Business News
Oberthur Technologies 2007 Results
Wednesday 19. March 2008 - - 2007: A NEW SET OF RECORDS - Strong growth in sales: +14% over 2006 - +120% of operating income, at 9.1% of sales for 2007 - H2 2007 operating income at 10.5% of sales
Note on accounting principles:
Oberthur Technologies is presenting its first set of Accounts, under its new perimeter.
It is the business combination of the former Oberthur Card Systems on the one hand, and the Security Printing and Cash Protection (SP&CP) assets of FCOF, its parent company, on the other hand.
The Accounts are presented according to FAS 141, in absence of relevant applicable IFRS standards due to a business combination involving entities under common control.
The Business Combination is presented as if it had been accomplished as of 1-1-2006, according to the “pooling of interest” methodology. The transaction expenses are reported in 2007.
As a consequence of this, the following consolidated FY 2006 and FY 2007 Accounts present the global view of our business on a homogeneous perimeter to facilitate their reading.
These Accounts are presently under review by our Auditors.
Oberthur Technologies has reported 2007 sales of EUR733.4 million, up 14% over 2006, breaking new records in terms of volumes and revenue. This year of strong growth is the result of sustained demand in Card Systems and Fiduciary activities. Sales increased by 13% and 16% over 2006 in Card Systems and the Fiduciary & Cash Protection activities respectively.
M EUR 2007 2006 Variation
2007/ 2006
Sales 733.5 644.9 +13.7%
Cost of materials (279.3) (265.9)
Gross Profit 454.2 379.0 +19.8%
% sales 61.9% 58.8%
Compensation and (189.6) (179.2) +5.8%
Benefits
Overheads (151.6) (133.0) +13.9%
Taxes and duties (10.5) (9.6) +9.7%
Other 3.0 10.6 -128.0%
EBITDA 105.5 67.8 +55.6%
% sales 14.4% 10.5%
Depreciation and
provisions (38.8) (37.5) +5.3%
Operating income 66.7 30.3 120.0%
% sales 9.1% 4.7%
Strong improvement in profitability
At 61.9% of sales versus 58.8% in 2006, total gross margin showed a strong growth thanks to weaker price pressure in the Card activity, optimization of purchasing performance but also an improvement of product mix in the Security Printing activity.
The card industrial reorganization based on the consolidation into major
regional centres has allowed the Group to achieve economies of scale while
maintaining geographical proximity to its customers.
In addition, Oberthur Technologies continues to develop its commercial,
R&D and industrial presence in low cost regions.
As a result of these actions, personnel expenses were down by 2 points,
at 25.8% of 2007 sales versus 27.8% in 2006, a good performance considering
the company worldwide expansion.
In parallel, and despite strong volume growth and geographical
development, the Group managed to decrease its overhead costs by almost 1
point. This achievement validated, once again, the tight cost control
strategy of the company.
As a consequence Oberthur Technologies posted a tremendous 55.6% growth
in EBITDA, reaching EUR105.5M at 14.4% of 2007 sales versus 10.5% in 2006.
Depreciation and provisions were up 2 millions compared to 2006.
Overall, operating income came to EUR66.7M for the full year, a +120%
increase, showing a strong recovery in H1 2007 further confirmed in H2 2007.
It has to be noted that H2 Operating Income is posted at 10.5%,
confirming the favourable trend.
Full Year 2007, operating income reached 9.1% of sales versus 4.7% in
2006.
The assets contributed to Oberthur Technologies, Security Printing &
Cash Protection (SP&CP), presented in 2007 a 13.6% operating income,
contributing significantly to this healthy status.
The Group incurred one-off EUR14.5 M non recurring expenses in 2007
related to:
– Manufacturing restructuring in France, US & Mexico, a direct
consequence of the global organization being structured in Card Systems
activity
– Expenses related to the Oberthur Technologies business combination.
After taking into account those expenses, the Group posted a +72.2% EBIT
growth, at EUR52.2M representing a 7.1% EBIT/ sales ratio.
All in all, for the total year 2007, Oberthur Technologies generated a
net income of EUR32.5M, a + 116% increase. This represents a 0.29 EUR earning
per share.
A very sound balance sheet
Oberthur Technologies outstanding performance in 2007 generated a record
level of operating cash flow at EUR88.9M versus EUR16.7M in 2006. This
success was achieved with improvement of working capital needs reduced by
EUR1.6M, while facing a 14% increase in sales.
Investment for 2007 reached EUR46.3M including EUR26M of CAPEX and
EUR13.6M of acquisition over the period. In addition to this, the Group
capitalized EUR5.7M in R&D.
After payment for dividend of EUR8.3M and after a share buy back
implementation of EUR11.2M, the Group registered a net debt variation of
(-EUR24.6M) euro at EUR73.4M. This sets a gearing of 0.29 as of Dec 31st 2007.
Card Systems: 2007, a year of growth and profit recovery
In a card market that, in 2007, benefited from better conditions of
volume and price, Oberthur gained market share while improving significantly
its profitability.
Sales
Card revenues of EUR591M were up 13% year-on-year with growth in all
regions, in all segments and in all quarters. The acquisition of I’M
Technologies in April contributed 2 out of the 13 points of growth.
In mobile, demand was sustained, especially in South America, Middle
East/Africa and Asia. Volumes were up 48% and sales up 22% year-on-year.
In payment, 2007 was a year of expected recovery in Europe for France and
the UK. EMV migration accelerated in Italy and contactless technology
continued its deployment in the US, at the expense of magnetic stripe cards.
Overall, in the payment segment, sales increased by 9% year-on-year.
In the identity business, market growth was lower than expected with
delays in deployment of approved programs. Sales grew by 3%.
M EUR 2007 2006 Year-on-year
increase
Sales 591.4 523.9 +13 %
Cost of sales (415.7) (394.1) +5.5 %
Gross Margin 175.7 129.8 +32.1 %
% of sales 29.7 % 24.8 %
Operating expenses (130.5) (110.7) 17.9 %
% of sales 22.1 % 21.2 %
Operating income 45.2 19.1 +137 %
% of sales 7.6 % 4 %
Restructuring (12.1)
EBIT 33.1 19.1 +73 %
% of sales 5.6 % 3.6 %
Gross Margin
Gross margin increased significantly along the year reaching 28% in H1
and 31% in H2, compared to 25% for the whole year 2006. This increase of 5
points year-on-year is the result of ASP stabilization in mobile and of major
internal performance improvements. Product migrations and shrink programs in
mobile and in payment, together with a systematic second sourcing purchasing
policy, contributed to cost decrease.
The 2006 cost control plan – which had its full impact in H2 2007 – was
complemented by further reorganization in 2007. 81% of SIM volumes were
manufactured in Asia versus 58% in 2006. The Caen factory and the Naperville
service bureau were closed in November 2007.
Operational expenses
R&D teams were reinforced in France and in lower cost areas, notably the
Philippines & Indonesia through the acquisition of I’M Technologies.
With revenue growth, Opex remained almost stable in percentage of sales
at 21.8%
Profitability
Operating income jumped to EUR45.2M, a 137% increase versus 2006.
Operating income reached in H2 2007, 9.6% of sales after 5.4% in H1, for a
total year at 7.6%.
After EUR12.1M restructuring charges, EBIT amounted to EUR33.1M, a +73%
year-on-year improvement.
Assets
In 2007, the company pursued efforts to improve working capital from 20%
of sales in 2006 to 19% of sales in 2007. Accounts receivable DSO decreased
by 6 days in 2007.
In spite of a 35% production volume increase in 2007, net fixed assets
decreased from EUR84.2M to EUR77.1M Global manufacturing, subcontracting,
extension of working hours and restructuring, allowed to limit Capex at
EUR16M.
Addressing Identified Growth Drivers
Market growth drivers
The company is addressing identified market growth drivers in all
segments:
– Mobile new subscribers, particularly in emerging markets with an
adapted portfolio for Native low-end and a competitive manufacturing
base – China, India, and Brazil.
– Machine-to-Machine mobile communications and SIM-based
authentication solutions
– EMV migration, like in Italy, Spain and Brazil in 2008.
– Contactless payment cards, in the US and worldwide
– Personalization services with outsourcing opportunities at EMV
migration and new offers
– Mobile/Payment convergence
– Electronic ID with recent successes in Taiwan, Brazil, Finland,
Poland.
Global manufacturing
Oberthur continues in 2008 to expand and modernize its global
manufacturing. Major investments projects are:
– Expansion of Shenzhen plant for SIM production and addition of module
assembly and bank card printing.
– Capacity in Brazil and India for mobile
– Contactless capacity in Exton
In Europe, manufacturing and personalization network will be reviewed,
depending on the outcome of the offer on XponCard.
Security Printing and Cash protection: 2007, a year of growth and profit
improvement
In SP&CP activities, revenue was up 16.3%, led by gains in the
security printing. The cash protection segment is still currently emerging:
long term projects will start to bear fruit after several months of
experimentation. All along the year, the two combined activities registered
continuous growth year-on-year and even two digit growth in the first three
quarters.
Gross Profit
These activities showed a +16,8% growth of Gross Profit, in line with
sales growth
Operational expenses
Despite strong investment in R&D team for Cash Protection and thanks to
operational leverage, operational expenses declined by 3.4 points as a
percentage of sales from 56.8% in 2006 to 53.4% in 2007.
Profitability
EBIT jumped to EUR21.6M, a +101% increase over 2006, representing 13.6%
of 2007 sales.
Market growth drivers
The banknote market represents about 120 billion units per year,
including 12% open to private printers, such as Oberthur Technologies. This
proportion should increase in the coming years with part of the Euro market
becoming open. To serve this important demand, Oberthur has reinforced its
production capacity in Chantepie, France, which is now one of the largest
private banknote factories in the world.
The overall market is supported in particular by inflation and growth of
emerging economies.
To serve the still emerging Cash Protection market, Oberthur Technologies
has expanded its product offer, with notably a 12 000 banknotes container
dedicated to high volume Cash-in-Transit segment.
2008 Outlook
ID market is a priority for the future growth of the company. A first
success has been recorded early 2008 with the award of the Taiwanese
e-passport contract. It validates the strategy of a tighter combination of
Card Systems and Security Printing teams to address this market.
Oberthur Technologies has initiated on March 12th 2008 its Public
Offering on XPonCard in Sweden. The acceptance period should end on April
4th. At present, Oberthur has secured 63% of the shares.
XPonCard published for 2007 EUR144M in Sales.
The group confirms its growth strategy, both organic and through merger
and acquisition.
The combination of Oberthur and XPonCard would create the second largest
player in the global smart card industry, reinforcing its presence in Nordic
Europe.
Proforma Group 2007 sales would amount circ. EUR875M.
Card Systems
In mobile, market conditions are still favourable so far, with normal
price pressure. The payment segment should continue its steady growth with
EMV migration and increased demand in contactless and gift cards. In
identity, the company has registered new project wins which will pay off in
the near future.
The 2007 manufacturing reorganization should show its full impact before
the end of 2008. In current market conditions, 2008 profitability can still
improve compared to 2007.
Security Printing and Cash Protection
For banknote printing, the company has already a strong backlog on hand
for 2008 and part of 2009.
For full year 2008, the activity is confident in its capacity to achieve
its objective of growth in line with overall market trends, despite Q1 sales
which should compare unfavourably to Q1 2007.
Oberthur Technologies has recently been awarded by DNB (De Nederlandsche
Bank – Dutch Central Bank) the contract for the supply of a significant part
of its Euro banknote requirements.
The contract calls for a volume of cir. 500 millions banknotes for 2009,
and could be extended for two one-year periods.
Oberthur is proud to have been selected by DNB as one of its major
banknote suppliers. It represents a tribute to Oberthur Technologies’ leading
position in the high security printing industry.
It makes Oberthur Technologies one of the main private suppliers of Euro
Banknotes.
Oberthur Technologies’ Board of Directors will propose to the General Assembly a resolution to pay a EUR 0.17 dividend per share.
Q1 Sales shall be announced on April 23rd. It should show a continuing double digit growth year on year.
For the full year, the Group is maintaining its objective of solid growth
and sustained margin improvement.