ג'מלטו מדווחת על תוצאות כספיות לרבעון ראשון לשנת 2017

 

 

Gemalto first semester 2017 results

To better assess past and future performance, the income statement is presented on an adjusted basis and variations in revenue figures above and in this document are at constant exchange rates except where otherwise noted (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. Reconciliation with the IFRS income statement is presented in Appendix 1. 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. All figures in this press release are unaudited.

Amsterdam, September 1, 2017, GLOBENEWS WIRE:

Gemalto (Euronext NL0000400653 - GTO), the world leader in digital security today announces its results for the first semester 2017.

Key figures of the adjusted income statement

 

 

 

Year-on-year variations


(€ in millions)

First semester 2017

First semester 2016

at historical exchange rates

at constant exchange rates

Revenue

1,393

1,495

(7%)

(8%)

Gross profit

502

586

(14%)

 

Operating expenses

(409)

(415)

(1%)

 

Profit from operations

93

172

(46%)

 

Profit margin

6.7%

11.5%

(4.8 ppt)

 


Philippe Vallée, Chief Executive Officer, commented:
 "In the second quarter, Gemalto‘s year-on-year base of comparison in the US Payment business was at its most challenging level, reflecting the on-going adjustments in US EMV demand. In addition the removable SIM business deteriorated faster than we expected. As a result, the Company‘s first semester results were disappointing. Looking ahead, Gemalto expects to generate year-on-year stable revenue in the second semester supported by an acceleration in its Enterprise, Government Programs and Machine-to-Machine businesses leading to the outlook announced in July. The priorities that I have set for the teams are to rapidly integrate the newly acquired Identity Management Business, successfully execute the first actions of the transition plan and focus our investments on offers that are key to our clients‘ digital transformation."

Basis of preparation of financial information

Segment information

The Mobile segment reports on businesses associated with mobile cellular technologies including Machine-to-Machine, mobile secure elements (SIM, embedded secure element) and mobile Platforms & Services. The Payment & Identity segment reports on businesses associated with secure personal interactions including Payment, Government Programs and Enterprise. The acquisition of 3M‘s Identity Management business in May 2017 is part of the Government Programs business.

In addition to this segment information the Company also reports revenues of Mobile and Payment & Identity by type of activity: Embedded software & Products (E&P) and Platforms & Services (P&S).

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 2017 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:

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.

Adjusted financial information

The interim condensed 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.

 

First semester 2017

First semester 2016

 

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

1,392.8

 

1,495.2

 

(7%)

(8%)

Gross profit

501.9

36.0%

586.3

39.2%

(3.2 ppt)

 

Operating expenses

(409.1)

(29.4%)

(414.6)

(27.7%)

(1.6 ppt)

 

EBITDA

163.3

11.7%

239.3

16.0%

(4.3 ppt)

 

Profit from operations

92.8

6.7%

171.7

11.5%

(4.8 ppt)

 

Net profit (excl. non-controlling interests)

39.4

2.8%

106.4

7.1%

(4.3 ppt)

 

Basic Earnings per share (€)

0.44

 

1.20

 

(64%)

 

Diluted Earnings per share (€)

0.44

 

1.19

 

(63%)

 

Total revenue for the first semester 2017 came in at €1,393 million, lower by (7%) at historical exchange rates and (8%) at constant exchange rates.

Gross profit was lower by €84 million, at €502 million. The reduction in gross profit for the Payment, SIM and related services was partially offset by the increase from the other businesses. Gross margin was 36%, lower by 3 percentage points year-on-year, as the operating leverage of Payment business and Mobile segment were not fully realized during the semester.

Operating expenses were down, by (€5) million, at (€409) million through tight control of expenses in Payment and SIM businesses while the Company continued to invest in the growing businesses. As a result, profit from operations was €93 million. The acquired Identity Management Business contributed €1.5 million in profit from operations since May 1.

Gemalto‘s financial income was (€11) million compared to (€23) million in the first semester of 2016. This €11 million improvement came mainly from a non-cash currency impact related to the change in classification of equity securities. Impairment of associates was a positive €10 million due to a change in the market capitalization of an associate. As a result, adjusted profit before income tax came in at €93 million.

Adjusted income tax expense was (€54) million in the first semester of 2017 compared with (€29) million one year ago. This (€26) million expense increase mainly reflects the estimated non-cash deferred tax asset reduction following Gemalto‘s 2017 profit from operations outlook revision. Excluding this non-recurring impact, the adjusted income tax expense would have been (€12) million and the adjusted income tax rate would have been 13% for the first semester. This exceptional charge has no impact on the expected normative adjusted effective tax rate going forward.

Overall, the adjusted net profit of the Company was €39 million. Consequently, adjusted basic earnings per share and adjusted diluted earnings per share came in at €0.44. Excluding the non-recurring tax asset reduction, the adjusted basic earnings per share and adjusted diluted earnings per share came in at €0.91 and €0.90 respectively.

IFRS results

Amortization and impairment of intangibles resulting from acquisitions increased by (€439) million to (€468) million. Most of this increase came from the previously announced (€425) million one-off non-cash impairment, resulting from the deteriorated prospects for the removable SIM market, mainly in relation to the goodwill generated upon the IPO of Axalto in 2004 and the Axalto-Gemplus merger in 2006. To a lesser extent the increase also came from the newly acquired Identity Management Business. Restructuring and acquisition-related expenses increased by (€23) million to (€37) million due to the first actions of the transition plan, the implementation of a new information system (ERP) and business combination costs. Gemalto equity-based compensation expense came in at (€20) million.

Fair value adjustment related to the non-cash amortization of the IFRS revaluation of SafeNet‘s pre-acquisition deferred revenue accounted for (€1) million for the first semester 2017 compared to (€2) million for the same period last year.

As a result, excluding the non-cash impairment, Gemalto recorded €0.43 million for the first semester of 2017 in its IFRS operating profit compared to €108 million a year ago.

The income tax expense for the first semester at (€41) million is mainly composed of a non-cash deferred tax asset reduction following Gemalto‘s revised profit from operations outlook. Excluding these non-recurring item, the impairment expenses and the anticipated restructuring expenses, the effective tax rate of the Company is expected to be at the normative level for the full year 2017.

The IFRS net result is at (€473) million for the first semester of 2017 and the IFRS basic earnings per share and diluted earnings per share for the first semester 2017 are (€5.27) and (€5.25) respectively. Excluding the impairments and deferred tax asset reduction, the basic earnings per share and diluted earnings per share are €0.01.

Statement of financial position and cash position variation schedule

In the first semester of 2017, operating activities generated a cash flow of €121 million before changes in working capital, lower compared to €177 million in 2016. Changes in working capital reduced cash flow by (€1) million, less than during the same period of 2016.

Cash used in restructuring actions and acquisition related expenses increased by (€7) million to (€23) million compared with the first semester of 2016 due to the optimization of operation footprint and resources as well as implementation of a new information system.

Capital expenditure and acquisition of intangibles represented a net cash outflow of (€68) million, i.e. 4.9% of revenue compared to (€75) million, i.e. 5% for the same period of last year. Purchase of Property, Plant, and Equipment reduced by €9 million down to (€25) million and acquisition & capitalization of intangibles came in at (€43) million.

As a result, in the first semester of 2017, the Company generated free cash flow of €50 million compared to €64 million for the same period of 2016.

Acquisitions used (€761) million in cash as the Identity Management Business acquisition was closed during the first semester of 2017.

Gemalto‘s share buy-back and liquidity programs generated a (€0.5) million net cash outflow for the first semester of 2017. As at June 30, 2017, the Company held 496,796 shares, i.e. 0.5% of its own shares in treasury. The total number of Gemalto shares issued increased by 495,175 this semester, to 90,423,814 shares. Net of the 496,796 shares held in treasury, 89,927,018 shares were outstanding as at June 30, 2017.

On May 18, 2017, Gemalto paid a cash dividend of €0.50 per share in respect of the fiscal year 2016, up +6% on the dividend paid in May 2016 which was of €0.47 per share. This May 2017 distribution used €45 million in cash.

Net proceeds from financing instruments generated a €334 million cash inflow, mainly from drawdown of commercial paper, issuance of private placements and borrowings.

Cash in hand, net of bank overdrafts amounted to €236 million as at June 30, 2017.

Considering the €1,074 million total amount of borrowings as at June 30, 2017, Gemalto‘s net debt position increased to €838 million compared to a net debt position of €334 million as at June 30, 2016. The (€505) million variation is related to the use of cash for the acquisition of 3M‘s Identity Management Business, partially offset by the Company cash flow generation during the last twelve months.

Segment information

Revenue variations are expressed at constant currency exchange rates unless otherwise noted.

Year-on-year variations 
and currencies impact 

(€ in millions)

Payment & 
Identity

Mobile

Total two main segments

Patents &
Others

Total

Second quarter

 

 

 

 

 

Revenue

471

269

740

2

742

At constant rates

(7%)

(12%)

(9%)

+49%

(9%)

At historical rates

(7%)

(10%)

(8%)

+49%

(8%)

During the second quarter, revenue decreased by (8%) at historical exchange rates and (9%) at constant exchange rates. Payment & Identity segment revenue was lower by (7%) at constant exchange rates. The decrease of the Payment business was partially offset by the increase in Government Programs and Data Encryption business line in the second quarter. The Mobile segment revenue was lower by (12%) at constant exchange rates in the second quarter of 2017 compared to 2016 due to the revenue decrease in the removable SIM business and Mobile Platforms & Services activity.

Year-on-year variations 
and currencies impact

(€ in millions)

Payment & 
Identity

Mobile

Total two main segments

Patents &
Others

Total

First semester

         

Revenue

875

516

1,391

2

1,393

At constant rates

(8%)

(10%)

(8%)

+45%

(8%)

At historical rates

(7%)

(7%)

(7%)

+45%

(7%)

As a percentage of total revenue

63%

37%

100%

0%

100%

Overall, for the first semester of 2017, the Payment & Identity segment contribution remained unchanged, compared with the same period of last year, at 63% of total Company revenue.

Contribution by activity 
First semester 2017

Embedded software & Products

Platforms & 
Services

Total two main segments

Patents &
Others

(€ in millions, variations at constant exchange rates)

Revenue

937

453

1,391

2

Year-on-year revenue growth

(9%)

(8%)

(8%)

+45%

As a percentage of revenue

67%

33%

100%

0%

In the first semester of 2017, Embedded software & Products were reduced by (9%) due to lower SIM sales to mobile network operators and payment cards in Americas. Platforms & Services activity decreased by (8%) at constant exchange rates, representing 33% of total Company revenue. This is mainly due to the on-going normalization of the US EMV market which reduced the level of issuance services as well as the decline in the Mobile Platforms & Services activity.

Profit from operations
(€ in millions)

Total 
(including Patents & Others)

Payment &
Identity

Mobile

First semester

93

81

16

As a percentage of the total profit from operations

100%

87%

18%

First semester profit from operations came in at €93 million as the operating leverage for the Payment and SIM businesses has not been fully realized over the semester. The contribution of the Payment & Identity segment for this semester is 87% of the total profit from operations.

Based on the first semester revenue trends in Payment and removable SIM, Gemalto has launched in April a transition plan which is expected to contribute over €50 million to profit from operations annually. Since then, the Company has started to align its capacity, footprint and resources to long-term US EMV market demand. The Company has also initiated the shut-down of a sub-business line activity as a first result of its portfolio review in order to align itself with its long-term priorities. The Company continues to work on business efficiency and portfolio streamlining. The expected in-year transition plan impact is around €15 million in 2017.

Payment & Identity

 

First semester 2017

First semester 2016

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

875.0

 

936.8

 

(7%)

(8%)

Gross profit

332.8

38.0%

374.0

39.9%

(1.9 ppt)

 

Operating expenses

(252.0)

(28.8%)

(255.8)

(27.3%)

(1.5 ppt)

 

Profit from operations

80.8

9.2%

118.2

12.6%

(3.4 ppt)

 

Payment & Identity‘s first semester revenue came in at €875 million, lower by (8%) at constant exchange rates compared to the same period in 2016. The segment‘s Embedded software & Products sales were at €532 million and its Platforms & Services sales at €343 million, lower by (8%) and (6%) year-on-year respectively.

The Payment business was lower by (19%) at €414 million. Sales in Americas decreased by (37%) year-on-year during the first semester versus +33% a year ago. This is due to the on-going return to normalized inventory levels of US EMV cards at Gemalto‘s customers coupled with a soft market environment in Latin America. Payment Embedded software & Products sales were lower by (18%) and Payment Platforms & Services revenue decreased by (19%) compared to the first semester of 2016. Furthermore, Gemalto is currently regrouping its Mobile Financial Services offers with its eBanking offers to better align the digital banking and payment offers in light of the European Payment Service Directive 2 (PSD2) initiative.

Revenue from the Enterprise business came in at €217 million for the first semester of 2017, stable at historical exchange rates and down (1%) at constant exchange rates. The Data Encryption business line grew by 6% during the semester. Authentication and Software Monetization revenues fell due to the shift to cloud and software services subscription models. To meet the market demand for cybersecurity solutions, the Enterprise business is increasing its investments to expand its services portfolio in this growing sector.

The Government Programs business was up +11%, at €243 million. Government Programs‘ Embedded software & Products revenue sales expansion was +15% year-on-year, and its Platforms & Services sales were up +1% year-on-year. The acquired Identity Management Business contribution in the second quarter was €22 million, more than offset the decline in the organic portion of Government Platforms & Services activity which had grown by +30% in the first semester of 2016. Project backlog continued to expand during the first semester.

Overall, the Payment & Identity segment‘s gross margin came in at 38%, lower by (1.9) percentage points compared to the first semester of 2016 as the operating leverage in the Payment business was not fully realized due to the revenue decrease.

Operating expenses were €4 million lower at (€252) million in the first semester of 2017, despite increased investment in the Enterprise business and the addition of the acquired Identity Management Business. This was largely due to a tightening of operating expenses in the Payment business.

As a result, profit from operations in Payment & Identity for the first semester 2017 came in at €81 million and profit from operations margin at 9.2%.

Mobile

 

First semester 2017

First semester 2016

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

515.6

 

556.8

 

(7%)

(10%)

Gross profit

167.9

32.6%

212.0

38.1%

(5.5 ppt)

 

Operating expenses

(151.5)

(29.4%)

(153.1)

(27.5%)

(1.9 ppt)

 

Profit from operations

16.4

3.2%

58.9

10.6%

(7.4 ppt)

 

The Mobile segment posted revenue of €516 million for the first semester of 2017. Revenue was lower by (7%) at historical exchange rates compared to the same period of 2016.

Embedded software & Products sales for the segment came in at €405 million, lower by (9%) at constant exchange rates. SIM sales decreased by (17%) at €239 million for the first semester partly due to lower market share in a more competitive landscape as mobile network operators continue to shift their investments from removable SIMs to focus on next generation connectivity. This evolution was also coupled to soft demand in regions affected by stricter subscription registration processes. SIM sales now represent only 17% of total Company revenue in the first semester. The Machine-to-Machine business accelerated in the second quarter, up +15% year-on-year, leading to revenue growth of +7% at €166 million in the first semester of 2017. New design wins recorded during the period will support further business acceleration in the second semester.

The Platforms & Services revenue for the Mobile segment was lower by (12%) in the first semester of 2017 at €111 million. The revenue decline is mainly due to lower activity in Mobile Financial Services. Excluding Mobile Financial Services, the Mobile Subscriber Services business line grew by +2%. Since the adoption of GSMA specifications related to embedded SIMs (eSIMs) remote activation and management, Gemalto‘s Mobile Subscriber Services business has made significant progress with recent project wins in both the machine-to-machine and consumer markets with clients such as Microsoft, Lenovo Connect, AT&T and Telefónica.

Gross margin for the Mobile segment decreased to 32.6% this semester. This is due to operating leverage not being fully realized as a consequence of lower activities in removable SIM and Mobile Platforms & Services combined with an expansion in the historically lower gross margin Machine-to-Machine business.

Operating expenses decreased to (€151) million this semester from (€153) million in the first semester of 2016. This reflects double-digit reduction of the removable SIM business operating expenses while investment continued in Machine-to-Machine and in next generation connectivity.

As a result, the Mobile segment‘s profit from operations for the first semester of 2017 was €16 million.

Patents & Others

 

First semester 2017

First semester 2016

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

2.2

 

1.5

 

+45%

+45%

Gross profit

1.2

56.7%

0.4

24.6%

-

 

Operating expenses

(5.7)

-

(5.7)

-

-

 

Profit from operations

(4.5)

-

(5.4)

-

-

 

The Patents & Others segment, generated €2 million in revenue in the first semester of 2017, versus €1.5 million in the first semester of 2016. Operating expenses were stable, and profit from operations came in at (€4) million in the first semester of 2017.

Additional information

Below is a highlight of new contracts and achievements published by the Company in the first semester of 2017

Payment & Identity

 

January, 5 2017

Uganda speeds visa issuance and strengthens border security with Gemalto

January, 31 2017

Gemalto to supply new Digital Identity Solution for the Swedish Tax Agency

March, 21 2017

Gemalto‘s HSM enables Microsoft Azure Information Protection customers to maintain full control

March, 28 2017

Gemalto releases findings of 2016 Breach Level Index

June, 1 2017

Four Canadian provinces award Gemalto for secure driver‘s license cards and issuance

 

 

Mobile

 

January, 3 2017

AT&T strengthens Internet of Things (IoT) offerings with Gemalto‘s solution

February, 21 2017

Gemalto and Microsoft join forces to provide seamless connectivity for Windows 10 devices

February, 28 2017

GigSky chooses Gemalto to enable seamless connectivity for devices around the world

May, 4 2017

Gemalto‘s secure smart chip to be integrated in the Samsung Galaxy S8 in selected markets

June, 28 2017

Mobike and Gemalto collaborate to bring IoT connectivity to bike-sharing services beyond China

 

 

Industry Recognitions

 

January, 18 2017

Gemalto wins Privacy Design Award for its Identity Verification solution

March 7, 2017

Gemalto LTE Cat. 1 solution wins IoT Evolution Connected Home & Building Award

March, 23 2017

Gemalto Wins 2017 Cybersecurity Excellence Award for Best Encryption Product

May, 3 2017

National Police Board of Finland & Gemalto win industry award for new ePassports and eID cards

May, 19 2017

Gemalto wins IoT Excellence Award for industry‘s first LTE M connectivity module

May, 24 2017

Gemalto wins ICMA Élan Award for Maryland‘s secure polycarbonate driver‘s license

Outlook

Looking ahead, compared with the same period of last year, the second quarter double digit revenue decreases in Payment in Americas and the SIM business are anticipated to continue for the second semester. These reductions should be offset by the expected revenue acceleration in Enterprise, Machine-to-Machine and Government Programs including the acquired Identity Management Business, leading to stable Company revenue for the second semester year-on-year.

Taking into account these revenue trends, the operating leverage of Payment and SIM businesses will not be realized as expected. The effect of the transition plan announced in April will start contributing materially towards the end of the year. Gemalto estimates its 2017 second semester profit from operations to be between €200 million and €230 million, leading to an expected full year profit from operations between €293 million and €323 million.

Live Audio Webcast and Conference call

Gemalto first semester 2017 results presentation will be webcast in English today