Additional financial information on an adjusted pro forma basis ispresented that is not in conformity with IFRS, in particular the presentationof cost of sales, operating expenses and operating income, operating marginand earnings per share which exclude charges arising from the accountingtreatment of the combination and one-off combination related expenses.Charges resulting from the accounting treatment of the transaction consist ofamortization of inventory step-up, additional stock-based compensation due tothe revaluation of Gemplus' stock options as of combination date,amortization and impairment of intangible assets. One-off combination relatedexpenses consist of professional advisory services incurred in connectionwith the integration, new Gemalto brand and logo creation and worldwideregistration, as well as impairment charges related to capitalizeddevelopment costs on projects which are redundant with existing products ortechnologies available in Gemplus. The Company believes that thisinformation, which is not in conformity with IFRS, is helpful supplementalinformation in order to better understand its past and future performance. Inaddition, the Company's management uses this information in its own planning.This information provided by the Company may not be comparable to similarlytitled measures employed by other companies.
The Company provides reconciliation between pro forma and adjusted proforma income statements which is displayed in tables at the end of this pressrelease. The IFRS consolidated income statement for the first half 2006 showsoperating loss of
For a more detailed description of adjustments made to the IFRSconsolidated income statement, please refer to EXPLANATION OF ADJUSTED ANDPRO FORMA MEASURES at the end of this press release.
All comparisons in this document are at current exchange rates, unlessstated otherwise, and describe the evolution of the adjusted pro forma firsthalf 2006 information compared to that of the first half 2005.
As of the third quarter 2006, the Company will adopt the euro as itsreporting currency.
As of the first quarter 2007, the Company will report full financialresults on a quarterly basis.
At constant exchange rates, revenue was up 2%, reflecting varyingperformance between market segments. Solid revenue growth in Identity &Security and Secure Transactions was fully offset by the effect of strongprice pressure on Mobile Communication revenue. After adjusting for theacquisition of Setec and currency fluctuations, revenue was down 2 %.
On a geographic basis, revenue was up 3% in Asia, driven by Identity &Security and Secure Transactions. In EMEA, revenue was almost stable,while in the Americas revenue was down 6%.
Microprocessor card shipments grew 39% to 561 million units, sustained bystrong demand in all core segments.
Gross margin was 30.3% compared to 32.7% a year ago, due to the lowerperformance in Mobile Communication.
Overall, operating expenses were up 3.4% including Setec. Research &engineering and general & administrative expenses were stable, while sales &marketing expenses were up 5.6%, due to increased field marketing andcustomer support resources in the regions.
Consequently, operating income was
Financial income was
Balance sheet and pro forma cash flow
Pro forma free cash flow of the period was an outflow
After the distribution of reserves (
At constant exchange rates, Mobile Communication revenue was down 9%: thestrong volume growth was not sufficient to fully compensate for extreme pricepressure.
SIM cards shipments for the first half 2006 were up 38% to 430 millionunits, driven by strong demand in Asia and in EMEA. Shipments in the Americasshow limited growth compared with a strong first half 2005.
The average SIM card selling price for the first half 2006 was down 35%compared to the first half 2005, reflecting the intensified competitiveenvironment this year. In the first half 2006, the market was characterizedby very strong volume growth in emerging countries which use a higherproportion of low-end cards, and by delays in migration to high-end productsin other countries.