Oberthur Card Systems S.A. has reported its results for full year 2006 ending December 31st, 2006. These consolidated financial statements were prepared in accordance with IFRS accounting principles.
While results for the first half were disappointing for Oberthur Card Systems and the whole industry, the positive short-term benefits of the cost control plan and the recovery in the payment segment in Europe drove to improvements in H2.
Despite fierce competition, in 2006 Oberthur Card Systems demonstrated its resilience. The Group’s positions were reinforced, notably in wireless all over the world and in the booming Asian payment market; profitability improved in the second part of the year. At the same time, the Group undertook a strategic move in Asia with the I’M acquisition project. The positive trend in the banking sector was re-established in Q4.
In 2006, Oberthur Card Systems actively continued its geographical expansion by opening new personalization bureaus and manufacturing plants, establishing partnerships and opening new commercial offices.
2006 revenues came to EUR524M, a year-on-year increase of 4.6%. In a highly competitive market, the company posted a strong volume growth of 39.4% in the microprocessor card segment, well above the market growth of less than 30%: Oberthur Card Systems delivered more than 271 million microprocessor cards compared to 195 million in 2005.
Despite strong ASP erosion in the Telecom market, the whole smart card segment grew in value by 4.9%, to EUR339M.
Revenue in the magnetic stripe card segment also rose by 3.5% to EUR78.1M.
The services and personalization business, which is tightly linked to smart card deliveries in banking, reached EUR106.9M, a 4.7% increase year-on-year and represented more than 20% of the company’s global revenues.
EURM 2006 2005 % change
Europe 251.1 274.5 -8.5%
MARS 105.6 88.7 +19.0%
North America 134.6 115.8 +16.1%
Asia / Pacific 32.7 21.8 +49.9%
Total 524.0 500.8 +4.6%
Oberthur Card Systems retained the same regional hierarchy of sales despite the change in relative proportion due to geographical expansion and the company’s tremendous successes in emerging countries.
Europe represented the largest region with revenues at EUR251.1M but posted an 8.5% fall essentially due to unfavourable cyclical trends in the Payment segment the UK. In addition, in the telecom sector, volume growth did not offset price pressure.
North America grew by 16.1% compared to 2005 with sales reaching EUR134.6M; in this region, all business segments contributed to this momentum. MARS posted a very fine performance with growth of 19%. 40% of the company’s SIM volumes are generated in this region; at the same time, identity market is booming and banking business is just emerging.
Asia’s top line grew by 50% compared to 2005. All activities are ramping up and the company’s efforts to expand are paying off.
EURM 2005 2006
Sales 500.8 524.0
EBIT(1) 50.6 19.1
Operating Margin(%) 10.9% 3.6%
Net Result 30.7 9.5
Basic net income 0.42 0.13
per share (in
Net debt / Equity 0.05 0.26
Profitability: Recovery in H2
At 58.5% of the sales, gross margin is roughly stable year-on-year despite strong price pressure, especially in the wireless segment.
Personnel expenses were flat at 27.4% of sales as against 27.2% last year, a good performance considering continued geographical expansion and the 39,4% growth in volume.
In H1 2006, the Group optimized its workforce in the UK and Italy in line with its strategy of cost control. The impact of the reorganization plan on personnel expenses came to around EUR1.5M.
Company overhead costs increased by EUR18M, including mainly expenses linked to geographical expansion and volume growth.
Overall, depreciation and provisions were up EUR9.5M compared to 2005, including R&D depreciation for EUR3.6M.
Consequently, EBIT came to EUR19.1M for the full year showing a strong recovery in H2 after a first semester characterized by a difficult competitive environment but also lower activity in major banking markets, which are Oberthur Card Systems’ major business. Oberthur Card Systems posted a 15.0M EBIT, in the second part of the year representing 5.4% of H2 sales largely improved compared to H1 1.7% EBIT margin.
All in all, for the total year Oberthur Card Systems generated a net income of EUR9.5M.
Thanks to a strong improvement in the situation in H2, cash flow before the change in working capital came to EUR33.6M, compared to EUR53.6M last year.
In parallel, working capital increased substantially. This mainly relates to receivables which strongly grew in the latter part of the year due to exceptional high sales performances in 4th quarter and geographical mix. In parallel, substantial efforts are being made to tighten control working capital.
In 2006, the Group invested heavily to expand its commercial presence and adapt its manufacturing capacity to meet sustained demand in emerging countries. In addition to this the Group capitalized EUR7M for R&D.
After payment of a dividend of 0.18 per share, Oberthur Card Systems registered a net debt variation of EUR49.4M, for gearing of 0.26, as of December 31st, 2006.
On January 2nd, Philippe Geyres took the helm of Oberthur Card Systems. In the first two months, the CEO has been reviewing all units, many sites in Europe, America and Asia and meeting many customers and suppliers. Some preliminary directions for the company have been drawn and the second phase with actions has now started.
Thanks to its worldwide presence, its unrivalled position in the payment business and its innovation capability, Oberthur Card Systems is well on track to seize the potential promised by the smart card industry in the next years: a SIM 2nd birth with a technology leap to come, EMV rollout and ID booming worldwide.
And Oberthur Card Systems has opportunities to leverage. Manufacturing globalization will accelerate, using the best of existing resources and subcontractors, providing room for improvement in terms of efficiency and profitability.
Furthermore, product lines will be tightly and pragmatically managed, from product strategy to road maps and P&L.
Finally, Oberthur Card Systems’ challenge is size and growth. A profitable organic growth plan is under construction. This will surely require R&D and Marketing investments, while total operational expenses will not increase as a percentage of sales. Market shares will not be gained at the expense of margins
In parallel, Oberthur Card Systems will remain attentive to selective opportunities as it has been in the past, with I’M Technologies as an example. This acquisition will be effective in April.
About Oberthur Card Systems
With sales of 524.0 million Euros in 2006, Oberthur Card Systems is one of the world’s leading providers of card-based solutions, software and applications including SIM and multi-application smart cards as well as services ranging from consulting to personalization.
Innovative products, security expertise and high quality services ensure Oberthur Card Systems’ strong positioning in its main target markets:
– Payment & Services: 47% of 2006 revenues. A world leading supplier of Visa and MasterCard payment cards
– Mobile Communications: 37% of 2006 revenues, with open and interoperable solutions based on Java(TM) technology.
– Identity: strong positions in ID projects throughout the world
– Multimedia: leading position in the Pay-TV market with an end-to-end expertise in the value chain: software development, manufacturing and personalization
– Transit: focus in the high-end segment with a microprocessor-based offer
Close to its customers, the company benefits from an industrial and commercial presence across all five continents. Listed on the Euronext Stock Exchange (ISIN: FR0000124133) since July 2000, Oberthur Card Systems is a subsidiary of the Francois-Charles Oberthur Group.
For more information on Oberthur’s latest performance visit CardData ([www.carddata.com]).