FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of November 2002
GEMPLUS INTERNATIONAL S.A.
(Exact name of registrant as specified in its charter)
GEMPLUS INTERNATIONAL S.A.
(Translation of registrant's name in English)
Aerogolf Center
1 Hohenhof
L-2633 Senningerberg
Grand Duchy of Luxembourg
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
--- ---
(Indicate by check mark whether the registrant by
furnishing the information contained in this form
is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.)
Yes No X
--- ---
GEMPLUS REPORTS THIRD QUARTER 2002 RESULTS
o Q3 revenue down 2.0% vs Q2 2002, down 9.1% compared to Q3 2001. After
adjusting for currency fluctuations, discontinued operations and
acquisitions, Q3 revenue is up 0.9% sequentially, down 0.7%
year-on-year.
o Gross profit improvement despite permanent pricing pressure.
o Restructuring benefits on track: operating loss limited to 6.5 million
euros for the third quarter.
o Cash position almost unchanged at 401 million euros due to continued
focus on working capital management.
o Forward visibility remains poor: break even at the operating income
level not achievable in Q4 2002.
Luxembourg - October 31, 2002 - Gemplus International S.A. (Paris Euronext:
Euroclear 5768 and Nasdaq: GEMP), the world's leading provider of smart
card-enabled solutions, today reported results for the third quarter ended
September 30, 2002.
--------------------------- ------------------------- --------------------- ----------------------- --------------------
In EUR millions Q3 2002 Q2 2002 Quarter on quarter Year on year change
change
Q3 02 / Q2 02 Q3 02 / Q3 01
--------------------------- ------------------------- --------------------- ----------------------- --------------------
Group revenue 205.6 209.8 -2.0% -9.1%
--------------------------- ------------------------- --------------------- ----------------------- --------------------
After adjusting for currency fluctuations, discontinued operations and +0.9% -0.7%
acquisitions
--------------------------- ------------------------- --------------------- ----------------------- --------------------
Gross profit 60.5 48.4 +25.1% +15.2%
--------------------------- ------------------------- --------------------- ----------------------- --------------------
Gross margin as a % of 29.4 23.1 NM NM
revenue
--------------------------- ------------------------- --------------------- ----------------------- --------------------
Operating loss before -6.5 -24.2 NM NM
restructuring charge
--------------------------- ------------------------- --------------------- ----------------------- --------------------
Net income -38.6 -123.1 NM NM
--------------------------- ------------------------- --------------------- ----------------------- --------------------
Earnings per share (fully -0.06 -0.20 NM NM
diluted)
--------------------------- ------------------------- --------------------- ----------------------- --------------------
Commenting on the performance for the third quarter 2002, Alex Mandl, Chief
Executive Officer, said: "Gemplus continues to enjoy a strong balance sheet and
sees encouraging productivity gains. However, these are not yet at the required
level. Although the Company is making progress in the reduction of operating
expenses, the improvement in gross margin in the third quarter has been boosted
by lower chip prices, which may not continue into the fourth quarter". He added:
"Despite the fact that revenue seems to have stabilized, the environment remains
uncertain. As a consequence, an earlier forecast of break-even at the operating
income level in the fourth quarter will not be achieved. And, given that
reality, a preliminary view of 2003 suggests that it will not be possible to
meet market expectations". He concluded : "Furthermore, because our current
visibility on 2003 is not yet clear, we are not in a position to provide
specific guidance at this point".
Third quarter 2002 financial review
o Income statement
Highlights
o Revenue up 0.9% sequentially after adjusting for currency fluctuations,
discontinued operations and acquisitions.
o Gross profit improvement despite permanent pricing pressure.
o Net income affected by non-recurring items.
Group revenue was down 2.0% sequentially. However, the analysis of the third
quarter revenue adjusted for currency fluctuations, discontinued operations and
acquisitions, shows the following:
o Revenue was up 0.9% sequentially compared to the previous quarter. For
the first time since Q1 2001, the 0.7% year on year decline seems to
suggest a certain stabilization in revenue;
o Business units delivered a contrasted performance: Telecommunications
revenue increased 1.9% sequentially, while Financial Services and
Security and posted a decline of 1.3%;
o On a geographical basis, there is evidence of progress in the
Americas, where revenue is stable sequentially, despite an 8.6%
decrease in the average value of the US dollar against the euro. The
EMEA region enjoys healthy growth (up 6.0% sequentially). Revenue
generated in Asia, however, is sequentially down, affected by intense
competition in China.
Gross margin was up 6.3 percentage points sequentially to 29.4%, mainly driven
by Telecom. Pricing pressure remained strong, but was more than offset by lower
cost of chips, better sales mix (products and geographies), and, to a lesser
extent, by increased volumes and improved productivity.
Operating expenses were down 7.7% sequentially reflecting a seasonal pattern and
the restructuring program initiated during the first quarter of 2002. Annualized
savings from restructuring and cost cutting initiatives are on track to reach
the overall target of 110 million euros. At the end of the third quarter,
headcount reduction was 854 vs 615 at the end of Q2 02. This has to be put in
the perspective of a targeted reduction of 1,140 in the number of employees and
sub-contractors.
As a consequence, Gemplus reported an operating loss before provision for
restructuring of 6.5 million euros, compared with a loss of 24.2 million euros
for the previous quarter.
Net income for the quarter ended September 30, 2002 is affected by a provision
for restructuring (8.3 million euros), foreign exchange losses (3 million euros)
and goodwill write-down (15.7 million euros).
o Balance sheet and cash flow statement
Highlights:
o Cash marginally down to 401 million euros vs Q2 2002.
o Stable working capital requirement.
o Capital expenditure contained.
Cash and cash equivalents were marginally down by 11 million euros to 401
million euros at the end of the quarter ended 30 September, 2002. Financial debt
is 51 million euros, and corresponds almost entirely to long term capital leases
which are related to industrial and office buildings located in Gemenos and to
the new R&D center in La Ciotat (France).
The cash outflow of 11 million euros is mainly related to restructuring expenses
(7.3 million euros). This was made possible by better operating profitability,
continued focus on working capital requirement and limited capital expenditure.
Working capital requirement was stable at the end of the third quarter.
Inventories were up 9.9% compared to the end of the previous quarter. Expressed
in number of days of cost of sales, they represented 78 days at the end of the
third quarter, compared with 71 days at the end of the previous quarter, and 94
days at the end of the first quarter of 2002.
Trade accounts receivable were up 7.4% compared to the end of the previous
quarter. Days of Sales Outstanding (DSO) were 57 days, compared with 53 days at
the end of the previous quarter, and 63 days at the end of the first quarter of
2002.
Capital expenditures were 10 million euros for the third quarter of 2002. For
fiscal year 2002, they will not exceed 50 million euros. This compares with 103
million euros in 2001.
Segment analysis
o Telecom
Highlights:
o Strong volume growth in wireless (+5.6% sequentially, +52% year on
year), lower sales in other businesses
o Improved sales mix in wireless (products and geographies)
o Beginning of a progressive transition toward higher value added
wireless cards
------------------------------ ------------- ----------------- ------------------ ----------------------
In EUR millions Q3 2002 Q2 2002 Quarter on Year on year
quarter change change
Q3 02 / Q2 02 Q3 02 / Q3 01
------------------------------ ------------- ----------------- ------------------ ----------------------
Revenue 139.9 141.8 -1.3% -3.6%
------------------------------ ------------- ----------------- ------------------ ----------------------
After adjusting for currency fluctuations, discontinued +1.9% +1.2%
operations and acquisitions
------------------------------ ------------- ----------------- ------------------ ----------------------
Gross profit 45.1 34.6 +30.4% +19.7%
------------------------------ ------------- ----------------- ------------------ ----------------------
Gross margin as a % of 32.2 24.4 NM NM
revenue
------------------------------ ------------- ----------------- ------------------ ----------------------
The market environment shows contrasted situations: while demand is solid in
developing countries, it remains lackluster in developed countries, especially
in Western Europe.
Telecom is still experiencing strong price pressure. However, the division is
seeing an indication of demand progressively shifting towards higher value added
products; but it is still unclear if this trend will continue in 2003.
Shipments of SIM cards in Q3 were up 5.6% sequentially. The SIM cards sales mix
improved in Q3.
In particular, the dynamic end-user menu display equipped SIM cards accounted
for 16% of Q3 shipments vs 5% in Q2. Americas accounted for 11% of Q3 shipments
vs 7% in Q2. Asia is down sequentially from 57% to 48% of shipments
o Financial Services and Security
Highlights:
o Challenging environment: EMV roll out delays, contraction of the US
banking / retail card market
o First significant ID contract signed in the beginning of Q4
------------------------------------------ ---------------- ----------- ------------------- ----------------------
In EUR millions Q3 2002 Q2 2002 Quarter on Year on year
quarter change change
Q3 02 / Q2 02 Q3 02 / Q3 01
------------------------------------------ ---------------- ----------- ------------------- ----------------------
Revenue 65.7 68.0 -3.4% -7.5%
------------------------------------------ ---------------- ----------- ------------------- ----------------------
After adjusting for currency fluctuations, discontinued operations +1.3% +4.8%
and acquisitions
----------------------------------------------------------------------- ------------------- ----------------------
Gross profit 15.4 13.8 +11.6% +28.9%
------------------------------------------ ---------------- ----------- ------------------- ----------------------
Gross margin as a % of revenue 23.4% 20.3% NM NM
------------------------------------------ ---------------- ----------- ------------------- ----------------------
In the third quarter, activity was driven by microprocessor cards. The
environment is increasingly challenging, marked by delays to 2003 in the EMV
roll-out in Western Europe and by a severe contraction of the US banking /
retail smart card market. In Asia, Gemplus is operating in a highly competitive
environment.
The GeldKarte program in Germany, after peaking in Q3, will make a lower
contribution in Q4 2002.
In the end of October, Gemplus was awarded its first ID contract with the
Sultanate of Oman for the National Identification Programme. This contract
reinforces Gemplus' position in this important new growth market, where the
Company is able to offer not only smart cards but also software and integration
services.
Comments from Mr Alex Mandl, Chief Executive Officer
Following an extensive review of Gemplus which included in depth discussions
with staff, customers and industry experts, Alex Mandl will present his
strategic direction for the Company within weeks. He declared: "2003 will be a
year of rebuilding and refocusing. Beyond that, the attractive market
opportunities around the world, the Company's solid financial position, its
unique technology expertise and its strong customer base, provide a platform
which should deliver, in a reasonable timeframe, a successful, growing and
profitable business".
Ends
Conference Call:
The company has scheduled a conference call for Thursday, 31 October 2002
starting at 2.30pm Paris time. Callers may participate in the live conference
call by dialling:
France: +33 (0) 1 7070 8198
UK: +44 (0) 20 7984 7576
The live conference call will also be available on the IR section of
www.gemplus.com.
Replays of the conference call will be available approximately two hours after
the conclusion of the live conference call until November 7:+33 (0) 1 7070 8210
or +44 (0) 20 7984 7578. Access Code: 500777
Contacts
Press
Gemplus
Martin Crocker
Mob : 33 (0) 6 85 07 66 41
Email: martin.crocker@gemplus.com
Euro RSCG Corporate
Estelle Griffe
Tel: 33 (0) 1 41 34 48 65
Mob: 33 (0) 6 23 75 09 23
Email: estelle.griffe@eurorscg.fr
Investor Relations
Gemplus
Yves Guillaumot
Tel : 33 (0) 6 88 38 76 24
Email: yves.guillaumot@gemplus.com
Fineo
Anne Guimard
Tel: 33 (0) 1 45 72 20 96
Mob: 33 (0) 6 80 45 71 99
Email: guimard@fineo.com
Some of the statements contained in this release constitute forward-looking
statements. These statements relate to future events or our future financial
performance and involve known and unknown risks, uncertainties, and other
factors that may cause our or our industry's actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activities, performance, or achievements expressed or implied by such
forward-looking statements. Actual events or results may differ materially.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we 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 release include, but are not limited to: trends in wireless
communication and mobile commerce markets; our ability to develop new
technology, and the effects of competing technologies developed and expected
intense competition generally in our main markets; profitability of our
expansion strategy; challenges to or loss of our intellectual property rights;
our ability to establish and maintain strategic relationships in our major
businesses; our ability to develop and take advantage of new software and
services; and the effect of future acquisitions and investments on our share
price. Moreover, neither we nor any other person assumes responsibility for the
accuracy and completeness of such forward-looking statements. The
forward-looking statements contained in this release speak only as of this
release. We are under no duty to update any of the forward-looking statements
after this date to conform such statements to actual results or to reflect the
occurrence of anticipated results.
About Gemplus
GEMPLUS: the world's number one provider of solutions empowered by Smart Cards
------------------------------------------------------------------------------
Gemplus helps its clients offer an exceptional range of portable, personalized
solutions that bring security and convenience to people's lives. These include
mobile Internet access, inter-operable banking facilities, e-commerce, and a
wealth of other applications.
Gemplus is the only completely dedicated, truly global player in the Smart Card
industry, with the largest R&D team, unrivalled experience, and an outstanding
track record of technological innovation.
In 2001, Gemplus was the worldwide smart card leader in both revenue and total
smart card shipments (source: Gartner-Dataquest, Frost and Sullivan). Gemplus
was also awarded Frost and Sullivan's 2002 Market Value Award for its
exceptional performance.
Gemplus trades its shares on Euronext Paris S.A. First Market and on the Nasdaq
Stock Market as GEMP in the form of ADSs. Its revenue in 2001 was 1.023 Billion
Euros. It employs 6721 people in 37 countries throughout the world.
Gemplus: Beyond Smart
www.gemplus.com
(C)2002 Gemplus International S.A. All rights reserved. Gemplus, the Gemplus
logo, GemXpresso, and Your Passport to the Digital Age are trademarks and
service marks of Gemplus S.A. and are registered in certain countries. All other
trademarks and service marks, whether registered or not in specific countries,
are the property of their respective owners.
Gemplus International SA
Press Release - Financial statements
For the quarterly period ended September 30, 2002
Gemplus International SA
Consolidated Statements of Income
Condensed Consolidated Statements of Income
(in thousands of euros, except share and per share data)
----------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
(unaudited) (unaudited)
----------------------------------------------------------------------------
Net sales 205,612 226,105 591,942 771,987
Cost of sales (145,103) (173,582) (446,889) (526,877)
Gross Profit 60,509 52,523 145,053 245,110
Research and development expenses (21,698) (25,605) (72,200) (87,914)
Selling and marketing expenses (24,752) (35,822) (85,340) (128,425)
General and administrative expenses (20,580) (28,271) (65,612) (80,834)
Litigation expenses - (18,120) - (18,120)
Operating loss before restructuring (6,521) (55,295) (78,099) (70,183)
Restructuring expenses (8,284) - (70,737) (28,466)
Operating loss (14,805) (55,295) (148,836) (98,649)
Interest income and (expense), net 2,464 6,193 (55,026) 16,266
Other income (expense), net (5,590) 69,941 (15,134) 55,306
Loss before taxes and goodwill
amortization (17,931) 20,839 (218,996) (27,077)
Provision for income taxes 2,300 (7,661) 31,213 7,739
Loss before goodwill amortization (15,631) 13,178 (187,783) (19,338)
Goodwill amortization (22,953) (6,592) (36,331) (21,028)
--------------------------------------------------------------------------------------------------------------------
Net loss (38,584) 6,586 (224,114) (40,366)
--------------------------------------------------------------------------------------------------------------------
Net loss per share
Basic (0.06) 0.01 (0.37) (0.06)
Diluted (0.06) 0.01 (0.37) (0.06)
Shares used in net loss per share
calculation
Basic 606,349,540 642,922,022 606,252,885 641,146,203
Diluted 606,349,540 653,512,425 606,252,885 672,014,427
Gemplus International SA
Condensed Consolidated Balance Sheets
Condensed Consolidated Balance sheets
(in thousand of euros)
--------------------------------------
September 30, December 31,
2002 2001
--------------------------------------
Assets (unaudited)
Current assets:
Cash and cash equivalents 400,766 490,652
Trade accounts receivable, net 156,259 188,635
Inventory, net 117,407 139,794
Other current assets 101,796 103,733
------------------------------------------------------------------------------------------------------------
Total current assets 776,228 922,814
------------------------------------------------------------------------------------------------------------
Non-current assets:
Property, plant and equipment, net 243,197 268,784
Goodwill, net 87,344 116,580
Other non-current assets 191,548 222,514
Total non-current assets 522,089 607,878
Total assets 1,298,317 1,530,692
Liabilities
Current liabilities:
Accounts payable 96,477 109,661
Accrued liabilities and other 162,551 168,905
Current obligations under capital leases 4,047 3,734
Total current liabilities 263,075 282,300
Non-current liabilities:
Long-term obligations under capital leases 45,968 32,581
Long-term debt, less current portion - 14
Other non-current liabilities 23,778 30,859
Total non-current liabilities 69,746 63,454
Minority interest 15,138 17,176
Shareholders' equity
Ordinary shares no legal par value,
2,000,000,000 shares authorized, 637,859,088
and 641,396,497 shares issued and outstanding
at September 30, 2002 and December
31, 2001, respectively 127,489 127,056
Additional paid-in capital 1,029,075 1,027,850
Retained earnings (113,581) 125,016
Other comprehensive income 1,701 (3,968)
Less, cost of treasury shares (94,326) (108,192)
Total shareholders' equity 950,358 1,167,762
------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity 1,298,317 1,530,692
------------------------------------------------------------------------------------------------------------
Gemplus International SA
Condensed Consolidated Statements of Cash Flows
Condensed Consolidated Statements of Cash Flows
(in thousands of euros)
-------------------------------------
Nine months ended
September 30,
2002 2001
-------------------------------------
(unaudited)
Cash flows from operating activities:
Net loss (224,114) (40,365)
Depreciation and amortization 93,287 89,049
Loss / (Gain) on assets sold 3,848 (70,773)
Other adjustments to reconcile net income to
net cash from operating activities 36,211 (7,845)
Change in inventories 17,888 (32,939)
Other changes in operating activities (8,498) (48,566)
Restructuring reserve 40,795 17,269
Litigation expenses (18,120) 18,120
Management severance expenses (10,629) -
--------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (69,332) (76,050)
Cash flows from investing activities:
Sale / (Purchase) of activities net of cash
disposed / (acquired) - 117,001
Purchase of property, plant and equipment (31,919) (94,281)
Other changes in investing activities (12,585) (55,147)
--------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (44,504) (32,427)
Cash flows from financing activities:
Proceeds from sale-leaseback operations 15,962 -
Other changes in financing activities (11,934) (14,191)
--------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 4,028 (14,191)
Effect of exchange rate changes on cash 19,922 (10,823)
Net increase (decrease) in cash and cash equivalents (109,808) (122,668)
Cash and cash equivalents, beginning of period 490,652 636,284
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 400,766 502,793
--------------------------------------------------------------------------------------------------------------
Gemplus International SA
Business segment and geography reporting
-------------------------------------------------------------------------
Business Segment reporting
Third Quarter 2002 Compared with Third Quarter 2001
Revenues Three months ended
September 30,
------------------ --------
2002 2001 % change
---- ----- --------
(millions of euros)
Telecommunications ........................ 139.9 145.0 (4%)
Financial services and security ........... 65.7 71.1 (8%)
Disposed operations(*) .................... - 10.0 (100%)
Total ..................................... 205.6 226.1 (9%)
----- ----- -----
Gross Margin Three months ended
September 30,
------------------ --------
2002 2001 % change
---- ----- --------
(millions of euros)
Telecommunications ......................... 45.1 37.7 +20%
Financial services and security ............ 15.4 11.9 +29%
Disposed operations (*) .................... - 2.9 (100%)
Total ...................................... 60.5 52.5 +15%
---- ---- ----
(*) including Skidata and Tag activities which disposals occurred during the
third quarter of 2001.
Nine Months 2002 Compared with Nine Months 2001
Revenues Nine months ended
September 30,
------------------ ---------
2002 2001 % change
---- ----- --------
(millions of euros)
Telecommunications ........................ 403.0 525.0 (23%)
Financial services and security ........... 188.9 202.7 (7%)
Disposed operations (*) ................... - 44.3 (100%)
Total ..................................... 591.9 772.0 (23%)
----- ----- -----
Gemplus International SA
Business segment and geography reporting
-------------------------------------------------------------------------
Gross margin Nine months ended
September 30,
------------------ --------
2002 2001 % change
---- ----- --------
(millions of euros)
Telecommunications ........................ 111.6 188.7 (41%)
Financial services and security ........... 33.5 40.4 (17%)
Disposed operations(*) .................... - 16.0 (100%)
Total ..................................... 145.1 245.1 (41%)
----- ----- ----
(*) including Skidata and Tag activities which disposals occurred during the
third quarter of 2001.
Geographic reporting
Third Quarter 2002 Compared with Third Quarter 2001
Three months ended
Revenues September 30,
------------------ --------
2002 2001 % change
---- ----- --------
(millions of euros)
Europe, Middle East and Africa ............ 110.4 102.8 +7%
Asia ...................................... 52.8 52.4 +1%
Americas .................................. 42.4 60.9 (30%)
Disposed operations (*) ................... - 10.0 (100%)
Total ..................................... 205.6 226.1 (9%)
----- ----- -----
Nine Months 2002 Compared with Nine Months 2001
Revenues Nine months ended
September 30,
------------------ --------
2002 2001 % change
---- ----- --------
(millions of euros)
Europe, Middle East and Africa ............ 306.3 348.0 (12%)
Asia ...................................... 160.2 224.3 (29%)
Americas .................................. 125.4 155.4 (19%)
Disposed operations (*) ................... - 44.3 (100%)
Total ..................................... 591.9 772.0 (23%)
(*) including Skidata and Tag activities which disposals occurred during the
third quarter of 2001.
[Slide 1]
Gemplus
3rdQuarter 2002 Results
Conference Call
Presenters: Alex Mandl-Chief Executive Officer
Yves Guillaumot -Chief Financial Officer
October 31, 2002 [LOGO]
[Slide 2]
Disclaimer
Some of the statements contained in this presentation constitute-forward-looking
statements. These statements relate to future events or our future financial
performance and involve known and unknown risks, uncertainties, and other
factors that may cause our or our industry's actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activities, performance, or achievements expressed or implied by such
forward-looking statements. Actual events or results may differ materially.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we 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 presentation include, but are not limited to: trends in
wireless communication and mobile commerce markets; our ability to develop new
technology, and the effects of competing technologies developed and expected
intense competition generally in our main markets; profitability of our
expansion strategy; challenges to or loss of our intellectual property rights;
our ability to establish and maintain strategic relationships in our major
businesses; our ability to develop and take advantage of new software and
services; and the effect of future acquisitions and investments on our share
price. Moreover, neither we nor any other person assumes responsibility for the
accuracy and completeness of such forward-looking statements. The
forward-looking statements contained in this presentation speak only as of this
presentation. We are under no duty to update any of the forward-looking
statements after this date to conform such statements to actual results or to
reflect the occurrence of anticipated results.
[Slide 3]
Key Messages
o Q3 revenue down 2.0% sequentially*, down 9.1% year-on-year
o After adjusting for currency fluctuations, discontinued operations and
acquisitions, Q3 revenue is up 0.9% sequentially*, down 0.7% year-on-year
o Restructuring benefits on track: operating loss before restructuring
expenses limited at 6.5 million euros for the quarter
o Cash position almost unchanged at 401 million euros due to continued focus
of working capital management
o Forward visibility remains poor: Gemplus will need further adjustments
* Sequentially: comparison Q3 2002 vs Q2 2002
[Slide 4]
[Bar graph omitted depicting: Quarter to quarter revenue in millions of euros
for 2001 and 2002. The numbers given are:
o Q1 2001 - 276
o Q1 2002 - 177
o Q2 2001 - 236
o Q2 2002 - 210
o Q3 2001 - 216
o Q3 2001 - 206
o Q4 2001 - 251 ]
[Bar graph omitted depicting revenue by business unit in millions of euros from
Q1 2001 to Q3 2002. The numbers give are:
---------------------------------------
Telecom FSS
---------------------------------------
Q1 01 213 62
---------------------------------------
Q2 01 167 69
---------------------------------------
Q3 01 145 71
---------------------------------------
Q4 01 157 94
---------------------------------------
Q1 02 121 55
---------------------------------------
Q2 02 142 68
---------------------------------------
Q3 02 140 66
---------------------------------------
]
o Q3 02 revenue stabilization (on a year-on-year basis)*
o Contrasted business units performance: Telecom up 1.9% sequentially*, FSS
revenue down 1.3% sequentially*
o Expected seasonality weaker than usual
* after adjusting for currency fluctuations, discontinued operations and
acquisitions
* Restated for disposals of Tag & Ski Data
[Slide 5]
[Bar graph omitted depicting: Q3 2002 vs Q2 2002 Revenue (in million euros).
Numbers given are:
o Q2 02 - 209.8
o Volume - 2.7
o Price - -14.7
o Currency - -8.3
o Mix - 12.5
o Conso. Impact - 2.4
o Q3 02 - 205.6 ]
o Revenue declined due to price pressure and currency impact
[Slide 6]
[Bar graph omitted depicting: Q3 2002 vs Q2 2002 Gross Profit (in million
euros), and Margin (percentage points).
Numbers given for gross profit are:
o Q2 02 - 48.4
o Volume - 4.4
o Price - -14.7
o Currency - 1.8
o Mix - 6.4
o Productivity - 3.5
o Chips price - 7.1
o Conso. Impact - 1.2
o Other - 2.4
o Q3 02 - 60.5
Numbers given for margin are:
o Volume - 2.1
o Price - -7.1
o Mix - 3.1
o Productivity - 1.7
o Chips price - 3.5 ]
o Strong price pressure limiting Gross Profit improvement
o Chips cost currently at market price
o Sales mix (product and region) and volume improvement, concentrated on
Telecom business unit
[Slide 7]
[Bar Graph omitted depicting operating expenses evolution between Q3 01 and Q3
02. Numbers are given in million euros and then as a percentage of sales.
Numbers given are:
o Q3 01: 84.8 million euros; 39% of sales
o Q4 01: 91.6 million euros; 36% of sales
o Q1 02: 83.5 million euros; 47% of sales
o Q2 02: 72.6 million euros; 35% of sales
o Q3 02: 67.0 million euros; 33% of sales]
o Operating expenses Q3 down 8% sequentially to 67 million euros (down 21%
year-on-year)
o All components of operating expenses contributed
* Restated for disposals of Tag & Ski Data
[Slide 8]
Restructuring and Cost Cutting Initiatives Update
-------------------------- --------------- ------------------ ------------------ -------------------------------------
In million euros Provision Cash Costs Headcount Annualized Savings
reduction
-------------------------- --------------- ------------------ ------------------ ------------------ ------------------
Initial Target Update
-------------------------- --------------- ------------------ ------------------ ------------------ ------------------
June 2001
o Restructuring 28 22 567 40 completed
-------------------------- --------------- ------------------ ------------------ ------------------ ------------------
February 2002
o Restructuring 71 63 1,140 60 65
--------------- ------------------ ------------------ ------------------ ------------------
o Cost cutting
Initiative - - - 40 45
-------------------------- --------------- ------------------ ------------------ ------------------ ------------------
o Feb. 2002 restructuring plan on track to reach target of 1,140 headcount
reduction (achieved: 854 at the end of Q3 02, of which 615 at the end of Q2
02)
o Annualized savings target: Restructuring and cost cutting initiative
projected at 110 million euros
[Slide 9]
[Bar graph omitted depicting Operating Profit* Before Exceptional Items between
Q1 01 and Q3 02. Numbers given (in million euros) are:
o Q1 01 - 1.5
o Q2 01 - -9.3
o Q3 01 - -35.2
o Q4 01 - -29.3
o Q1 02 - -47.4
o Q2 02 - -24.2
o Q3 02 - -6.5 ]
o Price pressure and rapidly changing environment limiting operating profit
improvement
o Favorable impact of restructuring plan
* Restated for disposals of Tag & Ski Data
[Slide 10]
Statement of Income: Other Items
-------------------------------------------------------------------------------
million euros Q3 02 Q2 02 Q3 01 9M 02 9M 01
-------------------------------------------------------------------------------
Operating Profit (6.5) (24.2) (37.2) (78.1) (52.1)
-------------------------------------------------------------------------------
Non recurring exp. (24.0) (110.1) 50.2 (153.4) 21.7
-------------------------------------------------------------------------------
Interest, net 2.5 4.6 6.2 12.0 16.3
-------------------------------------------------------------------------------
Other income net (5.6) (4.3) 1.7 (15.1) (13.1)
-------------------------------------------------------------------------------
Income tax 2.3 18.1 (7.7) 31.2 7.7
-------------------------------------------------------------------------------
Goodwill amort. (7.3) (7.2) (6.6) (20.6) (21.0)
-------------------------------------------------------------------------------
Net Income(loss) (38.6) (123.1) 6.6 (224.1) (40.4)
-------------------------------------------------------------------------------
o Non recurring expenses includes: Tag & Ski Data capital gain, restructuring
expenses, litigation expenses, management severance expenses, provision to
Dr. Lassus loan, goodwill write-off
o Other income includes 3 million euros foreign exchange losses in Q3 02
[Slide 11]
Cash Position
[Bar graph omitted depicting cash position between Q4 01 and Q3 02. Numbers
given (in million euros) are:
--------------------------------------------------------------------------------
Working Capital Cash WCR as % of
Requirements (in million euros) revenue
(in million euros)
--------------------------------------------------------------------------------
Q4 01 153.6 490.7 15.3%
--------------------------------------------------------------------------------
Q1 02 134.0 450.1 18.9%
--------------------------------------------------------------------------------
Q2 02 112.1 411.8 13.4%
--------------------------------------------------------------------------------
Q3 02 116.4 400.8 14.1%
--------------------------------------------------------------------------------
]
o Marginal decline of cash in Q3 vs Q2
o Stabilized Working Capital Requirement
[Slide 12]
Balance Sheet Items
o Strong Cash and Cash Equivalents at 401 million euros
o Continuous focus on working capital requirement:
o Day Sales Outstanding (DSOs) at 57 days (compared to 53 days in Q2 02
and 63 in Q1 02)
o Inventories at 78 days (compared to 71 in Q2 02 and 94 in Q1 02)
o Social plan in France: restructuring cash expenses spread over a few months
o No off-balance financing
o Off-balance liabilities limited to those which are deemed necessary to run
normal business operations (chip purchase, operating lease commitments and
normal guarantees): 90 million euros
[Slide 13]
Revenue and Gross Profit
by Business Unit
---------------------------- ------------- ------------- -------------- ----------------- ---------------
million euros Q3 2002 Q2 2002 Q3 20013 Sequential Growth vs Q3
Growth 01
---------------------------- ------------- ------------- -------------- ----------------- ---------------
Telecom
---------------------------- ------------- ------------- -------------- ----------------- ---------------
Sales 139.9 141.8 145.0 1.3% 3.5%
---------------------------- ------------- ------------- -------------- ----------------- ---------------
Gross Profit 45.1 34.6 37.7 + 30.4% +19.6%
---------------------------- ------------- ------------- -------------- ----------------- ---------------
Gross Margin 32.2% 24.4% 26.0%
---------------------------- -------------------------- -------------- ----------------- ---------------
Financial Services & Security
---------------------------- ------------- ------------- -------------- ----------------- ---------------
Sales 65.7 68.0 71,1 3.4% 7.6%
---------------------------- ------------- ------------- -------------- ----------------- ---------------
Gross Profit 15.4 13.8 11.9 + 11.6% +29.4%
---------------------------- ------------- ------------- -------------- ----------------- ---------------
Gross Margin 23.4% 20.3% 16.7%
---------------------------- ------------- ------------- -------------- ----------------- ---------------
o Stabilizing sales
o Gross profit improvement in each business unit
* Restated for disposals of Tag & Ski Data
[Slide 14]
Wireless Update
o Market environment
o Contrasted demand:
o Solid in developing countries
o Lackluster in developed countries
o Still substantial price pressure, easing on some products
o Indication of demand shifting progressively toward
higher value added products
o Gemplus
o Q3 shipment up 5.6% sequentially to 38 million units (99 m YTD)
o Dynamic end-user menu display equipped SIM cards: 16% of Q3 shipments
vs5% in Q2
o America accounted for 11% of Q3 shipmentsvs7% in FY 2001
[Slide 15]
Finance Services & Security Update
o Market environment
o EMV* roll-out delays to 2003 in Western Europe
o Very slow US banking/retail market due to economic conditions
o Highly competitive Asian market with entrance of local card
manufacturers and severe price pressure
o Gemplus:
o GeldKarte peaking in Q3, should gradually start declining in Q4 02
o No replacement for Target will impact Q4
o US existing customers have slowed down significantly their deployment
o Progress in solutions & services through Oman ID contract signed in
October
* EMV: Eurocard Mastercard Visa
[Slide 16]
Third Quarter Highlights
o Environment remains uncertain, despite revenue stabilization
o Improvement in gross margin in Q3: boosted by lower chips price; further
gains from chips price will be marginal
o Encouraging productivity gains, but not yet at the required level
o Operating expenses: continuous progress
o Strong balance sheet
o Environment justifies caution for Q4
[Slide 17]
What are my Initial Findings?
Strengths:
o A strong financial position, with adequate cash
o Attractive market growth opportunities
o Strong customer base
o Basis for a profitable card business
o Card linked software technologies will fuel growth
o Improving cost structure
Concerns:
o Business being commoditized, leading to declining ASPs
o Overcapacity
o Challenging competitive environment
o Money losing position
o Disappointing revenue growth
o Organizational effectiveness impaired by:
o Lack of continuous leadership for
o a number of years
o Board issues
o Challenging market environment
[Slide 18]
What are the Milestones to Rebuild Gemplus?
Q4 2002
Strategic and
financial Review
o Measures to be taken now to reach reasonable performance level in 2003
o Determination of what Gemplus should look like longer range (i.e. 2005)
o Long term growth opportunities
o Interim milestones
2003
A year of
rebuilding
o Cost competitive
o Strengthen customer facing capabilities
o Strengthen regions
o Rebuild morale
o Focus product innovation - launch a number of key initiatives
2004
and beyond
o Business is:
o Attractively profitable
o Growing in the low double digit range
o A reenergized, effective, organization
o A clear leader in its industry
[Slide 19]
Appendix
[Slide 20]
Recurring Free Cash Flow
In million euros Q1 2001 Q2 2001 Q3 2001 Q4 2001 Q1 2002 Q2 2003 Q3 2002
------------------------------------- --------- ---------- --------- ---------- --------- ---------- ---------
Net Profit -7.2 -39.8 6.6 -59.9 -62.5 -123.1 -38.6
Depreciation and Amortization 28.4 36.7 28.2 27.1 25.8 26.6 40.9
Other adj. to reconcile net income 1.5 -25.0 -55.1 -5.1 -15.8 -11.8 0.7
to net cash from op. activ.
Provision for reduction of 0.0 22.0 0.0 0.0 18.1 39.1 6.3
workforce and exit costs
Provision for litigation expenses 0.0 0.0 18.1 0.0 0.0 0.0 0.0
Provision for management severance 0.0 0.0 0.0 25.7 0.0 0.0 0.0
expenses
Provision for a loan to the former 0.0 0.0 0.0 0.0 0.0 66.9 0.0
Chairman of the Board
Change in Working Capital -71.6 7.4 -17.3 71.8 39.2 -29.3 -0.5
Requirements
------------------------------------- --------- ---------- --------- ---------- --------- ---------- ---------
Net Cash used in oper. Activities -48.9 1.4 -19.5 59.5 4.8 -31.5 8.8
excl. non-recurring items
------------------------------------- --------- ---------- --------- ---------- --------- ---------- ---------
Purchase of property, plant and -40.3 -31.3 -22.7 -8.3 -12.2 -10.1 -9.7
equipment
Other changes in investing -2.5 -12.8 -5.3 -8.8 5.8 -4.4 -0.1
activities related to the oper.
cycle
------------------------------------- --------- ---------- --------- ---------- --------- ---------- ---------
Recurring free cash flow -91.7 -42.7 -47.6 42.5 -1.6 -46.0 -0.9
------------------------------------- --------- ---------- --------- ---------- --------- ---------- ---------
Restructuring expenses 0.0 -1.6 -7.4 -6.8 -8.5 -6.8 -7.3
Litigation expenses 0.0 0.0 0.0 0.0 -18.1 0.0 0.0
Management severance expenses 0.0 0.0 0.0 0.0 -10.5 -0.1 0.0
------------------------------------- --------- ---------- --------- ---------- --------- ---------- ---------
Free cash flow -91.7 -44.3 -55.0 35.7 -38.8 -53.0 -8.2
------------------------------------- --------- ---------- --------- ---------- --------- ---------- ---------
Acquisitions -21.8 -14.1 118.5 -15.9 -1.1 -11.1 -1.7
Net cash provided by financing -5.1 -1.9 -7.2 -20.5 2.1 0.5 1.5
activities
Effect of exchange rate changes of -12.8 -14.7 16.6 -11.5 -2.8 25.3 -2.6
cash
------------------------------------- --------- ---------- --------- ---------- --------- ---------- ---------
Net cash flow -131.4 -75.0 72.9 -12.1 -40.6 -38.3 -11.0
------------------------------------- --------- ---------- --------- ---------- --------- ---------- ---------
Cash at the beginning of the period 636.3 504.0 429.9 502.8 490.7 450.1 411.8
------------------------------------- --------- ---------- --------- ---------- --------- ---------- ---------
Cash at the end of the period 504.9 429.9 502.8 490.7 450.1 411.8 400.8
------------------------------------- --------- ---------- --------- ---------- --------- ---------- ---------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 1, 2002
GEMPLUS INTERNATIONAL S.A.
By: /s/ Stephen Juge
-----------------------------------------------------
Name: Stephen Juge
Title: Executive Vice President And General Counsel