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Gemalto released a trading update that came in below the market’s expectations. Q3 revenues were down 3% to €727m (vs expectations of €744m). Revenue by division, Identity, IoT & Cybersecurity was down 1% to €345m, while Smartcards & Issuance was down 5% to €382m. The company maintained its FY18 guidance. The settlement of the merger with Thales is expected in the first quarter of 2019. So far, seven out the 14 regulatory and anti-trust required approvals have been granted.
GEMALTO
Gemalto reported FY results broadly in line with expectations, with revenues decreasing by 5% to €2.97bn. At the same time, profit from operations decreased by 32% to a 10.4% margin. FCF also strongly fell due to the much lower operating cash flow and higher restructuring costs. For FY18, the group expects sales and operating profit growth in every segment. As a reminder, Thales is going to acquire Gemalto in H2 of this year for a price of €51/share.
Gemalto released its Q3 trading update, showing revenues of €751m which corresponded to a 0.2% decrease yoy on a reported basis (+3.4% at constant exchange rates). Payment & Identity came in at €481m, up 3% yoy, while Mobile showed a 5.6% decrease at €269m. Within these two businesses, the biggest down-movers were again Payment (€199m, -17.4%) and SIM (€129m, -15.1%). At the other end of the spectrum, Government Programs (€169m, +55%) and M2M (€88m, +8.6%) displayed strong growth, the former benefiting from €50m of the recently-acquired Identity Management Business. Platform & Services came in flat (€52m) and Enterprise slightly negative (€113m, -3.4%). By main activities, Embedded software & Products came in at €493m (-2% yoy at constant exchange rates) and Platforms & Services at €257m (+15%). Guidance for FY17 has been left unchanged: stable revenues yoy in H2 17, with a PFO of about €200-230m.
Gemalto released its Q2 earnings release, showing revenues of €742m which corresponded to a 7.8% decrease yoy on a reported basis (-9% at constant exchange rates). Payment & Identity came in at €471m, down 6.5% yoy; within the business, Payment was strongly down and worsening (€215m, -20.4% vs. -14.2% in Q1), Enterprise flat (€112m, -1.8%) and Government Programs strongly up (€144m, +20%) thanks to the integration of €22m from the 3M Identity Management acquisition (it would have been up 1.6% otherwise). Mobile showed a 9.7% decrease to €270m. The SIM business accelerated its fall (€121m, -18.8% vs. -11.3% in Q1), as well as Platforms and Services (€58m, -19.4% vs. +6%), while M2M showed a substantial rebound (€91m, +16.7% vs. flat). By main activities, Embedded software & Products came in at €937m in H1 (-9% yoy at constant exchange rates) and Platforms & Services at €453m (-8%). H1 gross margin came in at 31.6% (down 500bp yoy), leading to a profit from operations (PFO) of €92.7m. The IFRS net profit was also impacted by a €425m goodwill impairment charge related to the deteriorated perspectives in the SIM market. After the profit warning in July, the company confirmed its downgraded outlook: PFO is expected to be €200-230m, leading to a full-year PFO of €293-323m. The announcement of the new strategic plan has also been postponed to H1 18 from H2 17.
Gemalto released its Q1 trading update, showing revenues of €651m which corresponded to a 6% decrease yoy on a reported basis (-8% at constant exchange rates). Payment & Identity came in at €404m, down 7% yoy, while Mobile showed a 5% decrease at €246m. Within these two businesses, the biggest down movers were Payment (€200m, -14%) and SIM (€118m, -11%), the other units being flattish or in the low single-digit with the exception of Platforms & Services (€53m, +6%). By main activities, Embedded software & Products came in at €439m (-8% yoy at constant exchange rates) and Platforms & Services at €212m (-7%). After the previous downgrade from 22 March (profit from operations at a similar level to 2016, i.e. c. €450m), the company downgraded again its 2017 adjusted operating profit objective: H1 PFO is expected to be at €90-100m, and H2 at €300-350m including a minor contribution from 3M, bringing the total to €420m at the midpoint. A €50m savings plan has also been announced.
Gemalto has announced the acquisition of the identity management business of 3M, for a total of $850m. The acquired business is composed of biometric solutions with a focus in civil identification, border control and law enforcement, as well as 3M’s Document Reader and Secure Materials Businesses. It generated revenues of about $215m (in June 2016 TTM), with an operating margin of c. 27%, and is expected to grow by 10% per year until 2020. 450 people will join Gemalto and reinforce the Government Programs business unit, which recorded revenues of €391m in 2015. The acquisition is EPS accretive, will be funded through existing credit lines and cash, but the net debt/EBITDA ratio is expected to remain below 1.5x. The closing of the deal is expected during H1 17, after regulatory approval.
Gemalto released its Q3 trading update, showing revenues of €753m which corresponded to a 2% decrease yoy on a reported basis (-1% excluding currency effects). Payment & Identity came in at €467m, flat yoy, while Mobile showed a 5% decrease at €285m. By main activities, Embedded software & Products came in at €522m (-2% yoy) and Platforms & Services at €231m (flat yoy). The company downgraded its 2017 adjusted operating profit objective and now expects c. €500-520m instead of €660m previously. The objective of reaching €1bn of revenues in the Platforms & Services business unit remains unchanged.
Gemalto published its H1 16 results, with revenues of €1.5bn mostly flat vs. the previous year, i.e. up 1% at constant exchange rates but down 1% in reported figures. By businesses, similarly to Q1, the Payment & Identity business was strongly up (+11% reported, +7% at constant exchange rates) while Mobile was down (-5% reported, -7% lfl). The SIM business fell down substantially (-26%), while all the other businesses delivered growth: Payment +11%, Enterprise +12%, Government +25%, M2M +9%, Mobile Platforms & Services +3%. By activities, Embedded Software & Products decreased by 4% in H1 (€1,010m) while Platform & Services grew by 20% (€484m), now accounting for 32% of revenues (vs. 27% a year ago). The adj. gross margin was slightly up yoy by 92bp (39.2%), while the adj. EBIT came in at €172m, slightly up yoy, corresponding to an 11.5% margin (up 90bp yoy). The IFRS EBIT reached €108m, corresponding to a 7.2% margin (up 500np yoy), leading to a net profit of €59m. The company confirmed its 2016 objective of a 150bp improvement in the gross margin. The 2017 target of €1bn revenue from Platforms & Services may also be reached early, possibly as soon as this year. Finally, Gemalto confirmed that the company was interested in acquiring Safran’s Morpho, with a detailed offer due mid-September.
Gemalto published its FY 2015 results, with revenues reaching €3,122m, corresponding to 16% growth at constant exchange rates and 27% at historical exchange rates. SafeNet accounted for 12% of the growth, as 2015 was the first year of full consolidation, and currency effects represented a 9% boost to the top-line. At constant rates, Payment & Identity grew by 45% to €1,818m, while Mobile witnessed a 10% decrease to €1,279m. On a transversal basis, Platform & Services reached €898m, a 70% yoy increase, and now accounts for 29% of revenues vs. 20% in 2014. The gross margin came in at 36.5% (-180bp yoy), and profit from operations reached €423m (of which €172m for Mobile and €239m for Payment & Identity), corresponding to a 13.5% margin (-200bp yoy). EBIT came in at €203m, corresponding to a 6.5% margin, leading to a net profit of €137m. The company announced a dividend of €0.47 per share, and expects the 2016 gross margin to increase by 150bp; the 2017 objectives have been confirmed, that is to say €1bn of revenues in Platform & Services, and a profit from operations at €660m.
Gemalto’s stock dropped a sharp 12% yesterday to return to its level at the end of 2014 when we had switched our opinion from negative to positive after the stock had already slumped as investors worried that Apple's new SIM card for its latest iPads could threaten part of Gemalto's business. Even if this time the sharp drop is just following the release of its H1 results and could therefore be interpreted as a logical response to bad results, we instead believe that the real reason for the drop has once again to be rooted in the mistrust of investors. Although Gemalto’s H1 results are quite as expected and management remains confident of delivering on its 2017 objectives, major concerns exist among investors about the actual achievement of these 2017 objectives. And we share these concerns!
