Gemplus International S.A., the world’s leading provider of smart card enabled solutions,
reported results for the first quarter ended March 31, 2004.
Note: The consolidated financial statements of the Company have been
prepared in accordance with International Financial Reporting Standards
Commenting on the performance for the first quarter 2004, Alex Mandl,
President and Chief Executive Officer, said: “We are pleased to continue to
report improved performance, notwithstanding the usual first quarter
seasonality factor. It is the result of our continuous efforts to, on the one
hand, be as cost efficient as possible, while, on the other hand, invest in
our ability to differentiate on value for our customers.”
First quarter 2004 financial review
– Income statement
– Revenue up 38.8% year-on-year, currency adjusted(1).
– Quarter-on-quarter, revenue down 12.1%, currency adjusted(1),
reflecting continued price pressure and less seasonality.
– Gross margin up 2.0 percentage points sequentially, helped
by better efficiency in the supply chain.
– Operating profit before restructuring up 3.0 million euros
quarter-on-quarter, to 4.8 million euros, despite unfavorable
During the quarter under review, sales continued to gain momentum across
all business units. On a currency-adjusted basis, Group revenue grew 38.8%
year-on-year. On a geographical basis, Americas revenue rose 90.8%, Asia was
up 57.2% and EMEA up 12.8%. The 12.1% quarter-on-quarter decline reflects
less seasonality compared to historical patterns.
Gross margin increased by 2.0 percentage points compared with the fourth
quarter 2003 to 31.0%. This was led by improved product mix and better
efficiency in the supply chain. These items fully offset an unfavorable
regional mix and selling price declines. Compared to the first quarter 2003,
gross margin increased 6.6 percentage points.
Operating expenses, excluding restructuring, have been cut by 14.0%
quarter-on-quarter to 56.5 million euros. As a result, operating profit
before restructuring improved by 3.0 million euros compared to the fourth
quarter 2003 and by 32.1 million euros compared to the first quarter 2003.
As expected, no restructuring expenses were booked during the first
quarter 2004. The execution of the restructuring plan announced in December
2002 is on schedule with the final phase expected to start during the second
quarter 2004, as previously announced. The Company implemented 36
redundancies during the first quarter 2004, leading to a net headcount
reduction of 813 at the end of the quarter. The operating expense run rate(2)
was therefore stable quarter-on-quarter, at 55 million euros at the end of
the first quarter 2004.
Net income for the first quarter increased by 28.1 million euros
quarter-on-quarter, helped by the absence of non-recurring charges.
– Balance sheet and cash flow statement
– Free cash flow before non-recurring items of 29.6 million
– Strong cash position almost stable at 384.6 million euros.
Free cash flow before non-recurring items(3) of 29.6 million euros was
driven by improved profitability and working capital requirements (down 18.9
The Group cash position remains strong at 384.6 million euros at March
31, 2004, down 6.1 million euros compared to December 31, 2003. The net cash
reduction mainly reflects restructuring cash outflows of 12.8 million euros
and the reclassification of 22.0 million euros of cash to other non-current
assets. As previously reported, the Court of Appeal of Aix-en-Provence,
France, ordered Gemplus S.A. to establish an escrow account in the same
amount as security, pending its decision in a lawsuit. The payment will be
credited during the second quarter 2004 ending June, 30, 2004. The amount was
considered as restricted cash and, as such, classified as other non-current
assets at the end of the first quarter because it was temporary pledged in
order to propose to the Court of Appeal a bank guarantee during the course of
the injunction proceeding initiated by Gemplus S.A. to suspend an order for
payment to the plaintiffs.
First quarter 2004 highlights:
– Wireless revenue up 70.8% year-on-year, currency adjusted,
to 127.2 million euros.
– Record wireless shipments at 59.7 million units reconfirming
our leadership position.
– Wireless average selling price down 11.8% quarter-on-quarter,
currency adjusted, reflecting persistent price pressure
Revenue reflects the strong performance of wireless, offsetting lower
demand on phone & scratch cards:
– Wireless sales continued to gain momentum. Wireless products
& services revenue(4) was up 70.8% year-on-year, currency
adjusted, to 127.2 million euros.
– For the first time in four years, first quarter wireless shipments
showed sequential growth. Shipments were up 2.1% quarter-on-quarter,
largely driven by Asia (which was helped by regional seasonality).
Demand from China was particularly strong. Year-on-year, shipments
grew 68.9% to 59.7 million units reconfirming our leadership position.
– Gemplus continues to see strong demand for high-end cards in
developed markets. Conversely, in the majority of developing
countries,including China, the market remains heavily weighted
toward low-end cards. Shipments of high-end cards (including 64 Kb and
3G) showed continuous improvement in several regions, particularly
to major operators. However, due to an unfavorable regional mix,
the weight of high-end cards shipments was almost stable
quarter-on-quarter at 21.5% of the total in the first quarter 2004.
– Price pressure continues to be a factor in the market place
as a result of a very challenging competitive environment. Furthermore,
product mix improvement was more than offset by unfavorable regional
mix and, therefore, did not compensate for the selling price declines.
Consequently, wireless average selling price (ASP) was down 11.8%
sequentially, currency adjusted.
– Year-on-year, wireless ASP was up 2.7%, currency adjusted,
reflecting continuous improvement of product mix and regional
mix over the last twelve months, driven by strong growth in
Europe-Middle-East-Africa and Americas during this period.
– Financial Services(5)
First quarter 2004 highlights:
– Quarter-on-quarter sales reflecting seasonality.
– EMV migration gaining momentum, driven by the UK but also
supported by other regions.
In the banking & retail segment, revenue was driven by the migration from
magnetic stripe to EMV cards. Payment microprocessor card shipments rose 125%
year-on-year and 11% quarter-on-quarter.
EMV sales continued to gather pace. Shipments increased 38%
quarter-on-quarter. This quarter was the fifth consecutive quarter showing
significant sequential revenue growth. Sales were mainly driven by the UK
market, but were also supported by Continental Europe, South-East Asia and
Latin America. Several large banks started to rollout Gemplus EMV cards
during this quarter, in the UK, France, Turkey, Malaysia, and other countries.
Year-on-year growth in payment microprocessor cards was offset by lower
sales in non-EMV cards.
Quarter-on-quarter, sales were driven by EMV as well as non-payment
microprocessor cards. Pay TV shipments were strong, due to improved execution
and delivery capabilities. The sequential revenue decline reflects
seasonality as well as lower revenue from magnetic stripe cards and the end
of the Target program.
– ID & Security(7)
First quarter 2004 highlights:
– Revenue driven by the deployment of ID projects in Oman and
the United Arab Emirates.
– Growing market opportunities.
ID & Security revenue growth was driven by the deployment of Government
ID solutions in Oman and the United Arab Emirates. Quarter-on-quarter revenue
also reflects seasonality of the smart card interface segment.
Gemplus sees a number of market opportunities which confirms the growth
potential of the ID & Security market. Most of these opportunities are long
term and would be unlikely to generate revenue before next year, due to the
length of the sales cycle and extended deployment times.
Gemplus is performing consistent with the turnaround plan outlined in
For the remainder of the year, the Company’s financial performance should
continue to benefit from favorable market trends, notwithstanding continuous
selling price pressure.
Gemplus expects continued improvement in operating profit before
restructuring going forward, as mentioned in the last quarterly earnings
announcement. Considering first quarter results and given the current outlook
for exchange rates, the Company confirms an operating profit target of 25
million euros before restructuring for 2004 and sees potential upside to this
Second quarter 2004 results are scheduled to be reported on July 28,
2004, before the opening of Euronext Paris.
In China, China Mobile is using Gemplus solutions to differentiate its
service offering to its customers. The operator has segmented its customer
base and is targeting CMCC(8) branded value added services (SIM cards and
applications) to each segment, such as M-Zone, which offers applications
convenient for SMS use for the youth market, GoTone, which provides dual
subscription and large phonebook capabilities for high-end contract users,
and the Prepaid “ShenZhouXing” offer for prepaid users.
The deployment of services and the segmentation of the customer base are
strong factors promoting the Chinese mobile market to move toward higher end
cards (32 Kb, 64 Kb and 128 Kb).
Elsewhere in Asia, Gemplus deployed solutions offering strong added
value, including Singtel’s CitySIM service, a prepaid service offering
location-based information to visitors to Singapore. In Korea, Gemplus
deployed 3G cards for the launch of SK Telecom’s 3G network, which
incorporated the VSDC (VISA Smart Debit Credit) application by VISA
International for the world’s first mobile proximity payment service on a
USIM card, called MONETA. This enables users to pay for goods and services by
Infrared Messaging or Radio Frequency at physical terminals and represents a
real convergence between the financial and mobile telecommunications
New business segment reporting
The business segment reporting is being realigned according to the new
2004 operating structure. As previously reported, the Company has implemented
a more efficient organization aimed at building closer relationships with
customers in order to benefit from all market growth opportunities.
The former Financial and Security Services Business Unit has been divided
– the Financial Services Business Unit, comprising systems and services
based on chip card technology for applications such as financial services,
retail, transport, pay-TV, as well as magnetic stripe plastic cards for
– the ID & Security Business Unit, comprising systems and services
based on chip card technology for applications such as national ID,
healthcare, driver’s license, car registration, passport & visa,
e-government secured services, physical and logical access control
as well as smart card readers and interfacing technologies.
Gemplus provides below its 2003 financial results, presented according
to the new 2004 operating structure, which became effective on
January 1, 2004.
Gemplus International S.A. (Euronext: LU0121706294 – GEM and NASDAQ:
GEMP) is the world’s leading player in the smart card industry in both
revenue and total shipments (source 2002: Gartner-Dataquest, Frost &
Sullivan, Datamonitor.) It has the largest R&D team, unrivalled experience,
and an outstanding track record of technological innovation.
Gemplus helps its clients offer an exceptional range of portable,
personalized solutions that bring security and convenience to people’s lives.
These include Mobile Telecommunications, Public Telephony, Banking, Retail,
Transport, Identity, WLAN, Pay-TV, e-government, access control, and a wealth
of other applications.