Preliminary Results
Intercede Group PLC
01 June 2006
INTERCEDE GROUP plc
('Intercede', 'the Company' or 'the Group')
Preliminary Results for the Year Ended 31 March 2006
Intercede, a leading developer of identity management software, today announces
its preliminary results for the year ended 31 March 2006.
SUMMARY
- Sales increased by 18.6% from £1.8m to £2.1m, with sales of core MyID licenses
up 21%.
- Further improvement in gross margin to 95% (2005: 94%).
- Operating loss reduced to £0.3m (2005: £0.4m), notwithstanding increased
investment in sales and after-sales staff.
- Full year cash inflow of £0.4m (2005: cash outflow of £0.4m). Cash balances of
£1.1m (2005: £0.7m) at financial year end.
- Convertible loan stock extended through to 31 May 2009.
- Licences granted to date will enable the issue of more than 1 million smart
cards.
- $0.5m of advance licence fees secured from the delivery of products compliant
with the US Government's Homeland Security Presidential Directive- 12
('HSPD- 12').
- RSA Security, SafeNet and VeriSign added to growing OEM partner list, which
now includes most of the world's leading industry participants.
- Growing worldwide corporate and governmental awareness of the need for
technological solutions to major security issues.
Richard Parris, Chairman & Chief Executive of Intercede, said today:
'We are close to the point where the need for suitably robust systems to protect
employees and citizens is no longer a matter of choice for large organisations
and governments. The debate over the UK National ID Card Scheme and the US
Government's HSPD- 12 are only two examples of many around the world. We are
sure that there will be more and more investment in this area and we believe we
are well placed to benefit from the anticipated market growth.'
About Intercede
Intercede Group plc is a leading developer and supplier of smart card and
identity management software listed on the London Stock Exchange (IGP LN)
(IGP.L). The Group's MyID software manages the secure registration, issuance and
lifecycle of digital identities for a wide range of uses. This requires the
integration of multiple technologies and products from many different vendors,
including smart cards, biometrics, digital certificates and Open Platform
applets.
Intercede's customers cover a range of industries and include Athena Smartcard
Solutions, Department of Transport Ireland, Fujitsu, Getronics PinkRoccade,
GemPlus, Lloyds TSB, National Health Service (NHS), Metropolitan Police,
Oberthur Card Systems, RSA Security, Royal Bank of Scotland, SafeNet, Siemens,
Thales, Ubizen, VeriSign and various US and UK Government agencies and
departments. For more information, visit www.intercede.com
Intercede and MyID are registered trademarks or trademarks in the UK and/or
other countries.
ENQUIRIES
Intercede Group plc Tel. +44 (0)1455 558111
Richard Parris, Chairman & Chief Executive
Andrew Walker, Finance Director
Pelham Public Relations Tel. +44 (0)20 7743 6679
Archie Berens
Kate Catchpole Tel: + 44 (0)7803 033 431
Chairman's Statement
Introduction
Intercede has delivered on all fronts in its drive to exploit the fast emerging
identity management market. Specifically, Intercede is leading its sector of the
market in terms of penetration, technology adoption, reference sites and overall
industry reputation. This is a market that Intercede anticipated some time ago
and has since been steadfastly pursuing. There is a growing requirement for all
types of organisation, both governmental and corporate, to protect themselves
and their people in an age of so much uncertainty posed by multiple threats from
fraud to terrorism. Increasingly, organisations are investing in technology to
counter these threats and improve security.
Intercede is a leading developer of software to issue and manage smart cards and
digital identities. The Company is highly focused on the family of technologies
powering its core MyID software platform.
In my report last year, I indicated that the market for MyID would continue to
accelerate as the use of smart cards and digital identities increases around the
world. I am pleased to say this has proven to be the case. Long project lead
times have delayed the immediate revenue benefits and disguise the impressive
achievements of the last 12 months in terms of market penetration and
accreditation. Despite this, we have nevertheless grown revenues and further
improved our gross margins.
Results
Year ended 31 March
£000 2006 2005 2004
Turnover 2,142 1,806 1,605
Gross Profit 2,027 1,693 1,339
Operating loss (344) (386) (661)
In the year ended 31 March 2006, turnover increased from £1.8m to £2.1m and
gross margins increased from 94% to 95%.
Over the past five years, Intercede has significantly reduced operating losses
from £2.2m to £0.3m and the cash outflow before financing from £1.2m to a net
cash inflow of £0.4m. As at 31 March 2006, the Group had a cash balance of
£1.1m.
The Group's strategy of continuing to develop and promote its own products,
while maintaining tight control over costs, delivered breakeven performance in
the first half of the year. The second half was not profitable due to a
combination of factors. The Group's results in the short term continue to be
dependent on the timing of a small number of relatively large prospects. In
addition, the excellent progress made with channel partners during the period
has necessitated an expansion in the workforce to ensure that Intercede
continues to provide the level of support required to take full advantage of
existing and future market opportunities. We believe that this strategic
investment will yield long term benefits as the market develops, and demand for
our technology increases, resulting in a more visible and predictable flow of
revenue.
Already we see evidence that this is beginning to happen. Smart card-based
identity cards for government, banking and corporate use have moved into the
popular consciousness. This has been driven by the public debate about the UK
National ID Card Scheme, the universal switch to Chip & PIN cards by European
banks, the US Government's plan to issue smart cards to all Federal employees
and contractors, and the overall convergence of IT and physical access control
solutions. As a consequence of these developments, and underpinned by a growing
need to authenticate citizens and employees, I expect to see a step change in
demand for smart card management products over the next two to three years.
Business and Product Development
A major development during the year has been the recognition, by large US
software vendors, that Intercede's smart card management technology is a
missing, yet vital, component within their broader identity management
solutions. As a result of the barriers to entry (technical complexity and long
development lead times), several leaders in the IT security market have
concluded that licensing Intercede's MyID technology, on an OEM basis, is the
best option for servicing their customers' future requirements. During the
period, Intercede added RSA Security and VeriSign to its growing OEM partner
list. Additionally, SafeNet has been added as an active OEM partner following
its acquisition of Datakey, another long term partner. This represents
remarkable penetration of the three main supply chains servicing Intercede's
target market. By channelling its product through large industry players,
Intercede is increasing its capability to win a significant share of this
market. It also avoids the costs and risks normally incurred by small software
companies trying to sell products to major global corporations.
Working with these and other partners, Intercede has expanded the number of
reference sites in the UK, Europe and US, with additional contract wins in the
Middle East and Africa. Although, for confidentiality reasons, Intercede does
not have complete visibility of its partners' customer lists, I can confirm that
MyID is currently deployed in major Banks in the UK and US, in European and US
Patent Offices, in telecommunications companies in Russia, Israel and
Switzerland, in leading European and US aerospace companies, in a major UK
Police force, in the John Lewis store group, in the British Library, in several
European and US government departments, in the Cairo Stock Exchange, in Oberthur
Card Systems' UK National ID demonstrator, and a number of large healthcare
initiatives.
I am pleased to report that Intercede has now granted MyID licenses to enable
the issuance of more than 1 million smart cards. However, given the relative
immaturity of the market as noted above, the number of licenses sold in the last
12 months is only a small proportion of the licenses that can potentially be
purchased by the same customers over the coming years. Along with recurring
support and maintenance revenues, Intercede expects to build an annuity stream
from these additional licenses. A number of Intercede's customers have
contracted for a minimum of between 5 and 10 years' annual support and
maintenance, with the potential for additional year-on-year licence sales.
The scalability of Intercede's business model is demonstrated by its maturing
network of business partners who have now established MyID as a de facto
standard across many sectors of the worldwide security industry. For example,
MyID is the only product of its type that can be purchased through:
• Major Security Systems Companies: e.g. RSA Security, SafeNet, Thales.
• Smart Card Manufacturers: e.g. Athena, Axalto, Gemplus, Giesecke &
Devrient, Oberthur.
• Major Systems Integrators: e.g. Atos Origin, EDS, Lockheed Martin,
Northrop Grumman, Siemens.
• Managed Service Providers: e.g. Getronics PinkRoccade, RBS Trust Assured
Services, VeriSign.
These different channels offer Intercede unparalleled access to most of the
smart card initiatives currently emerging around the world. While the majority
of projects are yet to yield significant revenues, Intercede's expanded channel
network and superior technology place the Group in an excellent position to
exploit the anticipated market growth.
Strategy
In my statement last year, I highlighted that in the 2005/06 year the Group
would be focusing on executing its strategy to achieve profitability by:
• Exploiting Intercede's existing channel network to generate MyID licence
sales in Europe, the US and Asia.
• Establishing a significant revenue stream from the US Federal Government
HSPD-12 initiative.
• Increasing the sales and support bandwidth by making Intercede's partners
more self-sufficient through the delivery of training, configuration and
integration capability.
After 12 months of further progress the Group has been successful in executing
this strategy as demonstrated by the following milestones:
• The sale of an additional 500,000 MyID licenses through partners in Europe
and the US.
• The delivery of HSPD-12 compliant products to Intercede's OEM partners in
the US, including the payment of $0.5m for advance licence fees.
• The training of more than 500 sales and 50 technical personnel in various
partner companies, complemented by the development of a MyID Toolkit for
integrators.
The Group's business plan in the coming year is to build on this year's success
by executing the following strategy:
• Position Intercede's MyID platform as the critical product that enables
convergence of IT and physical security systems.
• Consolidate the value of the Intercede technology proposition by helping
its OEM partners to integrate MyID into the core of their product suites.
• Exploit the commercial potential of the MyID offering by enabling
Intercede partners to move a number of key pilot projects into volume
production.
• Deliver the highest quality products and customer support to Intercede's
partners and customers by sustaining and expanding a truly world-class team
of software development, testing and support professionals.
The effectiveness of this strategy is dependent on the ongoing high calibre of
Intercede's products, the dedication and professionalism of its staff, the
quality of its partners and the ongoing support of the Group's shareholders. In
all of these respects, Intercede has an impressive track record. Furthermore, a
program of continuous product improvement and new innovation continues to ensure
that Intercede remains a leader amongst a small number of global competitors.
Outlook
According to Forrester Research, European and North American spending on IT and
physical security systems convergence is conservatively set to increase from
$1.1bn in 2005 to $11.3bn in 2008, representing a 10-fold increase in only 3
years, as shown in the table below:
US$ millions 2004 2005 2006 2007 2008
Large-scale convergence projects in NA and Europe 19 68 175 382 856
Physical/logical access control projects in NA and Europe 50 150 413 903 1,656
Other projects performed jointly by IT and physical
security departments in NA and Europe 13 45 118 246 406
Public sector: border control convergence systems, law
enforcement projects in NA and Europe 410 820 1,899 4,202 8,003
Small projects (data center security, communications
security, etc.) in NA and Europe 14 40 108 229 369
TOTAL 506 1,123 2,713 5,962 11,289
Reference 1 - Hunt, Steven. 'Trends 2005: Security Convergence Gets Real.'
Forrester Research. January 11, 2005.
http://www.opensecurityexchange.org/downloads/
forrester_trends_2005_convergence.html
Smart card management is a key technology in enabling this convergence. As a
result, given its market position, Intercede anticipates proportionately strong
growth potential for its MyID technology.
The outlook for the next two to three years is thus one of continuing growth in
the number of software licenses sold to an increasing number of end-customers
around the world. Intercede is well positioned, through its established
products and distribution network, to take advantage of this emerging growth.
The management team is committed to maintaining the Group on its current,
focused course and I look forward to reporting further commercial progress
during the current year and beyond.
31 May 2006
Richard Parris
Chairman & Chief Executive
Operating and Financial Review
Introduction
As outlined in the Chairman's Statement, Intercede has continued to make
significant progress. A number of important milestones have already been
reached and a strong position thereby established. This is in anticipation of
the identity and smart card management market entering what we believe will be a
period of rapidly accelerating growth. Many leading industry players and
commentators share this optimism.
Over the last few years, Intercede has evolved from the direct sale and
completion of UK based contracts with early adopters to an increasing
involvement in projects of this nature throughout the world harnessing the
strength of major players in the IT security industry.
Business Development
During the financial year, we have added RSA Security and VeriSign to our
growing OEM partner list. SafeNet has also become an active OEM partner
following its acquisition of Datakey, a long term Intercede partner. RSA
Security, SafeNet and VeriSign are the top three corporate IT security solutions
companies in the world. It is an outstanding achievement for Intercede to have
penetrated the main supply chains which service its target market. The fact that
large, global entities such as these are choosing to partner with Intercede is a
major endorsement for its MyID identity and smart card management software.
The US Federal Government's, Homeland Security Presidential Directive-12, known
as HSPD-12, is creating a major new and specific market opportunity for
Intercede's MyID technology. This directive stated that smart card identity
badges will be issued to all US Federal Government employees and contractors
starting in October 2006. HSPD-12 is also accelerating the use of smart cards in
the rest of the US market. Through its partner network, Intercede is in an
excellent position to exploit this rapid growth as the US becomes the largest
single market for smart card technology. It is too early to say with certainty
when the contracts to procure the necessary technology will be awarded.
However, Intercede has developed strong links with a range of partners who will
be actively involved in this process and is therefore well placed to exploit
this market opportunity at its earliest stages.
Against this backdrop, technical development efforts have been focused on
greater interoperability with OEM partners' technology and the work required to
achieve compliance with FIPS 201 which sets out the requirements mandated under
HSPD- 12. A substantial amount of effort has also been expended to ensure that
partners are able to sell, deliver and maintain the Group's technology. This
effort will be ongoing for the foreseeable future.
Financial Results
The financial results outlined below reflect a further year of increased
activity in support of a growing partner list and a widening range of prospects
throughout the world. As more and more projects commence, and move beyond proof
of concept and pilot phases, Intercede's current short term dependency on a
small number of relatively large value projects will disappear.
Year ended Year ended
31 March 2006 31 March 2005 Change
£000 £000 %
Sales 2,142 1,806 18.6
Gross margin (%) 2,027 (95%) 1,693 (94%) 19.7
Operating costs (2,371) (2,079) 14.0
Operating loss (344) (386) (10.9)
Loss per share (0.9)p (0.7)p 25.0
Sales have increased by 19% year on year with an underlying 21% increase in MyID
license sales. Gross profit margins have increased from 94% to 95% as the
proportion of own technology related sales has increased from 87% to 91%.
Whilst costs have continued to be tightly controlled, additional employees have
been taken on particularly in the pre and post sales areas to assist partners in
bidding for and completing projects. As at 31 March 2006, Intercede had 39
employees (2005: 33 employees). The average number of employees increased from
30 to 35 year on year.
The combined effect of higher sales and margins coupled with continued control
over costs has resulted in a further reduction in full year losses.
The increase in loss per share reflects a reduction in the level of research and
development expenditure which was agreed with the Inland Revenue and received as
a tax refund during the period ie £76,000 (2005: £182,000).
Funding
As at 31 March 2006, the Group had cash balances totalling £1,112,000 (2005:
£672,000). This represents a full year cash inflow of £440,000 (2005: £396,000
cash outflow).
As at 31 March 2006, both of the Group's loan stock agreements totalling
£1,432,000 had become due for conversion or repayment at the option of the loan
stockholders within the next 12 months. However, following discussions with the
loan stockholders, agreement was reached on 31 May 2006 for both of the loans to
be extended through to 31 May 2009. In return, the conversion prices, as
adjusted for the effect of the July 2003 Placing warrants, have been reduced
from 33.06p to 20.0p (for the £982,000 loan) and from 23.52p to 15.0p (for the
£450,000 loan). Interest will be charged at 6% per annum with effect from 1
April 2006, with the loan stockholders also being able to choose to convert all
outstanding interest.
Whilst this variation of terms will result in additional potential dilution of
up to 12% for the Group's shareholders, it removes the risks and costs
potentially involved from having to secure alternative funding prior to the end
of 2006 and, in addition, significantly increases the likelihood of both loans
ultimately being converted.
Summary
Intercede is continuing to take the action necessary to establish its position
in a new and exciting market. We will continue to balance the importance of
short term profitability against the need to ensure that resources are in place
to meet partner and customer demands, thereby underpinning both our market
position and the potential for longer term revenues. It is important that we
remain sufficiently responsive to make the most of the market opportunity we
have created for ourselves.
Andrew Walker
Finance Director
31 May 2006
INTERCEDE GROUP plc
Consolidated Profit and Loss Account for the year ended 31 March 2006
Notes 2006 2005
£'000 £'000
Turnover 2,142 1,806
Cost of sales (115) (113)
2,027 1,693
Gross profit
Other operating expenses (2,371) (2,079)
(344) (386)
Operating loss
34 32
Interest receivable and similar income
Interest payable and similar charges (72) (72)
(382) (426)
Loss on ordinary activities before taxation
Taxation 2 76 (182)
(306) (244)
Retained loss on ordinary activities after taxation and for the year
Basic and diluted loss per ordinary share 3 (0.9)p (0.7)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 2006
2006 2005
£'000 £'000
Fixed assets
Tangible assets 27 25
Current assets
Debtors 317 379
Cash at bank and in hand 1,112 672
1,429 1,051
Creditors: Amounts falling due within one year
Convertible debt (1,432) -
Other creditors (1,555) (869)
Net current (liabilities)/assets (1,558) 182
Total assets less current liabilities (1,531) 207
Creditors: Amounts falling due after more than one year
Convertible debt - (1,432)
Net liabilities (1,531) (1,225)
Capital and reserves
Called-up share capital 4,271 4,271
Share premium account 2,107 2,107
Other reserves 1,508 1,508
Profit and loss account (9,417) (9,111)
Shareholders' deficit - all equity (1,531) (1,225)
Attention is drawn to a significant event which took place subsequent to 31
March 2006 as outlined in note 7. The convertible debt has been extended through
to 31 May 2009 which means that £1,432,000 of convertible debt and £301,000 of
associated interest, both of which are included above within creditors falling
due within one year, has now become due within two to five years.
INTERCEDE GROUP plc
Consolidated Cash Flow Statement for the year ended 31 March 2006
Notes 2006 2005
£'000 £'000
Net cash inflow/(outflow) from operating activities 5 347 (604)
Returns on investments and servicing of finance
Interest received 33 35
Net cash inflow from returns on investments and servicing of finance 33 35
Taxation received 76 182
Capital expenditure (16) (7)
Cash inflow/(outflow) before financing 440 (394)
Financing
Repayment of secured loan - (2)
Net cash outflow from financing - (2)
Increase/(decrease) in cash in the year 6 440 (396)
INTERCEDE GROUP plc
Preliminary Results for the Year Ended 31 March 2006
NOTES
1. The financial information set out in this announcement does not
constitute the Group's Statutory Accounts for the years ended 31 March 2005 or
2006, but is derived from those accounts. Statutory Accounts for 2005 have been
delivered to the Registrar of Companies and those for 2006, 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
2006 2005
£'000 £'000
Current year - UK corporation tax - -
Adjustment in respect of prior periods 76 182
76 182
There is no charge in respect of corporation tax in either year due to the
availability of losses. An adjustment has been made in respect of research and
development claims which have been agreed by the Inland Revenue.
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
2006 2005
£'000 £'000
Loss for the year (306) (244)
Number Number
Weighted average number of shares 33,963,438 33,963,438
Pence Pence
Basic and diluted loss per ordinary share (0.9) (0.7)
4. DIVIDEND
The Directors do not recommend the payment of a dividend.
5. RECONCILIATION OF OPERATING LOSS TO OPERATING CASH FLOW
2006 2005
£'000 £'000
Operating loss (344) (386)
Depreciation charge 13 24
Decrease/(increase) in debtors 64 (263)
Increase in creditors 614 21
Net cash inflow/(outflow) from operating activities 347 (604)
6. ANALYSIS AND RECONCILIATION OF NET DEBT
2005 Cash flow 2006
£'000 £'000 £'000
Cash at bank and in hand 672 440 1,112
Debt due within one year - (1,432) (1,432)
Debt due after one year (1,432) 1,432 -
(1,432) - (1,432)
Net debt (760) 440 (320)
Subsequent to the Balance Sheet date, as outlined in note 7, a variation of
terms was agreed with the loan stockholders. The loan periods were both extended
to 31 May 2009 and, as a result, all of the convertible debt totalling
£1,432,000 will now become due within two to five years.
The reconciliation of net cash flow to the movement in net debt is as follows:
2006 2005
£'000 £'000
Increase/(decrease) in cash in the year 440 (396)
Cash outflow from decrease in debt and lease financing - 2
Movement in net debt in the year 440 (394)
Net debt at beginning of year (760) (366)
Net debt at end of year (320) (760)
7. SUBSEQUENT EVENT
Subsequent to the Balance Sheet date, on 31 May 2006, a variation of terms was
agreed with the holders of both of the convertible loan stock agreements
totalling £1,432,000. The loan periods have both been extended through to 31 May
2009. Interest will be charged at 6% per annum with effect from 1 April 2006 and
the loan stockholders will now be able to convert the loans and associated
interest outstanding at a price of 20.0p per ordinary share (for the £982,000
loan) and 15.0p per ordinary share (for the £450,000 loan). The loans and
associated interest totalling £2,005,000 will be repayable as at 31 May 2009 if
they choose not to convert.
8. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 9.00am on Wednesday
(5) July 2006 at Lutterworth Hall.
9. 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.intercede.com) and
from the registered office of the Company: Lutterworth Hall, St. Mary's Road,
Lutterworth, Leicestershire, LE17 4PS.
This information is provided by RNS
The company news service from the London Stock Exchange
Wednesday, 15th May 2024
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