Gemalto full year 2016 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, March 3, 2017 at 12:00am :
Gemalto (Euronext NL0000400653 - GTO), the world leader in digital security today announces its results for the full year 2016.
Key figures of the adjusted income statement
|
|
|
|
Year-on-year variations |
|
|
|
Full year 2016 |
Full year 2015 |
at historical |
at constant |
|
Revenue |
3,127 |
3,122 |
= |
+1% |
|
Gross profit |
1,266 |
1,216 |
+4% |
|
|
Operating expenses |
(814) |
(793) |
+3% |
|
|
Profit from operations |
453 |
423 |
+7% |
|
|
Profit margin |
14.5% |
13.5% |
+94 bp |
|
Philippe Vallée, Chief Executive Officer, commented: "Gemalto‘s performance in 2016 demonstrates the strength of its business model and ability to adapt in a very adverse Mobile environment. The Payment activity grew slightly, Machine-to-Machine and Enterprise posted double-digit growth rates, and Government Programs recorded another strong performance. The structural transformation of the Company continued with Platforms & Services surpassing its annual revenue objective of €1 billion a year ahead of the current multi-year development plan. Optimization efforts paid off in the Mobile and Payment & Identity segments resulting in the Company‘s gross margin exceeding 40% for the first time in its history and leading to an improvement in both profitability and cash generation. In 2017, Gemalto will focus its efforts on growing sales through an increase in cross-selling between businesses. Gemalto is currently working on its new multi-year development plan that will be presented towards the end of the year."
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 SafeNet acquisition in 2015 is part of the Enterprise 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 depreciation 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 depreciation 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 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.
|
|
Full year 2016 |
Full year 2015 |
|
|
||
|
Extract of the |
€ in |
As a % of |
€ in |
As a % |
Year-on-year variations |
|
|
at historical |
at constant |
|||||
|
Revenue |
3,126.5 |
|
3,121.6 |
|
= |
+1.2% |
|
Gross profit |
1,266.2 |
40.5% |
1,215.9 |
39.0% |
+155 bp |
|
|
Operating expenses |
(813.5) |
(26.0%) |
(793.3) |
(25.4%) |
(61 bp) |
|
|
EBITDA |
593.5 |
19.0% |
546.9 |
17.5% |
+146 bp |
|
|
Profit from operations |
452.7 |
14.5% |
422.6 |
13.5% |
+94 bp |
|
|
Net profit |
266.9 |
8.5% |
303.5 |
9.7% |
(119 bp) |
|
|
Basic Earnings per share (€) |
3.00 |
|
3.45 |
|
(13%) |
|
|
Diluted Earnings per share(€) |
2.97 |
|
3.41 |
|
(13%) |
|
Total revenue for 2016 came in at €3,127 million, up +1.2% at constant exchange rates and stable at historical exchange rates.
In 2016, currency translation effects generated a (1) percentage point effect on revenue generation. The hedging program which aims at partially neutralizing the impact of currency variations on the Company‘s profit from operations, produced a 0.3 percentage point difference in revenue in comparison to last year.
Gross profit was up by €50 million, to €1,266 million, representing a gross margin of 40.5%, up +155 basis points year-on-year. The two main segments recorded gross margin improvement that more than offset the decrease in the Patents & Others segment.
Operating expenses were up by 61 basis points to 26% of revenue, at (€814) million. This increase came mainly from the investments made in the Enterprise business as mentioned in the first semester.
As a result, profit from operations was €453 million, up €30 million year-on-year. Profit margin from operations increased +94 basis points to 14.5% compared to 13.5% in 2015.
Gemalto‘s financial income was (€34) million compared to (€38) million for 2015. Interest expense and amortized costs on the public bond, private placements and credit lines facilities were (€0.2) million lower, at (€12) million in 2016 while foreign exchange transactions and other financial items amounted to (€20) million versus (€24) million a year ago, mainly due to currency variation impacts.
Share of profit in associates was €2 million for the full year 2016, stable compared to 2015. Net impairment of associates recorded (€21) million in 2016, versus nil in 2015, mainly due to the change in market capitalization of an associate.
As a result, adjusted profit before income tax and net impairment of associates came in at €420 million compared to €387 million the previous year, an increase of +9%.
Adjusted income tax expense increased to (€133) million, compared to (€83) million the previous year. This (€49) million expense increase mainly reflects the estimated non-cash deferred tax asset reduction following Gemalto‘s 2017 profit from operations outlook.
Excluding this non-recurring impact, the effective tax rate for the Company would have been 20% this year. This 2016 exceptional charge has no impact on the expected normative effective tax rate going forward.
As a result, the 2016 adjusted net profit for the Company was €267 million, leading to adjusted basic earnings per share of €3.00, and adjusted diluted earnings per share of €2.97 compared to adjusted basic earnings per share of €3.45, and adjusted diluted earnings per share of €3.41 in 2015.
IFRS results
Amortization and depreciation of intangibles resulting from acquisitions came in at (€58) million versus (€61) million in 2015. Restructuring and acquisition-related expenses decreased by €13 million to (€36) million, and came mainly from IT and facilities integration costs, implementation of a new information system (ERP) to harmonize finance and reporting systems, and optimization of data centers. The Gemalto equity-based compensation charge was markedly lower to (€9) million versus (€39) million for the same period of last year. This reflects mainly the lower estimated number of restricted share units to be delivered upon vesting based on the expectation of 2017 profit from operations. Fair value adjustments related mainly to the non-cash amortization of the IFRS revaluation of SafeNet‘s pre-acquisition deferred revenue accounted for (€3) million in 2016 compared to (€71) million in 2015.
As a result, Gemalto recorded an increase of €144 million in its IFRS operating profit (EBIT), at €347 million in 2016 compared to €203 million a year ago. This performance mainly reflects the increase in operating profitability, the marginal effect of the non-cash IFRS fair-value adjustments related to SafeNet‘s pre-acquisition deferred revenue in 2016 and the decrease in restructuring & acquisition-related expenses.
The income tax charge increased to (€107) million compared to (€31) million the previous year. This increase in expense mainly reflects the estimated non-cash deferred tax asset reduction following Gemalto‘s 2017 profit from operations outlook.
Consequently, IFRS net profit increased by +36% at €186 million for 2016 versus €137 million in 2015.
Overall, IFRS basic earnings per share and diluted earnings per share came in at €2.09, up +34% and €2.07, up +34% in 2016, compared to €1.56 and €1.54 respectively in 2015.
Statement of financial position and cash position variation schedule
For the full year 2016, operating activities generated a cash flow of €468 million before changes in working capital, up +6%, compared to the €443 million generated in 2015. Change in working capital reduced the cash flow generation by (€23) million in 2016 compared to a positive €65 million impact in 2015. Net trade and other payables reduced due to advance payments received from customers in 2015. Net trade receivables increased towards the end of the year with the growth in Government Programs, Machine-to-Machine and Enterprise.
Capital expenditure and acquisition of intangibles amounted to (€140) million, i.e. 4.5% of revenue compared to 5.9% in 2015. Property, Plant, and Equipment accounted for (€63) million in 2016, lower by (€35) million compared to the high level of 2015 that was related to initial investments made to support the strong start in payment business in the United States. Acquisition and capitalization of development expenses represented (€77) million, with capitalization of development expenses representing 2.0% of revenue in 2016.
As a result, in 2016 Gemalto generated strong free cash flow of €318 million increasing by +87% compared to €170 million in 2015.
Acquisitions used (€3) million in 2016 versus (€897) million in 2015 which had seen the closing of both the SafeNet and Trüb acquisitions.
Gemalto‘s share buy-back and liquidity programs generated a €1 million net cash inflow in 2016. As at December 31, 2016, the Company held 717,835 shares i.e. 0.8% of its own shares in treasury. The total number of shares issued increased by +920,930 in 2016 to 89,928,639 and, net of the 717,835 shares held in treasury, 89,210,804 shares were outstanding as at December 31, 2016. The average acquisition price of the shares repurchased on the market by the Company and held in treasury as at December 31, 2016 was €40.46.
On May 26, 2016, Gemalto paid a cash dividend of €0.47 per share in respect of the fiscal year 2015, up +12% on the dividend paid in 2015. This distribution used €42 million in cash.
Net proceeds from financing activities generated a (€14) million cash outflow, mainly coming from commercial paper repayment.
Cash in hand, net of bank overdrafts amounted to €663 million versus €405 million at the end of 2015.
Considering the €730 million total amount of borrowings as at December 31, 2016, Gemalto‘s net debt position was reduced to €67 million compared to a net debt position of €335 million at the end of 2015. This significant (€268) million variation is due to the strong free cash flow generated by the Company over the last twelve months. The Company net debt currently represents 0.1 times its EBITDA.
Segment information
Revenue variations are expressed at constant currency exchange rates unless otherwise noted.
|
Year-on-year variations |
Payment |
Mobile |
Total |
Patents & |
Total |
|
Fourth quarter |
|
|
|
|
|
|
Revenue |
544 |
332 |
876 |
2 |
878 |
|
At constant rates |
+8% |
(2%) |
+4% |
(74%) |
+3% |
|
At historical rates |
+7% |
(2%) |
+3% |
(74%) |
+3% |
During the fourth quarter, revenue expanded by +3% at constant exchange rates and historical exchange rates. The Payment & Identity segment grew by +8% in the fourth quarter. The strong performance of Enterprise and Government Programs during the fourth quarter more than offset lower sales in Payment. Mobile segment revenue was lower by (2%) in the fourth quarter compared to 2015. In that segment, the sales trend improved compared to the first nine months of 2016, with a slower decrease in SIM sales and +13% expansion in the Machine-to-Machine business as well as in the Mobile Platforms & Services activity.
|
Year-on-year variations |
Payment & |
Mobile |
Total two main |
Patents & |
Total |
|
Full year |
|
|
|
|
|
|
Revenue |
1,948 |
1,174 |
3,123 |
4 |
3,127 |
|
At constant rates |
+9% |
(8%) |
+2% |
(85%) |
+1% |
|
At historical rates |
+7% |
(8%) |
+1% |
(85%) |
= |
|
As a percentage of total |
62% |
38% |
100% |
0% |
100% |
Overall, the diversification of the Company has again been reinforced in 2016 with Payment & Identity now accounting for 62% of the Company revenue, compared to 58% last year.
|
Full year 2016 |
Embedded |
Platforms & |
Total two |
Patents & |
Total |
|
Revenue |
2,104 |
1,019 |
3,123 |
4 |
3,127 |
|
Year-on-Year revenue growth |
(3%) |
+15% |
+2% |
(85%) |
+1% |
|
As a percentage of total |
67% |
33% |
100% |
0% |
100% |
In 2016, Embedded software & Products revenue decreased by (3%) mainly due to lower SIM sales to mobile network operators and payment cards revenue in China. Platforms & Services exceeded the €1 billion mark one year ahead of the current multi-year development plan, to represent 33% of total Gemalto revenue in 2016. The expansion in the Platforms & Services activity has been supported by a double-digit growth in each of the Payment & Identity segment‘s businesses while the Mobile Platforms & Services activity grew by +3% over the year.
|
|
Total |
Payment & |
Mobile |
|
Second semester |
281 |
172 |
113 |
|
As a percentage of the |
62% |
59% |
66% |
|
Year-on-year variation |
+7% |
+7% |
+11% |
|
Full year |
453 |
290 |
171 |
|
Year-on-year variation |
+7% |
+22% |
(1%) |
Full year profit from operations increased by +7% year-on-year. In 2016, the Payment & Identity segment recorded a +22% increase in profit from operations and the Mobile segment profit from operations was lower by €1 million compared to 2015. This performance was driven by the gross margin improvement in the two main segments which largely offset the operating loss from the Patents & Others segment.
Payment & Identity
|
|
Full year 2016 |
Full year 2015 |
Year-on-year variations |
|||
|
|
€ in |
As a % of |
€ in |
As a % of |
at historical |
at constant |
|
Revenue |
1,948.3 |
|
1,818.4 |
|
+7% |
+9% |
|
Gross profit |
793.5 |
40.7% |
698.3 |
38.4% |
+2.3 ppt |
|
|
Operating expenses |
(503.3) |
(25.8%) |
(459.6) |
(25.3%) |
(0.6 ppt) |
|
|
Profit from operations |
290.2 |
14.9% |
238.7 |
13.1% |
+1.8 ppt |
|
Payment & Identity‘s full year revenue came in at €1,948 million, increasing by +9% at constant exchange rates compared to 2015. The segment‘s Embedded software & Products sales were up by +3% at €1,180 million and its Platforms & Services sales were up by +19% to €768 million.
The Payment business came in at €998 million, up by +2% in 2016 versus 2015 with moderate revenue growth in both the Americas and the Europe, Middle East & Africa regions. The lower sales in China were fully offset by an increase in revenue from the rest of Asia. In 2016, performance was contrasted between the semesters with second semester revenue lower year-on-year due to the high comparison basis in the United States related to the 2015 EMV liability shift deadline. Payment Embedded software & Products sales were lower by (4%) and Payment Platforms & Services revenue expanded by +24% compared to 2015.
Revenue from the Enterprise business came in at €462 million in 2016, up +10% when compared to 2015. The trend in revenue mix within the authentication business line continues to move towards a higher proportion of software and services. The Enterprise business increased its sales coverage expanding Gemalto‘s network of technology partners. It also accelerated investment in its R&D in order to strengthen the Company‘s offering to meet increasing market demand for cybersecurity solutions.
Revenue from the Government Programs business came in at €488 million, up +26% at constant exchange rates compared to 2015. Government Programs posted an outstanding fourth quarter revenue performance with the completion of a large scale project and increased deliveries from the finalized transformation of a production site. Government Programs Embedded software & Products revenue was up +21% and Government Programs Platforms & Services sales were up +39% in 2016 compared to 2015.
The Payment & Identity segment‘s gross margin improved to 40.7%, up +2.3 percentage points compared to 2015, with the optimization of the Payment business and the expansion of the Enterprise business.
Operating expenses grew to (€503) million in 2016, in large part due to investments made in the Enterprise business as well as the shift of internal resources to this segment in order to capture the market growth of Government Programs.
As a result, profit from operations in Payment & Identity came in at €290 million, up +22% from the €239 million recorded in 2015, leading to a 14.9% profit margin from operations, up +1.8 percentage points.
Mobile
|
|
Full year 2016 |
Full year 2015 |
Year-on-year variations |
|||
|
|
€ in |
As a % of |
€ in |
As a % of |
at historical |
at constant |
|
Revenue |
1,174.4 |
|
1,278.5 |
|
(8%) |
(8%) |
|
Gross profit |
471.2 |
40.1% |
494.5 |
38.7% |
+1.4 ppt |
|
|
Operating expenses |
(299.7) |
(25.5%) |
(322.2) |
(25.2%) |
(0.3 ppt) |
|
|
Profit from operations |
171.5 |
14.6% |
172.4 |
13.5% |
+1.1 ppt |
|
The Mobile segment recorded annual revenue of €1,174 million, (8%) lower year-on-year at constant exchange rates and historical exchange rates.
Embedded software & Products revenue for the segment came in at €924 million, (11%) lower compared to 2015 at constant exchange rates. SIM sales decreased by (19%) at €605 million for 2016. This was mainly due to the tail-end effect of the closure of a mobile payment venture in the United States, coupled with lower demand in Latin America and Africa. Conversely, the Machine-to-Machine business continued to grow, by +11% year-on-year, at €319 million on the back of expanding global demand of connected devices and embedded secure elements for the Internet of Things (IoT).
Platforms & Services revenue for the segment came in at €251 million, up by +3%. In 2016, Gemalto‘s Mobile Subscriber Services business reached important milestones with more than 20 references on embedded SIMs remote activation and management. Gemalto is deeply involved in setting up the ecosystem, as device manufacturers and mobile network operators adopt the GSMA specifications for the consumer device market published in the fourth quarter of 2016.
Gross margin for the Mobile segment was 40.1% in 2016, up by +1.4 percentage points compared to 2015. Operating expenses decreased to (€300) million from (€322) million in line with the trend observed in the first semester of 2016 due to the shift of part of the segment‘s resources to the growing Payment & Identity segment.
As a result, profit from operations came in at €171 million, i.e. a 14.6% profit margin from operations, up +1.1 percentage points on 2015.
Patents & Others
|
|
Full year 2016 |
Full year 2015 |
Year-on-year variations |
|||
|
|
€ in |
As a % of |
€ in |
As a % of |
at historical |
at constant |
|
Revenue |
3.8 |
|
24.6 |
|
(85%) |
(85%) |
|
Gross profit |
1.5 |
40.6% |
23.1 |
93.6% |
(53.0 ppt) |
|
|
Operating expenses |
(10.6) |
n.a. |
(11.5) |
(46.8%) |
n.a. |
|
|
Profit from operations |
(9.0) |
n.a. |
11.5 |
46.8% |
n.a. |
|
The Patents & Others segment generated €4 million of revenue for the full year 2016 versus €25 million in 2015. Operating expenses were lower by (€0.9) million, and the segment posted an operating loss of (€9) million in 2016.
Additional information
Below is a highlight of new contracts and achievements published by the Company in 2016
