Axalto 2004 Full-Year Results; Operating Margin of 9%; USD 1.47 Earnings Per Share.

AMSTERDAM, Netherlands -- Following the 2004 revenue release of January 26, 2005, that reported full-year revenue of USD 960 million, an increase of 25% versus 2003 and a rise of 19% at constant exchange rates, Axalto (EURONEXT:AXL)(EURONEXT:NL0000400653) today reports its full-year results for the 2004 financial year ended 31 December 2004:

--Operating income: USD 86.4 million, up 80%

--Net income: USD 59 million, up 136%

--Return on capital employed: 11.4%

--Free cash flow: USD 128 million

--Net cash: USD 185 million

Commenting on these results, Olivier Piou, Axalto Chief Executive Officer, said: "These results clearly validate our business model, which combines software value-add with high volume sales, growth and profitability. They attest to our ability to draw on our unique positioning, based on a broad global presence with well-established local positions, a well-balanced product portfolio, and a culture of profitable innovation. Over the course of the year Axalto's employees, many of whom are shareholders in the company, took their fate in hand and demonstrated their outstanding commercial dynamism. Their unfailing attention to excellence in the day-to-day execution is now combined with exemplary control of cash flows. The outlook for each of our key markets in 2005 is excellent, fuelled by ongoing growth in worldwide demand for digital services that are practical, personalised and secure. We are more determined than ever to build on our leading position, and to create even more value for our customers and our shareholders."

Axalto
                                 (in USD    FY 2003  FY 2004 Variation
                                  million)
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 Revenue                                     767.7    960.4     + 25%

 Gross profit                                238.2    315.4     + 32%
       Gross margin (%)                       31.0%.   32.8%.

 Operating income                            47.9     86.4      + 80%
        Operating margin (%)                  6.2%.    9.0%.

 Net income                                  25.0     59.1      +136%
        Net margin (%)                        3.3%.    6.2 %.
======================================================================
                                             Not       40.3
 Average number of shares                applicable    million

 Earnings per share (basic)                    -       USD 1.47
----------------------------------------------------------------------

Axalto achieved a record year in 2004. Annual revenue increased by 25% compared to 2003, to USD 960.4 million.

Within the Cards segment, which achieved revenue increase of 23%, all major product lines contributed to the growth, led by the strength of the Mobile Communication and Financial Services product lines and an excellent performance by the Public Sector and Other products line that includes in particular the patent licensing activity. The Point-of-Sales Terminals segment achieved the strongest growth: + 52%.

Furthermore, all regions contributed to the momentum. The Europe Middle-East Africa area continued to make the largest contribution to revenue, at USD 536 million. It also achieved the strongest growth at current exchange rates, + 33%, and + 21% at constant exchange rates compared with 2003. The Americas achieved full-year growth of 29%, the strongest increase at constant exchange rates. It now represents nearly one-fifth of Axalto's total revenue, at USD 187 million. Asia moved up 8% to USD 237 million, representing one-quarter of Axalto's revenue for the year.

Axalto delivered a record number of microprocessor cards in 2004. It confirmed its position as:

--The world's leading supplier of microprocessor cards, with a volume growth of 37%;

--The world's leading supplier of SIM cards, with 257 million SIM cards sold to mobile phone operators in 2004, an increase of 38%;

--The world's leading supplier of microprocessor banking cards, with 72 million cards sold to financial institutions during the year.

Axalto also confirmed its leading position in the Public Sector, Access and Other product line, with a 68% increase in microprocessor cards shipments, major new commercial successes and a significant increase in revenue derived from patent licensing activities.

Gross profit rose 32% compared with 2003, and gross margin improved by nearly 2 points, to 32.8% of sales, compared with 31.0% last year. This excellent performance was achieved through the sales volumes increase in microprocessor cards, improvement in the product mix in Mobile Communication in all regions, the rise in revenue from the patent licensing activity, the success of the diversified component sourcing strategy, significant productivity improvement and strong control of production fixed operating costs.

Operating expenses came in at USD 229 million, representing 23.8% of full-year revenue, compared with 24.8% in 2003, an increase of 20% at current exchange rates and 13% at constant exchange rates. Demonstrating the Group's strict cost controls, sales and marketing expenses that supported the strong revenue growth represented 11.4% of full-year revenue compared with 12% in 2003. General and administrative expenses represented 5.7% of revenue in 2004, compared with 6.4% in 2003. Investment in research and development increased to 6.7% of revenue in 2004, from 6.4% in 2003, in line with the Group's strategy of profitable innovation.

Full-year expenses included a charge of USD 3.5 million relating to the continuous operating performance improvement plan, an impairment charge of USD 2.8 million relating to certain technologies acquired from Bull in 2001, and a write-down charge of USD 2.8 million relating to a production plant.

Axalto's profitability improved considerably:

--Operating income was USD 86.4 million, up 80% compared with 2003, leading to an operating margin of 9%.

--Net income was USD 59.1 million, i.e. a net margin of 6.2%. With an average number of shares in circulation of 40.3 million, Axalto delivered basic earnings of USD 1.47 per share for the year.

The strong growth in net income, well controlled capital expenditure that remained lower than amortization despite the strong increase in volume shipments, and strong reduction in working capital requirements enabled Axalto to generate USD 128 million in free cash flow, after USD 68 million in 2003.

As a result, Axalto's net cash position on December 31, 2004 was USD 185 million. Available cash and short-term investments were USD 224 million at year-end.

Average net capital employed for the year was USD 517 million. On the basis of net income, return on capital employed (ROCE) was 11.4%. On the basis of operating income after applying the global effective tax rate for the Group, return on capital employed (NOPAT) was 11.7%

About Axalto

Axalto (EURONEXT:AXL)(EURONEXT:NL0000400653) is the world's leading provider of microprocessor cards (Gartner 2004) - the key to digital networks - and a major supplier of point-of-sale terminals. Its 4,500 employees come from 70 nationalities and serve customers in more than 100 countries, with worldwide sales reaching 3 billion smart cards to date. The company has 25 years' experience in smart card innovation and leads its industry in security technology and open systems.

www.axalto.com