• Full year revenue growth of +19 percent to € 1,906 million • Software and services revenue increases by +54 percent to € 252 million • Profit from operations expands by +19 percent to € 216 million • Increase in dividend to € 0.28 per share will be proposed Olivier Piou, Chief Executive Officer, commented: „“Gemalto delivered a strong performance in 2010, posting a new revenue record of more than a billion Euros in the second semester. Secure Transactions and Security reached their profit margin objective one year ahead of schedule. Their significant profit expansion strengthens and diversifies our sources of profit as anticipated in our 2010-2013 plan. We continued to invest in the development of our software and services offers in Mobile Communication, doubling revenue and delivering on several flagship customer projects. The good performance of the Machine-to-Machine business also contributed to our profit in the Telecom space. On this solid basis we intend to continue to grow our revenue and profit in 2011, leveraging in particular the acquisitions we’ve made, and are bolstered in our ability to deliver on the € 300 million profit from operations target in 2013.” Revenue for the full year 2010 was up by 19 percent at historical rates to € 1,906 million, fuelled by double-digit growth in all 4 main segments, and by a strong second semester which saw Company revenue clearly surpassing the one billion euro revenue mark for the first time in a semester. Revenue from software and services grew by 54 percent to € 252 million, contributing significantly to the Company‟s overall growth, and representing 13percent of 2010 revenue. Business conditions in the fourth quarter were generally comparable to those observed during the rest of the year. The seasonality of revenue throughout 2010 was, as expected, more pronounced than in 2009, leading to much stronger seasonality in profit generation. Gross profit for the Company was up € 102 million or 17 percent at € 689 million. This represents a gross margin of 36.2 percent, lower by 50 basis points on the previous year. Profitability expanded in the Security and Secure Transactions segments, offset by lower gross margin in Mobile Communication. The increase in operating expenses was much lower than revenue growth, and was essentially attributable to the consolidation of acquired businesses and to some specific organic operating expense investments made in software & services and strategic growth areas. As a consequence, operating expenses were down 60 basis points when expressed as a percentage of revenue. The operational leverage combining strong revenue growth and controlled operating expenses generated a 19 percent increase in profit from operations to € 216 million. The profit margin from operations of the Company was kept at its record level of 11.3 percent of revenue. Discontinued operation and Assets held for sale Within the framework of a strategic partnership between VeriFone and Gemalto announced in October 2010, the two companies entered into exclusive discussion for the transfer of Gemalto‟s electronic point of sale (“POS”) terminals business to VeriFone. The disposal of the POS business became effective on December 31, 2010, therefore this activity, formerly reported within the segment “Others”, is now classified as “discontinued operation”. As per IFRS, its net contribution is presented as a single amount on the line item “Profit (loss) from discontinued operation (net of income tax)”, together with the € 3 million net loss on the disposal of the related assets and corresponding liabilities. Without this reclassification, the POS activity would have contributed € 51 million in revenue and € 1 million in profit from operations in 2010, respectively € 52 million and € 3 million in 2009. The assets of one of the Company joint ventures (the “JV”) active in China in Secure Transactions and Security have been classified as “held for sale” due to the shareholding restructuring in process with the partner. In 2010 this JV revenue was € 44 million and its profit from operations was € 8 million, in 2009 its revenue was € 42 million and its profit from operations was € 10 million. Mobile Communication Mobile Communication posted revenue of € 981 million, higher by 5 percent at constant exchange rates from the previous year. Growth was driven by success in Software and Services whose revenue doubled year on year to € 152 million as investment towards new offerings was sustained both through bolt-on acquisitions and organic developments. On the product side, promising developments in New Form Factors products used in new wireless usage such as mobile TV and mobile contactless services partly offset the slightly lower revenue from a traditional SIM card business whose product mix improvement was slowed by a less favorable regional sales breakdown and by the year‟s limited return to large-scale commercial deployment of innovative projects. Gross profit remained relatively stable at € 376 million. Operating expenses grew by € 25 million to € 258 million with the consolidation of acquired technology companies and continued organic investment in strategic fast growing areas such as Trusted Service Management (TSM), Mobile Money and Digital Life Management services. Hence, profit from operations was lower by € 33 million year on year, at € 118 million, representing a profit margin of 12.0 percent. The margin profile of the traditional SIM card business remained unchanged and the segment‟s year-on-year profit variation was essentially attributable to the pro-active investments in operating expenses to grow the software and service offerings, to the consolidation effects of the acquired businesses and to a series of non-recurring items. Secure Transactions Secure Transactions revenue grew by 7 percent over the previous year at constant exchange rates, to € 462 million. This growth was once again driven by global worldwide migration to EMV, and was boosted by the rapid adoption by certain countries of upgrades to dual-interface contactless payment cards. As expected, the twin negative effects of the triennial payment card renewal trough in the United Kingdom and of the shift from registered mail to standard mail for personalized card deliveries faded out in the second half of the year, leading to very strong 16 percent revenue growth in the second semester at constant exchange rates. As a result of the improvement in product mix, of the better absorption of fixed costs in high growth areas and of higher personalization activity, gross margin increased by 620 basis points on previous year, to 30.3 percent. On the back of the revenue growth and gross margin improvement, gross profit settled at € 140 million for the year, 41 percent above that of 2009. Operating expenses were kept tightly controlled and grew in line with revenue despite the consolidation of acquired technology companies and the continued investment in geographical growth areas. There was hence excellent fall-through to profit from operations from the strong second half surge in demand, and profit margin from operations thus progressed sharply, by 600 basis points, to 8.9 percent for the full year. Security Security posted another very dynamic year, with excellent revenue growth, up 31 percent year-on-year at constant exchange rates, to € 318 million. Identity & Access Management (IAM) led the way at +50 percent on the back of strong sales of Ezio solution for e-banking deployments and on the integration of acquired e-banking activities. Government Programs also continued to grow fast, by 16 percent, as certain large-scale e-Passport and e-Identity programs entered their deployment phases. Patent licensing revenue was also extremely strong this year, with revenue exceeding the Company‟s plan at € 33 million, € 19 million above that of 2009, as some on-going licensing negotiations came to an early conclusion. Additionally, a high profile patent litigation was initiated by Gemalto in the USA. Gross margin improved by 450 basis points to 40.6 percent in 2010, and by 200 basis points when excluding the effect of the higher patent contribution, due to continued productivity gains in Government Programs and a greater share of IAM activity. The resulting gross margin improvement combined with the segment‟s double-digit revenue expansion to create a sharp increase in gross profit that settled at € 129 million for the year, up 51 percent year on year. In this segment as well, operating expenses reflected the consolidation effect of acquired businesses and investment in promising areas, such as e-Government solutions. Still, operating expenses remained tightly controlled, growing by only 11 percent to € 90 million and bringing operating expenses when expressed as a percentage of revenue down significantly, by 620 basis points. For the year, the operational leverage of a strong top line growth and gross margin improvement on limited operating expenses expansion led to a 1060 basis points expansion in the segment‟s profit margin from operations, to 12.4 percent. When excluding the patent licensing activity, this increase was 760 basis points, to 6.8 percent. Others Following the disposal of the point of sale (POS) terminals activities at the end of December 2010, POS has been classified as “discontinued operation” in compliance with IFRS, and its net contribution is thus presented in the income statement on single line item “Profit (loss) from discontinued operation (net of income tax)” below the “profit from operations”. On a pro-forma basis the POS activity would have contributed in the Segment “Others” for € 51 million in revenue and € 1 million in profit from operations in 2010 (€ 52 million and € 3 million respectively in 2009). The public telephony activity continues to decline as it is now almost fully substituted globally by mobile telephony. Outlook In 2011, Gemalto targets another year of expansion in revenue and profit from its ongoing operations, progressing in its 2010-2013 development plan. The company expects a substantially lower contribution from patent licensing activities in 2011, due to the public patent litigation it initiated in the USA; stable or expanding profits in Mobile Communication, with a pronounced seasonality due to the large deployments of Near-Field Communication (NFC) mobile contactless services and LTE fourth generation networks announced for the latter part of the year; and reiterates its expectation to have Secure Transactions delivering a high single-digit profit margin from operations in 2011. It upgrades its view on the Security segment, which is now expected to deliver high single-digit profit margin from operations in 2011 even without patent licensing contribution. Gemalto confirms its target of € 300 million in profit from operations in 2013. For more detailed information please see Full Year Results
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