Axalto: First Half 2005 Earnings Release; Profit from Growth: Operating Margin Increases to 9.4%.

AMSTERDAM, Netherlands -- Axalto (EURONEXT:AXL) and (EURONEXT:NL0000400653):

--Revenue rises to USD 498 million, up 16%

--Gross margin increases by 1.5 percentage point, to 33.8%

--Operating margin grows from 6.7% to 9.4%

--Operating income improves by 62% to USD 47 million

--Net income up 71% at USD 33 million

--Net earnings attributable to equity holders of USD 79 cents per share

--Free cash flow generated during the period: USD 42 million.

Axalto (EURONEXT:AXL) and (EURONEXT:NL0000400653) reports today its results for the six-month period ended June 30, 2005. These interim 2005 consolidated condensed financial statements have been prepared in accordance with the IFRS accounting principles.

Commenting on these results, Axalto Chief Executive Officer, Olivier Piou, said: "Axalto's performance over the first six months of the year is just remarkable. In a very competitive environment our teams have recorded tremendous commercial gains in all lines of business. Axalto's worldwide presence was once again decisive, enabling us to take advantage of the rapidly changing geography of growth. The substantial increase in volume was further leveraged by continuous improvements in operational excellence. The market continues to be characterized by strong price pressures. Looking to the year-end we'll bear in mind that last year's comparative basis was particularly high and that the seasonal pattern, which traditionally favors the second-half, will be less marked. For the full year, we are determined to remain the most profitable player in our industry."

Variation
  Axalto                                                        at
                            First Half  First Half  Variation constant
All amounts in USD million     2004        2005               exchange
                                                               rates
----------------------------------------------------------------------

 Revenue                      430.3      498.2      + 16%      +12%
 Gross Profit                 138.9      168.2      + 21%      +20%
             Gross Margin (%)      32.3 %     33.8 %
 Operating Income              29.0       47.1       +62%
             Operating Margin
              (%)                   6.7 %      9.4 %
 Income Before Taxes           28.5       47.3       +66%
             As a percentage
              of Revenue (%)         6.6%      9.5 %
 Net Income                    19.5       33.3       +71%
              Net margin (%)         4.5%      6.7 %
 Net Income attributable to
  equity holders               19.0       31.9       +68%
----------------------------------------------------------------------
 Average number of shares      40.1       40.4
  outstanding               million    million
----------------------------------------------------------------------
 Earnings Per Share
  attributable               USD 47     USD 79
  to equity holders (basic)   cents      cents       +66%
 Earnings Per Share
  attributable to equity
  holders (fully diluted)    USD 47     USD 77
                              cents      cents       +62%
----------------------------------------------------------------------

An excellent performance: all indicators improve relative to the first-half of 2004

During the first-half of the year 2005, Axalto recorded strong growth in its level of activity and a sharp improvement in its profitability.

Over the period, the company posted a 16% increase in revenue to USD 498.2 million, a 62% progression in operating income to USD 47.1 million and a 71% rise in net income, which reached USD 33.3 million.

Based on an average number of shares in circulation of 40.4 million over the period, Axalto's basic earnings per share attributable to equity holders was USD 79 cents, a 66% improvement on the interim earnings of 2004.

This excellent performance contributed to strong cash generation from operating activities of USD 55.4 million during the period. Axalto's net cash position at the end of June 2005 improved to USD 220.3 million.

Revenue grows 16%

Over the first-half, all of Axalto's businesses contributed to the company's top line growth. In particular, the Mobile Communication product line grew by 23%, to USD 295.5 million. During the period, this product line accounted for 59% of Axalto revenue, up 3 percentage points relative to the first-half of 2004.

In regional terms, the Europe Middle East Africa area posted solid growth of 14% compared with the first half of 2004, reaching USD 275 million.

The Americas recorded the fastest revenue increase, both in absolute terms, adding USD 40.2 million, and in percentage terms with a +52% jump in sales, to USD 118 million.

During the period, this region became the second largest contributor to Axalto's revenue, accounting for 24% of the global figure while Asia's share decreased almost symmetrically to 21% due to the contraction in the Chinese market for mobile communication products.

Axalto shipped close to 204 million microprocessor cards during the first six months of 2005, a 32% increase in volume when compared with 2004's first half. Volume growth was most marked in Mobile Communication: Axalto sold 157 million SIM cards to mobile network operators, a 48% increase on last year's comparable figure.

Operating margin increases strongly, from 6.7% to 9.4%

During the period, Axalto's increase in operating profit was driven by

--the Group's strong first-half revenue

--the larger share of revenue derived from Mobile Communication and the favorable sales mix in this product line. High-end cards accounted for 34% of SIM card deliveries versus 22% for the same period of last year.

--pointed improvements in the gross margins of the Mobile Communication and the Public sector, access and other product lines as well as in the Point-of-Sales terminals segment. As a result Axalto's gross margin rose by 1.5 percentage point to 33.8% during the first-half, and gross profit increased 21% on the year-earlier period to USD 168.2 million,

--strict discipline in operating expenses which grew at a much slower pace than sales. Posting an increase of +9.8%, and +5.6% at constant rates, to USD 123 million, these expenses represented 24.7% of Axalto's first half revenue, down 1.4 percentage point compared with the same period of last year.

Activity generates USD 42 million in free cash flow

Strong net income as well as continued tight control over both working capital requirements and capital expenditure contributed to the solid cash flow generation performance.

About Axalto

Axalto (EURONEXT:AXL) and (EURONEXT:NL0000400653) is the world's leading provider (Gartner 2005, Frost & Sullivan 2004) of microprocessor cards - the key to digital networks - and a major supplier of point-of-sale terminals. Its 4,500 employees, from over 60 nationalities, serve customers in more than 100 countries, with worldwide sales reaching over 3 billion smart cards to date. With a 25-year experience in smart card innovation, the company leads its industry in security technology and open systems.

Axalto creates new generations of products for use in a variety of applications in the telecommunications, finance, retail, transport, entertainment, healthcare, personal identification, information technology and public sector markets. Microprocessor cards provide convenience, security and privacy to public and private services operators, their customers and end users. For more information, please visit www.axalto.com

Unless stated otherwise, all comparisons in this document are shown on a current exchange rate basis.