Business

Gemalto Full Year 2018 Results

* 2018 full year results delivered in line with expectations
* Full year revenue at EUR3 billion with Identity, IoT and Cybersecurity segment revenue up +11% at constant exchange rates
* Profit from operations at EUR332 million, up +7%
* Thales transaction expected to close in Q1 2019, 11 of 14 Regulatory Clearances obtained

Amsterdam | Business Wire via ITWeb, 13 Feb 2019
Read time 23min 00sec

Regulatory News: Gemalto (Euronext NL0000400653 - GTO), the world leader in digital security today announces its results for the full year 2018.

Philippe Vall'ee, Chief Executive Officer, commented: "Gemalto's 2018 results reflect its success at implementing its strategic priorities with a return to the Company's historical pattern of growing profits.

In the Identity, IoT & Cybersecurity segment, double digit revenue growth was fueled by the broadening of our portfolio in a dynamic Governments market, by the growing enterprise demand for cloud-based cybersecurity solutions and by the rapid expansion of IoT connectivity for industrial applications. In these businesses, Gemalto continued throughout the year to increase its marketing and R&D investments in order to strengthen its long-term competitive positioning. In the Smartcards & Issuance segment, the Payment business stabilized in large part due to the US EMV normalization, while the removable SIM continued to decrease in line with expectations. The sound execution of the Company's transition plan, its portfolio optimization and selective approach of business opportunities delivered solid profit margin in 2018.

Moving forward, in the Identity, IoT & Cybersecurity segment, we anticipate strong demand for border management and biometric solutions driven by the sharp increase in air traffic and evolving law enforcement needs. We also expect an acceleration in deployments of cloud-based cybersecurity solutions in line with stringent regulation and more high-profile breaches. We should also see a proliferation of power-sensitive IoT connectivity use cases across various industrial sectors. In the Smartcards & Issuance segment, demand for both payment cards and digital payment should increase in line with cashless trends. In parallel, removable SIM demand will continue to gradually shift toward eSIM as an increasing array of devices use dematerialized connectivity.

In this context, our strategic priorities are confirmed. We will continue to invest in the fast growing Identity, IoT and Cybersecurity segment. In Smartcards & Issuance, we will pursue the digitalization of the segment while leveraging our strong market positions.

As the Thales transaction comes to a close, we are fully prepared to join forces with the Thales teams in order to accelerate the deployment of Gemalto's strategic plan in the digital security market."

Basis of preparation of financial information

Segment information

The Identity, IoT & Cybersecurity segment comprises businesses associated with homeland security for governments ("Governments"), IoT connectivity for industrial applications ("IoT") and cybersecurity for enterprises ("Cybersecurity").

The Smartcards & Issuance segment comprises businesses mainly associated with removable SIM cards ("SIM"), payment cards ("Payment") and their issuance services. The segment includes as well businesses associated to the digital transformation of smart cards ("Digital") such as digital payment, digital banking, remote subscription management, embedded SIM/MIM and embedded secure elements. Patents business is also included in this segment.

Historical exchange rates and constant currency figures

The Company sells its products and services in a very large number of countries and is commonly remunerated in other currencies than the Euro. Fluctuations in these other currencies exchange rates against the Euro have in particular a translation impact on the reported Euro value of the Company revenues. Comparisons at constant exchange rates aim at eliminating the effect of currencies translation movements on the analysis of the Group revenue by translating prior-year revenues at the same average exchange rate as applied in the current year. Revenue variations are at constant exchange rates and include the impact of currencies variation hedging program, except where otherwise noted. All other figures in this press release are at historical exchange rates, except where otherwise noted.

Adjusted income statement and profit from operations (PFO) non-GAAP measure

The consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) and with section 2:362(9) of the Netherlands Civil Code.

To better assess its past and future performance, the Company also prepares an adjusted income statement where the key metric used to evaluate the business and make operating decisions over the period 2010 to 2018 is the profit from operations (PFO).

PFO is a non-GAAP measure defined as IFRS operating profit adjusted for (i) the amortization and impairment of intangibles resulting from acquisitions, (ii) restructuring and acquisition-related expenses, (iii) all equity-based compensation charges and associated costs; and (iv) fair value adjustments upon business acquisitions. These items are further explained as follows:

* Amortization, and impairment of intangibles resulting from acquisitions are defined as the amortization, and impairment expenses related to intangibles assets and goodwill recognized as part of the allocation of the excess purchase consideration over the share of net assets acquired.
* Restructuring and acquisitions-related expenses are defined as (i) restructuring expenses which are the costs incurred in connection with a restructuring as defined in accordance with the provisions of IAS 37 (e.g. sale or termination of a business, closure of a plant,...), and consequent costs; (ii) reorganization expenses defined as the costs incurred in connection with headcount reductions, consolidation of manufacturing and offices sites, as well as the rationalization and harmonization of the product and service portfolio and the integration of IT systems, consequent to a business combination; and (iii) transaction costs (such as fees paid as part of an acquisition process).
* Equity-based compensation charges are defined as (i) the discount granted to employees acquiring Gemalto shares under Gemalto Employee Stock Purchase plans; (ii) the amortization of the fair value of stock options and restricted share units granted by the Board of Directors to employees; and the related costs.
* Fair value adjustments over net assets acquired are defined as the reversal, in the income statement, of the fair value adjustments recognized as a result of a business combination, as prescribed by IFRS3R. Those adjustments are mainly associated with (i) the amortization expense related to the step-up of the acquired work-in-progress and finished goods assumed at their realizable value and (ii) the amortization of the cancelled commercial margin related to deferred revenue balance acquired.

These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable IFRS measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with IFRS.

In the adjusted income statement, Operating Expenses are defined as the sum of Research and Engineering expenses, Sales and Marketing expenses, General and Administrative expenses, Other income and Other expenses.

EBITDA is defined as PFO plus depreciation and amortization expenses, excluding the above amortization and impairment of intangibles resulting from acquisitions.

Net debt and net cash

Net debt is a non IFRS measure defined as total borrowings net of cash and cash equivalents. Net cash is a non IFRS measure defined as cash and cash equivalents net of total borrowings.

Adjusted financial information

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. To better assess its past and future performance, the Company also prepares an adjusted income statement and uses it for daily management purposes.

Gemalto posted revenue of EUR2,969 million for the full year, increasing by +3% at constant exchange rates and stable at historical exchange rates when compared to the same period of last year. The Company's revenue growth was driven by a double digit revenue increase from the Identity, IoT and Cybersecurity segment partially offset by revenue erosion from the Smartcards & Issuance segment.

Gross profit came in at EUR1,099 million and gross profit margin settled at 37%, a comparable level to last year. This result combines an increase in gross profit resulting from strong revenue growth in the Identity, IoT & Cybersecurity segment that came with slight margin erosion and that was offset by a gross profit decrease in line with the revenue drop in the Smartcards & Issuance segment.

Operating expenses were down (EUR28) million, at (EUR767) million through tighter control of expenses in the Smartcards & Issuance segment including the disposal of a mobile sub-business line even as the Company continued to invest in the Identity, IoT & Cybersecurity segment in line with its strategic priorities.

As a result, profit from operations was EUR332 million.

Gemalto's financial income was (EUR50) million, composed of interest on financial debt and currency fluctuations net of hedging.

Share of loss in associates was (EUR3) million for the full year 2018.

Adjusted profit before income tax came in at EUR280 million.

Adjusted income tax expense was (EUR69) million resulting in an adjusted income tax rate of 25% for the full year 2018.

Overall, the adjusted net profit of the Company was EUR212 million. Consequently, adjusted basic earnings per share and adjusted diluted earnings per share came in respectively at EUR2.35 and EUR2.31.

Amortization and depreciation of intangibles resulting from acquisitions came in at (EUR85) million. This amount is mainly composed of the amortization of the Identity Management Business acquired in 2017 and that of Safenet acquired in 2015.

Restructuring and acquisition-related expenses were (EUR50) million, compared to (EUR114) million in 2017, essentially corresponding to restructuring and portfolio optimization costs of the transition plan as well as initial costs related to the Thales project. Year-on-year expenses were down (EUR64) million, reflecting the effects of the transition plan initiatives that were launched in 2017.

The equity-based compensation charge was (EUR32) million, down (EUR5) million from last year, as no major Long-Term Incentive plan was launched in 2018.

As a result, Gemalto recorded an operating profit of EUR166 million for the full year 2018.

The income tax charge came in at (EUR54) million compared to (EUR36) million the previous year. Excluding the impacts of the transition plan and the Thales project, the income tax rate was at 24% in line with the Gemalto long term income tax rate.

The net result was at EUR61 million profit for the full year 2018 leading to a basic earnings per share of EUR0.68.

Statement of financial position and cash position variation schedule

For the full year 2018, operating activities generated a cash flow of EUR366 million before changes in working capital.

Changes in working capital reduced cash flow generation by (EUR20) million in 2018 compared to (EUR14) million in 2017. The (EUR6) million deterioration of working capital from last year was attributable to the increase in inventories which were exceptionally low in 2017.

Cash consumed in restructuring activities and acquisition related expenses was (EUR70) million, up EUR22 million from last year. The cash was essentially used as part of the transition plan and through costs associated to the Thales project.

Capital expenditure and acquisition of intangibles amounted to (EUR129) million, i.e. 4.3% of revenue compared to 5.1% in 2017. The investment in Property, Plant, and Equipment amounted to (EUR33) million in 2018, (EUR32) million lower than last year resulting from the one-off effect of the rationalization of the Governments business footprint. The investment in intangible assets accounted for (EUR96) million, up EUR9 million on last year, mostly due to an increase in R&D capitalization.

As a result, in 2018 Gemalto generated free cash flow of EUR177 million.

At the announcement of the Thales offer on December 17, 2017, Gemalto treasury's liquidity program was immediately suspended and ultimately closed in 2018.

As at December 31, 2018, the Company held 201,045 shares, or 0.22% of its own shares in treasury, a reduction of 137,998 shares from December 31, 2017, allocated to the employee share options plans. The total number of Gemalto shares issued was 90,920,356 shares as consequence of the issuance of 496,542 ordinary shares used to fund share based compensation plans. Net of the 201,045 shares held in treasury, 90,719,311 shares were outstanding as at December 31, 2018. The average acquisition price of the shares repurchased on the market by the Company held in treasury as at December 31, 2018 was EUR31.22.

In 2018, due to the Thales offer, Gemalto's Board of Directors elected not to distribute a dividend in respect of the fiscal year 2017, leaving the offer at EUR51 euros cum dividend for each issued and outstanding share of Gemalto. As the Thales transaction is expected to close in Q1 2019, Gemalto's Board of Directors will not propose a dividend distribution for the 2018 fiscal year.

Repayment of financing instruments including interests consumed (EUR194) million.

Cash in hand, net of bank overdrafts amounted to EUR257 million as of year-end 2018 versus EUR302 million at the end of 2017.

Considering the EUR808 million total amount of borrowings as at December 31, 2018, Gemalto's net debt position decreased by EUR132 million down to EUR552 million. The net debt reduction was the product of free cash flow generated in 2018 and was partially offset by a cash outflow from merger and acquisition activities. Company net debt currently represents 1.15 times its adjusted EBITDA.

Segment information

Outlined below is the segment information for the fourth quarter, the second semester and the full year 2018. Revenue variations are expressed at constant currency exchange rates unless otherwise noted.

During the fourth quarter, revenue was up by +3% at constant exchange rates.

The Identity, IoT & Cybersecurity segment's revenue came in at EUR392 million, increasing +9% at constant exchange rates compared to the previous year. During the quarter, the Governments and IoT businesses delivered strong performances contrasting with more modest revenue growth in the Cybersecurity business.

The Smartcards & Issuance segment posted revenue of EUR463 million, (2%) lower at constant exchange rates. The Payment business grew well in the fourth quarter on the back of the US normalization and solid deliveries in other markets. The removable SIM business continued to decrease in line with expectations.

Second semester revenue was stable year-on-year at constant exchange rates.

The Identity, IoT & Cybersecurity segment's revenue came in at EUR737 million, increasing +4% at constant exchange rates compared to the previous year.

The Smartcards & Issuance segment posted revenue of EUR845 million, (3%) lower at constant exchange rates.

Gemalto posted revenue of EUR2,969 million for the full year 2018, increasing +3% at constant exchange rates, stable at historical exchange rates compared to the same period of last year.

The Identity, IoT & Cybersecurity segment's revenue came in at EUR1,381 million, increasing +11% at constant exchange rates compared to the previous year. The segment contributed to 47% of Gemalto's total 2018 revenue.

The Smartcards & Issuance segment posted revenue of EUR1,588 million, (3%) lower at constant exchange rates, accounting for 53% of Gemalto total 2018 revenue.

The second semester profit from operations was EUR240 million representing 72% of the 2018 full year profit from operations which came in at EUR332 million.

Identity, IoT & Cybersecurity

Identity, IoT and Cybersecurity full year revenue came in at EUR1,381 million, up +11% at constant exchange rates compared to 2017.

The Governments business posted strong revenue growth compared with the same period of last year. The positive performance was due to the contribution of the Identity Management Business and substantial secure document deliveries in Europe, Asia, and Africa offsetting weaker performance in the Middle East. In the second quarter, Gemalto won its largest ever passport contract with the United Kingdom Home Office. The contract spans 11.5 years, including 10 years of production and issuance services. Initial project deliveries took place in the fourth quarter. Gemalto also deployed a number of its commercial biometric solutions to large banking and telecom customers. These results highlight Gemalto's innovation capabilities aimed at helping governments better protect their citizens, and Gemalto's ability to apply biometric solutions in commercial markets where demand is fast growing.

The Cybersecurity business delivered a contrasted performance this year, in spite of revenue growth in its three sub-businesses. As more stringent regulatory environments on data privacy come into force, companies, especially in Europe, remained slow at developing cybersecurity initiatives which led to lower than expected revenue growth this year in the encryption sub business line. The software monetization sub-business revenue grew, supported by large projects in Europe and Asia while the authentication sub-business returned to growth on the back of acceleration in deployments of its cloud offer. In this context, Gemalto continued to increase its Marketing and R&D investments with a focus on its cloud offers that help organizations efficiently manage users' authentication, access management and data protection across multiple private and public cloud environments. As a result of these investments, Gemalto is increasingly well positioned to capture the growing demand for cloud cybersecurity solutions.

The IoT business posted an outstanding revenue performance this year. The increase was driven by strong deliveries in Europe and Asia to large customers in Automotive, Health, Payment and Metering sectors. These successes reflect the unique combination of Gemalto's extensive set of IoT modules that provide a sturdy foundation for secure connectivity and an improved lifecycle management which extends durability, reliability and flexibility. A combination that proves a compelling answer for the growing number of industrial solutions that require high availability, expanded coverage and long-life such as utility meters and smart city solutions. In addition, it also strengthens the business case for cellular IoT technology and Gemalto should continue to benefit from the sustained market demand across key industrial sectors.

Overall, the Identity, IoT & Cybersecurity segment's gross profit was up +4% from last year at EUR564 million driven notably by the Governments business. Gross margin for the segment came in at 41%, down (1%) due to a business mix effect resulting from faster revenue growth in the IoT business.

Operating expenses for the segment came in at EUR427 million, up by EUR27 million compared with the same period of last year. This increase was mainly due to strong marketing and R&D investments in the three business lines to support the sustained growth.

As a result, profit from operations in the Identity, IoT & Cybersecurity segment came in at EUR137 million and profit from operations margin settled at 10% for the full year 2018.

Smartcards & Issuance

Smartcards & Issuance full year revenue came in at EUR1,588 million, (3%) lower year-on-year at constant exchange rates.

As expected, the Payment business stabilized this year. This performance was due to US EMV market demand normalizing combined with solid payment card shipments in other regions and sustained contactless migrations across countries worldwide. This year also saw growing interest and initial scale deployments of the promising biometric technology for payment cards. The payment market is expected to continue to evolve along current trends. Removable SIM revenue continued to decrease this year due to the limited product mix evolution and, to a lesser extent, to the dismissal of low profit-margin opportunities. This business pattern is expected to continue, resulting in a sustained tight control of associated expenses.

The Digital business revenue was down year-on-year mostly due to Gemalto's mobile services portfolio optimization as MNOs focus their investments toward eSIM. During the year, infrastructure deployments of connectivity solutions increased in key sectors of the IoT market and Apple's decision in September to introduce eSIM technology in its new generation of iPhones was a turning point in the adoption of such technology. It should trigger an acceleration in the rate of activations that will benefit Gemalto's eSIM solutions with Mobile Network Operators.

The Digital Banking sub businesses grew thanks to large authentication programs roll out with banks in Europe and Latin America. In digital payment, Gemalto grew its revenue and announced the enabling of Hong Kong's Octopus card through Samsung Pay via its Trusted Service Hub (TSH), a landmark program that follows recent successes in Japan and Spain and one that confirms the competitiveness of Gemalto's digital offer in this transforming market.

The Smartcards & Issuance segment's gross profit was down (5%) at EUR535 million compared with last year, as a result of the impact of the revenue decrease in the removable SIM business and its ensuing revenue mix evolution. Gross margin improved slightly at 34% as the benefits of the transition plan were partially offset by the impact of the shift in the revenue mix toward Payment.

Operating expenses decreased by (EUR55) million down to (EUR340) million, reflecting the strong benefits of the transition plan and the disposal of a mobile sub business line as part of the portfolio optimization.

As a result, the Smartcards & Issuance segment's profit from operations for 2018 was EUR195 million and its profit from operations margin settled at 12.3%. Excluding the one-off effect of a mobile sub business line disposal, the profit margin came in at 10.7%, in line with expectations.

Thales combination

In December 2017, Thales and Gemalto reached an agreement on a recommended all-cash offer for all issued and outstanding ordinary shares of Gemalto. This offer was launched on March 27, 2018. We are working together with Thales toward achieving the regulatory and antitrust approvals required to complete the transaction. Together with the antitrust clearances obtained in China, Israel, New Zealand, South Africa, Turkey, the European Union, Australia and Mexico and clearances relating to foreign investments in Australia, Canada and the United States (CFIUS), Thales and Gemalto have already obtained 11 of the required 14 Regulatory Clearances. The transaction should close shortly after all of the Regulatory Clearances have been secured, which is expected to occur in Q1 2019. More information on the Thales offer and the integration, including the offer document and related press releases, can be found on our website at Public Offer by Thales.

Additional information

Below is a highlight of new contracts and achievements published by the Company in 2018

Identity, IoT & Cybersecurity

January 9, 2018 Gemalto LTE-M wireless module earns AT&T certification expanding highly efficient cellular connectivity for IoT devices
March 6, 2018 Korea Telecom selects Gemalto to deliver out-of-box connectivity for connected cars

March 21, 2018 Gemalto unveils two new enhanced security features for ID documents
April 17, 2018 Gemalto to protect 5G next generation networks from cyber-attacks with Intel(R) Software Guard Extensions
April 23, 2018 Gemalto awarded multi-year service contract for British passports

May 3, 2018 Gemalto's biometric authentication technology revolutionizes automated border control in Colombia
June 6, 2018 Gemalto launches virtualized network encryption platform to help customers address evolving data security needs
June 13, 2018 Gemalto facial recognition solution excels at US Department of Homeland security 2018 Biometric Rally
June 21, 2018 Gemalto and Faraday Future work together to deploy secure, connected vehicles
August 7, 2018 Gemalto boosts cloud security with a scalable virtual key management solution
October 23, 2018 Data Breaches Compromised 3.3 Billion Records in First Half of 2018
October 31, 2018 Alaska extends contract with Gemalto to enhance driver's license security
November 7, 2018 Gemalto boosts highly efficient IoT connectivity with secure NB-IoT platform
November 29, 2018 Gemalto unveils industry's first cloud access management and single sign on solution enhanced for smart card users
December 6, 2018 Gemalto pilots biometric boarding at Los Angeles International Airport
December 13, 2018 Gemalto and GlobalmatiX go full speed with high performance IoT automotive telematics

Smartcards & Issuance

January 4, 2018 Gemalto launches the first biometric EMV card for contactless payments
January 31, 2018 Gemalto's Discovery Service boosts on-demand connectivity activation for consumer devices worldwide
February 27, 2018 Telefonica Deutschland selects Gemalto solution to deliver identity verification service
March 19, 2018 Dai Nippon Printing chooses Gemalto's biometric facial recognition solution to facilitate mobile banking access in Japan
April 26, 2018 Gemalto enables digitization of Hong Kong's Octopus card into Samsung Pay
May 28, 2018 Gemalto announces collaboration with Qualcomm Technologies to integrate eSIM innovation into the Snapdragon Mobile PC Platform
October 24, 2018 Gemalto celebrates 100 eSIM solutions deployed worldwide
October 29, 2018 UK consumers excited by the new biometric payment cards
November 27, 2018 The French Ministry of Interior selects Gemalto to secure critical communication mobile networks
December 19, 2018 Intesa Sanpaolo turns to Gemalto for Italy's first biometric contactless payment card pilot

Website and Q&A

This press release as well as the annual report, including the financial statements as of December 31, 2018, are available on our Investor web site (www.gemalto.com/investors).

Investors and analysts wishing to ask questions may reach the Investor Relations team.

Telephone: + 33 1 5501 5263 or + 33 6 2399 2141

Email: investorrelations@gemalto.com or jean-claude.deturche@gemalto.com

Stock Exchange Listing

Gemalto N.V. is dual listed on Euronext Amsterdam and Paris, in the compartment A (Large Caps).

Mnemonic: GTO
Exchange: Dual listing on Euronext Amsterdam and Paris
Market of reference: Euronext Amsterdam
ISIN Code: NL0000400653
Reuters: GTO.AS
Bloomberg: GTO:NA

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.

Structure: Sponsored Level I ADR
Exchange: OTC
Ratio (ORD:DR): 1:2
DR ISIN: US36863N2080
DR CUSIP: 36863N 208

This press release contains inside information as referred to in article 7 paragraph 1 of Regulation (EU) 596/2014 (Market Abuse Regulation).

Gemalto

Gemalto (Euronext NL0000400653 GTO) is the global leader in digital security, with 2018 annual revenues of €3 billion and customers in over 180 countries. We bring trust to an increasingly connected world.

From secure software to biometrics and encryption, our technologies and services enable businesses and governments to authenticate identities and protect data so they stay safe and enable services in personal devices, connected objects, the cloud and in between.

Gemalto's solutions are at the heart of modern life, from payment to enterprise security and the internet of things. We authenticate people, transactions and objects, encrypt data and create value for software – enabling our clients to deliver secure digital services for billions of individuals and things.

Our 15,000 employees operate out of 110 offices, 47 personalization and data centers, and 35 research and software development centers located in 47 countries.

For more information visit
www.gemalto.com, or follow @gemalto on Twitter.

This communication does not constitute an offer to purchase or exchange or the solicitation of an offer to sell or exchange any securities of Gemalto.

This communication contains certain statements that are neither reported financial results nor other historical information and other statements concerning Gemalto. These statements include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, events, products and services and future performance. Forward-looking statements are generally identified by the words "expects", "anticipates", "believes", "intends", "estimates" and similar expressions. These and other information and statements contained in this communication constitute forward-looking statements for purposes of applicable securities laws. Although management of the Company believes that the expectations reflected in the forward-looking statements are reasonable, investors and security holders are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond the control of the Company, that could cause actual results and developments to differ materially from those expressed in, or implied or projected by the forward-looking information and statements, and the Company cannot guarantee future results, levels of activity, performance or achievements. Factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this communication include, but are not limited to: trends in wireless communication and mobile commerce markets; the Company's ability to develop new technology and the effects of competing technologies developed; effects of the intense competition in the Company's main markets; challenges to or loss of intellectual property rights; ability to establish and maintain strategic relationships in its major businesses; ability to develop and take advantage of new software, platforms and services; profitability of the expansion strategy; effects of acquisitions and investments; ability of the Company's to integrate acquired businesses, activities and companies according to expectations; ability of the Company to achieve the expected synergies from acquisitions; and changes in global, political, economic, business, competitive, market and regulatory forces. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of such forward-looking statements. The forward-looking statements contained in this communication speak only as of the date of this communication and the Company or its representatives are under no duty, and do not undertake, to update any of the forward-looking statements after this date to conform such statements to actual results, to reflect the occurrence of anticipated results or otherwise except as required by applicable law or regulations.

Appendix 1

Reconciliation from adjusted financial information to IFRS

Full year period ended
December 31 2018
(€ in thousands)

Adjusted
financial
information

Amortization
and
impairment of
intangibles
resulting from
acquisitions

Restructuring
and
acquisition-
related
expenses

Equity-based
compensation
charge and
associated
costs

Fair value
adjustment
upon
business
acquisitions

IFRS financial
information

Revenue

2,968,694

-

-

-

-

2,968,694

Cost of sales

(1,869,728)

(84,986)

(5,223)

(8,897)

-

(1,968,834)

Gross profit

1,098,966

(84,986)

(5,223)

(8,897)

-

999,860

Operating expenses

(766,730)

 

(44,307)

(22,820)

 

(833,857)

Profit from operations

332,236

 

 

 

 

 

Operating profit (loss)

 

(84,986)

(49,530)

(31,717)

-

166,003

Financial income (expense), net

(49,797)

       

(49,797)

Share of profit (loss) of associates

(2,612)

       

(2,612)

Income tax (expense)

(68,836)

       

(53,956)

Net profit (loss)

210,991

       

59,638

Net profit (loss) non-controlling interests

(1,438)

       

(1,438)

Net profit (loss) owners of the company

212,429

       

61,076

             

Number of shares Basic

90,452

       

90,452

Number of shares Diluted

91,993

       

91,993

             

EPS Basic (€)

2.35

       

0.68

EPS Diluted (€)

2.31

       

0.66

 

Full year period ended
December 31 2017
(€ in thousands)

Adjusted
financial
information

Amortization
and
impairment of
intangibles
resulting from
acquisitions

Restructuring
and
acquisition-
related
expenses

Equity-based
compensation
charge and
associated
costs

     

Fair value
adjustment
upon
business
acquisitions

 

 

 

IFRS financial
information

Revenue

2,971,717

-

-

-

     

-

     

2,971,717

Cost of sales

(1,866,942)

(89,006)

(38,727)

(8,910)

     

(9,542)

     

(2,013,127)

Gross profit

1,104,775

(89,006)

(38,727)

(8,910)

     

(9,542)

     

958,590

Operating expenses

(795,215)

(424,671)

(75,527)

(28,101)

             

(1,323,514)

Profit from operations

309,560

     

 

 

 

 

 

 

 

 

Operating profit (loss)

 

(513,677)

(114,254)

(37,011)

     

(9,542)

     

(364,924)

Financial income (expense), net

(32,806)

                   

(32,806)

Share of profit (loss) of associates

(1,243)

                   

(1,243)

Non-recurring profit (loss) relating to associates

10,105

                   

10,105

Income tax (expense)

(109,759)

                   

(35,688)

Net profit (loss)

175,857

                   

(424,556)

Net profit (loss) non-controlling interests

(649)

                   

(649)

Net profit (loss) owners of the company

176,505

                   

(423,907)

                         

Number of shares Basic

89,883

                   

89,883

Number of shares Diluted

91,062

                   

89,883

                         

EPS Basic (€)

1.96

                   

(4.72)

EPS Diluted (€)

1.94

                   

(4.72)

The full year 2017 adjusted basic earnings per share is determined on the basis of the weighted average number of Gemalto shares outstanding during the twelve-month period ended December 31, 2017, i.e. 89,882,565 shares. The full year 2017 adjusted diluted earnings per share is determined by using 91,062,048 shares corresponding to the IFRS treasury stock method, i.e. on the basis of the same weighted average number of Gemalto shares outstanding and considering that all outstanding share based instruments were exercised (2,251,366 instruments) and the proceeds received from the instruments exercised (€51,148,401) were used to buy-back shares at the average share price of the full year 2017 (1,071,884 shares) at €47.72. However for the computation of the IFRS diluted earnings per share , their conversion to ordinary shares would not decrease earnings per share or increase loss per share and as such they have not been treated as dilutive.

Appendix 2

Consolidated statement of financial position

(€ in thousands)

December 31,

December 31,

         

2018

2017

Assets

           

Non-current assets

   
       

Property, plant and equipment

280,677

316,426

       

Goodwill

1,534,341

1,468,214

       

Intangible assets

717,958

757,814

       

Investments in associates

5,399

8,542

       

Deferred income tax assets

32,260

37,818

       

Other investment

32,455

39,183

       

Other non-current assets

83,725

79,584

       

Total non-current assets

2,686,815

2,707,581

Current assets

   
       

Inventories

256,392

226,339

       

Trade and other receivables

1,048,421

998,500

       

Derivative financial instruments

4,002

55,633

       

Cash and cash equivalents

261,608

320,675

       

Total current assets

1,570,423

1,601,147

       

Total assets

4,257,238

4,308,728

             

Equity

           
       

Share capital

90,921

90,424

       

Share premium

1,338,388

1,303,799

       

Treasury shares

(6,477)

(10,721)

       

Fair value and other reserves

6,495

32,574

       

Cumulative translation adjustments

(51,511)

(74,485)

       

Retained earnings

894,014

834,368

       

Capital and reserves attributable to the owners of the Company

2,271,830

2,175,959

       

Non-controlling interests

2,481

3,375

       

Total equity

2,274,311

2,179,334

Liabilities

           

Non-current liabilities

   
       

Borrowings

722,893

717,986

       

Deferred tax liabilities

103,255

102,081

       

Employee benefit obligations

121,543

126,716

       

Provisions and other liabilities

121,782

129,972

       

Derivative financial instruments

-

-

       

Total non-current liabilities

1,069,473

1,076,755

Current liabilities

   
       

Borrowings

90,557

286,788

       

Trade and other payables

728,329

682,248

       

Current income tax liabilities

26,607

27,930

       

Provisions and other liabilities

38,580

52,261

       

Derivative financial instruments

29,381

3,412

       

Total current liabilities

913,454

1,052,639

       

Total liabilities

1,982,927

2,129,394

       

Total equity and liabilities

4,257,238

4,308,728

Appendix 3

Cash position variation schedule

€ in millions

Year ended December 31

 

2018

   

2017

Cash and bank overdrafts, beginning of period

302

   

663

         

Cash generated by operating activities, before changes in working capital

366

   

356

Net change in working capital

(20)

   

(14)

Cash used in restructuring actions and acquisition related expenses

(70)

   

(48)

Net cash generated by operating activities before Time de-correlated hedging effect/(Prepaid derivatives)

276

   

294

         

Time-decorrelated hedging effect/(Prepaid derivatives)

30

   

48

Net cash generated by operating activities

306

   

342

Capital expenditure and acquisitions of intangibles

(129)

   

(152)

Free cash flow

177

   

190

Interest received

2

   

2

Cash used by acquisitions

(30)

   

(759)

Other cash provided by investing activities

(1)

   

2

Currency translation adjustments

(3)

   

(11)

         

Cash generated (used) by operating and investing activities

145

   

(576)

         

Cash generated (used) by the liquidity and share buy-back programs

0

   

(1)

Dividend paid to Gemalto shareholders

0

   

(45)

Net proceed (repayment) from/of financing instruments

(178)

   

267

Interest paid

(17)

   

(14)

Other cash provided (used) by financing activities

3

   

8

         

Cash and bank overdrafts, end of period

257

   

302

         

Current and non-current borrowings excluding bank overdrafts, end of period

(808)

   

(986)

         

Net (debt), cash, end of period

(552)

   

(684)

Appendix 4

Revenue by region

     

Year-on-year variations

Full year
€ in millions

Full year
2018

Full year
2017

at constant
exchange rates

     

at historical
exchange rates

Europe, Middle East and Africa

1,402

1,373

+3%

     

+2%

Americas

1,051

1,009

+10%

     

+4%

Asia

516

589

(9%)

     

(12%)

Total revenue

2,969

2,972

+3%

     

=

     

Year-on-year variations

Fourth quarter
€ in millions

Fourth quarter
2018

Fourth quarter
2017

at constant
exchange rates

     

at historical
exchange rates

Europe, Middle East and Africa

406

391

+4%

     

+4%

Americas

306

284

+7%

     

+8%

Asia

143

153

(8%)

     

(7%)

Total revenue

855

828

+3%

     

+3%

Appendix 5

Average exchange rates between the Euro and the US dollar

EUR/USD

2018

 

2017

First quarter

1.22

 

1.06

Second quarter

1.20

 

1.09

First half

1.21

 

1.08

Third quarter

1.17

 

1.17

Fourth quarter

1.15

 

1.18

Second half

1.16

 

1.17

Full year

1.18

 

1.12

View source version on businesswire.com: https://www.businesswire.com/news/home/20190213005764/en/

Contacts

Investor Relations
Jean-Claude Deturche
Mr.: +33 6 2399 2141
jean-claude.deturche@gemalto.com

Corporate Communication
Isabelle Marand
Ms.: +33 6 1489 1817
isabelle.marand@gemalto.com

Media Relations Agency
Suzanne Bakker
Ms.: +31 6 1136 8659
suzanne.bakker@citigateff.nl

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