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Full year 2008 income statement is presented on an adjusted basis (see page 2 ?Basis of preparation of financial information?). The reconciliation with IFRS income statement is presented in Appendix 5. The balance sheet is prepared in accordance with IFRS, and the cash position variation schedule is derived from the IFRS cash flow statement. All figures in this press release are at historical exchange rates, except where otherwise noted, and are by reference comparing 2008 to 2007 figures.

Gemalto (Euronext NL0000400653 - GTO), the world leader in digital security today announces its results for the full year 2008.

Key figures of the adjusted income statement:

Full year 2008 revenue and year-on-year revenue variation at constant exchange rates, by segment:

Olivier Piou, Chief Executive Officer, commented: ?Gemalto reports strong 2008 full year results with €169 million in adjusted operating income, twice that of last year. We reached the 10% adjusted operating margin target we had set for ourselves, one year ahead of schedule. The three main segments showed good resilience to the economic environment, posting a combined second-half operating margin of 11.2%. The combination is now well in place, with a lean operating structure that delivers synergies, drives profitability, and generates high levels of cash. These strengths are evidenced in the 84% increase in our 2008 earnings per share. 2009 will undoubtedly be a year of major transformation for the world economy. We will continue our mission to provide trust and convenience to the wireless and digital world that is emerging, and look ahead with the goal of revenue growth and earnings expansion.?

Basis of preparation of financial information

The extract from the Company's consolidated financial statements presented in Appendix 7 were prepared in accordance with the International Financial Reporting Standards. Additional financial information on an adjusted basis (unaudited) is presented that is not in conformity with IFRS, in particular the adjustments to revenue and cost of sales, and the presentation of operating expenses and operating income, operating margin and earnings per share which exclude one-off combination related expenses linked to the 2006 combination between Axalto and Gemplus, and reorganization charges and charges resulting from the accounting treatment of the transaction. Charges resulting from the accounting treatment of the transaction consist of additional stock-based compensation due to the revaluation of Gemplus' stock options as of combination date, amortization and depreciation of some intangible assets. One-off combination related expenses consist of charges which would not have been incurred had the transaction not occurred: professional advisory services incurred in connection with the integration, new Gemalto brand and logo creation and worldwide registration, as well as impairment charges related to capitalized development costs on projects which are redundant with existing products or technologies available in Gemplus. Most of the combination related expenses were incurred in 2006. Reorganization charges consist of costs related to headcount reductions in the support functions, consolidation of manufacturing and office sites (including property, plant and equipment, intangible asset and inventory write-offs and impairments, asset transfer costs, employee benefits, severance and associated costs, lease termination and building refurbishment costs and under-absorption in the manufacturing plant being closed) as well as rationalization and harmonization of the product and service portfolio. The Company believes that this information, which is not in conformity with IFRS, is helpful supplemental information in order to better assess its past and future performance. In addition, the Company's Management uses this information which is based on its best estimate and judgment in its own planning and in assessment of its operating performance. This information provided by the Company may not be comparable to similarly titled measures employed by other companies.

All variations in this document are at historical exchange rates, except where otherwise noted, and are by reference comparing 2008 to 2007 figures. Fluctuations in currency exchange rates against the Euro have a translation impact on the Euro value of Group revenues. Comparisons at constant exchange rates aim at neutralizing this translation effect on the analysis of the Group operations.

IFRS results and reconciliation between adjusted and IFRS results

The IFRS consolidated income statement for the full year 2008 shows an operating income of € 127.1 million and a net profit of € 114.9 million, compared with an operating loss of € 71 million and a net loss of € 46 million reported in 2007. In 2008, basic earnings per share amounted to € 1.35 and diluted earnings per share to € 1.32. The Company provides in Appendix 5 the reconciliation between the IFRS and adjusted income statements for the full year of 2008 (unaudited). Charges incurred in connection with headcount reductions in the support functions, with the consolidation of manufacturing and office sites, as well as the rationalization and harmonization of the product and service portfolio, amounted to € 28.2 million in 2008: the reversal of reserves booked in 2007 against 2007 IFRS revenue and excluded from 2007 adjusted revenue represented an income of € 0.7 million and is reported under the line ?Revenue?; factory under-absorption for plant being closed amounted to € 8.0 million and is reported in the IFRS income statement under the line ?Cost of Sales?; and costs related to other items amounted to € 20.9 million and are reported under the line ?Reorganization expenses?. As required by IAS 16, the Company reassessed on January 1, 2008 the useful life of its tangible assets. As a result, tangible assets depreciation expense for the year 2008 was reduced by €12.3 million. The net impact on the 2008 operating income was €10.8 million.

Adjusted income statement⁵ analysis

Extract of the adjusted income statement:

* At constant exchange rates, 2008 revenue is up 6% from the previous year.

Gemalto reported a strong performance in 2008. The Company's top-line expanded by 6% at constant exchange rates, with revenue from software and services growing by 44% at constant rates to account for nearly 10% of the Company turnover. Operating margin was 10.1%, above the level that the Company had set for itself to achieve at the outset of the combination that created Gemalto. As a result of strong customer loyalty, engagement of employees and excellence in execution this target was reached one-year ahead of schedule.

2008 was marked by a record first semester revenue. Telecom operators in Europe and Americas placed significant reorders after a particularly successful 2007 year-end campaign, and we recorded strong sales in Asia around the Chinese New Year in the first months of 2008, thereby attenuating the traditional seasonal contrast.

Gross margin for the full year was up by almost 5 percentage points to 35.5%, reflecting operational efficiencies and scale.

Operating expenses were essentially stable as a percentage of total revenue, with improved efficiencies in product development offset by additional commercial efforts devoted at promoting advanced products and services.

As a result, the adjusted operating income for the year doubled to € 169.3 million and the adjusted operating margin reached 10.1%. All three main segments contributed to the increase in adjusted operating income. Mobile Communication and Secure Transactions were largely responsible for this improvement through further productivity gains and by Secure Transactions returning to profit. Security also contributed to the overall improvement while continuing to invest in new technologies and market developments.

Financial income was € 2.1 million. It was mainly comprised of net interest income of € 9.3 million and net foreign exchange hedging costs of € 7.0 million.

Adjusted pre-tax income was € 174.0 million. Net income tax expenses amounted to € 21.0 million, resulting in an adjusted net profit for the period of € 153.0 million, an increase of 72% over the € 89.2 million reported in 2007.

Balance sheet and cash position variation schedule

Gemalto generated a positive free cash flow⁹ of € 83 million in 2008. Cash flow generated by operations before outflow related to restructuring actions was € 191 million, payments made in connection with restructuring actions were € 59 million, and capital expenditure and acquisition of intangibles amounted to € 49 million, of which € 40 million were incurred for plant, property and equipment purchases net of proceeds from sales. Net working capital represented 10.3% of the fourth quarter 2008 annualized revenue. Excluding the variation of the restructuring provision, net working capital improved by € 15 million and 1.0 percentage point. € 14 million were used in cash for the acquisition of subsidiaries.

Gemalto's share buy-back program used € 65 million in cash in 2008 through the purchase of 3,034,784 shares representing 3.45% of Gemalto's share capital. As of December 31, 2008, the Company owned 5,719,652, i.e. 6.50% of its own shares in treasury. This volume of shares covers all exercisable stock options. The average acquisition price of the shares repurchased on the market and held in Treasury as of December 31, 2008 was € 20.09.

The cancellation of three million treasury shares approved by the general meeting of shareholders of May 14, 2008, and corresponding to 3.3% of the then issued share capital, became effective on July 24, 2008. As a result, the total number of Gemalto shares issued is now 88,015,844. Net of the 5,719,652 shares held in treasury, 82,296,192 were outstanding as of December 31, 2008.

The proceeds from exercise of stock options by employees amounted to € 23 million.

Consequently, Gemalto's net cash position was € 344 million at the end of December 2008, up by € 30 million compared with December 31, 2007.

Segment information ¹⁰

Mobile Communication

At constant exchange rates, full year 2008 Mobile Communication revenue is up 6%.

Mobile Communication continues to deliver strong results with significant profit expansions and margin improvements, reflecting operational performance as well as the continued progress in promoting higher-end offers. The Company's products and service segmentation has resulted in increased interest from mobile operators in deploying advanced SIM platforms for new services. Software and services revenue increased by 65%, reaching € 65 million for the full year.

Gross margin for the full year 2008 was up 4.3 percentage points from the previous year to 41.6%, reflecting the continued benefits from purchasing synergies and production optimization. The negative impacts of currencies fluctuations were also reduced due to natural hedging efforts during the year. As a result, full-year 2008 gross profit expanded to € 394.5 million, up 14% on the figure of 2007.

As a percentage of revenue, operating expenses remained essentially flat with moderate increases in Sales & Marketing reflecting continuing efforts to promote more advanced offers and services. The level of Research & Engineering spending was also maintained to strengthen the software and services offers and meet continued operators expectations in the fast moving mobile communication market.

Full-year 2008 operating income expanded by a third to € 160 million, providing a robust operating margin of 16.9%, an improvement of 3.6 percentage points on the previous year.

Secure Transactions

At constant exchange rates, full year 2008 Secure Transactions revenue is up 11%.

2008 marks the successful turnaround of Secure Transactions. The restructuring program is now complete and the segment is entering a more steady level of performance, in which gradual improvements will continue to be made.

Gross margin for the full year 2008 was 26.6%, an improvement of 8.4 percentage points from the previous year. This is largely due to the steady growth of EMV deployments and the success of contactless payment cards, both of which further boost the level of personalization activities. The production footprint optimization resulting from the restructuring program also created substantial benefits.

During the latter part of the year, certain customers faced significant uncertainty in their business environment and a number of them focused on optimizing their inventory, leading to ?stop-and-go's? in the production flow which impacted gross margin. The weakening of the British Pound and Brazilian Real against the Euro in the second semester also reduced the segment's gross margin. For the full year 2008, the segment increased its gross profit by 57% to € 118 million.

Operating expenses were reduced as a percentage of revenue, down 1.1 percentage point to 20.6% for the full year 2008. The lower General & Administration expenses resulting from the restructuring program were partially offset by increases in spending on Research & Engineering and Sales & Marketing, both of which grew in line with the segment's overall growth in activities.

The resulting operating margin for the full year 2008 is at 6.0%. The segment posted an operating income of € 26.8 million, a solid turnaround on the previous year's operating loss.

Security

At constant exchange rates, full year 2008 Security revenue is up 14%.

Security showed continuing strong revenue growth and solid progress towards the break-even point. The strong operational and commercial performances were partially offset by the anticipated reduction in patent activities, which had full year revenue decreasing from € 22.9 million to € 8.1 million.

Compared to the previous year, gross margin in Government Programs and Identity and Access Management (IAM) together increased significantly. Government Programs in particular continues to benefit from deliveries ramp-up and better industrialization of its product portfolio. The reduced patent licensing contribution did offset this performance and the resulting gross margin for the segment as a whole was 30.7%, essentially flat compared with the previous year. The Security segment's gross profit was € 66.2 million, up 11% from the previous year.

Operating expenses were contained, with additional spending in sales and marketing associated with the revenue growth offset by increased efficiency in product development. As a percentage of revenue, operating expenses were reduced by 4.1 percentage points to 41% for the full year.

The segment's operating loss was reduced by more than 20% to € 20.2 million, reflecting robust revenue growth and stable levels of operating expenses. Excluding patents, the combined operating losses for Government Programs and Identity & Access Management were reduced by more than 50% compared with 2007.

Point-of-Sale Terminals

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