Gemalto first half 2007 results Revenue for the first half at 760 million Operating income 1 at 15 million Ongoing adjustments in operating cost structure delivering benefits Strong net cash position at 291 million after use of 100 million in share buyback program Amsterdam, September 13, 2007 - 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): in millions H1 2006 H1 2007 Year-on-year 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. 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. 1
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 65.9 million and a loss for the period of 48.4 million, including amortization and impairment of intangible assets for 23.0 million, reorganization expenses for 55.1 million and combination related expenses for 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. 2
Adjusted income statement 5 analysis Extract of the adjusted income statement (figures below are at historical exchange rates): * * * Six months ended June 30, 2006 Six months ended June 30, 2007 in millions As a % of sales in millions As a % of 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 ( 24.1 million against 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 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 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. 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 ( 26.7 million in H1 2007 versus 31.2 million in H1 2006) and amortization expenses ( 8.6 million in H1 2007 versus 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 «Business Combination». 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 3
Financial income was 10.1 million. It comprises net interest income of 5.0 million, a gain of 3.8 million on the disposal of an investment held for sale, and foreign exchange gains of 1.4 million. The Company also recognized a gain of 9.4 million in relation with the sale of an investment in an Associate. Adjusted pre-tax income was 33.1 million, and income tax charges amounted to 8.6 million. As a result, adjusted profit for the period was 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 55.1 million. This amount consisted of severance costs for 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 11.0 million and to other costs, mainly related to IT integration, for 1.2 million. The implementation of the related reorganization plans will result in the curtailment of certain pension obligations. A credit of 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 24.9 million, after capital expenditure of 29.2 million, of which 17.7 million was incurred for plant, property and equipment purchases, and approximately 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 20.5 million in cash. Working capital requirements slightly decreased during the first half by 1 million. Excluding the increase in reserves for restructuring plans launched in the period, working capital requirements grew by an estimated 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 28 million, a year-on-year improvement of 13%. The share buy-back program effectively started on January 29 and used 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, 4 million in cash were used as part of the completion of the squeeze-out of Gemplus shares. Gemalto s net cash position was 291 million at June 30, 2007. The decrease of 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. 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). 4
Segment information 11 Extract of the adjusted pro forma income statements are at historical exchange rates unless otherwise mentioned. Mobile Communication Six months ended June 30, 2006 Six months ended June 30, 2007 in millions As a % of revenue in millions As a % of revenue % change 12 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 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. 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. 5
Secure Transactions Six months ended June 30, 2006 Six months ended June 30, 2007 in millions As a % of revenue in millions As a % of 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 9.5 million operating loss. ID & Security Six months ended June 30, 2006 Six months ended June 30, 2007 in millions As a % of revenue in millions As a % of 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 ( 14.1 million) when compared with the unusually high revenue ( 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 6.7 million. Research & Engineering and Sales & Marketing expenses increased by 3.3 million and 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- 13 At historical (reported) exchange rates. 6
scale tenders, such as the German healthcare project. Consequently, the segment reported an operating loss of 11.5 million for the semester. Public Telephony Six months ended June 30, 2006 Six months ended June 30, 2007 in millions As a % of revenue in millions As a % of 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 2.6 million, against a 1.5 million loss in the first half 2006. Point-of-Sale Terminals Six months ended June 30, 2006 Six months ended June 30, 2007 in millions As a % of sales in millions As a % of 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 2.1 million. 14 At historical (reported) exchange rates. 7
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. 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 8
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. 9
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 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. 10
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 consolidated income statement Gemalto adjusted income statement - Includes all charges resulting from the accounting treatment of the combination with 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). - Combination assumed to have taken place as of 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. 11
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), Carré des Champs-Elysées, 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#. Corporate Communication Investors Relations Rémi CALVET Stéphane BISSEUIL M.: +33(0) 6 22 72 81 58 T.: +33(0) 1 55 01 50 97 remi.calvet@gemalto.com stephane.bisseuil@gemalto.com Corporate Media Relations Emmanuelle SABY M.: +33(0) 6 09 10 76 10 emmanuelle.saby@gemalto.com Emlyn Korengold TBWA Corporate T. : +33 (0) 6 08 21 93 74 emlyn.korengold@tbwa-corporate.com 12
About Gemalto Gemalto (Euronext NL 0000400653 GTO) is the leader in digital security with pro forma 2006 annual revenues of 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. 13
Appendix 1 First half 2007 Adjusted income statement by business segment in millions Six months ended June 30, 2007 Mobile Secure ID & Public Point-of-Sale Communication Transactions 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 in millions Six months ended June 30, 2006 Mobile Secure ID & Public Point-of-Sale Communication Transactions Security Telephony Terminals Total 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 14
Appendix 2 Deliveries of secure personal devices In millions of units H1 2006 % growth H1 2007 pro forma SIM cards 430 445 +4% Secure Transactions 97 111 +13% ID & Security 18 15 (17%) Total 545 570 +5% First half revenue by region in millions H1 2006 pro forma Appendix 3 H1 2007 Year-on-year change at historical exchange rates Year-on-year change at constant 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%) 15
Appendix 4 Consolidated Income Statement for the six month period ended June 30, 2007 Reconciliation from IFRS to Adjusted financial information in millions IFRS financial information Adjustment relating to combination related expenses Adjustment relating to reorganization expenses Adjustment relating to amortization of intangible assets Adjustment relating to stock based compensation Adjustment relating to Management incentives on investment disposal Adjusted financial information Sales 759.9 759.9 Cost of sales (538.0) 0.2 (537.8) Inventory step-up amortization 0.0 0.0 Gross Profit 221.9 0.0 0.0 0.0 0.2 0.0 222.1 Research & Engineering expenses (50.8) 0.0 (50.8) Sales & Marketing expenses (109.6) 0.3 (109.3) G&A expenses (50.7) 0.6 0.7 (49.4) Other Operating expenses 2.6 2.6 Combination related expenses (1.2) 1.2 0.0 Reorganization expenses (55.1) 55.1 0.0 Amortization and impairment of intangible assets (23.0) 23.0 0.0 Operating Income (65.9) 1.2 55.1 23.0 1.1 0.7 15.2 Financial Income 10.1 10.1 Share of profit (loss) of associates (0.9) (0.9) Gain on sale of an Investment in Associate 9.4 (0.7) 8.7 Profit before taxes (47.3) 1.2 55.1 23.0 1.1 0.0 33.1 Income tax (1.1) (0.6) (6.9) (8.6) Profit (loss) for the period (48.4) 1.2 54.5 16.1 1.1 0.0 24.5 Attributable to shareholders (50.1) 22.8 Attributable to minority interest (1.7) (1.7) 16
Appendix 5 Estimated cash position variation schedule in millions H1 2006 * H1 2007 Cash & cash equivalent, beginning of period 637 430 Cash generated by (used in) operating activities ** (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 ** Cash generated by (used in) operating activities takes into account the use of 16 million in cash in connection with restructuring actions in H1 2007. There was no such use of cash in H1 2006. 17
Gemalto Condensed consolidated interim financial statements as of June 30, 2007 (Unaudited) The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Consolidated balance sheets (unaudited) In thousands of Euro Notes Consolidated balance sheet as of December 31, 2006 (*) Consolidated balance sheet as of June 30, 2007 ASSETS Non-current assets Property, plant and equipment, net 7 242,922 228,928 Goodwill, net 8 547,572 547,290 Intangible assets, net 8 115,633 113,176 Investments in associates 15,912 8,620 Deferred income tax assets 17,897 12,037 Available-for-sale financial assets, net 7,401 1,979 Other non-current assets 25,910 23,752 Total non-current assets 973,247 935,782 Current assets Inventories, net 9 177,814 194,529 Trade and other receivables, net 10 447,162 422,486 Derivative financial instruments 11 6,407 6,399 Cash and cash equivalents 12 430,326 318,461 Total current assets 1,061,709 941,875 Total ASSETS 2,034,956 1,877,657 EQUITY Capital and reserves attributable to the company s equity holders Share capital 90,083 91,016 Share premium 1,241,326 1,248,845 Treasury shares (5,240) (103,124) Fair value and other reserves 73,151 72,503 Cumulative translation adjustment (4,158) (5,970) Retained earnings 22,319 (27,656) 1,417,481 1,275,614 Minority interest 26,884 11,201 Total EQUITY 1,444,365 1,286,815 LIABILITIES Non-current liabilities Borrowings 26,429 19,376 Deferred income tax liabilities 28,219 18,610 Retirement benefit obligation 33,272 32,779 Provisions and other liabilities 13 38,808 59,378 Total non-current liabilities 126,728 130,143 Current liabilities Trade and other payables 14 430,470 403,102 Current income tax liabilities 9,902 6,885 Borrowings 7,787 8,082 Derivative financial instruments 11 280 505 Provisions and other liabilities 15 15,424 42,125 Total current liabilities 463,863 460,699 Total LIABILITIES 590,591 590,842 Total EQUITY and LIABILITIES 2,034,956 1,877,657 (*) Compared to the published consolidated financial statements for the year ended December 31, 2006, balance sheet has been modified due to the reassessment of the fair value of certain assets acquired, liabilities and contingent liabilities assumed from Gemplus at the contribution date. The accompanying notes are an integral part of these condensed consolidated interim financial statements. 2
Consolidated income statements (unaudited) Notes Six-month period ended June 30, In thousands of Euro (except earnings per share) 2006 (*) 2007 Revenue 467,691 759,863 Cost of sales (329,869) (537,965) Amortization of inventory step-up 4 (4,009) - Gross profit 133,813 221,898 Operating expenses Research and engineering (30,429) (50,823) Sales and marketing (57,797) (109,596) General and administrative (30,958) (50,680) Other income (expense), net (1,892) 2,624 Combination related expenses 5 (6,746) (1,181) Reorganization expenses 5 - (55,128) Amortization and impairment of intangible assets 4, 5 (13,631) (23,031) Operating result (7,640) (65,917) Finance income (expenses), net 17 1,102 10,097 Share of profit (loss) of associates 129 (898) Gain on sale of investment in associate - 9,393 Profit (Loss) before income tax (6,409) (47,325) Income tax expense 16 1,427 (1,066) Profit (Loss) for the period (4,982) (48,391) Attributable to Equity holders of the company (4,439) (50,100) Minority interest (543) 1,709 Basic earnings (loss) per share (in Euro) 18 (0.10) (0.57) Diluted earnings (loss) per share (in Euro) 18 (0.10) (0.57) In thousands Average number of shares outstanding 18 43,917 88,371 Average number of shares outstanding assuming dilution 18 43,917 88,371 (*) Balances shown for the six-month period ended June 30, 2006 include one month of Gemplus operations. The accompanying notes are an integral part of these condensed consolidated interim financial statements. 3
Consolidated statements of changes in equity (unaudited) In thousands of Euro Attributable to equity holders of the company Minority interest Total equity Share Share Treasury Fair value and Cumulative Retained Number of shares capital premium shares other reserves translation adj. earnings Balance as of January 1, 2006 40,578,435 40,579 450,369 (3,211) (4,252) 17,466 88,702 2,424 592,077 Movements in fair value and other reserves: - Currency translation adjustments (11,997) (170) (12,167) - Gains/(losses) on treasury shares (17) (17) - Fair value gains/(losses), net of tax: - financial assets available-for-sale - cash flow hedges 2,151 4,546 (987) 2,151 3,559 Net income/(expense) recognized directly in equity - - - 6,680 (11,997) - (1,157) (6,474) Profit/(Loss) for the period (4,439) (543) (4,982) Total recognized income for the period - - - 6,680 (11,997) (4,439) (1,700) (11,456) Employee share option scheme 57,671 57,671 Purchase of Treasury shares, net (143,983 shares purchased during the period) (3,231) (3,231) Capital increase further to contribution in kind of Gemplus International SA shares 21,985,104 21,985 488,949 510,934 Cost incurred on Gemalto share capital increase (2,920) (2,920) Minority interest on Gemplus acquisition 368,722 368,722 Dividend paid / payable to minority interests (1,282) (1,282) Balance as of June 30, 2006 (*) 62,563,539 62,564 936,398 (6,442) 60,099 5,469 84,263 368,164 1,510,515 Balance as of January 1, 2007 (*) 90,082,535 90,083 1,241,326 (5,240) 73,151 (4,158) 22,319 26,884 1,444,365 Movements in fair value & other reserves: - Currency translation adjustments (1,812) (16) (1,828) - Gains/(losses) on treasury shares 27 27 - Fair value gains/(losses), net of tax: - financial assets available-for-sale - variation of actuarial gains and losses in benefit obligation - cash flow hedges (4,253) (592) 598 (22) (4,253) (592) 576 - revaluation further to acquisition of LM Gemplus Pty Ltd minority interest 125 125 Net income/(expense) recognized directly in equity - - - (4,220) (1,812) 125 (38) (5,945) Profit/(Loss) for the period (50,100) 1,709 (48,391) Total recognized income for the period - - - (4,220) (1,812) (49,975) 1,671 (54,336) Employee share option scheme 3,572 3,572 Purchase of Treasury shares, net (5,310,565 shares purchased during the period) (97,884) (97,884) Capital increase further to acquisition of minority interests in Gemplus International SA 933,309 933 17,763 18,696 Excess of purchase price on subsequent minority interest acquisitions (10,244) (10,244) Minority interest on Gemplus acquisition (13,748) (13,748) Dividend paid / payable to minority interests (3,606) (3,606) Balance as of June 30, 2007 91,015,844 (**) 91,016 1,248,845 (103,124) 72,503 (5,970) (27,656) 11,201 1,286,815 (*) Compared to the published condensed consolidated interim financial statements as of June 30, 2006 and to the published consolidated financial statements for the year ended December 31, 2006 respectively, the balances as of June 30, 2006 and January 1, 2007 have been modified due to the reassessment of the fair value of certain assets acquired, liabilities and contingent liabilities assumed from Gemplus at the contribution date. (**) Including 5,539,557 treasury shares The accompanying notes are an integral part of these condensed consolidated interim financial statements. 4
Consolidated statements of cash flows (unaudited) In thousands of Euro Notes Six-month period ended June 30, 2006 (*) 2007 Cash flows from operating activities Cash generated from (used in) operations 19 (25,525) 11,243 Interest paid (508) (1,126) Income tax paid (4,954) (6,306) Net cash provided by (used in) operating activities (30,987) 3,811 Cash flows from (used in) investing activities Acquisition of subsidiary, cash acquired net of costs 225,786 25 Purchase of Gemplus minority interests - (4,068) Purchase of property, plant and equipment (20,325) (17,719) Proceeds from sale of property, plant and equipment 86 577 Purchase of intangible assets (2,262) (11,762) Purchase of non-current assets (2,561) (282) Proceeds from sale of an available-for-sale asset - 4,912 Proceeds from sale of an investment in associate - 15,603 Purchase of investments in associated companies - (289) Interest received 4,566 6,302 Net cash provided by (used in) investing activities 205,290 (6,701) Cash flows from (used in) financing activities Proceeds from exercise of stock options 1,109 1,026 Purchase of shares held in Treasury (net) (3,230) (99,652) Gains/(losses) on treasury stocks transactions (581) (4) Proceeds from borrowings 2,566 1,228 Repayments of borrowings (2,654) (7,534) Dividends paid to minority interests (1,921) (2,552) Net cash provided by (used in) financing activities (4,711) (107,488) Net increase (decrease) in cash and bank overdrafts 169,592 (110,378) Cash and bank overdrafts, beginning of period 12 219,095 429,596 Currency translation effect on cash and bank overdrafts (7,621) (1,000) Cash and bank overdrafts, end of period 12 381,066 318,218 (*) Balances shown for the six-month period ended June 30, 2006 include one month of Gemplus operations. The accompanying notes are an integral part of these condensed consolidated interim financial statements. 5
Notes to the condensed consolidated interim financial statements as of June 30, 2007 All amounts are stated in thousands of Euro unless otherwise stated. Note 1 General information On December 6, 2005, the two companies Axalto Holding N.V. and Gemplus International S.A. signed an agreement to merge and create Gemalto, a world leader in digital security. Following regulatory reviews and approvals, the transaction took place on June 2, 2006 (see Note 4), and Axalto Holding N.V. changed its name to Gemalto N.V. Gemalto N.V. («the Company») and its subsidiaries (together «Gemalto» or «the Group») design, manufacture and sell Smart Cards ( Cards ) and Point-of-Sales Terminals ( POS Terminals ). Cards include microprocessor, magnetic stripe, memory, public telephony and other cards. The Group also provides related services for mobile communication, secure transactions (in the financial and pay TV sectors), identity and security applications, including licensing of intellectual property rights. POS Terminals include point of sales terminals, systems and related services. The Group has assembly plants and sells around the world. The Company is a limited liability company incorporated and domiciled in the Netherlands. The address of its registered office is Koningsgracht Gebouw 1, Joop Geesinkweg 541-542, 1096 AX Amsterdam, the Netherlands. The Company was first listed on Euronext Paris on May 18, 2004. These condensed consolidated interim financial statements for the six-month period ended June 30, 2007 have been authorized for issue by the Board of Directors of the Company on September 12, 2007. The activity of Gemalto is subject to seasonal fluctuations, which may result in significant variations in its business and results from operations between the first and the second halves of the fiscal year. Therefore, the financial performance of the first half of 2007 reported in these condensed consolidated interim financial statements is not necessarily indicative of the results of Gemalto for the full year 2007. Note 2 Basis of preparation The condensed consolidated interim financial statements for the semester ended June 30, 2007 have been prepared in accordance with IAS 34, Interim financial reporting. These condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended December 31, 2006. 6