Oberthur Card Systems Q3 2006 Sales

Q3 Sales: EUR124.2 M, stable year-to-year
Growing activity in the payment segment: +17.8% in volume sequentially

PARIS, October 24 (www.AllPayNews.com) -- Oberthur Card Systems reports third quarter 2006 revenue of EUR124.2M.
Cumulated sales of the first nine months of 2006 reached EUR369.0 M, showing 1.4% growth at actual exchange rates over the EUR363.7M revenue recorded the same period of 2005

Microprocessor card sales amounted to EUR82M this quarter, a 2.4% increase compared to Q3 2005 at current exchange rates. Although the ASP decline remained important on a year-on-year basis, the erosion slowed down sequentially. With 68 million microprocessor cards delivered versus 48 million in Q3 2005, Oberthur Card Systems posted a tremendous 40.3% increase in volumes.

- The Mobile Communications segment continues to record good momentum, breaking the company's previous record once again with sales of EUR45.5M, Oberthur Card Systems posted revenue growth of 16.2% in this segment during the third quarter of 2006 compared to Q3 2005. The performance was driven primarily by the increase in volumes of SIM cards sold, which topped 43.1 million units over the quarter - up 79.7% on a year-on-year basis - and by further improvement in the product mix: the share of high-end SIM cards represents 63% of the total shipped.

During Q3 2006, the price trend changed as SIM ASP decline returned to a level of less than 10% sequentially.

The activity was particularly sustained in the US, in Africa, in the Middle East and South America.

- In the Payment & Services segment, Oberthur Card Systems delivered over 17.7 million microprocessor cards during the period, a 17.8% increase compared to 15 million in Q2 2006. Sequentially, revenue grew 12.0% at constant exchange rate reaching EUR24.5M and the ASP erosion was limited to a 5.5% decrease.

Year-on-year, the comparison is still unfavourable this quarter, as the same period last year was marked by a peak of deliveries in September 2005 in both Europe and the US. However, after a lower activity trend in H1 '06 which was due to two momentary and localized events (France and UK), the company registered expected growing sales this quarter. Since August, the company has resumed volume deliveries to the French market, while September showed a ramp up in UK orders.

In the US, the company posted solid growth in the contactless product line with deliveries of millions of cards. As expected, Oberthur Card Systems' Asian market penetration started to pay off, and banking activity is becoming significant in this region, thanks to major contracts announced in the first half of the year.

The company is well on track to reach regular levels of deliveries in the months to come.

- Revenue for the quarter in the Identity and Security sector was EUR11.9M, a 10,3% increase at current exchange rate compared to Q3 2005. Volumes were up 38.1% compared to last year, at 7.2 million units, with very strong shipments in the pay-TV card sub-segment, notably in China. During the quarter, the ID activity was sustained in Asia as a result of on-going e-passport chip deliveries. Oberthur Card Systems announced new strategic contracts in the US: dual interface ID cards for the US Department of Defense and credentials for port workers in Florida.

Sales in the Other Cards Segment - magnetic stripe cards, scratch cards and memory cards - reached EUR16.3M, a 12.7% decrease at current exchange rates on a year-on-year basis. This is mainly due to the expected decline of magnetic stripe cards in line with the EMV migration in Italy & Spain. In the US, the level of activity and ASP were stable year-on-year.

Sales of Services and Solutions, at EUR25.9M, are stable compared to last year and showed a 8.0% increase sequentially at current exchange rate. The company achieved a good performance in this segment, owing to sustained personalization activity in Europe, especially France, Italy & the Netherlands.

Outlook: On the way to stronger profitability

The company is optimistic about its long term profitable growth prospects.

This quarter has been highlighted by a major strategic evolution which has placed Oberthur Card Systems at the forefront of the industry consolidation in Asia. Thanks to the complementary geographical and technological attributes of both companies, the acquisition of I'M Technologies should provide enhanced earnings' opportunities with improved profitability for Oberthur Card Systems in the region. This deal is expected to close in the first quarter of 2007.

As a result of I'M Technologies fabless management know-how, Oberthur Card Systems will enhance its outsourcing option: in the future, the company should be able to easily expand its industrial capacity as required at times of peak. In the coming months, the Group's GSM facilities are expected to run at full capacity. Oberthur Card Systems is deliberately selective in addressing contract opportunities, bearing in mind the willingness to improve profitability.

Oberthur Card Systems' vision of the payment market remains positive as we move towards the end of the year: H1 2006 difficulties in the banking sector were temporary and localized. Since August, the company resumed volume deliveries to the French market; the positive trend of Q3 2006 will be confirmed and reinforced in the months to come. Oberthur Card Systems should achieve a normal level of activity in this particular segment, which is the company's historical core business.

In June 2006, the Group announced a drastic cost control program, which aims at reducing the company cost structure. This should lead to savings estimated at between 16 and 20 million euros per year. The company is confident in its ability to achieve completion of 60% of the plan by the end of 2006.

In the meantime, Oberthur Card Systems will nevertheless keep on investing for growth and innovation. The company will continue its worldwide expansion through light commercial footprints and personalization bureaus. In terms of innovation, the Group will invest in developments necessary to remain a key actor in the digital convergence industry, notably supporting and pushing solutions such as AngelIC, the secure mobile VoIP.

Oberthur Card Systems has always worked to enhance its profitability and drive the industry towards higher-end products. After 8 months of a delicate competitive environment, the Group is adapting to remain a key actor in the smart card industry while being profitable. Oberthur Card Systems will continue to fight against ASP erosion, notably in the SIM sector in order to pursue its strategy of profitable growth and its long held vision of innovation.

The Slide Show will be available on the web site (investors section) on Tuesday, 24th October before the conference call that will be hold at 8.00 am Paris Time.

About Oberthur Card Systems

With sales of 500.8 million Euros in 2005, Oberthur Card Systems is one of the world's leading providers of card-based solutions, software and applications, including SIM and multi-application smart cards as well as services ranging from consulting to personalization.

Innovative products, security expertise and high quality services ensure Oberthur Card Systems' strong position in its main target markets:

- Payment & Services: accounting for 53% of 2005 revenue. A world leading supplier of Visa and MasterCard payment cards

- Mobile Communications: accounting for 32% of 2005 revenue, mainly from open and interoperable solutions based on Java(TM) technology.

- Identity: Oberthur Card Systems holds a strong position in ID projects throughout the world

- Multimedia: Oberthur Card Systems enjoys a leading position in the Pay-TV market, with end-to-end expertise throughout the value chain - software development, manufacturing and personalization

- Transit: Oberthur Card Systems provides a microprocessor-based offer especially suited to the high-end market segments

Close to its customers, the company benefits from an industrial and commercial presence across all five continents. Listed on the Euronext Stock Exchange (ISIN: FR0000124133) since July 2000, Oberthur Card Systems is a subsidiary of the Francois-Charles Oberthur Group.

For more information, visit www.oberthurcs.com