2006 revenues came to €524M, 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 €339M. Revenue in the magnetic stripe card segment also rose by 3.5% to €78.1M. The services and personalization business, which is tightly linked to smart card deliveries in banking, reached €106.9M, a 4.7% increase year-on-year and represented more than 20% of the company’s global revenues. 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 €251.1M 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 €134.6M; 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. 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 €1.5M. Company overhead costs increased by €18M, including mainly expenses linked to geographical expansion and volume growth. Overall, depreciation and provisions were up €9.5M compared to 2005, including R&D depreciation for €3.6M. Consequently, EBIT came to €19.1M 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 €9.5M. Thanks to a strong improvement in the situation in H2, cash flow before the change in working capital came to €33.6M, compared to €53.6M 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 4thquarter 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 €7M for R&D. After payment of a dividend of 0.18 per share, Oberthur Card Systems registered a net debt variation of €49.4M, 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. s.cau@oberthurcs.com www.oberthurcs.com