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Gemalto H1.2015 results: +23% revenue in Machine-to-Machine

Gemalto H1.2015 results: +23% revenue in Machine-to-Machine

Gemalto, the world leader in digital security today announces its results for the first semester 2015.

Olivier Piou, Chief Executive Officer, commented:
“The strong first semester revenue growth illustrated the structural transformation and successful diversification of the Company. Our flexibility enabled us to allocate more internal resources and external investments to support the faster growing businesses.”

“Payment, Government and Machine-to-Machine are now three significant and very active growth engines, and Enterprise is reinforced by SafeNet which is currently being integrated into our portfolio.”

“We are progressively unlocking operating leverage in those rapidly growing businesses, en route to the upgraded objectives of our 2017 multi-year development plan.”

Key figures of the adjusted income statement

Year-on-year variations
(€ in millions) First semester 2015 First semester 2014 at historical
exchange rates
at constant
exchange rates
Revenue 1,499 1,133 +32% +20%
Gross profit 574 418 +37%
Operating expenses (414) (298) +39%
Profit from operations 160 120 +33%
Profit margin 10.6% 10.6% =

The Mobile segment reports on businesses associated with mobile cellular technologies including Machine-to-Machine, mobile secure elements (SIM, embedded secure element) and mobile Platform & Services.

With further strong expansion recorded throughout the first semester, Payment & Identity has become the largest contributor to both Company revenue and profit from operations. It represented 56% of Gemalto’s revenue and 49% of profit from operations compared to 47% and 44% respectively in the same period of the previous year.

Activities within Embedded software & Products and Platforms & Services both contributed to the rapid growth of Gemalto in the first semester of 2015, up by +7% and +74% respectively (and up +6% and +12% respectively on a pro forma basis). Growth in Embedded software & Products, came mostly from Payment, Machine-to-Machine and Government Programs. Platforms & Services contributed 70% of the total revenue growth during the period, and its double-digit increase in revenue was driven by the achievements in Payment issuance services and Government Programs, plus the contribution of SafeNet to the Enterprise business.

Focus on the Mobile segment

  First semester 2015 First semester 2014 Year-on-year variation
  € in millions As a % of
revenue
€ in millions As a % of
revenue
at historical
exchange rates
at constant
exchange rates
Revenue 641.3   586.1   +9% (2%)
Gross profit 246.2 38.4% 237.3 40.5% (2.1 ppt)
Operating expenses (175.2) (27.3%) (173.3) (29.6%) +2.3 ppt
Profit from operations 71.0 11.1% 64.0 10.9% +0.2 ppt

The Mobile segment posted revenue of €641 million. Revenue grew by +9% at historical exchange rates and was lower by (2%) at constant exchange rates compared to the same period of previous year. At constant exchange rates, the most significant revenue expansion came from the Machine-to-Machine business, with a +23% increase in sales. The segment posted a contrasted pattern of revenue growth over the two first quarters, with a strong increase in the first quarter of +7% and a year-on-year reduction of (9%) in the second quarter. This evolution essentially related to the lower contribution to revenue of high-end SIMs and Mobile Platforms & Services sales in the United States due to the Softcard mobile payment service closing. The year-on-year unfavorable comparison basis will remain noticeable for the next three quarters.

Machine-to-Machine‘s Embedded software & Products revenue evidenced very solid expansion, +22%, due to the increasing global demand of connected devices and embedded secure elements (eSE) for the Internet of Things (IoT), across all sectors, in particular in the EMEA and Americas regions. Secure elements sales for the IoT extended their already strong dynamic, posting a +46% increase in revenue year-on-year at constant exchange rates.

Year-on-year SIM sales reduced by (8%) due to the US operators mobile payment service closing, which in some cases led to lower sales of high-end SIMs while other services benefiting from these high-end SIMs are under development.

Mobile Platforms & Services revenue was also influenced by the end of this US operators led mobile payment project, leading to a (1%) year-on-year revenue variation at constant exchange rates. On a global perspective, Gemalto Mobile Financial Services business reached important milestones during the semester, extending the connection of Gemalto’s Trusted Services Hub (TSH) offer to OEM’s embedded secure elements (eSE), Trusted Execution Environment (TEE), and to the payment applications that are using Host Card Emulation (HCE) framework. The Trusted Services Hub has also integrated this semester support for the newly standardized EMV tokenization layers, to become the market reference in terms of mobile device reach, integration capacity, and neutrality, all highly valuable benefits to domestic and global payment services.
Gemalto’s Mobile Subscriber Services business also reached an important milestone related to embedded SIMs this semester, with the adoption by the GSMA of a first common high-level architecture for remote activation and management of connectivity for the consumer market. Gemalto is deeply involved in this global interoperability effort, bringing its technical expertise and neutrality to help both OEMs and MNOs put in place solutions that best address their respective objectives and constraints.

Gross profit increased by €9 million, mainly due to currency translation effects, and gross margin was lower by (2) percentage points mainly due to the change in products and services mix.

Operating expenses grew slightly to (€175) million, as a result of the opposite effects of currency translations, which increased the Euro value of US dollar denominated operating expenses, offset by the shift of some of the segment’s resources to handle the rapid growth of the Payment and Identity. Overall, operating expenses were lowered year-on-year by (2) percentage points when expressed as a percentage of segment’s total revenue for the first semester of 2015.

As a result, Mobile’s profit from operations for the first semester of 2015 was €71 million, increasing by +11% compared to the €64 million posted in the same period of last year.

Profit from operations margin expanded to 11.1%, compared to 10.9% in the first semester of 2014.

News highlights for Connected Devices and On-Demand Connectivity Management:

  • IoT solution enabled by Gemalto helps optimize safety and efficiency in Latin America’s busiest seaports
    The innovative SISMO® telemetry solution developed by HidroMares, a leading oceanography consulting firm, monitors dynamic ocean conditions to optimize safety and efficiency in Brazilian ports.
  • NTT Docomo selects Gemalto for IoT applications in Japan
    NTT Docomo has selected Gemalto to enable connectivity for Internet of Things (IoT) applications. Gemalto’s Cinterion® Machine Identification Module (MIM) complies with the most stringent industry standards and was first to meet the high quality requirements of the Japanese market.
  • China Telecom and Gemalto present joint innovation for connecting cars and IoT
    China Telecom and Gemalto are developing a proof-of-concept for connected cars using Gemalto’s LinqUs On-Demand Connectivity (ODC) subscription management solution. The two companies demonstrated at the Mobile World Congress Shanghai how remote ‘over-the-air’ provisioning can enable secure connectivity on mobile devices. Next the two companies will integrate this ODC solution on vehicles for China Telecom’s auto-maker customers.
  • Gemalto increases its stake in Trustonic
    During the first semester, Gemalto increased its shareholding in Trustonic, which develops a secure environment called a Trusted Execution Environment (TEE) that runs at the heart of smart devices and enables service providers to openly access ready-made advanced hardware-backed security features. As at June 30, 2015, the Group, held 50% interest and ownership in the joint venture.
  • Remote provisioning of consumer devices based on GSMA architecture
    At Mobile World Congress Shanghai on July 15th and 16th, Gemalto demonstrated remote provisioning of consumer devices based on the newly proposed GSMA architecture. Gemalto has been at the forefront of this initiative; actively defining and embracing this standards-based approach to provide a solution for operators, device manufacturers and service providers to securely and instantly enable connectivity for consumers. Gemalto also demonstrated its LinqUs On-Demand Connectivity subscription management solution on ZTE smartphones as part of a proof of concept for connecting a consumer device with an embedded SIM to a mobile network anytime and anywhere.

Outlook

For 2015, Gemalto anticipates another year of double digit growth in its profit from operations. In the second semester, the closure of the US mobile payment service Softcard will limit the Mobile segment year on year progress in comparison to the same period of 2014. Accelerating pace in Payment, Machine-to-Machine, Enterprise and Government Programs will support the profit expansion of the Company towards its upgraded objective of over €660 million in 2017.

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