• 2018 full year results delivered in line with expectations
• Full year revenue at €3 billion with Identity, IoT and Cybersecurity segment revenue up +11% at constant exchange rates
• Profit from operations at €332 million, up +7%
• Thales transaction expected to close in Q1 2019, 11 of 14 Regulatory Clearances obtained
AMSTERDAM-Thursday 14 February 2019 [ AETOS Wire ]
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
• Full year revenue at €3 billion with Identity, IoT and Cybersecurity segment revenue up +11% at constant exchange rates
• Profit from operations at €332 million, up +7%
• Thales transaction expected to close in Q1 2019, 11 of 14 Regulatory Clearances obtained
AMSTERDAM-Thursday 14 February 2019 [ AETOS Wire ]
(BUSINESS WIRE) -- Regulatory News:
Gemalto (Euronext NL0000400653 - GTO), the world leader in digital security today announces its results for the full year 2018.
Key figures of the adjusted income statement
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
Year-on-year variations
|
|||||||
(€ in millions)
|
|
|
|
Full year
2018
|
|
|
|
Full year
2017
|
|
|
|
at historical
exchange rates |
|
|
|
at constant
exchange rates |
Revenue
|
2,969
|
2,972
|
=
|
|
|
|
+3%
|
|||||||||
Gross profit
|
1,099
|
1,105
|
(1%)
|
|||||||||||||
Operating expenses
|
|
|
|
(767)
|
|
|
|
(795)
|
|
|
|
(4%)
|
|
|
|
|
Profit from operations (PFO)
|
332
|
310
|
+7%
|
|||||||||||||
PFO as % of revenue
|
|
|
|
11.2%
|
|
|
|
10.4%
|
|
|
|
+0.8 pp
|
|
|
|
|
|
Philippe Vallée, 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.
|
|
|
|
Full year 2018
|
|
|
|
Full year 2017
|
|
|
|
|
|
|
|
|
||||||||
Extract of the
adjusted income statement |
|
|
|
€ in
millions |
|
|
|
As a % of
revenue |
|
|
|
€ in millions
|
|
|
|
As a % of
revenue |
|
|
|
Year-on-year variations
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at historical
exchange rates |
|
|
|
at constant
exchange rates |
|||||
Revenue
|
2,968.7
|
2,971.7
|
=
|
|
|
|
+3%
|
|||||||||||||||||
Gross profit
|
1,099.0
|
37.0%
|
1,104.8
|
37.2%
|
(0.2 pp)
|
|||||||||||||||||||
Operating expenses
|
(766.7)
|
(25.8%)
|
(795.2)
|
(26.8%)
|
+0.9 pp
|
|||||||||||||||||||
EBITDA
|
|
|
|
479.7
|
|
|
|
16.2%
|
|
|
|
456.7
|
|
|
|
15.4%
|
|
|
|
+0.8 pp
|
|
|
|
|
Profit from operations
|
|
|
|
332.2
|
|
|
|
11.2%
|
|
|
|
309.6
|
|
|
|
10.4%
|
|
|
|
+0.8 pp
|
|
|
|
|
Financial income (expense), net
|
(49.8)
|
(32.8)
|
||||||||||||||||||||||
Share of profit (loss) of associates
|
(2.6)
|
(1.2)
|
||||||||||||||||||||||
Non-recurring profit (loss) relating to associates
|
10.1
|
|||||||||||||||||||||||
Income tax (expense)
|
|
|
|
(68,8)
|
|
|
|
|
|
|
|
(109.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss)
|
|
|
|
211.0
|
|
|
|
|
|
|
|
175.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) non-controlling interests
|
|
|
|
(1.4)
|
|
|
|
|
|
|
|
(0.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) owners of the company
|
|
|
|
212.4
|
|
|
|
7.2%
|
|
|
|
176.5
|
|
|
|
5.9%
|
|
|
|
+1.3 pp
|
|
|
|
|
Basic Earnings per share (€)
|
2.35
|
1.96
|
+20%
|
|||||||||||||||||||||
Diluted Earnings per share (€)
|
|
|
|
2.31
|
|
|
|
|
|
|
|
1.94
|
|
|
|
|
|
|
|
+19%
|
|
|
|
|
|
Gemalto
posted revenue of €2,969 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 €1,099 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 (€28) million, at (€767) 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 €332 million.
Gemalto’s financial income was (€50) million, composed of interest on financial debt and currency fluctuations net of hedging.
Share of loss in associates was (€3) million for the full year 2018.
Adjusted profit before income tax came in at €280 million.
Adjusted income tax expense was (€69) million resulting in an adjusted income tax rate of 25% for the full year 2018.
Overall,
the adjusted net profit of the Company was €212 million. Consequently,
adjusted basic earnings per share and adjusted diluted earnings per
share came in respectively at €2.35 and €2.31.
Reconciliation from adjusted financial information to IFRS
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve-month 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
|
|
Amortization
and depreciation of intangibles resulting from acquisitions came in at
(€85) 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 (€50) million, compared to (€114)
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
(€64) million, reflecting the effects of the transition plan initiatives
that were launched in 2017.
The
equity-based compensation charge was (€32) million, down (€5) million
from last year, as no major Long-Term Incentive plan was launched in
2018.
As a result, Gemalto recorded an operating profit of €166 million for the full year 2018.
The
income tax charge came in at (€54) million compared to (€36) 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 €61 million profit for the full year 2018 leading to a basic earnings per share of €0.68.
Statement of financial position and cash position variation schedule
For the full year 2018, operating activities generated a cash flow of €366 million before changes in working capital.
Changes
in working capital reduced cash flow generation by (€20) million in
2018 compared to (€14) million in 2017. The (€6) 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 (€70) million, up €22 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 (€129) million,
i.e. 4.3% of revenue compared to 5.1% in 2017. The investment in
Property, Plant, and Equipment amounted to (€33) million in 2018, (€32)
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 (€96) million, up €9 million on last
year, mostly due to an increase in R&D capitalization.
As a result, in 2018 Gemalto generated free cash flow of €177 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 €31.22.
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 €51 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 (€194) million.
Cash in hand, net of bank overdrafts amounted to €257 million as of year-end 2018 versus €302 million at the end of 2017.
Considering
the €808 million total amount of borrowings as at December 31, 2018,
Gemalto’s net debt position decreased by €132 million down to €552
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.
Fourth quarter 2018
(€ in millions) |
|
|
|
Total
|
|
|
|
Identity, IoT & Cybersecurity
|
|
|
|
Smartcards & issuance
|
Revenue
|
|
|
|
855
|
|
|
|
392
|
|
|
|
463
|
At constant rates
|
+3%
|
+9%
|
(2%)
|
|||||||||
At historical rates
|
|
|
|
+3%
|
|
|
|
+10%
|
|
|
|
(2%)
|
|
During the fourth quarter, revenue was up by +3% at constant exchange rates.
The
Identity, IoT & Cybersecurity segment’s revenue came in at €392
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 €463 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 2018
(€ in millions) |
|
|
|
Total
|
|
|
|
Identity, IoT & Cybersecurity
|
|
|
|
Smartcards & issuance
|
Revenue
|
|
|
|
1,582
|
|
|
|
737
|
|
|
|
845
|
At constant rates
|
=
|
+4%
|
(3%)
|
|||||||||
At historical rates
|
|
|
|
=
|
|
|
|
+5%
|
|
|
|
(3%)
|
|
Second semester revenue was stable year-on-year at constant exchange rates.
The
Identity, IoT & Cybersecurity segment’s revenue came in at €737
million, increasing +4% at constant exchange rates compared to the
previous year.
The Smartcards & Issuance segment posted revenue of €845 million, (3%) lower at constant exchange rates.
Full year 2018
(€ in millions) |
|
|
|
Total
|
|
|
|
Identity, IoT & Cybersecurity
|
|
|
|
Smartcards & issuance
|
Revenue
|
|
|
|
2,969
|
|
|
|
1,381
|
|
|
|
1,588
|
At constant rates
|
+3%
|
+11%
|
(3%)
|
|||||||||
At historical rates
|
=
|
+8%
|
(6%)
|
|||||||||
As percentage of total revenue
|
|
|
|
|
|
|
|
47%
|
|
|
|
53%
|
|
Gemalto
posted revenue of €2,969 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 €1,381
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 €1,588 million,
(3%) lower at constant exchange rates, accounting for 53% of Gemalto
total 2018 revenue.
Profit from operations
(€ in millions) |
|
|
|
Total
|
|
|
|
Identity, IoT & Cybersecurity
|
|
|
|
Smartcards & issuance
|
Second semester 2018
|
|
|
|
240
|
|
|
|
88
|
|
|
|
152
|
Full year 2018
|
|
|
|
332
|
|
|
|
137
|
|
|
|
195
|
As a percentage of the total profit from operations
|
|
|
|
|
|
|
|
41%
|
|
|
|
59%
|
|
The
second semester profit from operations was €240 million representing
72% of the 2018 full year profit from operations which came in at €332
million.
Identity, IoT & Cybersecurity
|
|
|
|
Full year 2018
|
|
|
|
Full year 2017
|
|
|
|
Year-on-year variations
|
||||||||||||
|
|
|
|
€ in millions
|
|
|
|
As a % of
revenue |
|
|
|
€ in millions
|
|
|
|
As a % of
revenue |
|
|
|
at historical
exchange rates |
|
|
|
at constant
exchange rates |
Revenue
|
|
|
|
1,380.8
|
|
|
|
|
|
|
1,277.8
|
|
|
|
|
|
|
+8%
|
|
|
|
+11%
|
||
Gross profit
|
564.0
|
40.8%
|
539.8
|
42.2%
|
(1.4 pp)
|
|||||||||||||||||||
Operating expenses
|
(426.6)
|
(30.9%)
|
(400.4)
|
(31.3%)
|
+0.4 pp
|
|||||||||||||||||||
Profit from operations
|
|
|
|
137.4
|
|
|
|
9.9%
|
|
|
|
139.4
|
|
|
|
10.9%
|
|
|
|
(1.0 pp)
|
|
|
|
|
|
Identity,
IoT and Cybersecurity full year revenue came in at €1,381 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 €564 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 €427 million, up by €27 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 €137 million and profit from operations
margin settled at 10% for the full year 2018.
Contacts
Investor RelationsJean-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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