Company continued to invest in the Identity, IoT & Cybersecurity
segment in line with its strategic priorities.

As a result, profit from operations was €92 million.

Gemalto's financial income was (€17) million compared to (€11) million
in the first semester of 2017. The financial loss variation from last
year is mainly due to the interest expenses on the debt drawn in May
2017 to finance the Identity Management Business acquisition.

Share of loss in associates was (€1) million for the first semester 2018.

Adjusted profit before income tax came in at €74 million.

Adjusted income tax expense was (€8) million in the first semester of
2018. The adjusted income tax rate was 10%, in line with the same period
of last year excluding the non-cash deferred tax asset reduction.

Overall, the adjusted net profit of the Company was €67 million.
Consequently, adjusted basic earnings per share and adjusted diluted
earnings per share came in respectively at €0.74 and €0.73.

Reconciliation from Adjusted financial information to IFRS

                       

Six-month period
ended June 30 2018
(€
in thousands)

Adjusted
financial
information

 

Amortization
and
impairment of
intangibles
resulting
from
acquisitions

 

Restructuring
and
acquisition-
related
expenses

 

Equity-based
compensation
charge and
associated
costs

 

Fair value
adjustment
upon business
acquisitions

 

IFRS
financial
information

         
Revenue 1,386,732 - - - - 1,386,732
Cost of sales   (889,325)   (42,119)   (1,362)   (4,481)   -   (937,287)
Gross profit 497,407 (42,119) (1,362) (4,481) - 449,445
Operating expenses   (405,644) (10,130) (12,206) (427,980)
Profit from operations   91,763                    
Operating profit (42,119) (11,492) (16,687) - 21,465
 

Amortization and impairment of intangibles resulting from acquisitions
decreased by €426 million to (€42) million. Most of the improvement
resulted from a favorable basis of comparison, as Gemalto had booked a
(€425) million one-off non-cash impairment in the first semester of 2017
due to the deteriorated prospects of the removable SIM market. The €42
million charge was essentially related to the Identity Management
Business and Safenet acquisitions.

Restructuring and acquisition-related expenses decreased by €25 million
to (€11) million as the main actions of the transition plan were accrued
in 2017. The (€11) million expenses include the costs related to the
Thales project.

As a result, Gemalto recorded an operating profit of €21 million for the
first semester of 2018 compared to an operating loss of (€433) million a
year ago.

The income tax charge came in at (€1) million compared to (€41) million
the previous year which mainly resulted from a non-cash deferred tax
asset reduction following Gemalto's 2017 revised profit from operations
outlook.

Net profit excluding non-controlling interests came in at €3 million for
the first semester of 2018 versus a net loss of (€473) million last
year. The basic earnings per share and diluted earnings per share for
the first semester 2018 are €0.04 and €0.03 respectively.

Statement of financial position and cash position variation schedule

In the first semester of 2018, operating activities generated a cash
flow of €126 million before changes in working capital, a similar level
to that of last year.

Changes in working capital reduced cash flow by (€14) million compared
to (€1) million in 2017 as inventories level increased notably in the
Governments business as a result of its fast growing backlog.

Cash used in restructuring actions and acquisition related expenses came
in at (€27) million and include costs in relation with the Thales
project.

Net cash generated by operating activities came in at €99 million.

Capital expenditure and acquisition of intangibles represented a net
cash outflow of (€67) million. Purchase of Property, Plant, and
Equipment was reduced by €7 million to (€18) million and acquisition &
capitalization of intangibles came in at (€48) million.

As a result, in the first semester of 2018, the Company generated free
cash flow of €32 million compared to €50 million for the same period of
2017. Combined with the cash used in other investing activities, total
cash generated by operating and investing activities amounted to €28
million.

Financing activities consumed (€83) million of cash mainly through a
reduction in debt.

Cash in hand, net of bank overdrafts amounted to €248 million as at June
30, 2018.

Considering the €881 million total amount of borrowings as at June 30,
2018, Gemalto's net debt position decreased to €633 million compared to
a net debt position of €684 million as at December 31, 2017. The €51
million reduction in net debt is due the combination of the Company's
free cash flow generation over the last six months and the positive
contribution of derivative financial instruments.

Segment information

Outlined below is the segment information for the second quarter and the
first semester 2018. Revenue variations are expressed at constant
currency exchange rates unless otherwise noted.

Gemalto posted revenue of €1,387 million for the first semester,
increasing by +6% at constant exchange rates, flat at historical
exchange rates on the same period of last year. Excluding the
contribution from the Identity Management Business, Gemalto's revenue
grew organically +2% at constant exchange rates. The Company's top line
growth was supported by a strong revenue increase in the Identity, IoT &
Cybersecurity segment and the US EMV market demand normalization.

Second quarter 2018
(€ in millions)

  Total   Identity, IoT & Cybersecurity  

Smartcards & issuance

Revenue   737   351   386
At constant rates 5% +16% (4%)
At historical rates   (1%)   +11%   (9%)
 

During the second quarter, revenue was €737 million, up +5% at constant
exchange rates.

The Identity, IoT & Cybersecurity segment's revenue came in at €351
million, increasing +16% at constant exchange rates compared to the
previous year.

The Smartcards & Issuance segment posted revenue of €386 million, (4%)
lower at constant exchange rates.

First semester 2018
(€ in millions)

  Total   Identity, IoT & Cybersecurity  

Smartcards & issuance

Revenue   1,387   644   743
At constant rates +6% +20% (3%)
At historical rates   =   +12%   (9%)
 

In the first semester, revenue grew +6% year-on-year at constant
exchange rate. This evolution resulted from strong revenue growth in
Enterprise, IoT and Governments including the acquired Identity
Management Business coupled to a slowing down in the rate of revenue
decrease in the removable SIM businesses and stabilizing Payment
business.

The Identity, IoT & Cybersecurity segment's revenue came in at €644
million, increasing +20% compared to the previous year. The backlog in
this segment continued to increase driven by solid wins, notably in the
Governments business.

The Smartcards & Issuance segment posted revenue of €743 million, (3%)
lower at constant exchange rates.

Profit from operations
(€ in millions)

  Total   Identity, IoT &Cybersecurity   Smartcards & issuance
First semester   92   49   43
As a percentage of the total profit from operations   100%   54%   46%
 

First semester profit from operations came in at €92 million at around
the same level as last year, as the favorable business mix evolution
towards Identity, IoT & Cybersecurity was offset by weaker performance
in the Smartcards & Issuance segment's digital business.

The contribution of the Identity, IoT & Cybersecurity segment to the
Company's total profit from operations was 54% for this semester
compared to 44% at the same period of last year.

Identity, IoT & Cybersecurity

    First semester 2018   First semester 2017   Year-on-year variations
    € in millions  

As a % of
revenue

  € in millions  

As a % of
revenue

 

at historical
exchange rates

 

at constant
exchange rates

Revenue   643.6     572.4     +12%   +20%
Gross profit 265.2 41.2% 237.9 41.6% (0.4 pp)
Operating expenses (215.9) (33.5%) (197.1) (34.4%) +1.1 pp
Profit from operations   49.3   7.6%   40.7   7.1%   +0.5 pp    
 

Identity, IoT and Cybersecurity revenue came in at €644 million, up +20%
at constant exchange rates compared to 2017.

In the first semester, the Governments business posted very strong
revenue growth compared with the same period of last year. The positive
evolution was due to the contribution of the Identity Management
Business and substantial secure document deliveries in Europe, Asia, and
Africa offsetting a weaker performance in the Middle East. In the second
quarter, Gemalto initiated first deliveries of its commercial biometric
solutions to a large banking customer. Gemalto also won its largest ever
passport contract with the United Kingdom Home Office. The contract
spans 11.5 years, including 10 years of production and issuance
services. In addition, Gemalto's Live Face Identification System (LFIS)
solution excelled at the 2018 biometrics rally, sponsored by the US
Department of Homeland Security's (DHS). These results highlight
Gemalto's innovation capabilities and unmatched offering, aimed at
helping government better protect their citizens.

The Cybersecurity business delivered a strong performance this semester.
It was driven by a growing number of encryption and key management
software deployments in Europe in light of the new regulatory
environment deadline and more broadly as data privacy and data
security
continue to be a key focus for global organizations. The
software monetization sub-business also posted a solid performance
supported by large projects in Europe and Asia. The authentication
sub-business revenue decreased slightly this semester as the ongoing
shift in its product mix from hardware to software continued to progress.

The IoT business posted an outstanding revenue performance in the first
semester. The increase was driven by strong deliveries in Europe and
Asia to large customers in a variety of key industrial sectors that
extend Gemalto's traditional strong foothold in the automotive market.
New design wins recorded this semester reflect Gemalto's strong position
and continuous investment in its portfolio which enable the Company to
further leverage the sustained market demand.

Overall, the Identity, IoT & Cybersecurity segment's gross profit was up
+11% at €265 million, gross margin came in at 41.2%, driven notably by a
full semester's positive contribution of the Identity Management
Business.

The operating expenses for the segment increased by €19 million, up +10%
compared with the same period of last year. This increase was mainly due
to the full semester integration of the Identity Management Business'
operating expenses, continuous R&D investments in the Governments and
IoT businesses as well as to the development of the Cybersecurity
business' sales channel.

As a result, profit from operations in the Identity, IoT & Cybersecurity
segment came in at €49 million and profit from operations margin settled
at 7.6% for the first semester of 2018.

Smartcards & Issuance

    First semester 2018   First semester 2017   Year-on-year variations
    € in millions  

As a % of
revenue

  € in millions  

As a % of
revenue

 

at historical
exchange rates

 

at constant
exchange rates

Revenue   743.1     820,4     (9%)   (3%)
Gross profit 232.2 31.2% 264.1 32.2% (1 pp)
Operating expenses (189.8) (25.5%) (212.0) (25.8%) +0.3 pp
Profit from operations   42.5   5.7%   52.1   6.3%   (0.6 pp)    
 

Smartcards & Issuance first semester revenue came in at €743 million,
(3%) lower year-on-year at constant exchange rates.

As expected, the Payment business stabilized this semester. This
performance was driven by the return of the US EMV market's demand to a
normal pattern combined with strong shipments sales in the CIS, Middle
East and Latin America regions. These increases offset performance in
Europe, marked by lesser renewal programs, and lower sales in Asia.
Removable SIM revenue continued to decrease this semester as a result of
the first impact of the exit of a specific low-end SIM market and more
broadly as low profit-margin opportunities were dismissed. As SIM market
trends look unchanged, Gemalto continues to adjust its operational cost
and selective business opportunities' approach to achieve stable profit
margin for this segment.

The Digital business revenue was down year-on-year essentially due to
lower performance in Digital Banking and Digital Payment services and
the first impact of the discontinuation of a payment sub-business as
part of the transition plan. Connectivity solutions infrastructure
deployments increased in key sectors of the IoT market while the need
for On Demand Connectivity (ODC) services gradually spreads to all
regions and mobile network operators. In the payment market, Gemalto
announced the enabling of Hong Kong's Octopus card through Samsung Pay
via its Trusted Service Hub (TSH), another landmark program that follows
the recent successes in Japan and Spain, and that confirms the
competitiveness of Gemalto's digital offer in this transforming market.

The Smartcards & Issuance segment's gross profit was down (12%) at €232
million and gross margin came in at 31%, down (1) percentage point
compared to the same period of last year.

Operating expenses decreased by (€22) million down to (€190) million in
the first semester 2018, reflecting initial benefits of the transition
plan.

As a result, the Smartcards & Issuance segment's profit from operations
for the first semester of 2018 was €42 million and its profit from
operations margin settled at 5.7%.

Thales combination

In December 2017 Thales and Gemalto reached an agreement on a
recommended all-cash offer for all issued and outstanding ordinary
shares of Gemalto. This offer was launched on March 27, 2018. Gemalto is
working together with Thales towards achieving the regulatory and
antitrust approvals required to complete the transaction. Thales expects
the transaction to close by year end 2018, after it has secured all
customary regulatory approvals and clearances. More information on the
Thales offer and the integration, including the offer document and
related press releases, can be found on Gemalto's website at Public
Offer by Thales
.

2018 full year outlook confirmed

  • Double digit revenue growth expected in the Identity, IoT &
    Cybersecurity segment
  • Stable PFO margin expected in the Smartcards & Issuance segment
  • Mid to High single digit growth in profit from operations
    expected at Gemalto level

Additional information

Below is a highlight of new contracts and achievements published by the
Company in the first semester 2018

 
Identity, IoT & Cybersecurity
January 9, 2018 Gemalto LTE-M wireless module earns AT&T certification expanding
highly efficient cellular connectivity for IoT devices
March 21, 2018 Gemalto unveils two new enhanced security features for ID documents
April 11, 2018 More than 2.5 billion records stolen or compromised in 2017
April 17, 2018 Gemalto to protect 5G next generation networks from cyber-attacks
with Intel® Software Guard Extensions
April 23, 2018 Gemalto awarded multi-year service contract for British passports
May 03, 2018 Gemalto's biometric authentication technology revolutionizes
automated border control in Colombia
May 14, 2018 Gemalto strengthens trust in smart energy with its new end-to-end
security solution
June 6, 2018 Gemalto launches virtualized network encryption platform to help
customers address evolving data security needs
June 13, 2018 Gemalto facial recognition solution excels at US Department of
Homeland security 2018 Biometric Rally
June 21, 2018 Gemalto and Faraday Future work together to deploy secure, connected
vehicles
 
Smartcards & Issuance
January 4, 2018 Gemalto launches the first biometric EMV card for contactless
payments
January 31, 2018 Gemalto's Discovery Service boosts on-demand connectivity activation
for consumer devices worldwide
February 27, 2018 Telefonica Deutschland selects Gemalto solution to deliver identity
verification service
March 6, 2018 Korea Telecom selects Gemalto to deliver out-of-box connectivity for
connected cars
March 19, 2018 Dai Nippon Printing chooses Gemalto's biometric facial recognition
solution to facilitate mobile banking access in Japan
April 26, 2018 Gemalto enables digitization of Hong Kong's Octopus card into
Samsung Pay
May 28, 2018 Gemalto announces collaboration with Qualcomm Technologies to
integrate eSIM innovation into the Snapdragon Mobile PC Platform
 

Live Audio Webcast and Conference call

Gemalto first semester 2018 results presentation will be webcast in
English today at 3:00 PM Amsterdam and Paris time (2:00 PM London time
and 9:00 AM New York time).

Audio webcast

A listen-only live audio webcast of the presentation and the Q&A session
will be accessible here on our Investor Relations website via the link
below:

Gemalto
webcast

This webcast is compatible with Android and iOS terminals, including
iPads. Questions will be taken by way of conference call.

Conference call

Investors and financial analysts wishing to ask questions should join
the presentation by dialing:

(UK) +44 330 336 9411 or (US) +1 929 477 0324 or (FR) +33 1 7677 2257

PIN: 3161560

The accompanying presentation slide set that will be used during the
conference call is available on Gemalto investor relations web site.

Replays of the presentation and Q&A session will be available in webcast
format on our Investor Relations web site approximately 3 hours after
the conclusion of the presentation. Replays will be available for one
year.

The semi-annual report, including the interim condensed consolidated
financial statements as of June 30, 2018, is available on our investor
web site (www.gemalto.com/investors).

Calendar

Third quarter 2018 revenue will be reported on Friday October 26, 2018,
before the opening of Euronext Amsterdam.

Stock Exchange Listing

Gemalto N.V. is dual listed on Euronext Amsterdam and Paris, in the
compartment A (Large Caps).

Mnemonic:   GTO
Exchange Dual listing on Euronext Amsterdam and Paris
Market of reference Euronext Amsterdam
ISIN Code NL0000400653
Reuters GTO.AS
Bloomberg GTO:NA
 

Gemalto has also established a sponsored Level I American Depository
Receipt (ADR) Program in the United States since November 2009. Each
Gemalto ordinary share is represented by two ADRs. Gemalto's ADRs trade
in U.S. dollar and give access to the voting rights and to the dividends
attached to the underlying Gemalto shares. The dividends are paid to
investors in U.S. dollar, after being converted into U.S. dollar by the
depository bank at the prevailing rate.

Structure   Sponsored Level I ADR
Exchange OTC
Ratio (ORD:DR) 1:2
DR ISIN US36863N2080
DR CUSIP 36863N 208
 

This press release contains inside information as referred to in article
7 paragraph 1 of Regulation (EU) 596/2014 (Market Abuse Regulation).

About Gemalto

Gemalto (Euronext NL0000400653 GTO) is the global leader in digital
security, with 2017 annual revenues of €3 billion and customers in over
180 countries. We bring trust to an increasingly connected world.

From secure software to biometrics and encryption, our technologies and
services enable businesses and governments to authenticate identities
and protect data so they stay safe and enable services in personal
devices, connected objects, the cloud and in between.

Gemalto's solutions are at the heart of modern life, from payment to
enterprise security and the internet of things. We authenticate people,
transactions and objects, encrypt data and create value for software –
enabling our clients to deliver secure digital services for billions of
individuals and things.

Our 15,000 employees operate out of 114 offices, 40 personalization and
data centers, and 35 research and software development centers located
in 47 countries.

For more information visit

www.gemalto.com,
or follow @gemalto on Twitter.

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.

This communication contains certain statements that are neither reported
financial results nor other historical information and other statements
concerning Gemalto. These statements include financial projections and
estimates and their underlying assumptions, statements regarding plans,
objectives and expectations with respect to future operations, events,
products and services and future performance. Forward-looking statements
are generally identified by the words "expects", "anticipates",
"believes", "intends", "estimates" and similar expressions. These and
other information and statements contained in this communication
constitute forward-looking statements for purposes of applicable
securities laws. Although management of the Company believes that the
expectations reflected in the forward-looking statements are reasonable,
investors and security holders are cautioned that forward-looking
information and statements are subject to various risks and
uncertainties, many of which are difficult to predict and generally
beyond the control of the Company, that could cause actual results and
developments to differ materially from those expressed in, or implied or
projected by the forward-looking information and statements, and the
Company 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 communication include, but are not limited to: trends
in wireless communication and mobile commerce markets; the Company's
ability to develop new technology and the effects of competing
technologies developed; effects of the intense competition in the
Company's main markets; challenges to or loss of intellectual property
rights; ability to establish and maintain strategic relationships in its
major businesses; ability to develop and take advantage of new software,
platforms and services; profitability of the expansion strategy; effects
of acquisitions and investments; ability of the Company's to integrate
acquired businesses, activities and companies according to expectations;
ability of the Company to achieve the expected synergies from
acquisitions; and changes in global, political, economic, business,
competitive, market and regulatory forces. Moreover, neither the Company
nor any other person assumes responsibility for the accuracy and
completeness of such forward-looking statements. The forward-looking
statements contained in this communication speak only as of the date of
this communication and the Company or its representatives are under no
duty, and do not undertake, to update any of the forward-looking
statements after this date to conform such statements to actual results,
to reflect the occurrence of anticipated results or otherwise except as
required by applicable law or regulations.

Appendix 1

Reconciliation from Adjusted financial information to IFRS

                       

Six-month period
ended June 30 2018
(€
in thousands)

Adjusted
financial
information

 

Amortization
and
impairment
of
intangibles

resulting
from
acquisitions

 

Restructuring
and
acquisition-
related
expenses

 

Equity-based
compensation
charge and
associated
costs

 

Fair value
adjustment
upon
business
acquisitions

 

IFRS
financial
information

         
Revenue 1,386,732 - - - - 1,386,732
Cost of sales   (889,325)   (42,119)   (1,362)   (4,481)       (937,287)
Gross profit 497,407 (42,119) (1,362) (4,481) - 449,445
Operating expenses   (405,644) (10,130) (12,206) (427,980)
Profit from operations   91,763                    
Operating profit (42,119) (11,492) (16,687) - 21,465
Financial income (16,771) (16,771)
Share of profit / (loss) from associates (839) (839)
Non-recurring profit / (loss) relating to associates
Income Tax   (7,749)                   (1,103)
Net profit adjusted 66,404 2,752
Non-controlling interests   (445) (445)
Net profit excluding non-controlling interests 66,849 3,197
                         
Number of shares Basic 90,237 90,237
Number of shares Diluted   91,631                   91,631
                         
EPS Basic (€) 0.74 0.04
EPS Diluted (€)   0.73                   0.03
 
                       

Six-month period
ended June 30 2017
(€
in thousands)

Adjusted
financial
information

 

Amortization
and
impairment
of
intangibles

resulting
from
acquisitions

 

Restructuring
and
acquisition-
related
expenses

 

Equity-based
compensation
charge and
associated
costs

 

Fair value
adjustment
upon
business
acquisitions

 

IFRS financial
information

         
Revenue 1,392,842 - - - - 1,392,842
Cost of sales   (890,920)   (43,580)   (11,692)   (5,172)   (1,042)   (952,406)
Gross profit 501,922 (43,580) (11,692) (5,172) (1,042) 440,436
Operating expenses   (409,147) (424,671) (24,940) (14,662) (873,420)
Profit from operations   92,775                    
Operating profit (468,251) (36,632) (19,834) (1,042) (432,984)
Financial income (11,420) (11,420)
Share of profit / (loss) from associates 1,773 1,773
Non-recurring profit / (loss) relating to associates 10,105 10,105
Income Tax   (54,262)                   (41,225)
Net profit adjusted 38,972 (473,751)
Non-controlling interests   (459) (459)
Net profit excluding non-controlling interests 39,431 (473,292)
                         
Number of shares Basic 89,837 89,837
Number of shares Diluted   90,195                   90,195
                         
EPS Basic (€) 0.44 (5.27)
EPS Diluted (€)   0.44                   (5.27)
*Adjusted from deferred tax asset reduction   **Adjusted from impairments and deferred tax asset reduction
EPS Basic (€) *0.91 **0.01
EPS Diluted (€)   *0.90                   **0.01
 

The first semester 2017 adjusted basic earnings per share is determined
on the basis of the weighted average number of Gemalto shares
outstanding during the six-month period ended June 30, 2017, i.e.
89,836,968 shares. The first semester 2017 adjusted diluted earnings per
share is determined by using 90,194,882 shares corresponding to the IFRS
treasury stock method, i.e. on the basis of the same weighted average
number of Gemalto shares outstanding and considering that all
outstanding share based instruments were exercised (892,434 instruments)
and the proceeds received from the instruments exercised (€29,179,802)
were used to buy-back shares at the average share price of the first
semester 2017 (534,520 shares) at €54.59.

Appendix 2

Interim consolidated statement of financial position

(€ in thousands)   June 30,   December 31,
        2018   2017
Assets  
Non-current assets
Property, plant and equipment 296,507 316,426
Goodwill 1,497,345 1,468,214
Intangible assets 731,288 757,814
Investments in associates 7,192 8,542
Deferred income tax assets 53,310 37,818
Other investment 33,665 39,183
Other non-current assets 81,128 79,584
Derivative financial instruments 369 0
Total non-current assets 2,700,804 2,707,581
Current assets
Inventories 251,432 226,339
Trade and other receivables 994,780 998,500
Derivative financial instruments 10,712 55,633
Cash and cash equivalents 251,125   320,675
Total current assets 1,508,049   1,601,147
Total assets 4,208,853 4,308,728
             
Equity
Share capital 90,786 90,424
Share premium 1,330,696 1,303,799
Treasury shares (6,592) (10,721)
Fair value and other reserves (167) 32,574
Cumulative translation adjustments (62,111) (74,485)
Retained earnings 836,120   834,368
Capital and reserves attributable to the owners of the Company 2,188,732   2,175,959
Non-controlling interests 2,440   3,375
Total equity 2,191,172 2,179,334

Liabilities

Non-current liabilities
Borrowings 721,100 717,986
Deferred tax liabilities 103,308 102,081
Employee benefit obligations 128,319 126,716
Provisions and other liabilities 127,249 129,972
Derivative financial instruments 1,105   -
Total non-current liabilities 1,081,081   1,076,755
Current liabilities
Borrowings 163,317 286,788
Trade and other payables 680,039 682,248
Current income tax liabilities 20,810 27,930
Provisions and other liabilities 40,161 52,261
Derivative financial instruments 32,273   3,412
Total current liabilities 936,600   1,052,639
Total liabilities 2,017,681   2,129,394
    Total equity and liabilities   4,208,853   4,308,728
 

Appendix 3

Cash position variation schedule

    Six-month period ended June 30
€ in millions   2018   2017
         
Cash and bank overdrafts, beginning of period   302 663
 
Cash generated by operating activities, before changes in working
capital
126 121
Net change in working capital (14) (1)
Cash used in restructuring actions and acquisition related expenses   (27) (23)
Net cash generated by operating activities before Time
de-correlated hedging effect / (Prepaid derivatives)
  84 97
 
Time de-correlated hedging effect / (Prepaid derivatives)   15 21
Net cash generated by operating activities   99 118
 
Capital expenditure and acquisitions of intangibles   (67) (68)
Free cash flow   32 50
 
Interest received 1 1
Cash used by acquisitions (2) (761)
Other cash provided by investing activities (1) 0
Currency translation adjustments   (2) (7)
Cash generated (used) by operating and investing activities   28 (717)
 
Cash generated (used) by the liquidity and share buy-back program 0 (0)
Dividend paid to Gemalto shareholders 0 (45)
Net proceed (repayment) from/of financing instruments (78) 334
Interest paid (4) (2)
Other cash provided (used) by financing activities   (0) 3
Cash and bank overdrafts, end of period   248 236
 
Current and non-current borrowings excluding bank overdrafts, end of
period
  (881) (1,074)
       
Net (debt), cash, end of period   (633) (838)
 

Appendix 4

Revenue by region

      Year-on-year variations
First semester
€ in millions
 

First semester
2018

 

First semester
2017

 

at constant
exchange rates

 

at historical
exchange rates

Europe, Middle East and Africa 661 636 +6%   +4%
Americas 478 469 +14% +2%
Asia   248   288   (6%)   (14%)
Total revenue   1,387   1,393   (6%)   (0%)
 

 

Year-on-year variations
Second quarter
€ in millions
 

Second quarter
2018

 

Second quarter
2017

 

at constant
exchange rates

 

at historical
exchange rates

Europe, Middle East and Africa 353 349 +3% +1%
Americas 257 247 +14% +4%
Asia   121   146   (6%)   (13%)
Total revenue   737   742   5%   (1%)
 

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