Gemalto First Half 2007 Results



    AMSTERDAM, THE NETHERLANDS, September 13 /CNW/ - Regulatory News:

    --  Revenue for the first half at EUR 760 million

    --  Operating income(1) at EUR 15 million

    --  Ongoing adjustments in operating cost structure delivering benefits

    --  Strong net cash position at EUR 291 million after use of EUR 100
million in share buyback program

    Gemalto (Euronext NL0000400653 - GTO), the leader in digital security,
today announced its results for the half year ended June 30, 2007.

    Highlights of the adjusted income statement(1) (figures below are at
historical exchange rates):

    
                                                          Year-on-year
    EUR  in millions              H1 2006    H1 2007        change(2)
    ----------------------------------------------------------------------
    Net sales                       846        760           (10.2)%
    ----------------------------------------------------------------------
    Gross profit                    260        222           (14.6)%
    Gross margin (%)               30.7%      29.2%        (1.5) ppts
    ----------------------------------------------------------------------
    Operating expenses(3)           227        210           (7.8)%
    Operating income                32.7       15.2          (53.6)%
    Operating margin (%)            3.9%       2.0%        (1.9) ppts
    ----------------------------------------------------------------------
    Profit for the period           28.9       24.5          (15.2)%
    ----------------------------------------------------------------------
    Adjusted basic earnings per
     share (euro)(4)                0.30       0.26          (15.3)%
    

    The above mentioned adjusted measures (unaudited) exclude accounting
entries related to the business combination with Gemplus, as well as one-off
expenses and reorganization charges incurred in connection with this
transaction. They are not meant to be considered in isolation or as a
substitute for comparable IFRS measures, and should be read only in
conjunction with the condensed consolidated interim financial statements
prepared in accordance with IFRS (unaudited) provided in appendix 6. Gemalto
believes these adjusted financial measures are helpful in assessing its past
financial performance and its future results.

    Olivier Piou, Chief Executive Officer, commented: "Gemalto's performance
in the first half of 2007 reflects the benefits of our pricing discipline in
Mobile Communication, the first effects of our cost structure adjustments to
better address the market environment, and good patent licensing activity.
During this first semester, we moved from managing post-merger integration to
actively developing our joint capabilities and winning significant digital
security business. We remain confident that the second half of 2007 will
further reflect the benefits of our strategy, which combines initiatives for
profitable growth with cost reduction programs."

    Basis of preparation of financial information

    The Company's condensed consolidated interim income statements, balance
sheets, statements of shareholders equity and cash flow statements (unaudited)
presented in appendix 6 were prepared in accordance with International
Financial Reporting Standard (IFRS).

    Additional financial information on an adjusted basis (unaudited) is
presented that is not in conformity with IFRS, in particular the presentation
of cost of sales, operating expenses and operating income, operating margin
and earnings per share which exclude one-off combination related expenses,
reorganization charges and charges resulting from the accounting treatment of
the transaction. Charges resulting from the accounting treatment of the
transaction consist of amortization of inventory step-up, additional
stock-based compensation due to the revaluation of Gemplus' stock options as
of combination date, amortization and impairment of intangible assets. One-off
combination related expenses consist of charges which would have not been
incurred had the transaction not occurred: professional advisory services
incurred in connection with the integration, new Gemalto brand and logo
creation and worldwide registration, as well as impairment charges related to
capitalized development costs on projects which are redundant with existing
products or technologies available in Gemplus. Most of the combination related
expenses were incurred in 2006. Reorganization charges consist of cost related
headcount reductions in the support functions, the consolidation of
manufacturing and office sites (including asset write-offs and transfer cost,
severance cost, lease termination and building refurbishment cost) as well as
the rationalization and harmonization of the product and service portfolio.
The Company believes that this information, which is not in conformity with
IFRS, is helpful supplemental information in order to better assess its past
and future performance. In addition, the Company's management uses this
information in its own planning and in assessment of its operating
performance. This information provided by the Company may not be comparable to
similarly titled measures employed by other companies.

    Because the business combination between Gemalto and Gemplus took place
as of June 2, 2006, the adjusted financial information presented for the first
half of 2006 was prepared on a pro forma basis, and reflects the combined
activity of the two companies over the period, assuming that the combination
had taken place as of January 1, 2005.

    The Company provides reconciliations between the IFRS and adjusted income
statements for the first half of 2007. This reconciliation is presented in a
table in appendix 4. The IFRS consolidated income statement for the first half
2007 (unaudited) shows an operating loss of EUR 65.9 million and a loss for
the period of EUR 48.4 million, including amortization and impairment of
intangible assets for EUR 23.0 million, reorganization expenses for EUR 55.1
million and combination related expenses for EUR 1.2 million.

    For a more detailed description of adjustments made to the IFRS
consolidated income statement, please refer to DESCRIPTION OF ADJUSTED
MEASURES at the end of this press release.

    All comparisons in this document are at historical (reported) exchange
rates, unless stated otherwise, and describe the evolution of the adjusted
first half 2007 information compared to that of the first half 2006 prepared
on a pro forma basis.

    Fluctuations in currency exchange rates against the Euro have an impact
on the Euro value of Group revenues. Comparisons at constant exchange rates
aim at neutralizing this translation effect on the analysis of the Group
operations. When Gemalto compares its historical figures for the current year
against the prior year's figures at constant exchange rates, it assumes that
the exchange rate of the Euro against such other currencies in the prior year
would have been the same as in the current year.

    Adjusted income statement(5) analysis

    Extract of the adjusted income statement (figures below are at historical
exchange rates):

    
                             Six months ended Six months ended
                               June 30, 2006    June 30, 2007
    ----------------------------------------------------------------------
                                       As a %           As a %
                             EUR  in     of   EUR  in     of
                              millions  sales  millions  sales % change(6)
    ----------------------------------------------------------------------
    Revenue                    846.3            759.9            (10.2)%
    ----------------------------------------------------------------------
    Gross profit               260.2   30.7%    222.1   29.2%    (14.6)%
    ----------------------------------------------------------------------
    EBITDA(7)                  74.2     8.8%    50.5     6.6%    (31.9)%
    ----------------------------------------------------------------------
    Operating expenses(2)      227.3   26.9%    209.5   27.6%    (7.8)%
    Operating income           32.7     3.9%    15.2     2.0%    (53.6)%
    ----------------------------------------------------------------------
    Profit for the period      28.9     3.4%    24.5     3.2%    (15.2)%
    ----------------------------------------------------------------------
    

    At constant exchange rates revenue was down 6% reflecting lower revenue
in Mobile Communication and patent licensing, partly offset by growth in
Secure Transactions revenue driven by EMV(8) and contactless payment volumes
and higher pay TV activity.

    On a geographic basis and at constant exchange rates revenue was down 15%
in the Americas and down 4% in Asia, mainly due to lower revenue in Mobile
Communication. In EMEA(9) revenue was down 4%, with growth in Secure
Transactions and ID & Security offsetting lower revenue in Mobile
Communication.

    Gross margin was 29.2% compared with 30.7% in a first half of 2006 that
had benefited from unusually high patent licensing revenue (EUR 24.1 million
against EUR 14.1 million in the first half of 2007) and from a number of
positive one-off items. The lower contribution of Mobile Communication to
total revenue and lower margin in Secure Transactions also accounted for the
year-on-year decrease.

    Operating expenses decreased by EUR 17.8 million, i.e. 7.8% year-on-year,
reflecting the effects of cost reduction measures implemented in the support
functions after the combination. Compared with the first half of 2006, General
& Administrative expenses were down by 13.6%.

    Consequently, operating income was at EUR 15.2 million with operating
margin at 2.0%. This performance reflects higher margins in Mobile
Communication and to patent licensing revenue recorded earlier in the year
than anticipated.

    Financial income was EUR 10.1 million. It comprises net interest income
of EUR 5.0 million, a gain of EUR 3.8 million on the disposal of an investment
held for sale, and foreign exchange gains of EUR 1.4 million. The Company also
recognized a gain of EUR 9.4 million in relation with the sale of an
investment in an Associate. Adjusted pre-tax income was EUR 33.1 million, and
income tax charges amounted to EUR 8.6 million. As a result, adjusted profit
for the period was EUR 24.5 million.

    Reorganization charges reported in the IFRS income statement

    Charges incurred in connection with headcount reductions in the support
functions, with the consolidation of manufacturing and office sites, as well
as the rationalization and harmonization of the product and service portfolio,
are disclosed under a line named "Reorganization expenses" in the IFRS income
statement and amounted to EUR 55.1 million. This amount consisted of severance
costs for EUR 42.9 million (mainly related to the closure of production
facilities in the Americas, Asia and Europe), to fixed asset and inventory
write-offs for EUR 11.0 million and to other costs, mainly related to IT
integration, for EUR 1.2 million.

    The implementation of the related reorganization plans will result in the
curtailment of certain pension obligations. A credit of EUR 2.4 million was
recognized in the first half of 2007 in connection with these curtailments, in
reduction of cost of sales and operating expenses. This credit is reflected in
the Adjusted measures.

    Balance sheet and cash flow (IFRS measures)

    Free cash flow(10) was an outflow of EUR 24.9 million, after capital
expenditure of EUR 29.2 million, of which EUR 17.7 million was incurred for
plant, property and equipment purchases, and approximately EUR 16 million used
in connection with restructuring measures. The disposal of the investment held
for sale and of the investment in an Associate mentioned above provided EUR
20.5 million in cash.

    Working capital requirements slightly decreased during the first half by
EUR 1 million. Excluding the increase in reserves for restructuring plans
launched in the period, working capital requirements grew by an estimated EUR
29 million compared with 2006 year-end. This evolution was mainly due to the
seasonal increase in inventory recorded at June 30, 2007 in anticipation of
the stronger activity scheduled for the second half of the year. Compared with
June 30, 2006 working capital requirement was down by EUR 28 million, a
year-on-year improvement of 13%.

    The share buy-back program effectively started on January 29 and used EUR
100 million in cash. 5.4 million shares were purchased in the first half of
the year, representing 5.9% of Gemalto's share capital. This program
authorizes the Company to acquire up to 10% of its share capital. In addition,
EUR 4 million in cash were used as part of the completion of the squeeze-out
of Gemplus shares.

    Gemalto's net cash position was EUR 291 million at June 30, 2007. The
decrease of EUR 105 million compared with December 31, 2006 corresponds almost
exactly to the cash used in the share buy-back and the acquisition of the
remaining Gemplus shares.

    Segment information(11)

    Extract of the adjusted pro forma income statements are at historical
exchange rates unless otherwise mentioned.

    Mobile Communication

    
                            Six months ended   Six months ended
                               June 30, 2006      June 30, 2007
    ----------------------------------------------------------------------
                                      As a %             As a %
                            EUR  in      of    EUR  in      of
                             millions  revenue  millions  revenue % change
    ----------------------------------------------------------------------
    Revenue                   490.7              417.8            (14.9)%
    ----------------------------------------------------------------------
    Gross profit              163.9    33.4%     144.1    34.5%   (12.1)%
    ----------------------------------------------------------------------
    Operating expenses        133.1    27.1%     109.8    26.3%   (17.5)%
    Operating income          30.5      6.2%     35.7      8.5%    17.1%
    ----------------------------------------------------------------------
    

    At constant exchange rates, Mobile Communication revenue was down 11%.
Deliveries of SIM cards rose 4%, reflecting Gemalto's strict pricing
discipline and selective approach to tenders.

    As a result, the year-on-year decrease in average SIM card selling price
was contained to 15% at constant exchange rates, a very significant
improvement compared with 34% a year ago. The average selling price increased
by 7% at constant exchange rates in the second quarter compared with the
first, due to more favorable regional and product mixes. The purchasing and
other manufacturing synergy measures implemented in the last twelve months
have begun to generate significant savings. Consequently, with lower revenue,
gross margin in the first half was up 1.1 percentage points to 34.5% of
revenue.

    Operating expenses were reduced by 18%, reflecting the positive impact of
the operating adjustments put in place following the merger, especially in
General & Administrative expenses as well as the redeployment of Research &
Engineering and support resources to other segments. Accordingly, operating
income was EUR 35.7 million with operating margin at 8.5%. This marks a strong
improvement when compared with the 6.2% reported in the first half of 2006, a
figure that included favorable one-off items.

    Secure Transactions

    
                        Six months ended   Six months ended
                           June 30, 2006      June 30, 2007
    ----------------------------------------------------------------------
                                  As a %             As a %
                        EUR  in      of    EUR  in      of
                         millions  revenue  millions  revenue % change(13)
    ----------------------------------------------------------------------
    Revenue               191.3              192.8               +0.8%
    ----------------------------------------------------------------------
    Gross profit          40.4     21.1%     33.4     17.3%     (17.3)%
    ----------------------------------------------------------------------
    Operating expenses    44.3     23.1%     43.4     22.5%      (2.0)%
    Operating income
     (loss)               (3.9)    (2.0)%    (9.5)    (4.9)%       NM
    ----------------------------------------------------------------------
    

    At constant exchange rates revenue was up by 4%, with strong growth in
microprocessor-based payment products, personalization services as well as pay
TV activity offsetting continued pressure on selling prices. Deliveries of
microprocessor cards were up 13%, led mainly by EMV migration and card
renewals in developed markets in Western Europe, and contactless payment in
Asia.

    Gross margin in this segment was down by 3.8 percentage points to 17.3%,
reflecting the decrease in sales prices and less favorable product and
regional mixes. The cost reductions expected from the restructuring plans
launched should materialize significantly in this segment only in 2008.
Consequently, the segment reported a EUR 9.5 million operating loss.

    ID & Security

    
                        Six months ended   Six months ended
                           June 30, 2006      June 30, 2007
    ----------------------------------------------------------------------
                                  As a %             As a %
                        EUR  in      of    EUR  in      of
                         millions  revenue  millions  revenue % change(13)
    ----------------------------------------------------------------------
    Revenue               106.6              98.1                (8.0)%
    ----------------------------------------------------------------------
    Gross profit          47.3     44.3%     34.5     35.1%     (27.1)%
    ----------------------------------------------------------------------
    Operating expenses    39.6     37.1%     46.3     47.2%      +16.9%
    Operating income
     (loss)                7.7      7.2%    (11.5)   (11.7)%       NM
    ----------------------------------------------------------------------
    

    At constant exchange rates revenue was down 5%, as a result of lower
patent licensing revenue (EUR 14.1 million) when compared with the unusually
high revenue (EUR 24.1 million) reported in the first half of 2006. Revenue
from Government Programs that includes e-passports, e-identity and healthcare
cards was stable, as many of the large-scale projects recently won were only
in their ramp-up phase. Security (i.e. Identity & Access Management for
on-line applications) revenue was down slightly due to lower deliveries of
microprocessor devices in the Americas. Transport revenue increased thanks to
higher activity in Latin America.

    The lower gross profit and 9.2 percentage point decrease in gross margin
in the segment was mainly due to the lower patent licensing revenue. In line
with Gemalto's strategy to grow the ID & Security business, operating expenses
were driven up by EUR 6.7 million. Research & Engineering and Sales &
Marketing expenses increased by EUR 3.3 million and EUR 2.2 million
respectively, following the reallocation to this growth business of technical
and marketing resources which played a key part in the winning of several
large-scale tenders, such as the German healthcare project. Consequently, the
segment reported an operating loss of EUR 11.5 million for the semester.

    Public Telephony

    
                        Six months ended   Six months ended
                           June 30, 2006      June 30, 2007
    ----------------------------------------------------------------------
                                  As a %             As a %
                        EUR  in      of    EUR  in      of
                         millions  revenue  millions  revenue % change(14)
    ----------------------------------------------------------------------
    Revenue               32.9               22.0               (33.1)%
    ----------------------------------------------------------------------
    Gross profit           2.1      6.3%      4.6     20.8%     +119.0%
    ----------------------------------------------------------------------
    Operating expenses     3.6     10.8%      2.2      9.8%     (38.9)%
    Operating income
     (loss)               (1.5)    (4.5)%     2.6     11.6%        NM
    ----------------------------------------------------------------------
    

    Memory cards for Public Telephony contribute less than 3% of Group
revenue, as worldwide demand continues to decrease, reflecting the even more
widespread usage of mobile telephony worldwide.

    The significant improvement in gross margin and the decrease in operating
expenses reflect the aggressive cost adjustments in manufacturing and support
structure carried out since the merger. Consequently, the segment reported an
operating income of EUR 2.6 million, against a EUR 1.5 million loss in the
first half 2006.

    Point-of-Sale Terminals

    
                            Six months ended Six months ended
                              June 30, 2006    June 30, 2007
    ----------------------------------------------------------------------
                                      As a %           As a %
                            EUR  in     of   EUR  in     of
                             millions  sales  millions  sales % change(14)
    ----------------------------------------------------------------------
    Revenue                   24.8             29.2              +17.7%
    ----------------------------------------------------------------------
    Gross profit               6.6    26.5%     5.6    19.2%    (15.2)%
    ----------------------------------------------------------------------
    Operating expenses         6.7    27.0%     7.8    26.8%     +16.4%
    Operating income (loss)   (0.1)   (0.3)%   (2.1)   (7.3)%      NM
    ----------------------------------------------------------------------
    

    The launch of a new range of products developed on a new technology
platform in the fourth quarter of 2006 supported much of the revenue growth in
the first half of 2007. During this period, strong activity in geographic
areas where pricing levels are lower accounted for the decrease in gross
profit compared with the same period of last year. Research & Engineering
resources continued to be invested in the development of customizations and
high end applications for the new platform, resulting in an operating loss of
EUR 2.1 million.

    Outlook

    In the second half of 2007, operating margin(15) should reflect the usual
favorable seasonal pattern and the increasing contribution of the first
digital security solutions deployments. It will also benefit from additional
cost synergies from the combination.

    Gemalto continues to anticipate sustained demand in all of its key
markets. It will continue to proactively make the necessary adjustments to its
cost base and remains determined to reach its stated objective of an operating
margin(15) above 10% in 2009.

    Reporting calendar

    Third quarter 2007 revenue will be reported on November 8, 2007, before
the opening of Euronext Paris.

    GEMALTO

    FIRST HALF 2007 FINANCIAL RESULTS

    DESCRIPTION OF ADJUSTED MEASURES

    Due to the combination with Gemplus, Gemalto's financial statements have
undergone significant change, due in particular to the accounting treatment of
this transaction in accordance with IFRS 3 "Business Combination". To
supplement the financial statements presented on an IFRS basis, the Group
presents the adjusted information described in the table below.

    Adjusted measures exclude certain business combination accounting
entries, and expenses directly incurred in connection with the combination
with Gemplus, that the Group believes are helpful in understanding its past
financial performance and its future results. Adjusted 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 consolidated financial
statements prepared in accordance with IFRS. Management regularly uses these
supplemental adjusted financial measures internally to understand, manage and
evaluate the business and take operating decisions. These adjusted measures
are among the primary factors management uses in planning for and forecasting
future periods. Compensation of executives is based in part on the performance
of the business based on these adjusted measures. Adjusted financial measures
reflect adjustments based on the following items, as well as the related
income tax effect:

    --  Amortization of inventory step-up: IFRS 3 "Business Combination"
requires Gemalto to value work-in progress and finished goods assumed in
connection with the combination at net realizable value (the estimated revenue
derived from the future sale of these goods less expected selling cost).
Therefore, the value of this inventory in the books of Gemplus on combination
date was adjusted accordingly (step-up). Thus, subsequent sales of the
work-in-progress and finished products carried in Gemplus' inventory at the
time of the combination generate a lower margin than if they were manufactured
after the acquisition, all other factors being equal. The amortization expense
related to this step up is therefore disclosed in the income statement under a
separate line below Cost of Sales. The adjustment, eliminating amortization of
inventory step-up, is intended to restore the normal margin of such sales. The
Group believes this adjustment is useful to investors as a measure of the
ongoing performance of its business.

    --  Additional stock-based compensation charge: As prescribed by IFRS 2
"Share-based payment" and IFRS 3 "Business Combination", vested and unvested
stock options or awards granted by an acquirer in exchange for stock options
or awards held by employees of the purchased company, or any substantially
equivalent commitment by the acquirer to assume the obligations of the
acquiree with regards to stock options granted to the latter's employees, as
is the case for Gemalto under the Combination Agreement, shall be considered
to be part of the purchase price for the acquirer, and the fair value (at the
effective date of the acquisition or merger) of the new (acquirer) awards
shall be included in the purchase price. It leads to increase the compensation
charge related to stock-options granted by Gemplus prior to the acquisition.
The adjustment, eliminating the additional stock-based compensation charge, is
intended to reflect the compensation charge that Gemplus would expense if the
company continued to operate on a standalone basis. The Group believes this
adjustment is useful to investors as a measure of the ongoing performance of
its business.

    --  Amortization and impairment of intangible assets: amortization and
impairment of intangible assets created as a result of the combination with
Gemplus have been excluded from the adjusted profit for the period. The Group
believes this is useful because, prior to this combination in the second
quarter of fiscal 2006, it did not incur significant charges of this nature,
and the exclusion of this amount helps investors understand the evolution of
IFRS operating expenses in periods subsequent to the combination with Gemplus.
Investors should note that the use of intangible assets contributed to revenue
earned during the period and will contribute to future revenue generation and
that these amortization expenses will be recurring.

    --  Combination related charges: In 2006, Gemalto incurred material
expenses in connection with the combination with Gemplus, which it would not
have otherwise incurred. Combination related charges consist of professional
advisory services incurred in connection with the integration, new Gemalto
brand and logo creation and worldwide registration, as well as impairment
charges related to capitalized development costs on projects which are
redundant with existing products or technologies available in Gemplus. Gemalto
also determined that its investment in a listed company was impaired as a
consequence of the combination with Gemplus. The related impairment charge was
recorded in Financial income (loss) in the first half of 2006. In the first
half of 2007, Gemalto incurred combination related charges for EUR 1.2
million. The Group may incur further combination related expenses in the
coming months. It believes it is useful for investors to understand the effect
of these expenses on its cost structure.

    --  Reorganization charges: charges incurred in connection with headcount
reductions in the support functions, the consolidation of manufacturing and
office sites (including asset write-offs and transfer cost, severance cost,
lease termination and building refurbishment cost) and the rationalization and
harmonization of the product and service portfolio.

    Summary

    Gemalto provides two sets of income statements for the first half 2007:

    --  IFRS consolidated income statement, pursuant to its regulatory
obligations

    --  Adjusted income statement

    
    Gemalto IFRS          - Includes all charges resulting from the
     consolidated income   accounting treatment of the combination with
     statement             Gemplus (amortization and impairment of
                           intangible assets, additional stock-based
                           compensation), and one-off expenses and
                           reorganization charges incurred in connection
                           with the combination (combination related
                           charges).
    ----------------------------------------------------------------------
    Gemalto adjusted      - Combination assumed to have taken place as of
     income statement      January 1, 2005.
                          - Excludes one-off expenses and reorganization
                           charges incurred in connection with the
                           combination with Gemplus (combination related
                           charges) and all charges resulting from the
                           accounting treatment of the combination.
    ----------------------------------------------------------------------
    

    In addition, because the business combination between Gemalto and Gemplus
took place as of June 2, 2006, the adjusted financial information presented
for the first half of 2006 was prepared on a pro forma basis, and reflects the
combined activity of the two companies over the period, assuming that the
combination had taken place as of January 1, 2005.

    Conference call

    Gemalto will hold an analysts and investors meeting to present its
financial results for the first half year of 2007. The meeting will take place
today at Pavillon Ledoyen (Salon Cocteau), Carre des Champs-Elysees, 1, avenue
Dutuit, 75008 Paris; and will start at 10:00 am Paris time. Prepared remarks
will be in French.

    The company has also scheduled a conference call in English for today at
3:00 pm Paris time (2:00 pm London time and 9:00 am New York time). Callers
may participate in the live conference call by dialling:

    +44 (0) 207 806 1967 or +1 718 354 1388 or +33 1 70 99 43 04.

    The presentation slide show will be available for download on our
Investor Relations web site (www.gemalto.com/investors) at 9:00 am Paris time
(8:00 am London time).

    Replays of the conference call will be available from approximately 2
hours after the conclusion of the conference call until September 19, 2007
midnight Paris time by dialling:

    +44 (0) 207 806 1970 or +1 718 354 11 12 or +33 1 71 23 02 48, access
code: 4561554#.

    About Gemalto

    Gemalto (Euronext NL 0000400653 GTO) is the leader in digital security
with pro forma 2006 annual revenues of EUR 1.7 billion, offices in more than
85 countries and about 10,000 employees including 1,300 R&D engineers.

    In a world where the digital revolution is increasingly transforming our
lives, Gemalto's solutions are designed to make personal digital interactions
more convenient, secure and enjoyable.

    Gemalto provides end-to-end digital security solutions, from the
development of software applications through design and production of secure
personal devices such as smart cards, SIMs, e-passports, and tokens to the
deployment of managed services for its customers.

    More than a billion people worldwide use the company's products and
services for telecommunications, financial services, e-government, identity
management, multimedia content, digital rights management, IT security, mass
transit and many other applications.

    As the use of Gemalto's software and secure devices increases with the
number of people interacting in the digital and wireless world, the company is
poised to thrive over the coming years.

    Gemalto was formed in June 2006 by the combination of Axalto and Gemplus.

    For more information please visit www.gemalto.com

    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 companies, 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 companies 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: the ability of the company's to integrate according to
expectations; the ability of the company to achieve the expected synergies
from the combination; trends in wireless communication and mobile commerce
markets; the company's ability to develop new technology and the effects of
competing technologies developed and expected intense competition generally in
the companies' main markets; profitability of expansion strategy; challenges
to or loss of intellectual property rights; ability to establish and maintain
strategic relationships in their major businesses; ability to develop and take
advantage of new software and services; the effect of the combination and any
future acquisitions and investments on the companies' share prices; changes in
global, political, economic, business, competitive, market and regulatory
forces; and those discussed by the companies in filings, submissions or
furnishings to the SEC, including under the headings "Cautionary Statement
Concerning Forward-Looking Statements" and "Risk Factors". Moreover, neither
the companies 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 companies 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.

    (1) The H1 2007 adjusted income statement measures presented in this
press release were prepared on an adjusted basis reflecting the consolidated
activity of the Group over the first half-year, excluding accounting entries
related to the business combination with Gemplus, as well as one-off expenses
and reorganization charges incurred in connection with this transaction; the
H1 2006 adjusted income statement measures presented for comparison were
prepared on the same adjusted basis and are pro forma measures, reflecting the
combined activity of Gemalto and Gemplus over the period, and assuming that
the combination had taken place as of January 1, 2005.

    (2) At historical (reported) exchange rates.

    (3) Operating expenses include research & engineering expenses, sales &
marketing expenses and general & administrative expenses; they do not include
other operating income & expenses, net.

    (4) The H1 2007 Adjusted basic earnings per share were determined on the
basis of the average number of Gemalto shares outstanding during the six-month
period ended June 30, 2007 i.e. taking into account the effect of the share
buy-back on the average number of shares outstanding during the period. The H1
2006 Adjusted basic earnings per share were determined on the basis of the
average number of Gemalto shares issued during the six-month period ended June
30, 2007 less the average number of Treasury shares held by the Company during
the six-month period ended June 30, 2006.

    (5) The H1 2007 adjusted income statement measures presented in this
press release were prepared on an adjusted basis reflecting the consolidated
activity of the Group over the first half-year, excluding accounting entries
related to the business combination with Gemplus, as well as one-off expenses
and reorganization charges incurred in connection with this transaction; the
H1 2006 adjusted income statement measures presented for comparison were
prepared on the same adjusted basis and are pro forma measures, reflecting the
combined activity of Gemalto and Gemplus over the period, and assuming that
the combination has taken place as of January 1, 2005.

    (6) At historical (reported) exchange rates.

    (7) EBITDA is defined as operating income plus depreciation (EUR 26.7
million in H1 2007 versus EUR 31.2 million in H1 2006) and amortization
expenses (EUR 8.6 million in H1 2007 versus EUR 10.3 million in H1 2006).
These amounts exclude amortization and impairment charges related to the
intangible assets of Gemplus identified upon Combination pursuant to IFRS 3
(less than)(less than) Business Combination (greater than)(greater than).

    (8) EMV is a set of specifications adopted by Europay, MasterCard and
Visa Card for the migration of bank cards to smart card technology

    (9) Europe, Middle East, Africa

    (10) Free cash flow is defined as net cash flow from operating activities
less the purchase of property, plant and equipment and other investments
related to the operating cycle (excluding acquisitions and financial
investments).

    (11) All segment information provided in this press release is on an
adjusted basis (unaudited), excluding one-off expenses incurred in connection
with the combination with Gemplus, reorganization charges and charges
resulting from the accounting treatment of the transaction. The segment
information related to H1 2006 was prepared on a pro forma basis, reflecting
the combined activity of Gemalto and Gemplus over the period, and assuming
that the combination had taken place as of January 1, 2005.

    (12) At historical (reported) exchange rates.

    (13) At historical (reported) exchange rates.

    (14) At historical (reported) exchange rates.

    (15) Prepared on an adjusted basis, reflecting the consolidated activity
of the Group over the first half year, excluding one-off expenses incurred in
connection with the combination with Gemplus, reorganization charges and
charges resulting from the accounting treatment of the transaction

    Appendix 1

    First half 2007 Adjusted income statement by business segment

    
    EUR  in
     millions               Six months ended June 30, 2007
    ----------------------------------------------------------------------
                            Secure                        Point-of-
                Mobile       Trans-    ID &     Public       Sale
              Communication actions   Security  Telephony  Terminals Total
    ----------------------------------------------------------------------
    Revenue      417.8       192.8     98.1       22.0       29.2    759.9
    ----------------------------------------------------------------------
    Gross
     profit      144.1        33.4     34.5       4.6        5.6     222.1
    ----------------------------------------------------------------------
    Operating
     expenses    109.8        43.4     46.3       2.2        7.8     209.5
    Operating
     income
     (loss)       35.7       (9.5)    (11.5)      2.6       (2.1)    15.2
    ----------------------------------------------------------------------
    

    First half 2006 Adjusted pro forma income statement by business segment

    
    EUR  in
     millions                Six months ended June 30, 2006
    ----------------------------------------------------------------------
                 Mobile      Secure    ID &     Public    Point-of-
               Communication  Trans-  Security  Telephony    Sale    Total
                             actions                       Terminals
    ----------------------------------------------------------------------
    Revenue       490.7       191.3    106.6      32.9       24.8    846.3
    ----------------------------------------------------------------------
    Gross
     profit       163.9       40.4     47.3       2.1        6.6     260.2
    ----------------------------------------------------------------------
    Operating
     expenses     133.1       44.3     39.6       3.6        6.7     227.3
    Operating
     income
     (loss)        30.5       (3.9)     7.7      (1.5)      (0.1)    32.7
    ----------------------------------------------------------------------
    

    Appendix 2

    Deliveries of secure personal devices

    
                             H1 2006
    In millions of units    pro forma    H1 2007    % growth
    ----------------------------------------------------------
    SIM cards                  430         445         +4%
    ----------------------------------------------------------
    Secure Transactions        97          111        +13%
    ----------------------------------------------------------
    ID & Security              18          15         (17%)
    ----------------------------------------------------------
    Total                      545         570         +5%
    ----------------------------------------------------------
    

    Appendix 3

    First half revenue by region

    
                                           Year-on-year     Year-on-year
                                             change at        change at
    EUR  in      H1 2006 pro                 historical       constant
     millions        forma      H1 2007    exchange rates   exchange rates
    ----------------------------------------------------------------------
    EMEA             449.2       427.9          (5%)            (4%)
    ----------------------------------------------------------------------
    North &
     South
     America         212.0       167.2         (21%)            (15%)
    ----------------------------------------------------------------------
    Asia             185.1       164.7         (11%)            (4%)
    ----------------------------------------------------------------------
    Total
     revenue         846.3       759.9         (10%)            (6%)
    ----------------------------------------------------------------------
    

    Appendix 4

    
    Consolidated Income Statement for the six month period ended June 30,
     2007

    Reconciliation from IFRS to Adjusted financial information

    EUR  in
     millions

                                                              Adjustment
                                Adjustment                    relating to
                                 relating to   Adjustment     amortization
                      IFRS       combination   relating to        of
                    financial     related     reorganization  intangible
                    information   expenses       expenses        assets

    Sales             759.9
    Cost of sales    (538.0)
    Inventory
     step-up
     amortization      0.0
                   ------------ ------------------------------------------
    Gross Profit      221.9         0.0            0.0            0.0

    Research &
     Engineering
     expenses         (50.8)
    Sales &
     Marketing
     expenses        (109.6)
    G&A expenses      (50.7)
    Other
     Operating
     expenses          2.6
    Combination
     related
     expenses         (1.2)         1.2
    Reorganization
     expenses         (55.1)                      55.1
    Amortization
     and
     impairment of
     intangible
     assets           (23.0)                                     23.0
                   ------------ ------------------------------------------
    Operating
     Income           (65.9)        1.2           55.1           23.0
                   ------------ ------------------------------------------

    Financial
     Income            10.1
    Share of
     profit (loss)
     of associates    (0.9)
    Gain on sale
     of an
     Investment in
     Associate         9.4
                   ------------ ------------------------------------------
    Profit before
     taxes            (47.3)        1.2           55.1           23.0

    Income tax        (1.1)                       (0.6)          (6.9)
                   ------------ ------------------------------------------
    Profit (loss)
     for the
     period           (48.4)        1.2           54.5           16.1
                   ------------ ------------------------------------------

    Attributable
     to
     shareholders     (50.1)
    Attributable
     to minority
     interest             (1.7)

    EUR  in
     millions

                                      Adjustment
                                      relating to
                      Adjustment       Management
                      relating to    incentives on      Adjusted
                      stock based      investment       financial
                      compensation      disposal       information

    Sales                                                 759.9
    Cost of sales         0.2                            (537.8)
    Inventory
     step-up
     amortization                                          0.0
                   --------------------------------- ---------------
    Gross Profit          0.2             0.0             222.1

    Research &
     Engineering
     expenses             0.0                            (50.8)
    Sales &
     Marketing
     expenses             0.3                            (109.3)
    G&A expenses          0.6             0.7            (49.4)
    Other
     Operating
     expenses                                              2.6
    Combination
     related
     expenses                                              0.0
    Reorganization
     expenses                                              0.0
    Amortization
     and
     impairment of
     intangible
     assets                                                0.0
                   --------------------------------- ---------------
    Operating
     Income               1.1             0.7             15.2
                   --------------------------------- ---------------

    Financial
     Income                                               10.1
    Share of
     profit (loss)
     of associates                                        (0.9)
    Gain on sale
     of an
     Investment in
     Associate                           (0.7)             8.7
                   --------------------------------- ---------------
    Profit before
     taxes                1.1             0.0             33.1

    Income tax                                            (8.6)
                   --------------------------------- ---------------
    Profit (loss)
     for the
     period               1.1             0.0             24.5
                   --------------------------------- ---------------

    Attributable
     to
     shareholders                                         22.8
    Attributable
     to minority
     interest                                             (1.7)
    

    Appendix 5

    Estimated cash position variation schedule

    
    EUR  in millions                                    H1 2006 (*) H1 2007
    ----------------------------------------------------------------------
    Cash & cash equivalent, beginning of period            637      430
    ----------------------------------------------------------------------
    Cash generated by (used in) operating activities (xx)   (46)       5
        Including cash provided by (used in) decrease
         (increase) of working capital                    (70)       1
    Capital expenditure and acquisitions of intangibles   (41)      (29)
    ----------------------------------------------------------------------
    Free cash flow                                        (86)      (24)
    ----------------------------------------------------------------------
    Interest received (paid), net                           8        5
    Cash generated by disposal of investments               0        21
    Other cash generated by (used in) investing
     activities                                            (3)      (0)
    Cash used in connection with the Combination with
     Gemplus                                                0       (4)
    ----------------------------------------------------------------------
    Cash generated by (used in) operating and investing
     activities                                           (82)      (3)
    ----------------------------------------------------------------------
    June 2, 2006 distribution to Gemplus shareholders     (164)      0
    Cash used by the share buy-back program                 0      (100)
    Cash generated (used) by other share purchase or
     disposal                                              (3)       2
    Other cash used in financing activities (excluding
     proceeds and repayments of borrowings)                 0       (8)
    Other (translation adjustment mainly)                  (6)      (1)
    ----------------------------------------------------------------------
    Cash and cash equivalent, end of period                382      319
    ----------------------------------------------------------------------
    Current and non-current borrowings including
     finance lease, end of period                         (38)      (27)
    ----------------------------------------------------------------------
    Net cash, end of period                                344      291
    ----------------------------------------------------------------------

    (*) Prepared on a pro forma basis
    (xx) Cash generated by (used in) operating activities takes into account
     the use of EUR  16 million in cash in connection with restructuring
     actions in H1 2007. There was no such use of cash in H1 2006.
    




For further information:

For further information: Gemalto Corporate Communication Remi CALVET,
M.: +33(0) 6 22 72 81 58 remi.calvet@gemalto.com or Corporate Media Relations
Emmanuelle SABY, M.: +33(0) 6 09 10 76 10 emmanuelle.saby@gemalto.com or TBWA
Corporate Emlyn Korengold, T. : +33 (0) 6 08 21 93 74
emlyn.korengold@tbwa-corporate.com or Investors Relations Stephane BISSEUIL,
T.: +33(0) 1 55 01 50 97 stephane.bisseuil@gemalto.com

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GEMALTO

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