Interim Results

Intercede Group PLC 20 December 2004 INTERCEDE GROUP PLC INTERIM RESULTS FOR THE 6 MONTHS ENDED 30 SEPTEMBER 2004 CHAIRMAN'S STATEMENT Business and Product Development I am pleased to report that the Company has continued to make excellent progress towards our strategic goal of becoming a major global developer of software for the smart card and identity management market. Business activity with customers and partners in the last six months has been building rapidly and the number of invitations to tender for projects worldwide has exceeded expectations. Intercede has welcomed major new channel partners in the US, France, Japan and Austria and additional key contracts have been secured with customers in the UK, Ireland, Israel, Russia and Austria. Against this background of measurable commercial progress, it is disappointing to report that sales revenues in the first half are, nevertheless, depressed compared to the prior year. This is because a number of anticipated orders slipped into the second half of the year. The majority of these orders have now been received and the Company is on track to show revenue growth for the year as a whole. Important milestones achieved during the period include: 1. MyID(TM) has been selected by the Irish Department of Transport, to power the issuance and management of digital tachograph smart cards to all commercial vehicle drivers in Ireland. 2. MyID has been deployed in support of a major health care provider. Medical staff throughout one of the main European countries are now receiving smart cards issued and managed by MyID. 3. Intercede has continued to work with a major global bank to commission a high volume smart card personalisation service driven by MyID. Change orders for this contract are generating incremental revenues during the current year. 4. MyID has been installed to control physical and logical access in an Israeli telecommunications company. This project was delivered in partnership with a major systems integrator and a leading smart card company. 5. Thales e-Security has completed the integration of MyID into their SafeSign product range. Thales e-Security addresses the business, government and finance industries' need for cryptographic security products and solutions. Over half of the world's banks, together with the majority of the busiest exchanges, currently use Thales technology. 6. Intercede's sales channels have been extended into Asia with Athena Smart Card Systems, Japan, signing an OEM contract to adopt MyID as the Athena Smart Card Manager. Two major customers have already been secured under this contract. 7. Intercede has deepened its penetration into the top five smart card manufacturers with an announcement that Axalto's new smart card management system will be based on MyID. Co-marketing to new and existing Axalto customers has already begun and sales are expected within the current financial year. Axalto, formerly trading as Schlumberger, has supplied more than 3 billion smart cards to customers worldwide. 8. Intercede has also entered into a reseller agreement with Atos Origin who are looking to bid MyID on a number of identity solution projects. Atos Origin is an international IT services company employing 47,000 people in 50 countries. 9. Intercede launched MyID version 6.8. This is an advanced release of our MyID smart card management system featuring enhanced interoperability, extended scalability and greater deployment flexibility. Results As outlined above, the Group continues to make good progress with its evolution from being a UK distributor and integrator of third party security products to being a global business developing its own technology for long term profitable growth. However, whilst the Group's technology has achieved widespread industry acceptance and endorsement, this will not be reflected in the numbers until sufficient projects have been won and started to roll out to a substantial number of users. As a result, sales have fallen from £878,000 to £535,000, the rate of growth in own technology sales as yet not compensating for the fall off in sales of third party products. Gross profit margins have increased from 82% to 87% as the proportion of own technology sales has increased from 65% to 76%. Costs have been maintained at a similar level to last year's reduced level, with £36,000 of the £39,000 year on year increase reflecting the exceptional cost of engaging Ernst & Young to assist with the Group's outstanding Research & Development tax claims. This was successful as it resulted in the receipt of payments from the Inland Revenue totalling £182,000 for the 2002/03 and 2003/04 financial years. As at 30 September 2004, the Group had net cash balances totalling £615,000. During the six months ended 30 September 2004, the cash outflow before financing was £451,000 compared with £274,000 during the comparative period. Outlook After an extended period of depressed expenditure in the IT sector, there is clear evidence that an increasing number of organisations are allocating budgets to identity management and smart card projects. I believe that Intercede has the contracts and the channels to market, to deliver a strong finish to the 2004/05 financial year and to continue the trend towards profitability and rapid revenue growth. Richard Parris Chairman 20 December 2004 ENQUIRIES: Intercede Group plc Tel. 01455 558111 Richard Parris, Chairman & Chief Executive Andrew Walker, Finance Director Consolidated Profit and Loss Account 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2004 2003 2004 £'000 £'000 £'000 Turnover 535 878 1,605 Cost of sales (71) (161) (266) ----------- ----------- ----------- Gross profit 464 717 1,339 Other operating expenses (1,002) (963) (1,960) ----------- ----------- ----------- Operating loss (538) (246) (621) Interest receivable and similar income 16 14 34 Interest payable and similar charges (36) (37) (74) ----------- ----------- ----------- Loss on ordinary activities before taxation (558) (269) (661) Tax on loss on ordinary activities 182 78 (202) ----------- ----------- ----------- Loss on ordinary activities after taxation and retained loss for the period (376) (191) (863) =========== =========== =========== Basic and diluted loss per ordinary share (1.1)p (0.8)p (2.9)p =========== =========== =========== Consolidated Balance Sheet As at As at As at 30 September 30 September 31 March 2004 2003 2004 £'000 £'000 £'000 Fixed assets Tangible assets 30 53 42 ----------- ----------- ----------- Current Assets Debtors 138 415 119 Cash at bank and in hand 615 1,303 1,068 ----------- ----------- ----------- 753 1,718 1,187 Creditors: Amounts falling due within one year (708) (648) (778) ----------- ----------- ----------- Net current assets 45 1,070 409 ----------- ----------- ----------- Total assets less current liabilities 75 1,123 451 ----------- ----------- ----------- Creditors: Amounts falling due after more than one year Convertible debt (1,432) (1,432) (1,432) ----------- ----------- ----------- Net liabilities (1,357) (309) (981) =========== =========== =========== Capital and reserves Called-up share capital 4,271 4,271 4,271 Share premium account 2,107 2,107 2,107 Other reserves 1,508 1,508 1,508 Profit and loss account (9,243) (8,195) (8,867) ----------- ----------- ----------- Shareholders' deficit - all equity (1,357) (309) (981) =========== =========== =========== Consolidated Cash Flow Statement 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2004 2003 2004 £'000 £'000 £'000 Net cash outflow from operating activities (649) (284) (525) ----------- ----------- ----------- Returns on investments and servicing of finance Interest received 18 13 31 Interest paid - - (1) Interest element of finance lease rentals - (1) (2) ----------- ----------- ----------- Net cash inflow from returns on investments and servicing of finance 18 12 28 ----------- ----------- ----------- Taxation received 182 - - ----------- ----------- ----------- Capital expenditure (2) (2) (6) ----------- ----------- ----------- Cash outflow before financing (451) (274) (503) Financing Issue of ordinary share capital - 1,270 1,270 Repayment of secured loan (2) (5) (10) Capital element of finance lease rentals - (5) (6) ----------- ----------- ----------- Net cash (outflow)/inflow from financing (2) 1,260 1,254 ----------- ----------- ----------- (Decrease)/increase in cash in the period (453) 986 751 =========== =========== =========== Notes to the Accounts 1. Preparation of the interim financial statements The interim financial statements have been prepared on the basis of the accounting policies set out in the Group's 2004 statutory accounts. The interim financial statements are unaudited and do not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The figures for the year ended 31 March 2004 are an abridged version of the Group's statutory accounts for that year which have been filed with the Registrar of Companies. The audit opinion on those statutory accounts was unqualified and did not include a statement under Section 237(2) or (3) of the Companies Act 1985. The Interim Report will be mailed to shareholders and copies will be available on the website (www.intercede.com) and at the registered office: Intercede Group plc, Lutterworth Hall, St Mary's Road, Lutterworth, Leicestershire, LE17 4PS. 2. Basic and diluted loss per ordinary share The calculations of loss per ordinary share are based on the loss for the period and the weighted average number of ordinary shares in issue during each period. 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2004 2003 2004 £'000 £'000 £'000 Loss for the period (376) (191) (863) Number Number Number Weighted average number of shares 33,963,438 25,220,142 29,672,863 Pence Pence Pence Basic and diluted loss per ordinary share (1.1) (0.8) (2.9) ======================= =========== =========== =========== The increase in the weighted average number of shares reflects the Placing of 17,582,672 ordinary shares which took place on 1 July 2003. 3. Reconciliation of movement in shareholders' deficit 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2004 2003 2004 £'000 £'000 £'000 Opening shareholders' deficit (981) (1,388) (1,388) Loss for the period (376) (191) (863) Issue of shares - 1,270 1,270 ----------- ----------- ----------- Closing shareholders' deficit (1,357) (309) (981) =========== =========== =========== 4. Reconciliation of operating loss to operating cash flow 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2004 2003 2004 £'000 £'000 £'000 Operating loss (538) (246) (621) Depreciation charge 13 18 34 Decrease in stock - 2 2 (Increase)/decrease in debtors (20) 208 226 Decrease in creditors (104) (266) (166) ----------- ----------- ----------- Net cash outflow from operating activities (649) (284) (525) =========== =========== =========== 5. Analysis and reconciliation of net debt As at As at 31 March 30 September 2004 Cash Flow 2004 £'000 £'000 £'000 Cash at bank and in hand 1,068 (453) 615 ----------- ----------- ----------- Debt due within one year (2) 2 - Debt due after one year (1,432) - (1,432) ----------- ----------- ----------- (1,434) 2 (1,432) ----------- ----------- ----------- Net debt (366) (451) (817) =========== =========== =========== The reconciliation of net cash flow to the movement in net debt is as follows: 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2004 2003 2004 £'000 £'000 £'000 (Decrease)/increase in cash in the period (453) 986 751 Cash outflow from decrease in debt and lease financing 2 10 16 ----------- ----------- ----------- Change in net debt resulting from cash flows (451) 996 767 Net debt at the beginning of the period (366) (1,133) (1,133) ----------- ----------- ----------- Net debt at the end of the period (817) (137) (366) =========== =========== =========== 6. Creditors: Amounts falling due after more than one year The convertible debt totalling £1,432,000 represents two issues of convertible loan stock, both carrying an interest coupon of 5%. The first issue totalling £982,000 is convertible at the option of the holder into fully paid ordinary shares of the Company at 60.0p per ordinary share (up to a maximum of 1,636,048 shares) at any time prior to 11 December 2006. The second issue totalling £450,000 is convertible at the option of the holder into fully paid ordinary shares of the Company at 41.4p per ordinary share (up to a maximum of 1,086,800 shares) at any time prior to 31 March 2007. Unless previously redeemed or converted, the debt will be redeemed at par on 11 December 2006 and 31 March 2007 respectively. In recognition of the dilution to be faced by the loan stockholders following the Placing on 1 July 2003, they were granted warrants to subscribe for up to 2,982,919 ordinary shares at the Placing Price of 7.8p at any time up to the existing conversion dates referred to above. 7. Dividend The Directors do not recommend the payment of a dividend. This information is provided by RNS The company news service from the London Stock Exchange

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