AMSTERDAM - Gemalto, the world leader in digital security today announces its results for the first semester 2015.
- Revenue of EUR 1.5 billion is up +32% at historical exchange rates and +20% at constant exchange rates
- Revenue growth in Payment +22%, Machine-to-Machine +23%, and Government Programs +17%, at constant exchange rates, largely exceeds lower SIM products and related services revenue
- Profit from operations of EUR 160 million is up +33%
Olivier Piou, Chief Executive Officer, commented: "The strong first semester revenue growth illustrated the structural transformation and successful diversification of the Company. Our flexibility enabled us to allocate more internal resources and external investments to support the faster growing businesses. Payment, Government and Machine-to-Machine are now three significant and very active growth engines, and Enterprise is reinforced by SafeNet which is currently being integrated into our portfolio. We are progressively unlocking operating leverage in those rapidly growing businesses, en route to the upgraded objectives of our 2017 multi-year development plan."
Basis of preparation of financial 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 Platform & Services. The Payment & Identity segment reports on businesses associated with secure personal interactions including Payment, Government Programs and Enterprise. The SafeNet acquisition 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).
Adjusted financial information
Total revenue for the first semester 2015 came in at EUR 1,499 million. Existing business rapid growth and the addition of SafeNet drove the revenue expansion of +32% at historical exchange rates and +20% at constant exchange rates.
The total Company's year-on-year revenue growth was +11% pro forma. SafeNet's combination added 11 percentage points to the 2014 reported sales. The rapid and substantial strengthening of the US dollar versus Euro compared to the first semester of 2014 and the now large part of the Company's US dollar denominated revenue explain the 11 percentage point difference between revenue growth at historical and at constant exchange rates. This difference was partly offset by the currency variation protection hedging program that induced a (2) percentage point reduction on the reported sales.
Embedded software & Products (E&P) revenue grew by +7%. Payment cards represented the largest part of the E&P growth. Strong deliveries in Government Programs and high demand for connectivity and security modules for the Internet of Things also notably contributed to the E&P revenue increase. In contrast, E&P activity in the Mobile segment reduced due to lower year-on-year SIM cards sales following the closure of the major US wireless carriers' payment venture during the period.
In Platforms & Services (P&S), sales were up by +74%, with further revenue expansion in payment issuance, in eGovernment services and due to SafeNet's new contribution to the Enterprise business. These increases largely exceeded the reduced Mobile Financial Services revenue generated in the United States.
Globally, first semester revenue growth illustrated the structural transformation and successful diversification of the Company. It posted +11% pro forma growth when SIM and related services declined (7%) year-on-year, during the period.
Gross profit was up by EUR 156 million, to EUR 574 million, representing a gross margin of 38.3%, up +1.4 percentage point year-on-year. The increase in gross margin in Payment & Identity came mainly from the Enterprise business and more than offset the lower contribution in Mobile due to the lower sales of product and services related to mobile payment in the United States.
Operating expenses were up by 1.3 percentage point of revenue to 27.6%, at EUR 414 million. The increase came primarily from the addition of SafeNet's operating expenses, standing at a higher level than Gemalto's historical business and from the currency translation effects.
As a result, first semester 2015 profit from operations was EUR 160 million, up EUR 39 million year-on-year, representing 10.6% profit margin, as in the first semester of 2014. The operational leverage gains of the semester were offset by the rapid and significant currency variation and hedging effects. Year-on-year variation of these hedges represented an adverse impact of EUR 31 million for the first semester 2015, which balanced the gains in profit from operations linked to the favorable natural exposure to currency variations for the period.
Gemalto's financial income was (EUR 14) million compared to (EUR 4) million for the first semester of 2014 as interest expense and amortized costs on the public bond, private placements and credit lines facilities amounted to (EUR 6) million. Foreign exchange transactions and other financial items amounted to (EUR 8) million.
As a result, adjusted profit before income tax came in at EUR 147 million compared to EUR 117 million the previous year, showing an increase of +26%.
Adjusted income tax expense was (EUR 42) million, with an estimated IFRS annual income tax rate of 22% for 2015.
Consequently, the adjusted net profit of the Company was EUR 106 million, a EUR 10 million and +10% increase when compared to last year's figure of EUR 96 million.
Adjusted basic earnings per share came in at EUR 1.21, up +9% compared to the first semester 2014 adjusted basic earnings per share of EUR 1.11. Adjusted diluted earnings per share were at EUR 1.19, up +10% on the 2014 first semester's adjusted diluted earnings per share of EUR 1.08.
With further strong expansion recorded throughout the first semester, Payment & Identity has become the largest contributor to both Company revenue and profit from operations. It represented 56% of Gemalto's revenue and 49% of profit from operations compared to 47% and 44% respectively in the same period of the previous year.
Activities within Embedded software & Products and Platforms & Services both contributed to the rapid growth of Gemalto in the first semester of 2015, up by +7% and +74% respectively (and up +6% and +12% respectively on a pro forma basis). Growth in Embedded software & Products, came mostly from Payment, Machine-to-Machine and Government Programs. Platforms & Services contributed 70% of the total revenue growth during the period, and its double-digit increase in revenue was driven by the achievements in Payment issuance services and Government Programs, plus the contribution of SafeNet to the Enterprise business.
Changes in currency translation effects were important for the whole period, especially in the second quarter with the strong year-on-year US dollar appreciation against the Euro. With significant developments in the United States, Payment & Identity segment was the most exposed to those US dollar related effects with a 14 percentage point difference between expansion at historical and constant exchange rates.
Payment & Identity
Payment & Identity's first semester revenue came in at EUR 840 million, increasing by +43% compared to the same period in 2014. Embedded software & Products sales were up by +16% at EUR 553 million. Platforms & Services sales more than doubled, at EUR 287 million.
The Payment business grew by +28% in the second quarter of 2015 compared to the second quarter of last year. This strong performance led the +22% year-on-year revenue expansion for the first semester, at EUR 469 million. The Americas posted the largest growth, with revenue almost doubling compared to previous year on strong sales of EMV payment cards and rapid expansion of issuance services in the United States. Payment's Embedded software & Products sales grew by +19% and Payment's Platforms & Services revenue expanded by +38% compared to the first semester of 2014.
Revenue from the Enterprise business came in at EUR 195 million for the first semester of 2015. In addition to the SafeNet consolidation impact, improvement came from the increasing market demand for cybersecurity solutions. The integration of SafeNet is progressing well, with alignment of authentication portfolios between the Identity Access Management business and SafeNet. The Enterprise business revenue mix between authentication and data encryption is moving towards a lower proportion of hardware, and to gross profit increasing faster than revenue. On a pro forma basis, this evolution had led to a gross margin increase of +3 percentage points compared to first semester 2014.
Revenue from the Government Programs business came in at EUR 175 million, up +17% compared to the first semester of 2014, of which EUR 14 million came from Trub AG, a Swiss provider of identification solutions for governments and banks acquired during the period. Beside Trub's contribution during the second quarter, sales expansion came from delivery commencements of previously won projects while at the same time project backlog continued to expand. Government Programs Embedded software & Products revenue was up +14% and its Platforms & Services sales were up +28% compared to the first semester of 2014.
Across the entire segment, gross margin improved to 37%, up +4.9 percentage points compared to the first semester of 2014, as the segment's Platforms and Services activity continued to grow, in particular in the Enterprise business.
Operating expenses grew to (EUR 233) million in the first semester of 2015, largely due to the acquisition additions, as well as the shift of more internal resources to the segment to address the rapid growth of its different business divisions.
As a result profit from operations in Payment & Identity for the first semester 2015 came in at EUR 77 million, up +46% from the EUR 53 million recorded in the first semester 2014.
The Mobile segment posted revenue of EUR 641 million. Revenue grew by +9% at historical exchange rates and was lower by (2%) at constant exchange rates compared to the same period of previous year. At constant exchange rates, the most significant revenue expansion came from the Machine-to-Machine business, with a +23% increase in sales. The segment posted a contrasted pattern of revenue growth over the two first quarters, with a strong increase in the first quarter of +7% and a year-on-year reduction of (9%) in the second quarter. This evolution essentially related to the lower contribution to revenue of high-end SIMs and Mobile Platforms & Services sales in the United States due to the Softcard mobile payment service closing. The year-on-year unfavorable comparison basis will remain noticeable for the next three quarters.
Machine-to-Machine's Embedded software & Products revenue evidenced very solid expansion, +22%, due to the increasing global demand of connected devices and embedded secure elements (eSE) for the Internet of Things (IoT), across all sectors, in particular in the EMEA and Americas regions. Secure elements sales for the IoT extended their already strong dynamic, posting a +46% increase in revenue year-on-year at constant exchange rates.
Year-on-year SIM sales reduced by (8%) due to the US operators mobile payment service closing, which in some cases led to lower sales of high-end SIMs while other services benefiting from these high-end SIMs are under development.
Mobile Platforms & Services revenue was also influenced by the end of this US operators led mobile payment project, leading to a (1%) year-on-year revenue variation at constant exchange rates. On a global perspective, Gemalto Mobile Financial Services business reached important milestones during the semester, extending the connection of Gemalto's Trusted Services Hub (TSH) offer to OEM's embedded secure elements (eSE), Trusted Execution Environment (TEE), and to the payment applications that are using Host Card Emulation (HCE) framework. The Trusted Services Hub has also integrated this semester support for the newly standardized EMV tokenization layers, to become the market reference in terms of mobile device reach, integration capacity, and neutrality, all highly valuable benefits to domestic and global payment services. Gemalto's Mobile Subscriber Services business also reached an important milestone related to embedded SIMs this semester, with the adoption by the GSMA of a first common high-level architecture for remote activation and management of connectivity for the consumer market. Gemalto is deeply involved in this global interoperability effort, bringing its technical expertise and neutrality to help both OEMs and MNOs put in place solutions that best address their respective objectives and constraints.
Gross profit increased by EUR 9 million, mainly due to currency translation effects, and gross margin was lower by (2) percentage points mainly due to the change in products and services mix.
Operating expenses grew slightly to (EUR 175) million, as a result of the opposite effects of currency translations, which increased the Euro value of US dollar denominated operating expenses, offset by the shift of some of the segment's resources to handle the rapid growth of the Payment and Identity. Overall, operating expenses were lowered year-on-year by (2) percentage points when expressed as a percentage of segment's total revenue for the first semester of 2015.
As a result, Mobile's profit from operations for the first semester of 2015 was EUR 71 million, increasing by +11% compared to the EUR 64 million posted in the same period of last year.
Profit from operations margin expanded to 11.1%, compared to 10.9% in the first semester of 2014.
Patents & Others
The Patents & Others segment generated EUR 18 million revenue in the first semester of 2015 in relation to new and also renewed cross-licensing agreements. Compared to the first semester of 2014, operating expenses were stable. As a result, profit from operations came in at EUR 11 million in the first semester.
- Gemalto launches unique ultra-thin electronic passport inlay and cover
Unique to Gemalto, Sealys Premium inlays and eCovers will enable national printers to optimize the efficiency of their manufacturing processes whilst creating ePassports that are thinner, flatter and more visually appealing. The new inlays and eCovers passed and exceeded ICAO durability tests.
- Gemalto boosts eGovernment adoption by securely combining eID cards and NFC phones
Coesys mGov, an innovative new mobile strong digital authentication solution, enables citizens to access online government services using a combination of their contactless national eID card and NFC phone.It allows authorities to put in place Trusted National Mobile ID schemes.
- California selects Gemalto for automated identity document verification
Gemalto successfully provided the nearly 200 California Department of Motor Vehicle (California DMV) field and investigative offices with its advanced Coesys Document Verification software solution. This allows the California DMV to streamline the review process, overcome the challenge of authenticating foreign documents and identify any document abnormalities or defects.
Connected Devices and On-Demand Connectivity Management
- IoT solution enabled by Gemalto helps optimize safety and efficiency in Latin America's busiest seaports
The innovative SISMO(R) telemetry solution developed by HidroMares, a leading oceanography consulting firm, monitors dynamic ocean conditions to optimize safety and efficiency in Brazilian ports.
- NTT Docomo selects Gemalto for IoT applications in Japan
NTT Docomo has selected Gemalto to enable connectivity for Internet of Things (IoT) applications. Gemalto's Cinterion(R) Machine Identification Module (MIM) complies with the most stringent industry standards and was first to meet the high quality requirements of the Japanese market.
- China Telecom and Gemalto present joint innovation for connecting cars and IoT
China Telecom and Gemalto are developing a proof-of-concept for connected cars using Gemalto's LinqUs On-Demand Connectivity (ODC) subscription management solution. The two companies demonstrated at the Mobile World Congress Shanghai how remote 'over-the-air' provisioning can enable secure connectivity on mobile devices. Next the two companies will integrate this ODC solution on vehicles for China Telecom's auto-maker customers.
- Gemalto increases its stake in Trustonic
During the first semester, Gemalto increased its shareholding in Trustonic, which develops a secure environment called a Trusted Execution Environment (TEE) that runs at the heart of smart devices and enables service providers to openly access ready-made advanced hardware-backed security features. As at June 30, 2015, the Group, held 50% interest and ownership in the joint venture.
- Remote provisioning of consumer devices based on GSMA architecture
At Mobile World Congress Shanghai on July 15th and 16th, Gemalto demonstrated remote provisioning of consumer devices based on the newly proposed GSMA architecture. Gemalto has been at the forefront of this initiative; actively defining and embracing this standards-based approach to provide a solution for operators, device manufacturers and service providers to securely and instantly enable connectivity for consumers. Gemalto also demonstrated its LinqUs On-Demand Connectivity subscription management solution on ZTE smartphones as part of a proof of concept for connecting a consumer device with an embedded SIM to a mobile network anytime and anywhere.
For 2015, Gemalto anticipates another year of double digit growth in its profit from operations. In the second semester, the closure of the US mobile payment service Softcard will limit the Mobile segment year on year progress in comparison to the same period of 2014. Accelerating pace in Payment, Machine-to-Machine, Enterprise and Government Programs will support the profit expansion of the Company towards its upgraded objective of over EUR 660 million in 2017.
Live Audio Webcast and Conference call
Gemalto first semester 2015 results presentation will be webcast in English today at 3pm Amsterdam and Paris time (2pm London time and 9am New York time).
This listen-only live audio webcast of the presentation and the Q&A session will be accessible from our Investor Relations web site:
Questions will be taken by way of conference call. Investors and financial analysts wishing to ask questions should join the presentation by dialing:
(UK) +44 203 367 9459 or (US) +1 866 907 5924 or (FR) +33 1 7077 0947
The accompanying presentation slide set is also available for download on our Investor Relations web site.
Replays of the presentation and Q&A session will be available in webcast format on our Investor Relations web site approximately 3 hours after the conclusion of the presentation. Replays will be available for one year.
The semi-annual report, including the interim condensed consolidated financial statements as of June 30, 2015, is available on our investor web site (www.gemalto.com/investors).
Third quarter 2015 revenue will be reported on Thursday October 29, 2015, before the opening of Euronext Amsterdam.
Stock Exchange Listing
Gemalto N.V. is dual listed on NYSE Euronext Amsterdam and Paris, in the compartment A (Large Caps).
Gemalto has also established a sponsored Level I American Depository Receipt (ADR) Program in the United States since November 2009. Each Gemalto ordinary share is represented by two ADRs. Gemalto's ADRs trade in U.S. dollar and give access to the voting rights and to the dividends attached to the underlying Gemalto shares. The dividends are paid to investors in U.S. dollar, after being converted into U.S. dollar by the depository bank at the prevailing rate.
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Gemalto (Euronext NL0000400653 GTO) is the world leader in digital security, with 2014 annual revenues of EUR 2.5 billion and blue-chip customers in over 180 countries.
Gemalto helps people trust one another in an increasingly connected digital world. Billions of people want better lifestyles, smarter living environments, and the freedom to communicate, shop, travel, bank, entertain and work - anytime, everywhere - in ways that are enjoyable and safe. In this fast moving mobile and digital environment, we enable companies and administrations to offer a wide range of trusted and convenient services by securing financial transactions, mobile services, public and private clouds, eHealthcare systems, access to eGovernment services, the Internet and internet-of-things and transport ticketing systems.
Gemalto's unique technology portfolio - from advanced cryptographic software embedded in a variety of familiar objects, to highly robust and scalable back-office platforms for authentication, encryption and digital credential management - is delivered by our world-class service teams. Our 14,000 employees operate out of 99 offices, 34 personalization and data centers, and 24 research and software development centers located in 46 countries.
For more information visit www.gemalto.com, www.justaskgemalto.com, blog.gemalto.com, or follow @gemalto on Twitter.