Gemalto Full Year 2012 Results

Gemalto Full Year 2012 Results

• Record revenue at over € 2.2 billion, up +9%, and double-digit growth anticipated in 2013

• Profit from ongoing operations up +26%, surpassing the €300 million objective a year in advance

• Platforms & Services revenue up +26%, with double-digit growth in all segments

To better assess past and future performance, the income statement is presented on an adjusted basis (see page 2 "Basis of preparation of financial information"). 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 the consolidated financial statements. The reconciliation with the IFRS income statement is presented in Appendix 2. The statement of financial position is prepared in accordance with IFRS, and the cash position variation schedule is derived from the IFRS cash flow statement.

AMSTERDAM--(BUSINESS WIRE)-- Regulatory News:

Gemalto (Euronext NL0000400653 - GTO), the world leader in digital security today announces its results for the full year 2012.

Olivier Piou, Chief Executive Officer, commented: "Gemalto achieved a milestone year, posting record results and delivering faster than planned on what we set out to do: over the past three years we grew our revenue and profit by close to 40% and 80% respectively, and kept a strong net cash position. In 2012, we also secured a large number of long-term contracts in the mobile payment and government sectors, which will bolster our profitable expansion into the future. With the growth opportunities that we see in front of us, we have reinforced the investments in our businesses, preparing to fulfill the ambitions of our next long-term development plan."

¹ See basis of preparation on page 2, and appendix 1 of this document for more information on ongoing operations.

Basis of preparation of financial information

In this press release, the information for the full year of both 2012 and 2011 is presented for "ongoing operations" and under the 2012 format of segment reporting unless otherwise specified

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

The 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 2013 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 the 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 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 an adjusted income statement from "ongoing operations" for both 2012 and 2011 reporting periods.

The adjusted income statement for ongoing operations excludes, as per the IFRS income statement, the contribution from discontinued operations to the income statement, and also the contribution from assets classified as held for sale and from other items not related to ongoing operations.

For the year 2012, reported figures for ongoing operations only differ from figures for all operations by the contribution from assets held for sale and the gain on sale of a subsidiary to an associate.

Compared to figures reported on the full year of 2011, figures for ongoing operations for the full year 2011 reported in this publication were re-presented to also exclude the contribution from assets classified as held for sale in 2012.

Appendix 1 bridges the adjusted income statement for ongoing operations to the adjusted income statement for all operations.

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 consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS).

The IFRS consolidated income statement for the full year 2012 shows an operating result of €239 million for the Company, up by +30% year on year. It was €183 million for the full year 2011.

Restructuring and acquisition-related expenses were reduced to €8 million, versus €15 million for 2011. Amortization and depreciation of intangibles resulting from acquisitions also reduced to €21 million versus €25 million for 2011. Equity-based compensation charges, including a new long-term incentive plan put in place for all employees worldwide and the impact of Gemalto's share price increase, were €39 million versus €32 million for 2011.

Net profit for the full year 2012 was €201 million, up by 25% on the net profit of €161 million for the full year 2011.

Consequently, basic earnings per share were €2.41 for the reported period growing by +25% compared to €1.93 for the full year 2011. Diluted earnings per share were €2.31 increasing by +23% in comparison to €1.88 for the full year of 2011.

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:

• for 2011, the gain recognized further to the change in shareholding structure of a joint venture held for sale and the contribution from other items not related to ongoing operations.

• for 2011 and 2012, the contribution from assets held for sale, comprising those that were contributed to the joint venture announced on April 3, 2012 and created on November 30, 2012, as well as other non-strategic assets currently being disposed.

Revenue of the Company for all its operations reached €2.25 billion. The largest part of the growth was provided by the Mobile Communication and Security segments which generated additional revenue of €204 million. Secure Transactions and Machine-to-Machine also contributed positively to revenue growth.

Across all segments, Platforms & Services activities grew by +26%, to account for €392 million² in 2012, generating 40% of the total Company growth and further increasing their share of the Company's revenue. In the mobile payment and the government sectors substantial long-term contracts were signed and their deployments initiated.

Gross profit for the Company was up +15%, or €113 million, to €864 million. This represents a gross margin of 38.5%, higher by +1.2 percentage point on 2011. This gross profit improvement was driven by gross margin increases in the Mobile Communication and Secure Transactions segments as well as by revenue growth in Security. Globally, additional revenue came in at higher gross margin due to the greater proportion of Platforms & Services revenue and to an improved product mix, particularly in the Mobile Communication segment.

Operating expenses increased by 8% to €558 million, representing an essentially stable ratio to revenue of 25%. Expenses in operating resources grew in all segments, especially in research and development, to support project deployments and future growth opportunities. This resulted in a sequential increase in operating expenses, with €298 million for the second semester when excluding Other income.

Full year profit from all operations came in at €306 million, up a remarkable +20% on the previous year's performance that benefited from the one-time positive contribution from a gain on the re-measurement to fair value of Gemalto's investment in a Chinese JV. Driven by the positive developments in all main segments, the year-on-year positive variation in profit from ongoing operations reached +26%, settling at €305 million despite a €9 million decrease in profit from operations recorded in the Patents segment, related to ongoing litigation the Company initiated in the United States. Continuing deployments of fourth generation mobile networks, acceleration in the deployment of infrastructures enabling mobile payment services and increasing adoption of electronic identity programs supported the improvement. Platforms & Services activities contributed markedly to the profit increase through strong revenue growth and better absorption of operating costs, which had increased substantially in these activities since the beginning of the current long-term strategic plan in preparation for the strong involvement of Gemalto in mobile payment service deployments.

Financial income was a charge of €11 million for the year, lower by €1 million on 2011. Net interest income was a charge of €1 million and the foreign exchange transactions and hedging instruments re-evaluation at year-end generated a charge of €5 million. The remaining charges were mainly related to reassessment at fair value of financial liabilities. Share of profit of associates was lowered by €4 million to €2 million, as Gemalto consolidated an acquired company in which it previously had a share of interest.

Consequently, adjusted profit before income tax was €297 million, +19% higher than the €249 million recorded in 2011.

Income tax expense was €35 million, up from a €20 million charge in 2011, reflecting the anticipated increase in the effective tax rate related to the recognition of fewer deferred tax assets.

In 2012, the Company recorded no charge from discontinued operations, which accounted for a €1.6 million charge in 2011, in relation to the disposal of the Point-of-Sale activity at the end of 2010.

As a result, adjusted net profit of the Company for all operations was €262 million in 2012, a +15% increase when compared to €228 million in 2011, and adjusted net profit margin increased to 11.7%.

Basic adjusted earnings per share for all operations came in at €3.14, up 15%, and fully diluted adjusted earnings per share for all operations settled at €3.00, up 13%.

² See appendix 5

Statement of financial position and cash position variation schedule

For the full year 2012, operating activities generated a cash flow of €285 million, increasing by +35% over the €211 million generated in 2011. The increase in cash used by working capital requirements amounted to €18 million, in line with the larger volume of activity. Cash used in restructuring actions and for acquisition-related expenses was €8 million, stable on the previous year. Capital expenditure and acquisition of intangibles (net) amounted to €125 million compared to €93 million in 2011, of which €68 million was incurred for Property, Plant and Equipment versus €52 million in 2011 in relation to data centers set-up and capacity increase. Capital expenditures in 2012 also included essentially stable capitalized development costs of €36 million (€34 million in 2011) and an expenditure of €12 million for the acquisition of intangible assets for long-term usage (license) reported during the first semester.

Net impact from investing activities related to acquisitions was €73 million in 2012 after a non-material amount in 2011. This consideration relates to cash payments made for business combinations completed during the year.

Gemalto's share buy-back program used €45 million in cash in 2012 for the purchase of 868,137 shares, net of the liquidity program. As at December 31, 2012, the Company owned 3,930,523 shares, i.e. 4.47%, of its own shares in treasury. The total number of Gemalto shares issued remained unchanged, at 88,015,844 shares. Net of the shares held in treasury, 84,085,321 shares were outstanding as at December 31, 2012. 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 December 31, 2012 was €38.61.

On May 31, 2012, Gemalto paid a cash dividend of €0.31 per share in respect of the fiscal year 2011. This distribution used €26 million in cash. Other financing activities generated €14 million in cash, including €33 million of proceeds received by the Company from the exercise of stock options by employees and €16 million remitted for the repayment of borrowings.

As a result of these elements, Gemalto's cash and cash equivalents as at December 31, 2012 were €363 million. Current and non-current borrowings were reduced to €10 million from €21 million in 2011, and Gemalto's net cash position as at December 31, 2012 was €353 million, an increase of €44 million when compared with December 31, 2011.

For the year 2012, total assets grew by +12% or €293 million to €2.71 billion as at December 31, 2012, compared to €2.42 billion as at December 31, 2011, due to a balanced growth in current and non-current assets in relation to the Company's increased business activities and longer-term investments. Shareholders' equity increased by +12%, or €205 million, to €1.92 billion as at December 31, 2012 compared to €1.72 billion as at December 31, 2011. The increase was mainly the result of the positive net profit generation, which was partly offset by the 2011 dividend distribution.

Segment information

In this section, for a better understanding of Gemalto's business evolution, comments and comparisons refer to ongoing operations. Revenue variations are expressed at constant currency exchange rates unless otherwise noted.

The segments financial information for 2011 is presented pro-forma on the 2012 basis of preparation.

Revenue of the Security, Secure Transactions and Machine-to-Machine segments together represented 51% of the total Company revenue, a stable proportion when compared to 2011. The share of profit from ongoing operations generated by those segments was slightly lower at 40% of the Company's profit from ongoing operation (42% in 2011) due to the strong improvement in Mobile Communication. Patents had a negative contribution to profit from ongoing operations in 2012 due to the litigation the Company initiated in the United States.