Excellent performance: Earnings of USD 51 cents per share and Operating Profit multiplied by five

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1 First Half 2004 Earnings Release Excellent performance: Earnings of USD 51 cents per share and Operating Profit multiplied by five Amsterdam, 15 September 2004 Smart card company Axalto (Euronext: NL AXL), the world leader in microprocessor cards according to Gartner Dataquest, reports today its results for the six months ended 30 June 2004, the first since its initial public offering on the Paris stock market on May 18, 2004: Earnings Per Share of USD 51 cents Revenue of USD 430 million, up 28% compared with the 2003 first half Gross margin increases by 2.1 percentage points, to 31.6% Operating profit increases fivefold, to USD 27.9 million Net income of USD 20.5 million USD 62 million free cash flow generated in the period. Commenting on these results, Axalto Chief Executive Officer, Olivier Piou, said: Axalto delivered an excellent performance in the first semester. Since the beginning of 2004 opportunities have increased in all market segments and in all regions. Axalto was able to address them with a good product mix. Our successful IPO boosted further Axalto employees energy to fulfill customers demand. These factors, combined with discipline on expenses, enabled the results that Axalto is reporting today. Axalto First Half 2003 First Half 2004 Variation Variation at constant exchange rates USD million Revenue % + 21% Gross Profit % + 40% Gross Margin (%) 29.5 % 31.6 % Operating Income x 5 - Operating Margin (%) 1.6 % 6.5 % Income Before Taxes (incl. Minority interests) (5.4) 29.5 As a percentage of Revenue (%) % Net Income (1.6) 20.5 Net margin (%) % Average number of shares Not applicable 40.1 million Earnings Per Share 51 cents

2 The successful Initial Public Offering of Axalto, the world leader in microprocessor cards, on the Paris stock market in May 2004 went in hand with successful business development. In the first six months of the year, Axalto revenue reached USD 430 million, a 28% growth compared with the same period last year. Axalto posted a very sharp improvement in profitability, with an operating profit of USD 28 million, more than five times the level seen in the year-earlier period, and a net profit of USD 20.5 million. With an average number of shares in circulation of 40.1 million, this leads to a solid USD 51 cent per share earnings for the period. Axalto also managed to generate USD 62 million of cash during the period, substantially higher than the USD 11 million in the first half of 2003 and USD 69 million for the full year in Axalto cash position improved to USD 111 million at the end of June All business segments contributed to the growth, led by the strength of the Mobile Communication and Financial Services segments, and an excellent performance by the Public Sector and Patent licensing activity. Furthermore, all regions contributed to the momentum. The Americas experienced the fastest revenue increase in terms of percentage, +46% compared with the same period last year. The Europe Middle East Africa area posted the strongest growth in absolute terms, with a USD 67 million improvement compared with first half of 2003, reaching revenue of USD 242 million. Asia moved up 3% compared to the same period of 2003, representing 26% of Axalto total revenue. Axalto microprocessor cards shipments rose by 33% in volume when compared with the 2003 first half. It delivered 106 million SIM cards, and 36 million microprocessor financial cards. Overall, adding Identity, Health, Pay-TV, Transport and other high-end cards, Axalto shipped practically ten microprocessor cards every second around the clock of this semester to its customers all over the world! The considerable increase in profit generation was mainly due to higher revenue, improved gross margin in particular in the Public Sector and patent licensing segment, and lower currency exchange losses. Gross profit increased 38% on the year-earlier period, and gross margin rose by 2.1 percentage points to 31.6%. This performance was mainly due to higher microprocessor cards sales volumes, a higher proportion of high-end cards in Mobile Communication and in all geographical areas, and strong revenue from licensing. Operating expenses represented 25.1% of revenue, down 2.8 percentage points when compared with the first half of At USD 108 million, operating expenses rose by 16%, and by 7% at constant exchange rates, to provide higher sales, marketing and technical support to prop up the growth of sales in the field. Strong net income from operations, capital expenditures lower than depreciation, and strict control over working capital requirements despite the very high revenue growth produced the solid cash-flow generation performance. During the period Gartner Dataquest confirmed Axalto s leading position in the microprocessor cards market for the year Axalto also delivered and secured large and visible contracts for its high-end value-added smart cards, at the Department of Defense and at the Transportation Security Agency a division of the Homeland Security Administration in the USA, for the TransLink project in Holland, with large financial institutions in the UK, with 3G mobile telephony operators in Europe and in Asia, and with new licensees for the Group intellectual property portfolio.

3 About Axalto Axalto (Euronext: NL AXL) is the world's leading provider of microprocessor cards (Gartner Dataquest 2004) the key to digital networks and a major supplier of point-of-sale terminals. Its 4500 employees come from 70 nationalities and serve customers in more than 100 countries, with worldwide sales reaching 3 billion smart cards to date. The company has 25 years' experience in smart card innovation and leads its industry in security technology and open systems. Axalto continuously creates new generations of products for use in a variety of applications in the telecommunications, finance, retail, transport, entertainment, healthcare, personal identification, information technology and public sector markets. Microprocessor cards provide convenience, security and privacy to public and private services operators, their customers and end users. For more information, visit us at Contacts: Axalto Media Investor Relations TBWA\Corporate Emmanuelle Saby Stéphane Bisseuil Emlyn Korengold T: T: T: M: M: M: esaby@axalto.com sbisseuil@axalto.com emlyn.korengold@tbwa-corporate.com

4 Supplementary information Axalto During this six-month period, ended June 30, Axalto revenue reached USD million, a 28% growth compared with the same period last year, where revenue was USD million. At constant exchange rates, revenue grew 21%. All regions contributed to the development. The Americas (NSA area) grew 46% compared with the same period last year and represented 18% of Axalto total revenue, at USD 77.8 million. The Europe Middle East Africa (EMEA) area grew by 38%, and 24% at constant exchange rates, compared with first half of 2003, reaching revenue of million, representing 56% of Axalto revenue for the period. Asia moved up 3.4% compared to the same period of 2003, representing 26% of Axalto total revenue. Gross profit came in at USD million, an increase of 38% on the year-earlier period, where gross profit was USD 98.8 million. At constant exchange rates, gross profit increased 40%. Gross margin rose by 2.1 percentage points, from 29.5% to 31.6%. Operating expenses represented 25.1% of revenue, down 2.8% compared with the first half of Operating expenses, at USD million, rose by 16% at historic exchange rates, and by 7% at constant exchange rates, compared with 93.4 million in the first half of Due to the above, operating profit, at USD 27.9 million grew fivefold, 415% over the year-earlier period. Operating profit was USD 5.4 million in the first half of Operating margin increased by 5 percentage points, to 6.5%. Axalto generated a net profit of USD 20.5 million in the first half of 2004 versus a loss of USD 1.6 million in the first half of This improvement was mainly due to higher revenue, improved gross margin and lower currency translation exchange losses. Lower currency translation exchange losses resulted from lower exchange rates volatility, particularly in the euro/dollar exchange rate, and from the fact that gains and losses on the financial instruments taken at the Schlumberger group level (to which Axalto belonged prior to its IPO) in 2003 as hedges against Axalto s exposures were in 2003 recorded at the Schlumberger Group level and not in Axalto s combined income statement. In 2004, Axalto benefits from the gains and incurs the losses related to these currency-hedging instruments. Axalto also generated USD 62 million of free cash flow during the period, to be compared with USD 11 million in the first half of Axalto available cash and short-term investment amounted to USD 111 million at the end of June 2004, and its net cash position was USD 96.8 million at the same date, versus USD 45 million on the Initial Public Offering date, on May 18, 2004.

5 Segment Information Cards division First Half 2003 First Half 2004 Variation Variation at constant exchange rates USD million % % Revenue Mobile Communication 182,8 239,8 +31% +26% Financial Cards 77,8 97,4 +25% +14% Public sector, Access and Other 29,4 43,3 48% +38% Prepaid Phone Cards 19,5 21,4 +9% +4% Total Revenue 309,5 401,9 +30% +23% Gross Profit Mobile Communication 64,6 87,3 +35% +39% Financial Cards 13,5 23,3 +72% +72% Public sector, Access and Other 8,1 16,9 +108% +121% Prepaid Phone Cards 4,0 2,3-42% -34% Total Gross profit 90,2 129,9 +44% +48% Gross margin 29,2% 32,3% Operating Expenses 84,7 100,3 +18% +10% Operating Income 5,6 29,6 x Operating margin 1,8% 7,4% Revenue in the Cards division rose by 30% with respect to the first half of 2003, or by 23% at constant exchange rates, driven by stronger activity in all segments and in all three regions. Relative growth was strongest in the Americas zone, due to strong demand for SIM cards resulting from the adoption of GSM standards by existing mobile networks and a simultaneous increase in subscribers to these networks. In absolute terms, however, growth was strongest in EMEA, with all segments contributing. Growth in Asia was due to a strong performance in the Mobile Communication segment, which offset a slight decrease in Financial Cards revenue. Microprocessor cards shipments rose by 33% in volume in the first half of SIM cards and financial cards saw growth of 32% and 35% in volume, respectively. Axalto delivered 106 million SIM cards to its mobile telecommunication operators and 36 million microprocessor cards to its financial institution customers. Gross margin in the Cards division increased by more than 3 percentage points to 32.3%. In dollar terms, gross profit rose by 44% at historical exchange rates and by 48% at constant exchange rates. Operating expenses rose by 18%, or by 10% at constant exchange rates. This was due to higher sales, marketing and technical support costs (up 21% at historical exchange rates and 12% at constant exchange rates) incurred to support revenue growth, and to some exceptional administrative costs resulting from Axalto s new-found independent status (arrangement of bank credit facilities, IT migration costs etc.), which accounted for most of the 18% rise in general and administrative expenses (11.6% at constant exchange rates). Operating profit came in at $29.6 million, more than five times the level recorded in the first half of 2003.

6 Mobile Communication First Half 2003 First Half 2004 Variation Variation at constant exchange rates USD million % % Revenue % +26% Gross profit % +39% Gross margin(%) 35% 36% Revenue in the Mobile Communication segment grew by more than 31% to $239.8 million in the first half of This strong growth was mainly driven by a sharp rise in sales volumes. SIM card volumes grew by 32% to 106 million units, with all three regions contributing to this growth. Compared with the first half of 2003, the average SIM card selling price eased 1%, and 5% at constant exchange rates. This represents a significant slowdown in the price downtrend seen in the last three years. In the first quarter of 2004, selling prices fell by 9.5% when compared to the first quarter of In the second quarter 2004, selling prices were stable in comparison with the second quarter of Compared with the first quarter of 2004, the average selling price rose by 8% in the second quarter of 2004, and by 9% at constant exchange rates. This performance resulted principally from an improvement in the product mix, due to higher sales of high-end cards, particularly those with memory capacity of 64KB or 128KB used for operator applications and user data. Revenue growth was strongest in EMEA in the second quarter, due to a substantial improvement in the product mix, and the Americas were the best-performing region in the first half as a whole. This was due to a major GSM effect, with the adoption of GSM standards by existing mobile networks and a simultaneous increase in the number of subscribers to these networks. Growth in subscriber bases in all the large population countries of Asia, outside China and Japan, also accounted for the strong revenue increase recorded in that region. In the first half of 2004, high-end cards accounted for 41% of SIM cards revenue versus 28% in the year-earlier period. This greater proportion of high-end products in the sales mix, together with the sharp rise in volumes, explains the strong growth in gross profit, which rose by 35% with respect to the first half of Gross margin increased by more than one percentage point to 36.4%.

7 Financial Cards First Half 2003 First Half 2004 Variation Variation at constant exchange rates USD million % % Revenue % +14% Gross profit % +72% Gross margin(%) 17% 24% Revenue in the Financial Cards segment came in at $97.4 million, an increase of 25% compared with the first half of 2003, or 14% at constant exchange rates. Overall microprocessor cards sales rose by 35% in volumes to 36 million units, due in particular to the rapid progress of the UK migration to the EMV standard. As a result, the EMEA region was the main growth driver in this segment. Microprocessor cards revenue also increased in the Americas, where Axalto continued its selective withdrawal from the magnetic-stripe cards business: magnetic-stripe cards volumes fell by a further 23% in the Americas in the first half of Gross margin in the Financial Cards segment came in at 24%; the increase compared to the first half of 2003 is due to higher microprocessor production volumes, a better mix of non-emv products in EMEA, to lower allocation of certain manufacturing variances and overheads (which amounted to less than 2% of the total cost of goods sold of the Cards divivsion) to this segment and to strict pricing discipline applied in the magnetic-stripe card business in the Americas. Public Sector, Access and Others First Half 2003 First Half 2004 Variation Variation at constant exchange rates USD million % % Revenue % +38% Gross profit % +121% Gross margin(%) 28% 39% Revenue in this segment came in at $43.3 million, up 48% compared with the first half of 2003, and up 38% at constant exchange rates. This growth was mainly due to higher shipments of Pay-TV cards and card readers, and a very strong performance in intellectual property licensing in the first quarter. Shipments of Common Access Cards to the US Department of Defense remained high. Gross profit rose sharply, by 11 percentage points with respect to the first half of 2003, reflecting the strong contribution from intellectual property licensing.

8 Prepaid Phonecards First Half 2003 First Half 2004 Variation Variation at constant exchange rates USD million % % Revenue % +4% Gross profit % -34% Gross margin(%) 21% 11% Revenue in the Prepaid Phonecards segment came in at $21.4 million in the first half of 2004, an increase of 9% or 4% at constant exchange rates. This increase was due to strong growth in the first quarter when revenue jumped by 28% year-onyear at constant exchange rates followed by a decline in the second quarter, with revenue down 9% sequentially and 14% year-on-year. This more volatile first-half performance results from Axalto s strategy of focusing on high-value-added cards and only supplying memory cards to customers regarded as strategic. The Prepaid Phonecards segment accounted for 5% of Axalto s total revenue, versus 6% in the first half of Gross margin fell by 10 percentage points, mainly due to a decline in average selling prices, conforting the company vision and strategy regarding this segment. Point-of-Sale Terminals division Revenue in the Point-of-Sale Terminals division rose by 10% to $28.4 million. In the first half, Axalto refocused its POS activities on areas where it can make the most of its competitive advantages, i.e. product differentiation based on security features, mobility, versatility and a strong after-sales support organisation. The POS division now has a set of core customers, which consist mainly of major financial institutions and approved resellers that lead their markets and want to build long-term relationships with companies able to supply and support POS terminals. Gross profit recovered strongly in the second quarter. However, gross margin fell sharply over the first half as a whole, by 11 percentage points with respect to the year-earlier period. This was due to strong price pressure resulting from stiff competition, particularly in regions from which Axalto carried out a selective withdrawal during the period. Operating expenses fell sharply as a result of this refocusing effort, by 10% at historical exchange rates and by 17% at constant exchange rates.

9 Revenue by Region Area Division First Half 2003 (USD m) First Half 2004 (USD m) Variation (%) Variation at constant exchange rate (%) Asia Cards 102,6 107,3 4,6% 4,6% POS 4,5 3,4-25,4% -25,4% Total 107,1 110,7 3,4% 3,4% EMEA Cards 155,9 220,4 41,4% 27,0% POS 19,0 21,4 12,7% 1,1% Total 174,9 241,8 38,3% 24,2% NSA Cards 51,0 74,2 45,4% 45,4% POS 2,3 3,7 61,7% 61,7% Total 53,3 77,8 46,1% 46,1% Total Cards 309,5 401,9 29,9% 22,8% Total POS 25,7 28,4 10,4% 1,7% Total AXALTO 335,2 430,3 28,4% 21,2%

10 Consolidated balance sheet highlights at 30 June 2004 Axalto From audited, combined From unaudited, Variation balance sheet as at consolidated balance sheet % USD million December 31, 2003 as at June 30, 2004 Equity 541,2 608,7 12,5% Cash and Short-term investments 50,2 111,1 121,3% Net Cash 11,5 96,8 738,8% *Net cash : available cash and short-term investments minus bank overdrafts and short-, medium- and long-term debt, including property leasing agreements and financing agreements for POS terminals provided to customers under long-term rental contracts (operating leases under US GAAP). Cash flow statement The improvement in Axalto s net cash position is the result of: - Strong generation of cash by operations in the first half of 2004, USD 73 million, produced by: o USD 20.5 million of net profit, o USD 18.5 million of depreciation and amortization add-backs, o USD 31.5 million of change in operating assets and liabilities, reflecting overall a strong decrease in working capital requirements, o and USD 2.5 million from other sources. - Capital Expenditures of USD 11.0 million for the period, mainly related to capacity increases for the Cards division. - Recapitalizations carried out by Schlumberger and other measures to reduce Axalto s debts prior to the IPO both externally and with respect to the Schlumberger group, intended to provide Axalto with a net positive liquidity of $45 million on flotation in accordance with the Separation Agreement.

11 Axalto Combined and consolidated financial statements as at June 30, 2004 The consolidated financial statements and notes as at June 30, 2004 presented below are unaudited; they have been subject to a limited review by our external auditors, PricewaterhouseCoopers. The accompanying notes are an integral part of these financial statements.

12 Combined and consolidated statement of operations (unaudited) In thousands of US$ Six months ended June 30, Revenue Cost of revenue Gross profit Operating expenses Research and engineering Sales and marketing General and administrative Total operating expenses Operating income Foreign currency transaction loss, net (5 411) (765) Interest income (expense), net (2 971) 269 Other income (loss), net (656) Income (loss) before taxes and minority interest (3 623) Tax benefit (expense) (8 911) Income before minority interest Minority interest (1 772) (448) Net income (loss) (1 634) Basic earnings per share (in US dollars) 0.51 Diluted earnings per share (in US dollars) 0.51 Average number of shares outstanding Average number of shares outstanding assuming dilution

13 Assets Current assets Combined and consolidated balance sheets (unaudited) In thousands of US $ Audited, combined balance sheet as at December 31, 2003 Unaudited, consolidated balance sheet as at June 30, 2004 Short term investments and cash Receivables, less allowance for doubtful accounts of $ and $ Receivables from related parties Inventories, net Deferred taxes on income Other current assets Total current assets Property, plant and equipment, net Deferred taxes on income Goodwill Intangible assets Other long term assets Total assets Liabilities and Stockholders equity/ net investment Current liabilities Bank overdrafts and short- term loans Accounts payable Payables to related parties Employee, other payables and accrued liabilities Liability for taxes on income Total current liabilities Long-term debt Pensions and other employment benefits Other long-term liabilities Total liabilities Commitments and contingencies (Note 14) Minority interest in subsidiaries Stockholders equity / net investment Common stock at Eur 1 par value, 150 million shares authorized, 40,490,668 shares outstanding Additional paid-in capital Schlumberger s net investment Retained income Accumulated other comprehensive income/(loss) ( ) Total stockholders equity / net investment Total Liabilities and stockholders equity/net investment

14 Combined and consolidated statements of cash flows (unaudited) In thousands of US$ Six months ended June 30, Cash flows from operating activities Net income (loss) (1 634) Adjustments to reconcile net income (loss) to Net Cash (used in) provided by operating activities Depreciation and amortization Deferred taxes (5 376) 608 Non cash (gain) loss on disposal of fixed assets Share of (earnings) losses of equity investees, net of dividends received Changes in assets and liabilities: (688) 426 Accounts receivables, net Receivables from related parties (1 404) Inventories, net 882 (17 637) Accounts payable (3 284) Payables to related parties (7 991) (4 340) Employee, Other payables and accrued liabilities (10 294) Pensions Estimated liability for taxes on income Other assets and liabilities, net (1 382) (4 323) Net cash (used in) provided by operating activities Cash flows from investing activities Capital expenditures (fixed assets) (5 656) (10 470) Capital expenditures (intangible assets) (185) (491) Net cash used in investing activities (5 841) (10 961) Cash flows from (used in) financing activities Net equity / Invested equity (3 396) Bank overdrafts and short term loans (15 040) Short term debt with related party Long term debt (418) (9 494) Net cash provided by (used in) financing activities (2 508) (1 167) Net increase (decrease) in cash and short-term investments Translation effect on cash and short-term investments 150 (178) Cash and short-term investments, beginning of period Cash and short-term investments, end of period

15 Combined and consolidated statements of stockholder s equity / net investment (unaudited) In thousands of US$ Common stock Shareholder s net investment COMBINED ACCOUNTS Shares Amount Additional paid-in capital Shareholder s invested equity Accumulated Other Comprehensive Income Shareholder s net investment Net income Other comprehensive income (loss) Total Invested equity as at December 31, Net income (loss) Invested equity (46 693) (46 693) (46 693) Other comprehensive income Market value adjustments for cash flow hedges Foreign currency translation adjustment Alternative minimum pension liability Unrealized gain (loss) on marketable securities Invested equity as at December 31, CONSOLIDATED ACCOUNTS Stockholder s equity as at December 31, , Contribution (Distribution) from Schlumberger Recapitalisation and issuance of common stock, net capital contribution by Schlumberger Ltd 40,027, ( ) ( ) ( ) Capital increase reserved to employees 445, Net income Other comprehensive income Market value adjustments for cash flow hedges Foreign currency translation adjustment (7 736) (7 736) Alternative minimum pension liability Unrealized gain (loss) on marketable securities (1696) (1 696) Stockholder s equity as at June 20, ,490,

16 Notes to the combined and consolidated financial statements All amounts are stated in thousands of US dollars unless otherwise stated. Note 1 Background Background and basis of Presentation In the fourth quarter of 2002, Schlumberger Limited ( Schlumberger ) announced its intention to divest various businesses, including certain of its Products Group. On March 19, 2004, Schlumberger and Axalto (the «Company») entered into a Master Separation Agreement ( Separation Agreement ) under which Schlumberger agreed to transfer to Axalto the assets and liabilities associated with the businesses of Smart Cards ( Cards ) and Point of Sales Terminals ( POS ), which belonged to the Schlumberger Products Group, in connection with the listing of Axalto s shares on the Euronext Paris. Cards includes microprocessor, magnetic strip, memory and other cards and related services for mobile communications, financial cards, public sector, access applications including licensing of intellectual property rights, and prepaid phone cards. POS includes point of sales terminals, systems and related services. Axalto was first listed on the Euronext Paris on May 18, Basis of Presentation The accompanying unaudited consolidated financial statements of Axalto and its subsidiaries as at June 30, 2004, have been prepared in accordance with generally accepted accounting principles for interim financial information in the United States of America. Accordingly they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included in the accompanying unaudited financial statements. All intercompany transactions and balances have been eliminated in consolidation. Operating results for the six-month period ended June 30, 2004, are not necessarily indicative of the results that may be expected for the full year ending December 31, The December 31, 2003 balance sheet information has been derived from the audited 2003 combined financial statements. The combined financial statements of Axalto for 2003 were derived from the consolidated financial statements of Schlumberger Limited. The combined financial statements include the historical assets, liabilities, revenues and expenses that were directly related to the Axalto business within Schlumberger during the period presented. A detailed explanation of these principles is presented in the audited combined financial statements attached to the Offering Circular filed with the AMF on May 17, During 2003, Axalto did not operate as a separate, stand-alone company. Axalto s results were included in the consolidated financial statements of Schlumberger on a divisional basis, and there was no separate meaningful historical equity accounts for Axalto. Changes in total invested equity represented Schlumberger s net investment in Axalto after giving effect to the net earnings (losses) of Axalto, dividends paid and net transfers (including cash) to and from Schlumberger. As the result of the contribution by Schlumberger to Axalto of the assets and liabilities related to the Cards and POS businesses, Schlumberger s net investment in Axalto converted to common stock and additional paid-in capital. 40,027,000 common stock of Axalto Holding NV were issued and subscribed by Schlumberger prior to the first listing with Euronext Paris on May 18, Reclassification Certain items from prior years have been reclassified to conform to the current year presentation.

17 Note 2 Summary of Significant Accounting Policies Principles of Consolidation Except as otherwise stated in Note 1 above and in Note 2 below, the consolidated financial statements for the six month period ended June 30, 2004, were prepared under the same basis and policies as those used for the combined financial statements for the year 2003, whose accounting policies are described in detail in the Notes to the audited combined financial statements attached to the Offering Circular. Foreign Currency Accounting Axalto s functional currencies are primarily local currencies. All assets and liabilities recorded in functional currencies other than U.S. dollars are translated at current exchange rates as of the balance sheet date. The resulting adjustments are charged or credited directly to the equity section of the combined balance sheet. Revenue and expenses are translated at the weighted-average exchange rates for the period. Realized and unrealized transaction gains and losses are included in income in the period in which they occur. They reflect the cumulative impact of the change in values due to currency fluctuation between the booking and settlement dates of assets and liabilities denominated in currencies other than functional currency in each of the Axalto entities. The combined financial statements of Axalto for the six month period ended June 30, 2003, did not include the gains or losses relating to the foreign currency exchange contracts entered into as a hedge against the risk attached to the future settlement of assets and liabilities denominated in a currency other than the functional currency. These contracts were entered into at Group level by Schlumberger and the corresponding gains (losses) were not allocated back to the Cards or POS businesses. For the six month period ended June 30, 2004, Axalto entered directly into foreign currency exchange contracts as a hedge against the risk attached to the future settlement of assets and liabilities denominated in a currency other than the functional currency. The consolidated statement of operations as at June 30, 2004 therefore includes the gain (loss) generated by these hedging instruments. Taxes on Income Historically, the operating results of the Axalto activities have been included in tax returns filed by the Schlumberger companies that held the assets and liabilities related to these activities. In accordance with US GAAP applicable to the carved-out financial statements, the provision for income taxes reflected in our combined financial statements has been determined on a separate return basis which means that they were recorded as if each company comprising our business was not part of a tax group and could not benefit from tax benefits resulting from losses accruing in other Schlumberger companies or activities. These principles were applied to the six-month period ended on June 30, In addition, we have determined our tax assets and liabilities for the year ended on December 31, 2003 taking into consideration whether any of our subsidiaries and joint ventures belonged to a Schlumberger tax group in any relevant jurisdiction in each such year. To the extent that any of our tax assets and liabilities were held by companies that belonged to a Schlumberger tax group in any of these years, such tax assets and liabilities were transferred at the end of the relevant year to the Schlumberger company that constituted the head of such Schlumberger tax group in the relevant countries. As a result, these tax assets and liabilities have been eliminated from our combined balance sheet, and our total invested equity has been adjusted by the corresponding net amount.

18 The provision for income taxes presented in the consolidated financial statements for the six month period ended June 30, 2004, was computed in accordance with the tax rules and regulations of the taxing authorities where the income is earned. All tax assets and liabilities belonging to Axalto entities are shown in the consolidated balance sheet as at June 30, Note 3 Earnings per share Six month period ended June 30, 2004 Net income Average shares outstanding Basic Dilutive effect of options Diluted Earning per share The company presents both basic and diluted earnings per share (EPS) amounts. Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS is calculated according to the Treasury Stock method by dividing net income by the average number of common shares outstanding assuming dilution, the calculation of which assumes that all stock options which are in the money are exercised at the beginning of the period and the proceeds used, by Axalto, to purchase shares at the average market price for the period. All the capital increases of Axalto Holding NV (except that reserved to Axalto employees, effective on June 9, 2004) were considered, for the purpose of determining the average number of common shares, as having occured on January 1, In the combined accounts for the six month period ended on June 30, 2003, no direct ownership relationship existed among all the various units comprising Axalto prior to the reorganization which occurred very shortly before its listing with Euronext Paris. Therefore, no historical earnings per share are presented. Note 4 Property, Plant and Equipment, net Property, plant and equipment (net) consist of the following: December 31, 2003 June 30, 2004 Land Buildings and improvements Machinery and equipment Total cost Less: Accumulated depreciation Fixed assets

19 Depreciation expense amounted to $14,459 for the six month ended June 30, 2003 and to $15,161 for the six month ended June 30, Capital expenditures amounted to $5,656 for the six month ended June 30, 2003 and to $10,470 for the six month ended June 30, Note 5 Inventory Inventory consists of the following: December 31, 2003 June 30, 2004 Raw materials and spares Work in progress Finished goods The provision for obsolete and excess inventory aggregated $17,324 as at December 31, 2003 and $18,801 as at June 30, Note 6 Employee, Other Payables and Accrued liabilities Employee, Other Payables and Accrued Liabilities consist of the following: December 31, 2003 June 30, 2004 Payroll, vacation and employee benefits Accrued expenses Accrued VAT Trade, warranty and accrued project losses Deferred revenue Other The increase in deferred revenue is due to the $12.7 million deferred revenue related to POS shipments to two customers made in the first half of 2004, for which payments were received according to the agreed terms. Revenue was deferred as at June 30, 2004 pending the signature of the sales contracts. One of the contracts was signed in August Note 7 Taxes on Income Six months ended June Current tax benefit (expense) (1 609) (8 303) Deferred tax benefit (expense) (608) Tax benefit (expense) booked to the statement of operations (8 911)

20 Note 8 Stock compensation plan As at December 31, 2001, 2002 and 2003, Axalto did not operate a stock option plan specific to its stand alone business. Employees of Axalto were part of the Schlumberger Limited Group and certain employees participated in the stock option plan and employee stock purchase plan of Schlumberger. Axalto has established a Global Equity Incentive Plan («GEIP») for its employees, approved by the general meetings of shareholders held on March 18, 2004 and April 21, Stock option plans The GEIP authorizes the company to grant to employees over the duration of the plan (ending on April 21, 2014) a total of 7 million ordinary shares of Axalto Holding NV. The Board of Axalto Holding NV, in its meeting of April 2, 2004, approved the main terms and conditions of the 2004 option grant under the GEIP and authorized to grant 3,300,000 ordinary shares with an exercice price equal to the initial listing price, i.e Euros per share. 3,198,000 stock options were granted on May 18, The vesting schedule differs, depending of the country of employment of the optionee, and varies from a 25% vesting per year over 4 years to a cliff vesting at the end of the 4 year period. Axalto uses the intrinsic value method for stock based awards granted to employees. No compensation expense for its stock based awards to employees was recognized in the consolidated financial statements as at June 30, The table below reflects adjusted net income, had Axalto elected to adopt the fair value approach of Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation: Six month period ended Net income June 30, 2004 As reported Adjusted The fair value of each grant is estimated on the date of grant using the multiple option Black-Scholes option-pricing model with the following assumptions: no dividend, expected volatility of 36%, risk-free interest rate of 3%, and expected option life of 3.6 years. Employee Stock Purchase plan In the period from May 4, 2004 to May 14, 2004, Axalto employees were offered the opportunity to buy Axalto shares at a price 15% below the initial listing price. 445,668 ordinary shares were subscribed by the employees at Euros per share.

21 Note 9 Financial instruments Axalto transacts business globally and is subject to risks associated with fluctuations in foreign exchange rates. Axalto s objective is to reduce earnings and cash flow fluctuations associated with foreign exchange rate changes. Cash Flow Hedges Axalto enters into various options and forward contracts to protect the value of a certain percentage of its forecasted, but not firmly committed, foreign currency costs for periods generally not exceeding fifteen months. The gains and losses on these contracts offset currency gains or losses on the related forecasted transaction. These hedges mainly relate to Euro denominated costs. Gains and losses on these contracts are initially recorded under Accumulated Other Comprehensive Income ( AOCI ) in stockholder s equity, and reclassified to current earnings under cost of revenue when related cost of revenue (for sales to third parties) are recognized, offsetting changes in the value of the foreign currency costs. At June 30, 2004, Axalto had pre-tax deferred gains of $2 million recorded under Accumulated Other Comprehensive Income ( AOCI ), which the company expects to reclassify as a credit to the cost of revenue over the next fifteen months. Fair Value of Financial Instruments At June 30, 2004, Axalto s financial instruments included cash, cash equivalents, investments, receivables, accounts payable, borrowings, and foreign exchange risk management contracts. At June 30, 2004, the fair values of cash and cash equivalents, receivables, accounts payable,accrued expenses, investments and borrowings approximated carrying values because of the short-term nature of these instruments. The estimated fair values of other financial instruments determined based on quoted market prices for the same or similar instruments, and the related carrying amounts are as follows: June 30, 2004 Risk management contracts Carrying amount Fair value Foreign exchange forwards Foreign exchange options Fair Value Hedges Axalto also evaluates and hedges against the impact of foreign exchange fluctuations on its assets and liabilities, denominated in currencies other than the functional currency of its individual units. In 2003, these hedge contracts were managed globally by Schlumberger and the gains and losses generated by these contracts were not reflected in the Axalto combined accounts. An estimate of the gains (losses) generated by these hedging contracts and attributable to Axalto on a prorata basis in 2003 were presented in the pro-forma income statement for 2003 included in the Offering Circular. As at June 30, 2004, the result generated by these hedging operations has no significant impact on the income statement of the period.

22 Note 10 Related party transactions The remaining balances of the related party payables and receivables included in the 2003 combined balance sheet represent amounts arising from trade transactions entered into by Axalto with other Schlumberger entities and certain local recharges of support services, and will be repaid or collected. As at June 30, 2004, the remaining balances of the related party payables and receivables with other Schlumberger entities also include a short term advance received from Schlumberger and receivables related to separation costs to be reimbursed by Schlumberger under the Master Separation Agreement, signed on March 19, The revenue, cost of revenue, receivables and payables related to transactions with Schlumberger entities are as follows: Six month ended June 30, Revenue Cost of revenue December 31, 2003 June 30, 2004 Accounts receivable Accounts payable Note 11 Segment information Axalto s operations are organized into two business segments: Cards and Point of Sales Terminals (POS). The Cards business is organized into four reportable segments: Mobile Communication; Financial Cards; Public Sector, Access and Other; and Prepaid Phone Cards. Six months ended June 30, Revenue Mobile Communication Financial Cards Public sector, Access and Other (1) Prepaid Phone Cards Total Cards Point-of-Sales Terminals Total Revenue (1) Includes the revenue from the licensing of Intellectual Property.

23 Six months ended June 30, Gross profit Mobile Communication Financial Cards Public sector, Access and Other (1) Prepaid Phone Cards Total Cards Point-of-Sales Terminals Total Gross Profit (1) Includes the gross profit from the licensing of Intellectual Property. As the result of improvements in the tracking and allocation tools for certain categories of manufacturing variances and overheads, the Mobile Communication and Public Sector, Access and Other segments received a higher allocation of such costs in the first half 2004 compared with the same period in 2003, while Financial Cards receive a lower allocation. The amount thus reallocated represents 2% of the Cost of Sales of Cards. Six months ended June 30, Operating expenses Cards Point-of-Sales Terminals Total operating expenses Six months ended June 30, Income (loss) before Taxes Cards (3 644) Point-of-Sales Terminals 21 (2 017) Total Income (loss) before Taxes (3 623)

24 Geographic Information The table below shows revenue attributed to geographic areas, on the basis of the location of the customer: Six months ended June 30, Revenue North and South America Europe, Middle East and Africa Asia Pacific Total revenue Significant Customers (as a percentage of revenue) For the six-month period ended June 30, 2004, no customer accounted for 10% or more of the total revenue. Note 12 Summary of material differences between US GAAP and IFRS The Axalto s consolidated financial statements are prepared in accordance with US GAAP, which differ in certain respects from International Financial Reporting Standards ( IFRS ). The primary differences between US GAAP and IFRS are presented below together with explanations of certain adjustments that affect the combined net income for the six month period ended June 30, 2003 and total invested equity as of and for the year ended December 31, 2003 and the consolidated net income and total shareholder s equity as of and for the six month period ended June 30, Reconciliation of net income Six months ended June 30, Net income (loss) reported under US GAAP (1634) IFRS adjusments: Amortization of goodwill (6 413) - In-process research and engineering (788) - Intangible assets acquired (75) - Discount on shares issued to employees - (1 214) Purchase accounting reserve (578) - Deferred tax effect of IFRS adjustments Net Income (loss) under IFRS (9158)

25 Reconciliation of invested/stockholder s equity December 31, 2003 June 30, 2004 Total equity reported under US GAAP IFRS adjusments: Amortization of goodwill (42 348) (42 348) In-process research and engineering Intangible assets acquired Purchase accounting reserve (20 612) (20 612) Deferred tax effect of IFRS adjustments Total invested/stockholder s equity Amortization of goodwill Under US GAAP, prior to January 1, 2002, goodwill was amortized over their estimated useful lives ranging from 10 to forty years. Axalto adopted the provisions of FAS 142, Goodwill and Other Intangible Assets (FAS 142), on January 1, As a result, goodwill is no longer subject to amortization subsequent to the date of adoption. Under IFRS, goodwill was amortized over its estimated useful life, as, under IFRS, there was a rebutable presumption that the useful life of goodwill will not exceed twenty years from initial recognition. As at January 1, 2004, consistent with the provisions of IFRS 3, Axalto s goodwill is also no longer subject to amortization under IFRS subsequent to the date of adoption. In-process research and engineering Under US GAAP, upon the acquisition of CP8, Axalto recognized and expensed immediately $25 million of in-process research and engineering, which did not have any alternative future use. Under IFRS, the in-process research and engineering should be recognized as a separate intangible asset if they meet the definition of and recognition criteria for an intangible asset. Otherwise, intangible assets must be subsumed within goodwill and amortized accordingly. Because the in-process research and engineering acquired did not meet certain technological feasibility at the acquisition date, those intangible assets were subsumed within goodwill and amortized over a twenty-year period. Intangible assets acquired Under US GAAP, upon the acquisition of CP8, Axalto recognized certain intangible assets, namely assembled workforce and customer list, and subsequently amortized those assets over their useful lives ranging from 1 to 12 years.

26 Under IFRS, an intangible asset is identifiable, controlled by Axalto and will generate future economic benefits. Because Axalto has insufficient control over the assembled workforce and customer list, Axalto considered that those items do not meet the definition of an intangible asset, which were consequently subsumed within goodwill and amortized over a twenty-year period. Purchase accounting reserve Under US GAAP, Axalto recognizes a provision included in the allocation of the acquisition costs with respect to certain exit costs, employee termination costs and other restructuring expenses as at the date of the acquisitions. Under IFRS, such costs should be charged to expense in the period they are incurred if the main features of the plan were not developed and announced at the acquisition date and completed within three months of the acquisition date. Discount on shares issued to employees Under US GAAP, Axalto applies the intrinsic value of APB 25 Accounting for stock issued to employees. Under APB 25, when the plans meets the four characteristics, identified in paragraph 7 of APB 25, that are essential for a share plan to be deemed non compensatory, no compensation expense is recognized. Under IFRS 2, the Company should recognize an expense immediately equal to the difference between the fair value of the share and the purchase price of the share times the number of shares granted. Note 13 Post closing events To managment s knowledge, there is no significant event that occured since June 30, 2004 which would materially impact the financial statements, as presented in this document. Note 14 Commitments and contingencies Pursuant to the terms of the Master Separation Agreement signed on March 19, 2004, Schlumberger and Axalto have agreed to carry out the complete transfer of the Schlumberger Group s Cards and POS businesses to Axalto or one of its subsidiaries. These undertakings remain in effect so long as there are contracts, assets or liabilities falling within the scope of Axalto s business that have not been transferred at the time of the Separation. This also applies to contracts, assets or liabilities falling within the scope of Schlumberger s business that have not been transferred at that same time. Until the date of transfer of the such contracts, assets or liabilities to Axalto or to Schlumberger, as the case may be, or in the event that they cannot be transferred or shall not be transferred as agreed by the parties, Schlumberger and Axalto have agreed to cooperate and execute the contracts or manage the assets and liabilities in the name of and