Final Results
Intercede Group PLC
23 May 2002
INTERCEDE GROUP plc
('Intercede', 'the Company' or 'the Group')
Preliminary Results for the Year Ended 31 March 2002
Intercede, a leading developer of electronic identity management software, which
obtained a listing on the Alternative Investment Market in January 2001, today
announces its preliminary results for the year ended 31 March 2002.
SUMMARY
* Turnover of £1.2 million (2001: £2.0 million) and pre-tax loss of £2.2
million (2001: £1.1 million)
* Concentration of resources on development of key electronic identity
management software, edeficeTM: Version 6.3 launched in April 2002
* Agreements signed with Oberthur, ActivCard and Datakey: total advance
licence commitments of almost US$2 million, of which US$0.8 million has
already been received
* Balance sheet structured for growth: additional funding secured during the
year and short term borrowings substantially reduced
* Tight control over costs and cash continues to be maintained
* Increased scope to grow international sales channel and secure wide market
penetration
Richard Parris, Chairman & Chief Executive of Intercede, said today:
'It has been a year of significant change. In challenging market conditions, we
have successfully developed our business model to concentrate on one of the
fastest growing sectors of the IT security marketplace. The short term effect
has been an inevitable reduction in revenues. However, we are confident that we
can grow from the platform we have built for ourselves, as evidenced by the
recent contracts signed with several important international partners.'
23 May 2002
ENQUIRIES:
Intercede Group plc Tel. 01455 558111
Richard Parris, Chairman & Chief Executive
Andrew Walker, Finance Director
College Hill Tel. 020 7457 2020
Archie Berens
Clare Warren
INTERCEDE GROUP plc
Preliminary Results for the Year Ended 31 March 2002
CHAIRMAN'S STATEMENT
The year has concluded with a number of very positive events that endorse the
Group's focused strategy. Principal amongst these were significant contracts
from ActivCard, Datakey and Oberthur, who have licensed the Group's edefice
product for incorporation into their product lines.
Introduction
Intercede produces software to enable organizations to securely create, issue
and subsequently manage electronic identities and associated credentials for
corporate, governmental and personal use.
These identities are typically stored on smart cards and may also involve the
use of fingerprints, facial recognition, digital certificates, passwords or
other security devices.
It is anticipated that within the next three to five years the majority of
people will carry at least one form of electronic identity which will probably
be embedded in a smart card, e.g. a corporate ID card in New York, health
records in France, a National Citizen's ID in Malaysia, a driving licence in
India or a bank debit card in the UK. This is an emerging and potentially very
large market, which currently has few technical standards and no established
market leaders.
It is this market opportunity which Intercede has identified and is looking to
exploit.
Results
In the year ended 31 March 2002, turnover of £1.2 million was achieved at a
gross margin of 62% (compared to £2.0 million at a gross margin of 53% in the
previous period). Both the increase in gross margin and the decrease in turnover
are a direct result of the Group's decision to redeploy its software development
resources from project related work to the development of our proprietary
edefice product.
Importantly, this strategy has resulted in a significant increase in the Group's
intangible intellectual property as represented by its edefice software.
The validity of this approach was demonstrated when the Group won US$2 million
of advance orders for its edefice software in the second half of the year,
US$0.8 million of which had been already paid into the Group's bank account by
31 March 2002.
In a very difficult year for the IT sector, Intercede's operating losses have
widened to £2.2m as a result of continued product development. Nevertheless,
through rigorous financial control, the Group has consistently out-performed its
cash forecasts and maintained its cash outflow before financing at the same
level as the previous year.
Finance
At 31 March 2002, the Group had cash reserves of £1.8 million compared to £2.0
million as at 31 March 2001. This includes £982,000 of new funding which was
raised as a convertible five year loan in December 2001. An existing convertible
loan totaling £450,000 was also extended for a further five years during the
period. The overall effect is to secure long term funding for the Group, while
substantially reducing its short term borrowings.
Strategy and Outlook
The year started with an optimistic outlook for Internet security business.
However, the worsening economic climate in the early part of the period reduced
the demand from many organizations for security related purchases. The
unfortunate events of 11 September 2001, while highlighting the importance and
ultimately increasing the size of the security products industry, only served to
result in further short term deferrals of expenditure.
The downturn in end user spending in 2001 resulted in the Group's potential
partners and competitors retrenching to focus on their core competencies: for
example, a number of the smart card manufacturers reduced their in-house
software development activities. This happened just as the need for electronic
identity management systems started to emerge. As a result, many smart card
industry participants are urgently undertaking 'buy or build' decisions for new
software systems at a time when they have already downscaled their own
development capabilities. This has created the opportunity for Intercede to
become a preferred software provider to the major smart card manufacturers as
they start to 'tool up' for future growth.
According to a number of industry forecasters, the use of smart cards for access
and security purposes will grow rapidly over the next three to five years at
estimated annual growth rates ranging from 30% to more than 50%. The electronic
identity management market to support this sector is estimated to exceed $1bn
over the same period. With no clear standard or market leader in this sector,
the Group believes that edefice has an excellent prospect of winning significant
market share. For example, the Group's existing partners would claim more than
50% market penetration of the access and security market for smart cards.
The current period has seen the Group placing increased emphasis on signing
licensing contracts and building a robust software platform, with a high degree
of success.
Looking ahead to the next year, the Group will continue to focus on this
strategy to ensure that:
• Existing partners successfully sell edefice enabled products to their
end-user customers.
• Product development remains world-class and competitive.
• New partners are signed.
• Gross margins are increased.
A critical measure of success in the next 12 months will be the Group's ability
to secure wide market penetration through channel partners while managing cash
reserves. However, once this has been achieved, the Group needs only modest
market growth in order to secure early profitability. In the longer term, the
Group continues to believe that exceptional returns are possible.
Richard Parris
Chairman & Chief Executive
23 May 2002
INTERCEDE GROUP plc
Preliminary Results for the Year Ended 31 March 2002
REVIEW OF OPERATIONS
During the past year the Group has emerged as one of the very few companies in
the world that has developed 'package' software to manage the deployment and
life cycle of electronic identities.
Product Design
The Group's software is called edefice. The edefice product provides a
general-purpose identification management platform across a wide range of
existing and potential applications.
Version 6.3 of edefice was launched at the CardTech/SecurTech Exhibition in New
Orleans in April 2002. It is a world-class product for managing the issuance and
life cycle of smart cards and associated credentials, including picture ID's,
Public Key Infrastructure certificates and biometrics (e.g. fingerprints and
facial recognition), for corporates, national ID schemes and some consumer
applications
Originally conceived to be a management platform for corporate IT security in
general, edefice has been developed over the course of the last 12 months into a
highly focused electronic identity management system. This has enabled the Group
to concentrate on one of the fastest growing sectors of the IT security
marketplace.
The edefice platform is powerful because it enables any PC with a browser and an
Internet connection to become a distributed yet secure and centrally controlled
identification management station. Edefice is a sophisticated product that makes
very complicated security products, processes and technologies from multiple
manufacturers simple to deploy and easy to use. This makes edefice attractive to
all participants in the industry sector.
The strength of the Group is the intellectual property embedded in edefice and
the high quality of the Group's workforce, both of which the Group works
rigorously to nurture and protect. Edefice represents more than 40 man years of
development by the Group's in-house technical team.
Business Development
The Group's preferred route to market is to license edefice to global product
and service companies who embed the edefice technology within their own branded
product lines.
The quality and efficacy of edefice and the Group's channel approach was
demonstrated when:
• Oberthur Card Systems, the third largest producer of smart cards in the
world, signed a contract to license edefice as their own brand smart card
provisioning and management system in September 2001.
• ActivCard, a leading digital identity software company with offices in
Silicon Valley, Paris and Singapore and a long term partner of Intercede,
signed a contract to license edefice for incorporation into the ActivCard
product range in December 2001.
• Datakey, a Minneapolis company specialising in secure smart card systems,
signed a contract to license edefice as the Datakey smart card management
system in April 2002.
The above contracts involve advance licence commitments of nearly US$2 million,
of which US$0.8 million has already been received. Additional licensing
negotiations and partnership discussions with other companies are in progress.
In addition, a major UK Government Department has agreed to deploy edefice to
provide enhanced security for employees accessing its networks. This agreement
came about through the combined marketing efforts of Intercede and its long
standing partner, Fujitsu Services. It is further vindication of our strategy of
entering into partnerships with key industry players with a view to securing a
wide distribution of the edefice product.
These relationships will enable Intercede to sell its edefice product throughout
the world without the need to establish a costly international infrastructure.
It is anticipated that it will take approximately 9 to 12 months after signing
for each licensing partner to produce additional revenues, beyond their initial
commitments, from end users. Thereafter, the Group expects strong growth in
recurring revenue via these partners.
In the UK domestic market, the Group continues with the direct sale of edefice
and third party products to UK banks, Government departments and the NHS. These
activities make an important contribution to earnings. However, as a proportion
of total revenue, these earnings will reduce as the Group continues to move to
an indirect international distribution model.
While other companies involved in smart card management are focusing on
mass-market consumer applications, such as multi-application banking cards,
Intercede is initially targeting access control and security applications,
typically in a corporate environment. Nevertheless, the edefice architecture is
easily portable to other application areas and Intercede intends to pursue
consumer deployments in partnership with the application providers who already
service this market.
International Expansion
Last year, the Group stated its aim of expanding internationally through a
number of strategic partners, both manufacturers of smart card and security
systems, and integration partners world-wide. Partnership agreements with
ActivCard, Datakey and Oberthur are evidence of success to date in executing
this strategy. Individually and collectively, they provide world-wide sales
channels for the edefice technology. The Group believes that this maximises the
potential for rapid growth by leveraging its core UK based technical skills in a
highly scalable manner.
Jayne Murphy
Operations Director
23 May 2002
INTERCEDE GROUP plc
Preliminary Results for the Year Ended 31 March 2002
FINANCIAL REVIEW
The Group continues to make significant progress with limited funds. The
challenge is to continue to take the necessary action to maximise the market
opportunity, whilst maintaining tight control over costs and cash.
Financial Results
Revenues for the year were £1.2 million compared with £2.0 million for the prior
period. This includes £277,000 (US$0.4 million) relating to the advance licence
commitment paid by ActivCard in the second half of the period. The balance of
£278,000 (US$0.4 million) will be included in the revenues for the six months
ending 30 September 2002.
Excluding ActivCard, the revenues for the year were £0.9 million. As reported at
the interim stage, the overriding need to develop and release further versions
of edefice and to link up with key industry players in the smart card management
market has resulted in Intercede focusing its technical resources almost
entirely to this end. The Group has neither sought nor undertaken new project
work during the period. Revenues therefore related primarily to the servicing of
existing customers through the resale of additional software licenses and
associated third party hardware and maintenance services.
Additional staff were recruited during the period to increase and strengthen the
Group's technical and sales capability. This resulted in a 50% increase in the
average number of employees from 24 to 36. The consequent increase in overheads
from £2.2 million to £2.9 million, when combined with the impact of
discontinuing project work, served to increase the loss before tax for the
period to £2.2 million (2001: £1.1 million). The loss after tax was £1.9 million
(2001: £1.1 million), due to the Group being able to take advantage of the tax
relief for research and development expenditure introduced by the Finance Act
2000. This resulted in a loss per ordinary share of 11.7p (2001: 8.8p).
Funding
The Group's first external funding, which came from venture capital sources, was
provided in February 1999 and subsequent injections, up to and including the
£982,000 which was raised in December 2001, have resulted in £5.1 million of
external funding being raised to date. With £1.8 million of funds remaining as
at 31 March 2002, this means that £3.3 million (net) has been invested to date
(£1.2 million over the past 12 months). It is also worth noting that the gross
level of investment during this period is approaching £6.0 million, with
projects completed for early adopters in the UK Finance and Government Sectors
plus the advance licence commitment received from ActivCard, effectively
providing additional funding along the way.
These funds have been invested to create:
• A world class software development team, as evidenced by the agreements
already concluded with a number of major global industry players.
• The edefice product which is already demonstrating the potential to become
an industry standard for smart card management.
• Delivery channels with global reach.
• An experienced management team and company framework which is capable of
supporting substantial growth in the Group's activities over the coming
years.
Summary
The Group has continued to make significant progress with the achievement of the
objectives outlined at the time of its flotation onto the Alternative Investment
Market. Indeed, with difficult market conditions only serving to increase the
Group's focus on those objectives, the transition from being a distributor and
integrator of third party security products to becoming a global business able
to earn long term revenues from its proprietary products has accelerated.
As discussed above, and in the Chairman's Statement and Review of Operations,
the Board is confident that the Group will be successful in securing significant
new business in 2002/03. However, the Board recognises that strong cost control
and cash management will continue to be particularly critical for the Group as
it moves ahead to a position of profitability.
Andrew Walker
Finance Director
23 May 2002
INTERCEDE GROUP plc
Consolidated Profit and Loss Account for the year ended 31 March 2002
Notes 2002 2001
£'000 £'000
Turnover 1,193 2,014
Cost of sales (450) (945)
743 1,069
Gross profit
Other operating expenses (2,939) (2,188)
Operating loss (2,196) (1,119)
Interest receivable and similar income 66 48
Interest payable and similar charges (58) (54)
(2,188) (1,125)
Loss on ordinary activities before taxation
Taxation 2 272 -
Loss on ordinary activities after taxation and retained loss for the
year (1,916) (1,125)
Basic and diluted loss per ordinary share 3 (11.7)p (8.8)p
All operations of the Group continued throughout both years and no operations
were acquired or discontinued.
There are no recognised gains or losses in either year other than the loss for
the year.
INTERCEDE GROUP plc
Consolidated Balance Sheet at 31 March 2002
2002 2001
£'000 £'000
Fixed assets
Tangible assets 110 119
Current assets
Stocks 8 8
Debtors 404 663
Cash at bank and in hand 1,772 2,042
2,184 2,713
Creditors: Amounts falling due within one year (1,328) (1,341)
Net current assets 856 1,372
Total assets less current liabilities 966 1,491
Creditors: Amounts falling due after more than one year
Convertible debt (1,432) -
Other creditors (18) (59)
(1,450) (59)
Net (liabilities)/assets (484) 1,432
Capital and reserves
Called-up share capital 4,090 4,090
Share premium account 1,011 1,011
Other reserves 1,508 1,508
Profit and loss account (7,093) (5,177)
Shareholders' (deficit)/funds - all equity (484) 1,432
INTERCEDE GROUP plc
Consolidated Cash Flow Statement for the year ended 31 March 2002
Notes 2002 2001
£'000 £'000
Net cash outflow from operating activities 5 (1,293) (1,093)
Returns on investments and servicing of finance
Interest received 71 42
Interest paid (34) (27)
Interest element of finance lease rentals (9) (12)
Net cash inflow from returns on investments and servicing of finance
28 3
Taxation received 93 -
Capital expenditure
Purchase of tangible fixed assets (39) (80)
Sale of tangible fixed assets - 1
Net cash outflow on capital expenditure (39) (79)
Cash outflow before financing (1,211) (1,169)
Financing
Issue of ordinary share capital - 3,175
Issue of convertible debt 982 -
Repayment of secured loan (10) (10)
Repayment of directors' loans - (8)
Capital element of finance lease rentals (31) (24)
Receipts from sale and lease back of assets - 26
Net cash inflow from financing 941 3,159
(Decrease)/increase in cash in the year 6 (270) 1,990
INTERCEDE GROUP plc
Preliminary Results for the Year Ended 31 March 2002
NOTES
1. The financial information set out in this announcement does not
constitute the Group's Statutory Accounts for the years ended 31 March 2001 or
2002, but is derived from those accounts. Statutory Accounts for 2001 have been
delivered to the Registrar of Companies and those for 2002, which have been
approved by the Board of Directors, will be delivered following the Group's
Annual General Meeting. Accounting policies have been consistently applied
throughout both accounting periods. The Company's auditors have reported on
those accounts; their reports were unqualified and did not contain statements
under Section 237(2) or (3) of the Companies Act 1985.
2. TAX ON LOSS ON ORDINARY ACTIVITIES
The tax credit comprises:
Year ended 31 March
2002 2001
£'000 £'000
UK corporation tax
Current year 179 -
Adjustment in respect of prior periods 93 -
272 -
The tax credit relates to tax relief for research and development expenditure.
3. BASIC AND DILUTED LOSS PER ORDINARY SHARE
The calculations of loss per ordinary share are based on the loss for the
financial year and the weighted average number of ordinary shares in issue
during each year.
Year ended 31 March
2002 2001
£'000 £'000
Loss for the year (1,916) (1,125)
Number Number
Weighted average number of shares 16,360,485 12,771,716
Pence Pence
Basic and diluted loss per ordinary share (11.7) (8.8)
4. DIVIDEND
The Directors do not recommend the payment of a dividend.
5. RECONCILIATION OF OPERATING LOSS TO OPERATING CASH FLOW
2002 2001
£'000 £'000
Operating loss (2,196) (1,119)
Depreciation charge 48 34
Decrease/(increase) in debtors 433 (549)
Increase in creditors 422 541
Net cash outflow from operating activities (1,293) (1,093)
6. ANALYSIS AND RECONCILIATION OF NET DEBT
2001 Cash Flow 2002
£'000 £'000 £'000
Cash at bank and in hand 2,042 (270) 1,772
Debt due within one year (460) 450 (10)
Debt due after one year (22) (1,422) (1,444)
Finance leases (68) 31 (37)
(550) (941) (1,491)
Net cash 1,492 (1,211) 281
The reconciliation of net cash flow to the movement in net debt is as follows:
2002 2001
£'000 £'000
(Decrease)/increase in cash in the year (270) 1,990
Cash inflow from decrease in debt and lease financing 41 17
Change in net debt resulting from cash flows (229) 2,007
New finance leases - (14)
New convertible debt (982) -
Movement in net cash in the year (1,211) 1,993
Net cash/(debt) at beginning of year 1,492 (501)
Net cash at end of year 281 1,492
7. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 10.00am on Wednesday
10 July 2002 at Lutterworth Hall.
8. ANNUAL REPORT AND ACCOUNTS
Copies of the full Statutory Accounts will be despatched to shareholders in due
course. Copies will also be available on the website (www.intercedegroup.com)
and from the registered office of the Company: Lutterworth Hall, St. Mary's
Road, Lutterworth, Leicestershire, LE17 4PS.
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